Cyprus On Track To Correct Excessive Deficit, EC Reveals

by Ulrika Lomas, for LawAndTax-News.com, Brussels

18 February 2005

Having examined its updated stability and convergence programme, the European Commission announced on Wednesday that Cyprus is on track to correct its excessive deficit by 2005, as recommended by the Council.

In a statement released earlier this week, the EC explained that:

"The budgetary strategy outlined in the updated convergence programme of Cyprus aims at reducing the government deficit to below the 3% of GDP reference value in 2005, in line with the Council recommendation under Article 104(7)."

It went on to observe that:

"The adjustment is particularly ambitious this year, when the government expects the deficit to fall to 2.9% from 4.8% in 2004 and becomes more gradual afterwards to finally reach 0.9% in 2008. These projections can be considered plausible and the risks broadly balanced."

Suggesting that the main downside risks are external and linked to the economic outlook in Cyprus’s trading partners as well the Middle East tensions and oil price developments, the EC predicted that the main test to the projections will be this year, when the deficit is expected to fall the most.

However, it observed that a positive deficit outcome for 2004 and the recent successful negotiations with social partners on a number of key measures for 2005 make the planned deficit reduction "challenging but feasible".

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