ECONOMY

In Brief

Cyprus eyeing higher taxes, pay freeze and cutbacks NICOSIA (Reuters) – Cyprus is eyeing increases in value-added tax, a pay freeze for thousands of civil servants and cutbacks in pay to state officials to chop a runaway deficit now busting eurozone limits. Cyprus, one of the eurozone’s smallest economies, is facing a deficit hitting 7.0 percent of GDP this year, triggered by a collapse in earnings from real estate and tourism. According to Finance Ministry forecasts, unless the island starts generating savings of 500 million euros annually, the shortfall will hit 10 percent of GDP in 2013, and the public debt could reach 80 percent. «We will be making some announcements very, very soon after we consult with political parties and our social partners,» Cypriot President Dimitris Christofias told reporters. «This is a burning issue… and we cannot be comfortable with it,» he said. Authorities were mulling increases in VAT rates for goods now in a lower tax bracket, and revamping a taxation system on real estate, the Politis and Simerini dailies reported. There were also plans afoot for a 10 percent decline in benefits given to senior state officials and in entry-level salaries in the civil service, and authorities would pursue a pay freeze in the public sector, Politis said. Fitch says Bulgaria may see credit rating fall to junk Bulgaria, the European Union member with the lowest budget deficit, may see its credit rating lowered to junk as an external debt burden bigger than total output threatens financial stability, Fitch Ratings said. «The jury is still very much out on the path of the macroeconomic adjustment,» said Edward Parker, head of emerging Europe ratings at Fitch in London, by telephone yesterday. «The fiscal position is a strong one. However, it faces risks from the private sector, which has high levels of external debt, which leaves it in a vulnerable financial position.» Fitch rates Bulgaria’s foreign currency debt BBB-, the lowest investment grade, and has kept a negative outlook on the rating since April. The Balkan nation had gross external debt of 37.6 billion euros ($51 billion), or 111 percent of the economy, at the end of last year. (Bloomberg) Overweight on bonds Frankfurt-based Commerzbank AG is «wholeheartedly overweight» on bonds from smaller European countries, including Greece and Portugal, for the first time since November, said Peter Schaffrik, co-head of interest rate strategy in London. «We changed our longstanding defensive call on spread products last week and, for the first time since October/November last year, recommend to wholeheartedly overweight peripherals,» Schaffrik wrote in an e-mail yesterday. Commerzbank’s changes were partly driven by Greece’s austerity measures, which Schaffrik said «indicate the seriousness of the Greek government.» (Bloomberg) Common debt agency Belgian Prime Minister Yves Leterme proposed yesterday a common finance ministry or debt agency for the eurozone to tackle problems highlighted by Greece’s debt crisis. (Reuters)