The Central Bank of Cyprus foresaw on Tuesday that under certain conditions the Cyprus economy will show significant improvement in 2004.
The growth rate for 2004 is expected to reach 3% and 4%, Central Bank Governor, Christodoulos Christodoulou said during the presentation of the CB Annual Report for 2003. This increase will be attributable to the recovery of the worldwide economy and the tourist arrivals due to the Olympic Games in Athens. Mr. Christodoulou foresees that inflation will drop significantly due to the lower impact from the increase in the VAT ratio, while inflation will slightly drop.
“In case these estimates become true, the deficit in the balance of current accounts will show improvement”. This assumption is based on the scenario of a further decline of the defense expenditure and the recovery of the tourist arrivals. The increased growth rate will affect positively the state finances and the fiscal deficit will reach 4.5% of GDP, Mr. Christodoulou noted.
EMU and ERM2
“Cyprus is not expected to enter the Economic Monetary Policy earlier than January 1, 2007”, the CB Governor said, stressing that the island must be evaluated by the end of 2004 in relation to:
- The fiscal deficit, which must not exceed 3% (2003: 6.3% and 2004: 4.5%) of GDP.
- The public debt, which must not exceed 60% of GDP in current market prices (2003: 73.1%) or to have a downward trend.
- The average annual inflation must be lower than 1.5 percentage points of the EU members with the lower performance in the EU. The criterion for 2003 was 2.8%, while Cyprus’ performance in the same year stood at 4.1%. In 2004, it is not expected to exceed 2%.
- The average nominal long term interest rate must not exceed 2 percentage points for the countries that have the best performance. The criterion for 2003 was 6.3% and the interest rate for the ten-year bonds stood at 4.9%.
- The exchange rate of the Cyprus pound must remain within the anticipated fluctuation against the euro during the ERM2.
The achievement of this goal will depend on the consolidation of the state finances and the inflationary pressures.
Measures are theoretically satisfactory…
The government’s measures for the restriction of the fiscal deficit are theoretically satisfactory, the CB Governor said. “But they are not enough to deal with the problem”, he added. Mr. Christodoulou stressed the need to restrain the growth rate of the state payroll, since “in 2003 770 new job posts were introduced in the civil service, while fiscal deficit was shot to 6.3%”. “The state must increase the retirement limit to the 63rd year. In Europe they are already considering to increase retirement limit to the 67th year”, the Governor noted.
Cyprus’ entry in the EMU cannot advance at the current stage, since the Cyprus President has not appointed the new Finance Minister yet.
The growth rate for 2004 is expected to reach 3% and 4%, Central Bank Governor, Christodoulos Christodoulou said during the presentation of the CB Annual Report for 2003. This increase will be attributable to the recovery of the worldwide economy and the tourist arrivals due to the Olympic Games in Athens. Mr. Christodoulou foresees that inflation will drop significantly due to the lower impact from the increase in the VAT ratio, while inflation will slightly drop.
“In case these estimates become true, the deficit in the balance of current accounts will show improvement”. This assumption is based on the scenario of a further decline of the defense expenditure and the recovery of the tourist arrivals. The increased growth rate will affect positively the state finances and the fiscal deficit will reach 4.5% of GDP, Mr. Christodoulou noted.
EMU and ERM2
“Cyprus is not expected to enter the Economic Monetary Policy earlier than January 1, 2007”, the CB Governor said, stressing that the island must be evaluated by the end of 2004 in relation to:
- The fiscal deficit, which must not exceed 3% (2003: 6.3% and 2004: 4.5%) of GDP.
- The public debt, which must not exceed 60% of GDP in current market prices (2003: 73.1%) or to have a downward trend.
- The average annual inflation must be lower than 1.5 percentage points of the EU members with the lower performance in the EU. The criterion for 2003 was 2.8%, while Cyprus’ performance in the same year stood at 4.1%. In 2004, it is not expected to exceed 2%.
- The average nominal long term interest rate must not exceed 2 percentage points for the countries that have the best performance. The criterion for 2003 was 6.3% and the interest rate for the ten-year bonds stood at 4.9%.
- The exchange rate of the Cyprus pound must remain within the anticipated fluctuation against the euro during the ERM2.
The achievement of this goal will depend on the consolidation of the state finances and the inflationary pressures.
Measures are theoretically satisfactory…
The government’s measures for the restriction of the fiscal deficit are theoretically satisfactory, the CB Governor said. “But they are not enough to deal with the problem”, he added. Mr. Christodoulou stressed the need to restrain the growth rate of the state payroll, since “in 2003 770 new job posts were introduced in the civil service, while fiscal deficit was shot to 6.3%”. “The state must increase the retirement limit to the 63rd year. In Europe they are already considering to increase retirement limit to the 67th year”, the Governor noted.
Cyprus’ entry in the EMU cannot advance at the current stage, since the Cyprus President has not appointed the new Finance Minister yet.
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