ECONOMY

Cyprus sees 2007 budget deficit falling below 2.0 percent of GDP

NICOSIA – Cyprus’s budget deficit is forecast to fall to 1.6 percent of gross domestic product in 2007, aided by consumer-driven growth coupled with tight spending, the government said yesterday. Cyprus intends to join the eurozone on January 1, 2008. Criteria for adopting the single currency include a deficit of 3.0 percent and less, incrementally decreasing public debt and low inflation. «This budget clearly defines our target of joining the eurozone through a process of fiscal consolidation,» Cypriot Finance Minister Michalis Sarris told parliament. «The budget was also designed based on the healthy state of public finances, where we continue to maintain high rates of growth, low unemployment and low inflation.» Gross domestic product was expected to expand by 3.8 percent next year from a forecast 3.7 percent in 2006. Cyprus expects its budget deficit to fall to 1.6 percent of gross domestic product in 2007 from an anticipated shortfall of 2.0 percent this year. The island, which saw hopes of earlier eurozone entry frustrated by spiraling deficits, has been in the ERM2 exchange rate mechanism since early 2005. The state budget puts 2007 spending at 4.07 billion pounds ($8.84 billion) on revenue of 3.31 billion. The budget requires approval by parliament, expected by December. Forecast revenue was up an estimated 10.7 percent on buoyant economic growth, while growth in spending was under 1.0 percent higher than in 2006. «This will assist in reduction of the deficit and to meet our target of a 0.5 percent deficit in 2009,» Sarris said. Authorities have ruled out imposing increases in direct taxation to cut deficits. Public debt was expected to fall to 64 percent of GDP from 67 percent, while authorities have set a long-term horizon of cutting the figure down to 53.5 percent by 2009.