Follow Us

Follow us on Twitter  Follow us on LinkedIn

29 November 2010

Commission forecast for Cyprus

After five quarters of contracting activity, moderate growth resumed in the first half of 2010. Assumingthat current trends continue, the economy will grow by ½ per cent this year.

Public finances in Cyprus have deteriorated substantially as a result of the crisis and discretionary fiscal stimulus measures, as well as rather large composition effects due to a much less tax-rich GDP growth pattern. As the economy shifts to a more export-orientated pattern, growth composition would likely be less tax-intensive, thus complicating consolidation efforts. The budget deficit appears to have stabilised in 2010 at a level similar to last year, since a marginal increase in revenues is set to be fully offset by a rise in expenditures.

For 2011, the Draft Budget Law targets a deficit of almost 5½ per cent of GDP, on the basis of an estimated deficit for 2010 of just below 6 per cent of GDP. On the revenue side, the draft budget does not incorporate any additional measures, apart from the phasing-out of the tax-relief, which was part of the stimulus measures and the harmonisation of excise duties on petroleum products, in effect since last July. Nevertheless, these effects are partly offset by a reduction in other current revenues. On the expenditure side, the draft budget aims at savings through a reduction of operational expenditure, as well as restraint in public investment and employment. However, these elements are fully offset by a rise in the public wage bill, interest payments and in social outlays. The present projection is for a deficit of 5¾ per cent of GDP for 2011. This incorporates a more prudent assessment of revenue prospects, given a less tax-rich growth composition, and on the expenditure side, given past trends on key items such as the wage bill and social transfers. Measures which are still under discussion with an uncertain outcome, or with no information on the modalities or the timing of implementation are not incorporated in this forecast.

Based on the customary no-policy-change assumption, the deficit is set to remain at 5¾ per cent of GDP in 2012, as gradually rising revenues are offset by higher expenditures. With still moderate growth and an increasing deficit,   the debt-to-GDP ratio will rise and reach about 68½ per cent by 2012.

Full forecast (Cyprus)

© European Commission

< Next Previous >
 Hover over the blue highlighted text to view the acronym meaning
Hover over these icons for more information

Add new comment