Cabinet yesterday approved the island’s first post-bailout 2014 budget which provides for deep spending cuts of 10% to ensure Nicosia meets its bailout targets.
Finance Minister Haris Georgiades said €626 million would be shaved off the budget compared to 2013.
Net expenditure, minus interest payments, will reach €5.59 billion next year compared to €6.22 billion provided for in the 2013 budget.
The budget will be tabled to Parliament for discussion in the next few days before going for a vote before the end of the year.
“This budget reflects the challenging economic environment this country is going through,” Georgiades told reporters.
“At a time when the people, households and businesses are enduring difficult days and cutting back the same must apply for the state,” he added.
He said the government was within its targets set by international lenders –under the bailout deal – on the primary and fiscal deficits.
The fiscal deficit is estimated to reach 7.5% of GDP in 2014 -- but if pension payments and compensation are excluded it comes to a lower 5.5%.
The deficit for 2013 is estimated to be 5.5% of GDP while the primary deficit is projected at 3.4% for next year.
Budget projections see the economy shrinking at slower pace at 3.9% of GDP in 2014 from an 8.7% contraction this year.
Cyprus has already passed its first review under the Troika of international lenders and officials are expected back in Nicosia this month to undergo a second inspection.
In return for a 10 billion-euro bailout, international creditors demanded the winding up of the island’s second largest banker Laiki and a haircut on deposits over 100,000 euros in its largest lender Bank of Cyprus.
The unprecedented eurozone “haircut” on deposits forced the government to close all the island’s banks for nearly two weeks in March and impose draconian controls when they reopened.
International lenders don’t expect Cyprus – suffering record 17% unemployment and a credit squeeze – to exit recession until 2015.
Cypriots have had to endure tough austerity measures which have seen wages slashed in the private and public sector while consumer taxes have also increased such as VAT.
Full story in The Cyprus Daily.