Central Bank Governor, Athanasios Orphanides, urged the government on Friday to proceed with all necessary structural changes to reduce the deficit and the public debt so as to boost the social state and the economy’s development prospects. In his statements before the Advisory Economic Committee, the CB Governor referred to the deterioration of the domestic economic conditions that will lead to the revision of the CB forecasts.
Responding to StockWatch’s question, Mr. Orphanides said that the deterioration of the domestic economic conditions to levels exceeding the EU forecasts will increase deficit to more than 3.5% that the EU and the revised Finance Ministry’s forecast expects.
“In 2009, the deficit is expected to exceed 3.5%. Due to the deterioration of the economy, we should expect that the deficit will be higher than the EU forecast for 2009”, he added.
“My concerns focus on the further deterioration of the fiscal deficit not in 2009 but in 2010, when it will reach 5.3% and in 2010 when it will stand at 6% that the EU forecast supports”, he noted.
“In 2010 economy will recover. In 2011 the recovery will be faster but I cannot enter in details because the CB will release its forecasts in 3 weeks”, he stressed.
“My concern is not the rate of recovery. It is the expansion of the fiscal deficit despite the recovery. This is something that we must reverse”, he stressed.
Earlier, Mr. Orphanides read a report of his, which sounds the alarm for the fiscal balance, urging the government to make structural changes necessary for the strengthening of the country’s and the social state’s growth capacities.
According to his written statement, the difficult condition that the economy goes through is reflected in the recent European Commission’s forecasts. According to them, the real GDP will drop by 0.7% in 2009 and will remain stagnant in 2010 compared to the positive growth rates in the EU spring forecasts.
“These forecasts came first and they did not take into account the deterioration in the latest CYSTAT data. Therefore, the economic recession this year is probably stronger than that in the forecasts and I believe that the CB forecasts that are currently under preparation will reflect this further deterioration”, he stressed.
“We must also stress that the deterioration of the economic conditions in Cyprus, especially in the third quarter of the year, is registered at the same time that the economic climate in the euro area improves”, he said.
According to the seasonal corrected figures released by Eurostat on November 13, 2009, the euro area GDP grew by 0.4% in Q3 2009, while in the previous quarters it recorded a drop. The improvement of the economic climate in the eurozone is reflected in the aforementioned EC forecasts according to which the GDP is expected to grow by 0.7% in 2010, unlike the slight increase that was formerly anticipated.
“What worries me is the deterioration of the public finances”, he stated.
Specifically, according to the European Commission, the deficit in 2009 will exceed 3%, which can be regarded to a degree as a result of the recession.
However, the fiscal deterioration to 5 ¾% of GDP in 2010 and 6% of GDP in 2011 is exceptionally alarming. Indeed, this deterioration will come despite the recovery in the economy.
“The size of the deficit for 2009 is not the main issue and no is the cutbacks and the non-recurrent income. The main issue is the targeting and the restructuring of the fiscal policy so as to contribute to the way out of the crisis and put the foundations for the return of the public finances to a good base”, he noted.
“As we all know, the slower the structural changes are made, the more difficult and costly will the readjustment in economy will be. Therefore, it is important to head towards the direction of fiscal consolidation so as to secure the viability of growth in the middle and long term”, the Governor added.
“I note that the tidy up of the public finances does not mean less social state. On the other hand, the non-targeted fiscal measures and the big spending weaken the state’s ability to support what it has to support. At the same time, the tidy up of the public finances must not mean less growth. The aim of the fiscal policy must be the strengthening of our country’s development ability with the promotion of the necessary structural reforms that improve the productivity and the competitiveness. Our priority must be the finance of activities with bigger development result and targeted support of the low classes of population”, he said.
“The situation is critical and stresses the need for changes in the public sector and radical structural changes in the economy. Therefore, we need plans not only to overcome the crisis but also to secure a viable growth of economy in the next decades. The planning and the enforcement of this target require the contribution of all politicians and social and economic organizations. The CB is ready to contribute with its know-how to this target, as it did in the past”, he concluded.
Responding to StockWatch’s question, Mr. Orphanides said that the deterioration of the domestic economic conditions to levels exceeding the EU forecasts will increase deficit to more than 3.5% that the EU and the revised Finance Ministry’s forecast expects.
“In 2009, the deficit is expected to exceed 3.5%. Due to the deterioration of the economy, we should expect that the deficit will be higher than the EU forecast for 2009”, he added.
“My concerns focus on the further deterioration of the fiscal deficit not in 2009 but in 2010, when it will reach 5.3% and in 2010 when it will stand at 6% that the EU forecast supports”, he noted.
“In 2010 economy will recover. In 2011 the recovery will be faster but I cannot enter in details because the CB will release its forecasts in 3 weeks”, he stressed.
“My concern is not the rate of recovery. It is the expansion of the fiscal deficit despite the recovery. This is something that we must reverse”, he stressed.
Earlier, Mr. Orphanides read a report of his, which sounds the alarm for the fiscal balance, urging the government to make structural changes necessary for the strengthening of the country’s and the social state’s growth capacities.
According to his written statement, the difficult condition that the economy goes through is reflected in the recent European Commission’s forecasts. According to them, the real GDP will drop by 0.7% in 2009 and will remain stagnant in 2010 compared to the positive growth rates in the EU spring forecasts.
“These forecasts came first and they did not take into account the deterioration in the latest CYSTAT data. Therefore, the economic recession this year is probably stronger than that in the forecasts and I believe that the CB forecasts that are currently under preparation will reflect this further deterioration”, he stressed.
“We must also stress that the deterioration of the economic conditions in Cyprus, especially in the third quarter of the year, is registered at the same time that the economic climate in the euro area improves”, he said.
According to the seasonal corrected figures released by Eurostat on November 13, 2009, the euro area GDP grew by 0.4% in Q3 2009, while in the previous quarters it recorded a drop. The improvement of the economic climate in the eurozone is reflected in the aforementioned EC forecasts according to which the GDP is expected to grow by 0.7% in 2010, unlike the slight increase that was formerly anticipated.
“What worries me is the deterioration of the public finances”, he stated.
Specifically, according to the European Commission, the deficit in 2009 will exceed 3%, which can be regarded to a degree as a result of the recession.
However, the fiscal deterioration to 5 ¾% of GDP in 2010 and 6% of GDP in 2011 is exceptionally alarming. Indeed, this deterioration will come despite the recovery in the economy.
“The size of the deficit for 2009 is not the main issue and no is the cutbacks and the non-recurrent income. The main issue is the targeting and the restructuring of the fiscal policy so as to contribute to the way out of the crisis and put the foundations for the return of the public finances to a good base”, he noted.
“As we all know, the slower the structural changes are made, the more difficult and costly will the readjustment in economy will be. Therefore, it is important to head towards the direction of fiscal consolidation so as to secure the viability of growth in the middle and long term”, the Governor added.
“I note that the tidy up of the public finances does not mean less social state. On the other hand, the non-targeted fiscal measures and the big spending weaken the state’s ability to support what it has to support. At the same time, the tidy up of the public finances must not mean less growth. The aim of the fiscal policy must be the strengthening of our country’s development ability with the promotion of the necessary structural reforms that improve the productivity and the competitiveness. Our priority must be the finance of activities with bigger development result and targeted support of the low classes of population”, he said.
“The situation is critical and stresses the need for changes in the public sector and radical structural changes in the economy. Therefore, we need plans not only to overcome the crisis but also to secure a viable growth of economy in the next decades. The planning and the enforcement of this target require the contribution of all politicians and social and economic organizations. The CB is ready to contribute with its know-how to this target, as it did in the past”, he concluded.
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