Europe

Europe

Cyprus government approves austerity package to ward off bailout

10 August 2011 22:58 (UTC +04:00)

Baku-APA. The Cypriot government on Wednesday approved an austerity package plan to shore up the island’s flagging economy and ward off bailout by the European Union, APA reports quoting Xinhua.

The package provides for additional income and public spending cuts amounting up to 600 million euros (846 million U.S.dollars) by the end of next year.

The plan was introduced into parliament by the new Finance Minister Kikis Kazamias, who said that it aims at keeping public deficit down to 4-4.5 percent by the end of this year and down to 2-2.5 percent at the end of 2012, with an aim to wipe out public deficit entirely by the end of 2013.

The announcement of the package came as Fitch agency announced the downgrading of Cyprus’ credit rating by two notches to BBB, citing possible inability by the island to access international financing sources to re-finance its growing debt and consequent need for a bailout support.

The other two main rating agencies, Standard & Poor’s and Moody’s, had both cut Cypru’s ratings last month down to BBB+ and Baa1 respectively.

Kazamias told Parliament Finance Committee that without the measures public deficit would end at 6.5 percent at the end of the year.

The island’s economic problems were compounded last month by a deadly blast which caused damages to the economy.

The explosion on July 11 of a cargo of confiscated Iranian munitions piled up at a naval base killed 13 people and wrecked the island’s main power station, wiping out a projected modest growth of 1.8 percent.

The austerity package includes reform of the pensions system and a contribution from public servants of three percent of their salary for the next three years or longer if needed.

Parliament has scheduled to meet on August 25 to consider the new measures but the package could meet strong resistance by the opposition.

The current government does not muster a majority in Parliament after the center Democratic Party recently pulled out of its coalition with leftist AKEL party.

Opposition parties therefore can form a block of 37 votes in the 56-seat parliament against the 19-seat AKEL.