Cyprus under EDP
Brussels, May 12 – Cyprus is under the Excessive Deficit Procedure (EDP), the European Commission announced here today.
The Commission also welcomed the willingness of the Cypriot authorities to bring the general government deficit below 3% of GDP, noting however the need to define a more expenditure-driven consolidation strategy.
According to a press release, issued today, the European Commission examined on Wednesday the updated stability program of Cyprus, which was submitted to the Commission on 13 April 2010. This follows the Commission's previous assessments of the stability and convergence programs of 25 Member States on 17 March, 24 March and 14 April.
The evaluation takes place against the background of the economic and financial crisis which has led to a sharp deterioration of public finances since 2009 and triggered the opening of the Excessive Deficit Procedure (EDP) for a large majority of member states.
''I welcome the fact that the Cypriot authorities show their willingness through the stability program to bring the general government deficit below 3%, even though the Excessive Deficit Procedure is not yet fully underway. However, the program aims to mainly correct the revenue side, while expenditure is at a historically high level. Also, there are downside risks to the adjustment path from favorable growth assumptions'', said Economic and Financial Affairs commissioner Olli Rehn.
The stability program update of Cyprus reflects the impact of the current crisis on its public finances, with an estimated deficit of 6.1% of GDP for 2009 and a rising government debt ratio, which is forecast to breach the 60% of GDP reference value in 2010.
The Cypriot update aims at gradually reducing the government deficit below the 3% of GDP reference value by 2013, mainly through revenue measures. However, the favorable macroeconomic assumptions throughout the program period may imply a lower contribution of economic growth to fiscal consolidation than envisaged in the adjustment path.
Based on this evaluation, the European Commission calls on Cyprus to define a more expenditure-driven consolidation strategy, implement the fiscal framework, and control pension and health care expenditure as a means to improve the long-term sustainability of public finances.
In the April 2010 EDP notification, the Cypriot authorities notified a general government deficit of 6.1% of GDP in 2009, while the general government gross debt stood at 56.2% of GDP on a rising trend, the Commission said.
“Resulting from a severe economic downturn, the Commission considered the excess over the 3% to be exceptional. Clearly above the 3%, the deficit cannot be considered close to the reference value. The spring forecast shows the breach is not temporary. The Commission therefore concluded that the deficit criterion in the Treaty is not fulfilled,” it added.
As the government debt ratio is forecast to exceed the 60% of GDP reference value in 2010 according to both the stability program and the spring forecast, the Commission concluded that the debt criterion in the Treaty is not fulfilled either.