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Finance Minister presents Cyprus Pre-Accession Economic Programme
2002-09-05 15:57:54

Nicosia, Sep 5 (CNA)-- Finance Minister, Takis Klerides said here today that the Cyprus economy has been cautioned about the free competition which it will face within the European Union (EU), noting that the impression that once the island enters the EU large conglomerates will take over the local industry and economy "is completely wrong".

Presenting the 2001-2005 Pre-Accession Economic Programme of the Republic of Cyprus (PEP), the minister added that "as the accession course is reaching the end, it is critical that Cyprus is ready in all aspects for complete accession".

He said the 2001-2005 Pre-Accession Economic Programme of the Republic of Cyprus (PEP) is of crucial significance in view of the final evaluation of the level of preparation of the candidate states in the EU.

The Ministry of Finance, the Planning Bureau and the Central Bank jointly prepared the programme. It includes a detailed analysis of the Cyprus economy and a review of economic developments during the period 1997- 2001, Klerides said, adding that it is set "within a medium-term macroeconomic policy framework, with emphasis continuing to be placed on the achievement of public finance and structural reform objectives".

"The specific policy measures, aimed at attaining these goals, are designed to contribute to the further real and nominal convergence of Cyprus with the EU", the minister said.

Furthermore, he added, "the macroeconomic framework of the PEP encompasses the Government's main medium-term economic policy priorities and objectives, with a view to enhancing the economy's flexibility and adaptability, in line with the Copenhagen criteria".

These include the achievement of a satisfactory rate of economic growth, under conditions of internal and external macroeconomic stability, full employment and social cohesion, as well as the liberalisation of the economy and its further diversification in line with the comparative advantages of the island, the promotion of structural reforms, the fostering of the knowledge- based economy and the promotion of balanced regional development", the programme says.

Within this framework, a macroeconomic scenario extending until 2005 has been formulated, which takes into consideration the above-mentioned medium-term economic policy priorities and objectives.

The minister predicted that according to the programme's findings, the mean economic growth rate for the period of 2002-2005 is expected to reach 4,2%, which is in line with the period 1997-2001.

The development growth rate is expected to fluctuate between 2,5-3 % as a result of last year's tragic events of September 11 in the US which affected tourism. During the period 2003-2005 a substantial increase in the growth rate will reach 4,5%.|

The percentage of those registered as unemployed is expected to remain at 3% in 2005. The services' sector and departments, which require highly qualified people, are expected to absorb most of the employment.

Inflation during 2002-2005 will range around 2,7%, said Klerides, adding that PEP aims at continuing convergence with the mean inflation rate of the EU.

It is further expected that within the framework of PEP, the public debt, as part of the GDP will decrease from 56% in 2002 to 52,2% in 2005.

The programme notes that Cyprus largest trading partner, who is the United Kingdom, provides by far the largest source of tourists. Similarly, the growth of United Kingdom economy is forecast to decelerate to 2% in 2002 and recover and reach annual rates of around 3% in the following three years.

Klerides further said that given the forecast growth of the markets which are the major sources of tourism for Cyprus, the assumptions about pricing and exchange rates it is forecast that tourist arrivals will increase by 8% in 2003, thus almost compensating for the anticipated reduction of 8% in tourist arrivals in 2002. With the rise in tourist arrivals forecast to be 7% in both 2004 and 2005 their average annual rate of increase would be 2,7% over the period 2001 to 2005 compared with a 5% annual average rise in tourist arrivals over the five-year period 1996 to 2000.

In making forecasts of the exchange rates of the Cyprus pound it is assumed that the exchange rates of the euro and the Cyprus pound against the US dollar will appreciate over the medium-term and that there will be some appreciation of the Cyprus pound against the pound sterling.

Regarding domestic economy, real wage increases will be kept in line with labour productivity gains, while there will be a curtailment in the annual rate of increase in employment in the public sector to 1% in 2003 and 0,5% in 2004 and 2005.

There will also be a containment of the rate of inflation in Cyprus to around 2% (excluding the temporary impact of VAT and excise duty rate rises, to be undertaken within the harmonisation process with the relevant acquis on indirect taxes), in line with the forecast average rate of inflation in the EU.

Cyprus opened accession negotiations with the EU in 1998 and is expected to be invited by the EU Summit in Copenhagen, along with other candidate countries, to join the EU.

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