“That’s a goal that we will more than achieve not in two years but in two weeks,” he told members of the Parliament’s finance committee on Monday marking the beginning of the debate on the government’s 2018 budget according to the CNA. “The year is expected to end with public debt ranging between 98% and 99% of GDP”.
The Cypriot economy which emerged from a prolonged recession in 2015 and expanded 3% last year, is expected to grow 3.6% in 2017 before growth slows down to a forecast 3% next year. The IMF said on October 13, that it expects the Cypriot government debt to drop to 105.5% of the economy this year before further falling to 102% in 2018 and 96.4% in 2019. The reduction of public debt from 107.8% of economic output to 99 or by roughly 9% of the economy would imply a decline in the range of €1.5bn.
Georgiades said that the reduction of public debt in November will result from the repayment of debt to the Central Bank of Cyprus. The government owes more than €1.1bn to the bank supervisor and held there deposited almost €1.4bn in August, according to the Central Bank’s balance sheet.
In January to August this year, the government generated a budget surplus of €431.5m on a cash basis or roughly 2.4% of economic output, against a surplus €12.1m a year before, according to the Finance Ministry.
Georgiades said that according to Cyprus’ 2013 bailout terms, the government agreed to enter a debt-to-asset swap agreement with the bank supervisor, a provision of the adjustment programme that was never materialised.
“Repaying this loan makes sense as the government’s borrowing rate is lower,” he said in reference to the recent reduction of secondary market yields of Cypriot government bonds. According to a Bank of Cyprus document seen by the Cyprus Business Mail, the yield of the bond maturing in November 2025 stood at 1.82%, compared to a 3% rate of the central bank debt.
The minister said that thanks to fiscal consolidation and recent reforms, today’s economic recovery is no longer accompanied by two major distortions which marked the pre-crisis period.
“Hence, pre-crisis growth rates had been characterised as unsustainable,” he said.
The better than expected performance of the economy helped generate last year a fiscal surplus of 0.4% of economic output. Next year’s budget, as approved by the cabinet more than a month ago, aims at generating a surplus of 1%. Next year, the inflation rate is expected to slow down to 1% from 1.1% this year and accelerate to 1.5% and 2% in 2019 and 2020 respectively.
The minister said that recover is real as it was not increased by an increase in spending.
“Value added tax revenue are considerably higher with the tax rate unchanged, social insurance contributions confirm a gradual but considerable recovery of the real economy but the most important improvement in the real economy have generated additional revenue which more than offset this year’s tax breaks such as the extraordinary contribution of workers of €80m,” he said.
The CNA also reported citing the head of the Public Debt Management Office (PDMO) Phedon Kalozois that Cyprus’s financing needs next year in which the government begins with the repayment of the Russian loan, agreed in 2011, are estimated at €1bn.
Kalozois who was also addressing lawmakers said that the PDMO plans to cover these needs with the issue of a European Medium-Term Note, loans from the European Investment Bank (EIB) and the rollover of maturing treasury bills.
The government’s public debt strategy aims at minimising medium-term borrowing cost, smoothing out maturities, increasing medium-term issues to reduce debt in foreign currency and removing the government’s exposure to floating rates, he said.
Source: Cyprus Mail
