Paphos People

Cypriot Finance Minister Charilaos Stavrakis has presented the 2009 state budget to the House of Representatives, ahead of what he says will be a "difficult year" in the wake of a prolonged global financial crisis.


"Given the current situation, 2009 is projected to be a financially difficult year due to the international economic slowdown and the financial crisis," said Stavrakis, noting however that the Cypriot economy is projected to grow by three per cent.

He did not rule out the possibility of a slower growth rate noting that in case of a prolonged financial crisis "possibly our growth rate will be slightly lower, which will not affect the implementation of the budget."

Stavrakis said that in 2009, conditions of nearly full employment will continue to prevail in Cyprus, while inflation will significantly decline to approximately 2.5%.

He added that Cyprus will present a borderline fiscal surplus and a public debt reduced below 48% of Cyprus' GDP.

The 2009 state budget provides for €7.37billion in expenditure, increased by 11% compared to 2008 and revenues worth of €6.3billion, increased only by 1.6%.

Stavrakis said that the initial estimated revenues were €6.41 billion, projected at a time when the extent of the global financial crisis was limited.

He added that with the forecasts for Cyprus' growth rate slowing down from 3.7% to 3% the estimated revenues were consequently reduced in absolute numbers by €165million, mainly due to "dramatically reduced capital gains taxes."

Reiterating that the government will not impose any new taxes, apart from those necessitated by the EU, Stavrakis said the income from the direct taxes (income tax, corporate tax and capital gains tax) is estimated to contract by 3.1% in 2009, while the indirect taxes’ revenues (VAT, import taxes, consumption taxes) will increase by 7%.

Social spending will increase by 26%, "the biggest social spending increase in ten years," he said, while development spending will reach €1.09 billion, increased by 15.5% compared to the €948million of 2007.

"The 2009 budget will be socially sensible, highly developmental and balanced," Stavrakis said.

The Finance Minister added that the main challenges the Cypriot economy is facing are the high inflation, the need for the immediate downward reduction of the consumer goods prices after the reductions of the oil and food prices internationally and the problem of the aging population and its consequences on the Social Securities Fund and on the health care system.

Stavrakis said that by the end of 2008, Cyprus a will present a growth rate between 3.7 - 3.8% compared to the EU-wide 1.4% and the 1.2% of the Euro area, adding that despite the adverse conditions Cyprus will present in 2008 a fiscal surplus of 1% of the GDP with the public debt reduced significantly to 49% GDP.

Reiterating that the Cypriot commercial banks and the cooperative banks are healthy and credible with minimal exposure to toxic investment products, which are blamed for the current financial crisis, Stavrakis said that the Government in cooperation with Cyprus’ Central Bank is monitoring closely the financial developments.

"We clearly stated that we will support our banking system if necessary," he added.

The Finance Minister also said that in a bid to strengthen the financial sector the Government is promoting a constant monitoring mechanism involving all concerned authorities.

"I once more stress that the general assessment of the financial sector is that it is robust with minimal exposure in high-risk investments."

Stavrakis denied criticism expressed by the main opposition party that the budget fails to face the effects of the financial crisis.

"Since we enter a period of international recession with clear signs of economic slowdown what is advisable is an expansionary budget regarding public finances," he said.

Reiterating the increased public spending compared to 2008, Stavrakis pointed the extraordinary action plan worth of €52million announced in November by the President of the Republic, aiming at strengthening the sectors believed to be affected the most by the crisis and namely that of tourism and construction.

The House Plenary will debate and vote on the state budget before closing for the Christmas holidays.