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Keravnos satisfied with ECOFIN decision on Cyprus
Monday, January 24, 2005,
Finance Minister Iacovos Keravnos expressed the government's
satisfaction for the position taken by the EU Economic
and Financial Affairs Council (ECOFIN) that
Cyprus has carried out all effective actions to purify
its public finances and that it has implemented all
measures included in its revised convergence programme.
He told a press conference that ECOFIN's position justifies the
current economic policy followed by the government and
assured Cypriots that the implementation of the
convergence programme will continue with determination.
He added that the government aims to make
Cyprus economically stable within the EU framework and
proceed, according to the convergence programme, with
its membership of the Exchange Rate Mechanism (ERM II)
Keravnos said the government did not take hasty decisions to
correct its public finances by imposing taxes to cover
the public deficit.
Cyprus submitted in May 2004 a revised convergence
programme with a view to curb public deficit to 2.9% by
the end of 2005.
ECOFIN adopted a Commission recommendation to suspend a monitoring
Cyprus, imposed in the summer of last year because of
excessive public deficit recorded in 2003.
The Council is now anticipating the implementation of the 2005
Cyprus and a reduction of the public deficit to a figure
under 3% of the Gross Domestic Product (GDP) to
terminate the monitoring procedure.
The reduction in the deficit is to result from increase in state
revenue, restraint in public spending and improvements
in tax collection.
Authorities have boosted revenue collection with more vigorous
pursuit of tax dodgers – VAT inspectors launched a blitz
of raids in the autumn – and a cap on spending.
As the government struggles to bring the deficit down to from 4.8%,
to 2.9% by the end of this year Keravnos warned that the
road to fulfilling the
criteria was a "thorny" one, and that 2005 would be a
Keravnos said according to a recent study by the statistics
department, the number of families living under CYP
5,000 per annum had dropped from 19% in 1998 to 7.0%.
"This means we have increased the percentage of households with a
bigger income and as a result have reduced inflation,"
He also said that although prices had increased by a small
percentage over the past few years, the phenomenon
appeared bigger due to profiteering.
The Planning Bureau predicted a 4.0% growth rate in 2005 boosted by
consumer confidence and an improvement in the business
Responding to journalist comment that the massive reduction in
defense spending, coupled with higher receipts from
direct and indirect taxation should have curtailed the
deficit for 2004 to 3.3% of GDP instead of 4.8% as
forecasted and down from 6.3% in 2003, Keravnos
responded that the success of the Convergence Plan
depends on better collection of taxes, adding that even
though that the state could resort to higher taxation,
yet at this stage, he stressed that the government does
not have such plans.
The government also plans to extend the retirement age for civil
servants beyond 63 to such an extent in order to cover
the 2% wage increase promised for 2006 and amounting to
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