Latest Headlines

Nightmare scenarios for sweeping cuts

Cyprus will need to take painful measures to tackle problems in its banking system and state finances according to local media reports following the conclusion of the troika’s second visit to the island.


THE CYPRUS Broadcasting Corporation reported that “nightmare scenarios for sweeping cuts across the board begin to seem more likely with every passing day” in a news item about the recent troika visit that concluded on Friday.

Reports suggest that the troika delegation is pushing for an immediate annual cut in public and semi-governmental salaries of 7.5 percent with a further 15 percent annual cut in salaries over the next two years.

The troika will also be proposing the abolition of the Cost of Living Allowance (CoLA) – and a dramatic reduction in retirement lump sum payments also appears inevitable over the next two or three years.

According to information obtained by the CyBC, the delegation is also proposing the permanent revocation of thirteenth salaries along with increases to pension contributions beyond the current level of 3 percent.

The cuts will seek to reduce the cost of the civil service to the taxpayer by around 50 percent with changes to how pensions are calculated also appearing to be part of a large wave of cuts.

Following a meeting between members of the troika and Theodoros Parperis, the president of the Institute of Certified Public Accountants of Cyprus (ICPAC), we understand that no changes are being proposed to increase the level of corporate tax.

Troika delegates have left the island and are expected to return in September when a memorandum is likely to be signed with the government. In the meantime consultations between the delegation and the government will continue during the coming weeks.

Readers' comments

Comments on this article are no longer being accepted.

  • Hector says:

    It appears to me that the ROC government(s) & politicians over the past few years, simply courted political goodwill i.e. votes, by not declaring or dealing with the financial ‘elephant in the room.’ It would have been electoral suicide to have taken the necessary financial steps to cut back on government spending, particularly civil service wages and pensions (including their own). Whenever moves to do so were floated, the various unions stamped on it and continue to do so even when financial Armageddon and the breakdown of the countries infrastructure stares them in the face.

    I suspect that the government simply bought a little time by taking out the Russian loans whilst still hoping that something would turn up before they could claim their own personal pension and sit back leaving it to someone else to deal with.

  • MARTYN says:

    Its been said so often on this Forum that the Cyprus Government has been in complete Denial since 2008, and through this most of the country were either unaware or also in Denial of the dire overall situation, and only Now with the Troika’s forensic analysis can the huge cover-up be exposed.

    Facing up to and Tackling the array of dire economic and governmental problems will take real guts, not a characteristic of the present Government!, cause extreme pain over many years.

    Like several others I can only see that Cyprus, Greece and possibly other EC countries in distress will need to exit the Euro, devalue by 20-30%, as any other solution could not possibly achieve the Objectives that the Troika will set. As it seems it will be September before actions are agreed, announcements made – this will allow many of us a little additional time to plan, prepare, finalise our own actions – in some cases, Exits, no doubt! before the Mayhem likely to ensue.

  • Mike says:

    And I would bet that those in power will still insist that they know better and feed the media with false hopes that things will not be that bad as we are a special case with special sensitivities to be taken into account and in any event we have gas to enable every man, woman and child in Cyprus to be a multi-millionaire.

    The 0930 pig from Larnaca to Brussels just flew overhead methinks.

    When will we ever learn!

  • sam london says:

    Cyprus needs to realise that it falling behind badly with regard to tourism due to its poor value for money and overall expense. Other countries like Spain realise that they need to increase tourism to boost their economy and are therefore offering great deals once again to the Brits to come over and spend and this is staring to prove fruitful.

    Cyprus is now generally perceived in UK as poor value and due to an extensive campaign by ex pats who have been shafted over there regarding title deeds etc. as a little corrupt and bankrupt state. This talk about gas is years away and is being floated by the government who are scrambling after any diktat in the world to invest their money.

    The Chinese economy has not grown like it has because they are stupid with their money and the rest of Europe are outraged that a country which has taken up the presidency for 6 months is prostituting itself to anyone foolish enough to give it money.

    hasta la vista

  • Mr Holland says:

    Dear Jim

    I would imagine you would find it difficult to see anything but the worst case scenario.

    Tourism needs to change direction and a different approach to help attract a different demographic.

    Construction will need to be more 2012 instead of 1980, using latest techniques and energy saving methods and then it will start to attract new investment.

    The Banks and Financial Services will need to develop a different approach, and not give developers money to build in ways that have no place in this era.

    I can think of many ways things can improve in Cyprus and would be pleased to hear from others but left to Jim we might as well turn the lights out if we follow his ‘no hope’ while I’m alive speak.

    With such an array of retired professionals on this forum it would be nice to help find solutions rather than just state an opinion about what is wrong.

    How about it ???????

  • @All – Here is the latest update on the Cypriot economy from the CIA:

    The area of the Republic of Cyprus under government control has a market economy dominated by the service sector, which accounts for four-fifths of GDP. Tourism, financial services, and real estate are the most important sectors.

    Erratic growth rates over the past decade reflect the economy’s reliance on tourism, the profitability of which often fluctuates with political instability in the region and economic conditions in Western Europe. Nevertheless, the economy in the area under government control has grown at a rate well above the EU average since 2000. Cyprus joined the European Exchange Rate Mechanism (ERM2) in May 2005 and adopted the euro as its national currency on 1 January 2008.

    An aggressive austerity program in the preceding years, aimed at paving the way for the euro, helped turn a soaring fiscal deficit (6.3% in 2003) into a surplus of 1.2% in 2008, and reduced inflation to 4.7%. This prosperity came under pressure in 2009, as construction and tourism slowed in the face of reduced foreign demand triggered by the ongoing global financial crisis.

    Although Cyprus lagged behind its EU peers in showing signs of stress from the global crisis, the economy tipped into recession in 2009, contracting by 1.7%, and has been slow to bounce back since, posting an anemic growth rate of 1.0% in 2010.

    A massive munitions blast in July 2011 at a Cypriot naval base triggered country-wide energy outages, a collapse of the governing coalition, and a cabinet shuffle intensifying Cyprus’s economic problems. The economy experienced no economic growth in 2011.

    Serious Cypriot financial sector problems surfaced in early 2011 as the Greek fiscal crisis and euro zone debt crisis deepened. Two of Cyprus’s biggest banks are among the largest holders of Greek bonds in Europe and have a substantial presence in Greece through bank branches and subsidiaries.

    A liquidity squeeze is choking the financial sector and the real economy as many global investors doubt the Cypriot economy can weather the EU crisis. Cyprus’s borrowing costs have risen steadily because of its exposure to Greek debt.

    The budget deficit is on the rise and reached 7.4% of GDP in 2011, a violation of the EU’s budget deficit criteria – no more than 3% of GDP. In response to the country’s deteriorating finances and serious risk of contagion from the Greek debt crisis, Nicosia is promising to implement measures to cut the cost of the state payroll, curb tax evasion, and revamp social benefits.

    However, it has been slow to act, lacking a consensus in parliament and among the social partners for its proposed measures.

  • Jim says:

    The measures mentioned, will only be the tip of the iceberg. Severe cuts in government manpower will be asked for. Various taxes will be increased.

    Unemployment will increase. There are only around 350,000 people with a job in Cyprus at present, about 80,000 of them employed by the government. It is difficult to see how the money is going to be produced from such a small workforce, to repay the billions of Euro debt.

    Cyprus relies on the following for the majority of income:-

    Tourism:- At best tourism will remain static. Cyprus is already regarded as an expensive destination, competing with others with more to offer tourists.

    Financial services:- Cyprus relied on being an attractive country for financial services & the banking sector became massive in comparison to the size of the country. The Troika will insist on a large deleveraging of the present situation. The sector will contract & income will fall.

    Construction:- As everyone knows, the construction industry is all but dead & unlikely to recover anytime soon.

    All that is left is agriculture & a small manufacturing industry.

    Should Greece leave the Euro (as is likely) this will leave Cyprus in an even worse position, especially the banks.

    I find it difficult to see how Cyprus can recover from this situation.

  • Costas Apacket says:

    I never expected anything like this!

    It’s not like we’ve all been talking about these issues for years is it?

    It’s not like the IMF and the Credit Ratings Agencies have been warning the Government for the last 3 years about structural imbalances in the Cypriot economy is it?

    Therefore is it not strange that the Government could not have foreseen the problems with the economy and taken steps to correct them?

    There seems to be a pattern here, storing unstable munitions, storing unstable financial problems……

    I wonder who makes all these storage decisions?

  • The views expressed in readers' comments are not necessarily shared by the Cyprus Property News.

SELECTED REPORTS

Back to top