Cyprus on track to slash budget deficit for eurozone convergence

NICOSIA (AFP) – Cyprus’s government said yesterday that it was on track to slash its fiscal deficit below the Maastricht convergence criteria of 3 percent as Nicosia seeks eurozone entry in 2007, or early 2008. «We are enforcing the convergence program and we’ve achieved the targets we set in 2004,» Finance Minister Makis Keravnos told a news conference. «Our convergence target for 2005 is to reduce the budget deficit to 2.9 percent without an increase in taxes… certainly it will be difficult and the path is strewn with nettles,» he added. The European Union has backed a Cypriot austerity drive after allowing the deficit to balloon to more than double the Maastricht benchmark, forcing the government to put the brakes on spending. Cyprus escaped a reprimand from EU finance ministers after successfully reining in the fiscal deficit, said Keravnos. «When I took over on May 20 (2004) the budget deficit was 7.3 percent of GDP, now it’s 4.8 percent or even lower… our credibility remains intact.» Economic growth is expected to reach 4 percent in 2005, compared to 3.5 percent last year, spurred by a revival in the retail, manufacturing and tourism sectors. Keravnos said the standard of living is rising, with only 7 percent of Cypriot households earning under 5,000 Cyprus pounds (8,600 euros) per annum, compared to 19 percent in 1996-97. «Productivity and purchasing power is on the up,» said the minister. As part of its austerity drive, the government is to freeze new public sector jobs and pay until 2006, with curbs on overtime payment. Public sector salaries make up 60 percent of state expenditure. Nicosia says failure to achieve fiscal targets would automatically delay Cyprus’s application to enter the Exchange Rate Mechanism and postpone adoption of the euro for an unknown period of time. «For us 2005 is a crucial year as we will be judged on whether we meet the Maastricht criteria at the end of it,» said Keravnos. Divided Cyprus, represented by its internationally recognized Greek-Cypriot side, joined the European Union on May 1.