Cyprus Progressing Steadily Towards Adoption Of Euro, Says IMF

by Lorys Charalambous, Tax-News.com, Cyprus

13 January 2006

Cyprus is heading steadily towards the adoption of the European single currency on 1 January 2008 according to Jeroen Kremers, an Executive Director at the International Monetary Fund (IMF), who believes that the sooner Cyprus adopts the euro, the better.

Mr Kremers, who is Cyprus’ representative on the Fund’s Executive Board, was speaking after a meeting with the Governor of the Central Bank of Cyprus, Christodoulos Christodoulou earlier this week.

His discussions with Mr Christodoulou covered topics related to the Cypriot economy and Cyprus' relations with the IMF. Special emphasis was placed on monetary and exchange rate issues, particularly the impact of ERM II membership on the economy and the island’s path towards adoption of the Euro.

In November, the Cypriot government announced that it intends to adopt the euro in 2008, rather than 2007 as originally expected.

Although the island joined the ERM2 exchange rate mechanism in 2005, the authorities are obliged to address the country's fiscal deficit prior to entering the eurozone.

In its Convergence Programme recently submitted to the European Union, the Cypriot government said that it is targeting a reduction in the budget deficit to 2.5% of GDP in 2005, down from 4.1% in 2004. By 2009, it is envisaged the deficit will fall to 0.6% of GDP.

However, this will coincide with an increase in the overall tax burden which the government predicted will rise to 35.1% by 2007 from 34.7% in 2005.

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