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Cyprus Government Prepares Plan to Avert Possible Problems in the Economy
2008-10-30 14:42:31

Nicosia, Oct 29 – The Cypriot government will announce soon an extraordinary action plan comprising short-term and long-term measures with a view to avert possible problems for the economy, in the event of a prolonged global financial crisis, Finance Minister Charilaos Stavrakis said.

Mr. Stavrakis participated today in a meeting, convened by President Demetris Christofias, and attended by Ministers of Labor and Social Securities, Interior, Communications and Works, the Government Spokesman and the Undersecretary to the President, as well as the head of the Planning Bureau, to discuss the international financial crisis and its effects on the Cypriot economy.

Speaking after the meeting, Mr. Stavrakis, without elaborating, said that some of these measures will be long-term and some short-term.

The Finance Minister assured that the Cypriot economy moves at a satisfactory pace with a growth rate at the end of 2008 amounting to 3.8%, which is more that double of the Euro area, a fiscal surplus of 1% of Cyprus' GDP as well as a spectacular decrease of public debt from 60% to 49% of GDP.

He added that he expects a 3% growth rate for 2009, inflation amounting to 2,5% and a small fiscal surplus despite the deteriorating global financial situation.

''What remains to be seen is whether this big financial crisis will affect Cyprus's real economy, something which will call for changes to our alternative proposals, already in place at the various Ministries, to minimize unpleasant repercussions,'' Mr. Stavrakis said.

He noted that tourism and the construction industry are the two sectors which could possibly be affected the most by the global financial crisis, both of which are considered the driving force of Cyprus's growth rate. He said that alternative scenarios are being drafted in case other sectors are affected.

Mr. Stavrakis reiterated that the Cypriot banking system remains healthy because banks did not invest in toxic products and banks do not rely on interbank market for their liquidity.

Asked about the fallout on consumption, as a result of a rise in interest rates on banking loans, Mr. Stavrakis said he expects a decrease of 5 or 6% in consumption in 2009, adding that this had been anticipated in the 2009 state budget.

He underlined that consumption, currently at 60% of GDP, depends on confidence in the economy and called for restraint in public remarks, saying that “too many statements do not serve the economy.''

Regarding interest rates, Mr. Stavrakis recalled that the European Central Bank had recently reduced interest rates, while more reduction is expected, adding that the reduced lending cost has not been transferred to the consumer.

He noted that the Central Bank and commercial banks, “which always show social sensitivity, as soon as markets return to calmness will reduce significantly the interest rates for the Cypriot businesspeople and households.”

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