Last budget designated in pounds

The Government’s budget for 2007, as adopted by the House of Representatives on 22 December, was expected to be the last designated in Cyprus pounds, pending the targeted switch to the euro single European currency on 1 January 2008. Finance Minister Michalis Sarris remained confident that the target date would be achieved, announcing that the Government would formally apply to join the euro in February or March 2007.

The budget provided for expenditure of C£4.07 billion, 0.9 per cent more than in 2006, against revenue of C£3.31 billion, up 3.8 per cent on 2006. Development expenditure was set at C£431.6 million, an increase of 8.4 per cent on 2006. The resultant 2007 fiscal deficit was projected at 1.6 per cent of GDP, about the same level as the latest forecast for 2006, so that Cyprus would be on track to eliminate the deficit entirely by 2010.

The House approved the budget by 36 votes to 16, with the ruling coalition of AKEL, the Democratic Party (DIKO) and the EDEK Social Democrats being joined by the European Party (EVROKO) and Ecologist deputies in voting in favour, whilst the opposition Democratic Rally (DISY) voted against. During the debate, AKEL parliamentary leader Nicos Katsourides reiterated the party’s call for entry into the euro to be delayed for a year so that social welfare provision could be strengthened.

Mr Sarris told the House that the 2007 budget “serves the aims of reducing the fiscal deficit and the public debt, while at the same time redirecting public expenditure to the benefit of development and social sectors”. He said that a consensus would be sought on income criteria for the receipt of social benefits and that new measures to combat tax evasion would be introduced, to allow increased benefits for those social groups really in need.

Describing the current “robust and dynamic” state of the economy, Mr Sarris said that anticipated GDP growth of 3.7 per cent in 2006 was expected to be lifted to 3.9 per cent in 2007, during which unemployment would remain close to effective full employment and year-on-year inflation would continue at about 2.5 per cent, below the euro-zone’s permitted ceiling of 2.8 per cent.

• Issued on 5 December, the European Commission’s latest convergence report covering the 10 countries which joined the EU in May 2004 confirmed that Cyprus is currently fulfilling the key requirements for euro entry. It noted in particular that an amendment to the law governing the Central Bank of Cyprus (CBC) had been introduced to bring the CBC into full compliance with the Statute of the European System of Central Banks (ESCB) and the European Central Bank (ECB).
 

Praise and warnings on Lisbon agenda

Commendations for Cyprus’ current economic performance were combined with a warning of hazards ahead, notably because of an ageing population, in the latest report of the European Commission (EC) on member states’ progress on the “Lisbon agenda” aiming to make the EU the world’s most competitive economic area, particularly by promoting growth and jobs.

The report awarded high marks for the implementation of Cyprus’ national reform programme (NRP) designed to achieve the Lisbon targets. The strengths of the NRP were found to include progress in the field of fiscal consolidation; development of comprehensive research and innovation systems; and the maintenance of a strong overall employment performance supported by a range of active labour market measures.

The EC’s warning of weaknesses that needed to be “tackled with the highest priority” focused on “ageing-related expenditure, where measures are not progressing”. Particularly highlighted was the need to reform the pension and health care systems and to enhance life-long learning. Other requirements included the need to increase employment and training opportunities for young people, by accelerating reform of the vocational training and apprenticeship systems.

• The latest Eurostat report shows that Cyprus’ GDP income per capita in 2005 at purchasing power standard (PPS) was 89 per cent of the EU average, putting it in 14th place among the 25 member states and ahead of the other nine countries which joined in May 2004.
 

Tourism income up but numbers down

A modest increase in revenue from tourism was the bright spot in official figures issued on 19 December, showing that the number of arrivals had slipped in January-November compared with the same period in 2005. Also worrying for the industry was a slump in bookings for the winter season, despite efforts to promote non-traditional, out-of-season tourism to Cyprus.

Tourist arrivals in the first 11 months of 2006 totalled 2,329,902, a fall of 2.7 per cent compared with January-November 2005. In the month of November, numbers were down by 8.7 per cent, with arrivals from the UK falling by a worrying 14.6 per cent. Revenue from tourism in January-November 2006 totalled C£998.5 million, 2.4 per cent up on the same period in 2005, indicating that the policy of developing higher-value tourism was bearing some fruit.

Cyprus Tourism Organization (CTO) chairman Panos Englezos regretted the decline in tourist numbers, while expressing confidence that it could be reversed in 2007. Cyprus Hotel Association (CHA) chairman Haris Loizides was more pessimistic, warning that further decline would have “devastating consequences not only for tourism but for the entire economy”.