Cyprus fiscal warning

NICOSIA (Reuters) – Cyprus’s central bank warned authorities yesterday to focus on tidying up public finances if they wanted to meet their target of eurozone entry by 2008. Cyprus reduced its deficit to 4.2 percent of gross domestic product last year and is aiming to cut it in half in 2005. But there were delays on crucial reforms aimed at aiding the drive to lower deficits which are required to adopt the single currency, Christodoulos Christodoulou, the central bank’s governor, said. «We have to remain grounded and focused on our targets. We have not introduced some of the reforms we said we would,» he told a news conference. In addition to currency stability, Cyprus must also maintain a budgetary shortfall of below 3.0 percent of GDP and a narrowing of public debt, outlined in a detailed economic convergence plan. Reactions from Cyprus’s highly unionized public service sector have delayed the introduction of an increase to the retirement age. It was expected to be phased in over a three-year period from July 2005. Civil servants, with a payroll representing about 40 percent of Cyprus’s state annual budget, now retire at 60 and authorities want to increase it to 63. The Finance Ministry has issued warnings that without timely reform, Cyprus could face difficulties in its social security system by 2011. The estimate was considerably better in January, when Cyprus’s EU convergence game-plan said that authorities had until 2020 before the social security fund tipped into a deficit from a surplus.