ECONOMY

Cyprus may beat GDP forecast

NICOSIA (Reuters) – Cyprus may exceed its forecast 4.0 percent expansion in gross domestic product this year, boosted by a strong construction and services sector, its finance minister said yesterday. The economy grew by 3.7 percent in 2004. «Our target for 2005 remains at 4.0 percent and possibly even more. At present the economy is growing at a rate of 3.9 percent,» Finance Minister Makis Keravnos told a news conference. The island is heavily reliant on tourism and a booming real estate sector which markets itself mainly to northern Europeans as a retirement bolthole. The economy grew 3.9 percent year-on-year in the first quarter of 2005 in real terms, and 0.8 percent quarter-on-quarter. Keravnos said authorities stuck to their forecast to cut the budget deficit to 2.9 percent of gross domestic product in 2005 from 4.2 percent in 2004, and to cut the public debt to below 70 percent of gross domestic product this year. State accounts showed an unusual surplus in the first quarter as revenue flowed into state coffers from a tax amnesty law. The figures are not representative of the entire year since the tax amnesty was a one-off which ended in January. Both deficit and public debt indicators are important guidelines the island state must follow to usher in the euro as its national currency. Cyprus, which entered the European Union in 2004, joined the European Exchange Rate Mechanism (ERM2) in April of this year. The Cypriot pound must be in the stabilization band for a minimum of two years before Cyprus adopts the euro, expected by January 2008. Cyprus and Malta plan to use Irish expertise on adoption of the euro to avoid oscillations on the market, Keravnos said. «We are drafting up a communications strategy on adoption of the euro to keep the public informed as best we can,» he said. Longer-term plans include reform of the government debt management system. Government debt auctions are open to both institutional and private investors, a setup which by the government’s own admission needs revamping to make it more competitive.