ECONOMY

Cyprus needs labor reforms to balance its books within 3 years

NICOSIA – Eurozone hopeful Cyprus hopes to come close to balancing its books by 2009, but sweeping labor reforms are needed to help make public finances viable in the long term, Finance Minister Michalis Sarris said yesterday. Presenting the state budget in Parliament, Sarris called for strict adherence to a fiscal consolidation program designed to cut deficits and meet Cyprus’s stated target of joining the euro in 2008. «We seek to introduce structural changes gradually, through dialogue and in a climate of consensus, so Cyprus can successfully utilize the opportunities offered by European Union membership,» said new appointee Sarris, a former senior manager at the World Bank who specialized in economic development. The east Mediterranean island, which joined the European Union in May 2004, had to shelve plans for earlier adoption of the euro as it struggled to bring deficits under control. 2006 budget Cyprus’s 2006 budget earmarks 3.3 billion Cyprus pounds (5.8 billion euros) in spending, against revenues of 2.3 billion. On paper, the deficit shortfall will represent 3.7 percent of gross domestic product in 2006. Authorities say they will pursue cost cutting that will limit it to 1.9 percent, the figure they have committed themselves to meeting in an EU economic convergence plan. A revised draft to be submitted to Brussels next week, seen by Reuters, will call for an increase in the national retirement age to 65 from 63. It also envisages a reduction in the fiscal deficit to 0.6 percent of GDP in 2009. The island hopes to adopt the euro, which dictates a deficit of less than 3.0 percent and an incrementally falling public debt, by January 2008. «We aspire to further reduction of the deficit, so that in 2009 we will be able to approach a balance in public finances,» Sarris said. «The long-term viability of public finances must take into account a surge in public expenditure on pensions, and on medical care because of an aging population.» Sarris said the government expected to step up efforts to reform the social security system to keep it viable while providing enough money for pensions. Authorities have already secured grudging agreement from civil servants to increase their retirement age to 63 from 60. But the state has not widely publicized its intention to broaden this out to other groups. Earlier government projections have said pension reforms are needed because the fund runs the risk of tipping into a deficit after 2020. A previous government assessment also floated the idea of raising the retirement age to 67 years after 2011.