SPEAKING in Parliament, Athanasios Orphanides said that the Cyprus economy is expected to contract by more than 1% this year and budget deficit levels to double the designated Eurozone 3% mark by 2011.
Mr Orphanides said that the Cyprus Central Bank projections reflected the deep-rooted structural problems in the Cypriot economy.
“The situation is critical, and the state budget must reflect the reforms required for fiscal consolidation,” he said.
Cyprus fell into recession this year, with statistics last week showing that the economy contracted by 1.4% during the third quarter of this year.
The island lagged behind its Eurozone peers in showing signs of strain from the global economic turmoil. Tourism arrivals and revenue, a mainstay of the economy, have plunged by more than 12%.
Public coffers have also been sapped by a collapse of another mainstay of the economy; the overseas property market. The property sector saw Cyprus return growth rates of more than 3% in recent years, and surpluses in 2007 and 2008.
Orphanides said cuts in public sector spending, which make up a third of the €7.85 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.