NICOSIA (Reuters) – Cypriot Finance Minister Makis Keravnos called on all sectors of the economy to tighten their belts yesterday, saying recent oil price hikes could increase deficits. Speaking at a news conference in Nicosia, Keravnos said the government had formulated a plan to tackle the negative consequences oil prices would have on the economy. «The increases will have serious effects on the competitiveness of our economy,» the minister said. Cyprus is fast running out of time to slash high budget deficit and debt levels to achieve its target of eurozone membership in 2007. The island is widely expected to apply to join the Exchange Rate Mechanism (ERM-2) before the end of this year, though the timing is likely to depend on how well authorities have progressed in plans to cut the budget deficit. Countries wishing to join the eurozone must first stay in ERM-2 for two years, keeping their currencies within predetermined levels against the euro and bringing their economies into line with Maastricht Treaty norms. In the first five months of this year, the budget deficit swelled to 7 percent of gross domestic product, more than double the 3 percent eurozone ceiling. Public debt is forecast at 72.6 percent of GDP this year against a eurozone cap of 60 percent. «The most important thing for an economy with such a large public deficit is the intensification of efforts to cut the deficit because only then can we dampen any effects from the increase in the price of oil,» said Keravnos. To rein in spending, the government has proposed a raft of measures, such as freezing public sector recruitment and pay increases until 2007. Keravnos said all sectors should realize the seriousness of the situation and work toward the country’s economic future. «The European Union’s procedure that will follow if we don’t tackle the public deficit effectively and if we do not reach the goals set by the convergence program is well known,» Keravnos said. He said that the EU would start raising such issues as the suspension of loans through the European Investment Bank, funds that are necessary for the completion of the semi-government development programs,» he said. «These facts should be considered by all sectors because if the development programs do not materialize there will be additional problems which will again affect workers,» Keravnos said. «As a government, we are fully aware of the reality of the economy and the public finances and we are saying that there cannot be any additional cost to the public finances,» he warned.