ECONOMY

Cyprus deficit surges

NICOSIA (Reuters) – The Cyprus economy is expected to grow at a rate of 2.0 percent in 2003 if tourism shows more improvement over the next few months, the Finance Ministry said late on Friday. But, the ministry said, the fiscal deficit would likely exceed 5.0 percent of gross domestic product (GDP) in 2003. Data released by the Ministry’s Planning Bureau, outlining economic performance for the first half of the year, showed that unemployment reached 3.8 percent compared to 3.4 percent for the same period in 2002. The Planning Bureau said Cyprus hopes to reduce unemployment to 3.5 percent for 2003. The rate of unemployment for 2002 was 3.2 percent and the growth rate was 2.7 percent. Inflation also increased in the first six months of the year to 4.9 percent compared to 2.5 percent in the first half of 2002, but the government said it was optimistic that it could be reduced to 4.5 percent for the year. For the past three years, Cyprus has been grappling with a surge in its budget deficit, which is projected to exceed 5.0 percent this year. The country must reduce its deficit to 3.0 percent or less to be able to join the European Monetary Union by 2007. Cyprus, which is due to join the European Union next May, has pledged to trim its fiscal deficit of around 358 million pounds ($658.5 million) to below 2.0 percent of GDP by 2006 as outlined in a fiscal consolidation program drawn up by the government. Official estimates see the deficit remaining above 3.0 percent of GDP in 2004, slipping to below 3.0 percent in 2005 and falling to 1.5 percent in 2006. The deficit fell below 3.0 percent in 2000 and 2001, but rose to 3.5 percent in 2002. Finance Minister Marcos Kyprianou told other ministers on Thursday they must find ways to reduce spending, adding that while projects related to the public would not be scrapped, some might put on hold. Friday’s government forecasts prompted a disagreement between Kyprianou and former Communications Minister Averoff Neophytou, who accused the government of taking a «conservative stance» and said the solution was to inject more money into the economy and possibly reduce taxes even further. «Unfortunately they are doing just the opposite,» he said. «Stopping or slowing development works is not the answer.»