Fiscal deficit worsens

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State finances showed a mild deterioration in the first seven months of 2006 according to data released by the Cyprus Finance Ministry. The fiscal deficit increased from CYP 71.1 mln in the corresponding 2005 period to CYP 84.6 mln. Fiscal deficit as a percentage of GDP reached 1% in the period Jan. – July 2007 compared to a deficit of 0.9% in the same period in the prior year.

The Ministry pointed out that the Jan.- July 2005 period includes the dividend received from CYTA amounting to CYP 35 mln as well as tax amnesty funds amounting to CYP 98 mln.

Readjusting for the above, fiscal deficit for the 2006 period improves to 1% of GDP from a deficit of 2.6% of GDP in the corresponding 2005 period.

According the the Ministry of Finance, Public Debt for the period January – July 2006 improved to 67.9% from 72.3% in the corresponding 2005 period. Consequently, the MoF argues that current trends support the government’s targets for a fiscal deficit and a public debt of 1.9% and 67% of GDP by the end of 2006.

According to the Ministry of Finance, fiscal deficit for 2006 is expected to reach 1.9%, whilst the EU forecasts the deficit to reach 2.1%.

Total revenue for the period amounted to CYP 1,653 mln (+5.8% YoY), while total expenditure for the same period reached CYP 1,737.6 mln (+6.4% YoY).

Spending was up as the government saw expenses for current transfers rising 25.9% and for services up by 10.4%. Wage increases by 2% also helped accelerate total expenditure.

Total wages and salaries were up 8.5% YoY to CYP 481.9 mln in the first seven months compared to CYP 444 mln a year ago in the same period. Payments to the Social Insurance Fund were up 3.5% to CYP 272.9 mln.

On the revenue side, which recorded a 5.8% YoY increase to CYP 1.65 bln from CYP 1.56 bln a year ago in the same period, the bulk of the revenue was generated from taxation, up 6.9% at CYP 1.39 bln from CYP 1.30 bln. Excluding the tax amnesty boost in 2005, tax revenue are up 15.5% YoY.

VAT receipts were up 10.2% at CYP 425.2 mln from CYP 385.7 mln.