Finance Minister Hits Back at Reuters Report

Finance Minister Charilaos Stavrakis has rejected a report by Reuters based on a Commerzbank analysis saying that Cyprus could be the next country after Greece and Portugal to seek an EU bailout.

"As a matter of fact the Cyprus economy is small, but it is a vivid animal. Cyprus has retained a solid position in the financial and sovereign debt crisis. Cyprus economy has the fundamentals to remain resilient to developments in the external environment," he said in a statement. 

GDP growth was 1% in 2010 and it is expected to reach 1.5% in 2011 (with a potential growth rate of 2 ¾ - 3%), said the minister. However, it's worth noting that the Central Bank has just cut growth projections for the full year to 1.4 percent.

Getting the deficit under control

"The Cyprus government has laid out in its Stability Program (SP), budget deficit targets of 4.5% in 2011 and less than 3% of GDP in 2012. The agreed policy measures are expected to have a fiscal impact of 1.5 p.p of GDP in 2011," said Stavrakis, who added that by the end of 2010, public debt was only 60.8% of GDP.

By July or September, the government intends to sell Euro Medium Term Notes (EMTNs) which are sold directly to the market with maturities of less than five years. The upper limit of the EMTN programme will be nine billion euros, he said.

He also pointed out that Cyprus is rated in the A category by Fitch, Moodys and Standard and Poor's.

Growth is suffering

Stavrakis' defence of the economy is understandable, but critics say that if growth does not improve over the first quarter when it was at zero, his projections for full-year GDP recovery are likely to fall short. Other significant challenges include pensions reform, cutting the public payroll or at least improving productivity in the public sector.