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Cyprus' convergence programme ambitious but realistic
2005-02-16 11:49:01

by Nicos Bellos

Brussels, Feb 16 (CNA) -- The Republic of Cyprus' revised convergence programme is described by the European Commission as ''ambitious but realistic'' regarding its aims and the return of the deficit below 3% GDP, as CNA has learned. The fundamental precondition set out by the Commission is the faithful implementation of the plan in 2005, which is considered to be a crucial year.

The convergence programme is expected to be adopted today after a proposal by Spanish Commissioner for Economic and Monetary Affairs Joaquin Almunia and will then be submitted to the Council of Ministers for approval along with the respective programmes of Hungary, Latvia, Lithuania, Slovenia and Great Britain.

Cyprus' convergence programme covers the period 2004-2007 and was submitted to the Commission on April 24, 2004. A revised version was submitted on December 7, 2004, and included the year 2008.

The programme provides for a medium-term development rate of 4.5%, based on the strengthening of private demand along with improving exports, especially tourism.

According to the Commission's proposal, Cyprus continues to have a good record regarding inflation, that is 1.9% in 2004 compared to 4% in 2003. Inflation is expected to be around 2.4% in 2005 and drop to 2% by 2008.

The Republic's monetary policy maintains its aim to stabilise prices, and the Cypriot authorities reiterate their wish to join the eurozone the soonest possible.

Regarding the public deficit, the aim is to bring it below 3% in 2005 and around 0.9% by 2008. The Commission says that this aim is ambitious but feasible, and considers 2005 to be the most risky year, when the largest reduction is scheduled.

Public debt reached 74.9% GDP in 2004 and is expected to drop to 58.1% by 2008. The Commission regards this aim feasible but notes that Cyprus must iron out its finances beginning in 2005.

The Commission notes that there are some potholes ahead regarding the long-term viability of public finances and says it is necessary to implement reforms in pensions and insurance in order to face ageing.

It notes that the programme is compatible with the Guidelines for Cyprus, with a realistic and viable reduction of the deficit through measures of a mainly structural nature, although there are still some doubts regarding the implementation of certain measures.

The Commission points out that Cyprus must implement the measures provided for in a dynamic fashion, safeguard the gradual transition to zero deficits, make sure its debt will begin to drop in 2005, and press on with its reforms in order to restrict the perils from the ageing of the population.

In the draft decision, the convergence programme is described as compatible with the demands of the Code of Conduct for the form of the programmes.

According to the Commission, international developments could affect the aims of the programme either way, as all economies. The main dangers pointed out are the economic prospects in the US and the EU, especially Britain and Germany, as well as the situation in the Middle East and fuel prices.

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