Cyprus to slash deficit with an eye on eurozone entry

NICOSIA – Cyprus produced a 2006 budget yesterday with a deficit of 3.7 percent of GDP, but said it planned cost-cutting measures which would more than halve that figure. This would allow it to meet its stated target of joining the eurozone in January 2008. Planned cost savings not included in the 2006 budget figures are expected to pull the deficit down to 1.7 percent of GDP, Finance Minister Makis Keravnos said. «The budget is tailored to meet our target of eliminating the (budget) deficit and reducing public debt for Cyprus’s admission into the eurozone on January 1, 2008,» Keravnos said. Cyprus has been tackling high deficits and debt figures for years. It has to cut its budget deficit to below 3 percent to qualify for eurozone admission, and show declines in public debt. It pegged its pound to the euro stabilization mechanism ERM-2 as a precursor to euro adoption in April 2005. In numerical terms, the 2006 budget puts state spending at 3.8 billion pounds ($8.17 billion) on revenue of 3.19 billion. The figures concern only the southern parts of Cyprus run by an internationally recognized government. The north is a breakaway Turkish Cypriot state. A key feature in the austerity drive is authorities’ pledge to clamp down on tax evasion, launch a broad review of charges for the services it provides for the public, outsource non-essential services and raise retirement ages to cut down on pension bills. Cutting the 2006 deficit from 3.7 percent as it now appears in the books to 1.7 percent hinged on implementing a later retirement age in the public sector and increasing state charges in real estate transactions, Keravnos said. The budget will be tabled to parliament on October 6. It also cuts the public debt forecast to 66.3 percent of gross domestic product next year from a projected 69 percent in 2005. Keravnos, appointed in 2003 and a chief architect of the European Union-approved plans for savings, was non-committal on persistent rumors he was poised to resign to take up a post in the private sector. «I’ve not resigned yet. If and when I am ready to talk about that I will,» he said.