Cyprus reduces its debt

NICOSIA (Reuters) – Cyprus’s fiscal deficit is expected to fall to 1.9 percent of gross domestic product and its public debt to 54 percent next year, edging closer to government targets of a break-even budget in 2005, the finance minister said yesterday. Cyprus, a candidate for European Union membership, was earlier this month forced to scale back on earlier predictions of a balanced budget by 2004 in the face of an economic slowdown fueled by a tourism slump. This year the fiscal shortfall is forecast at 2.6 percent and public debt – excluding intergovernmental debt – at 55.6 percent. A draft 2003 government budget approved by the Cabinet yesterday put total spending at 3.06 billion Cyprus pounds ($5.20 billion) on revenues of 2.38 billion, yielding a deficit of 679 million pounds. The budget needs ratification from Parliament. «Based on this budget we can state we are satisfying EU convergence targets,» Finance Minister Takis Clerides told reporters. The budget factors in a 10-percent reduction in starting salaries in the civil service, expenses spared from self-financing development projects and an increase in revenue from indirect taxes. Next year’s budget puts spending on defense lower at 105.0 million pounds, compared to 135 million in 2002, its ordinary spending 226 million pounds higher at 2.04 billion and loan repayments raised by 113 million pounds to 446.1 million. On the revenue side, public coffers are getting a 1.05-billion-pound boost from introduction of higher indirect taxes – such as VAT – but less in terms of income tax. A broad tax reform introduced in July of this year raised the taxable threshold of earners’ incomes and cut corporate tax, in return for a VAT increase and the abolition of certain tax-deductible allowances. – The Panamax market in the Atlantic has also slowed down, although rates are being maintained.