ECONOMY

Cyprus trims projected budget deficit for 2005

NICOSIA (Reuters) – Better-than-expected tax revenues have cut Cyprus’s deficit outlook to 2.5 percent of gross domestic product (GDP) for 2005 from earlier estimates of 2.9 percent, a Finance Ministry official said yesterday. The improved outlook is a boost to government attempts to keep budgetary shortfalls low, a key requirement for Cyprus to join the eurozone as planned in January 2008. Eurozone rules expect members to keep their budget deficits to below 3.0 percent of GDP, and show progressively declining levels of public debt. «Our deficit target for 2006 is below 2.0 percent, therefore our drive for fiscal consolidation must continue,» said the Finance Ministry official who declined to be named. Cyprus joined the EU in May 2004. Deficits spiraled in the months leading up to accession, frustrating authorities’ plans of joining the eurozone earlier. Revised growth figures the island state will present to the European Commission later this month put Cyprus’s 2005 GDP expansion at 4.0 percent and 2006 growth forecast at 4.2 percent. «These are quite satisfactory, bearing in mind unfavorable economic conditions internationally,» the official said. It will also focus on ways to tackle the public debt, at 70.5 percent of GDP for 2005. «We will be placing particular emphasis on this, to ease the burden on future generations,» the official said. Figures released by Inland Revenue yesterday showed an 8.7 percent increase in tax earnings in the first 10 months of the year to 504.9 million pounds ($1.07 billion). Cyprus introduced an amnesty earlier this year offering lower tax to individuals who had previously failed to fully disclose their earnings or savings. But the amnesty is a one-off in government accounts, representing 1.0 percent of the deficit figure. «Without the amnesty, the deficit is in structural terms 3.5 percent, which means that the drive for fiscal consolidation must continue,» the official reiterated.