ECOFIN adopts Cyprus’ updated convergence program
Brussels, Feb 27 - EU's ECOFIN (Economic and Financial Affairs Committee) has adopted Cyprus' updated convergence program for the period of 2006-2010.
The Cypriot program is based on a realistic macroeconomic scenario while the island’s fiscal policy is oriented towards achieving the medium-term aim for a structural deficit of 0.5% of GDP by 2008, according to an official announcement.
It also aims to achieve balanced positions in nominal and structural values by the end of the period covering the program. In general, fiscal policies are aligned with the demands of the stability and growth pact. Given that the risks regarding the fiscal projections of the programme seem balanced on the whole, its fiscal orientation appears adequate to ensure that the medium-term aim by 2008 will be achieved and maintained in the future, due to the restriction of expenditure and the prospects of strong growth.
The gross debt of the general government is expected to approach the reference value of 60% of GDP by 2007, and continue to drop over the next years.
However, the fiscal cost from the ageing population is anticipated to be such that Cyprus will be facing a high risk regarding long-term sustainability of public finances.
For this reason, Cyprus is advised to examine the expenditure of public pensions and implement further reforms in the sectors of pensions and medical care, in order to improve the long-term sustainability of their public finances.