Cyprus Central Bank governor urges spending curb

All Associated Press news

NICOSIA, Cyprus (AP) - Cyprus' Central Bank governor urged the government on Friday to rein in spending in order to head off a burgeoning fiscal deficit that he projected could exceed six percent of gross domestic product over the next two years.

Athanasios Orphanides said more fiscal discipline is needed as GDP is projected to contract by more than a percentage point in 2009, while the unemployment is expected to increase sharply next year.

Orphanides said cuts in public sector spending, which makes up a third of the euro7.85 billion ($11.8 billion) budget, would be a good start to prevent a "critical situation" from deteriorating.

"The sooner necessary structural changes are done to put public finances in order, the smaller the cost will be and the quicker we'll succeed in achieving sustainable development and prosperity," he said.

European Union member Cyprus joined the euro zone on Jan. 1, 2008. A six percent fiscal deficit would put the island at twice the euro zone imposed limit.

The island's 2010 budget foresees a 7.1 percent increase in social spending, including euro258 million for pensioners.

Finance Minister Charilaos Stavrakis said the government would keep the fiscal deficit "as low as possible" by cutting back on "unnecessary state expenses" and increasing revenue without introducing new taxes or sacrificing social spending. Measures would include stamping out tax evasion and introducing an 3-year government job hiring freeze, he said.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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