The finance minister of Cyprus, Kikis Kazamias, has requested the legislators to accept the deficit budget so that the Eurozone nation is able to win back the confidence of its investors.
Cyprus Budget 2012 Highlights:
The 2012 Cyprus budget features several spending cuts, especially in the public sector where costs have gone up very high. The tax rates will be increased and together these decisions are expected to reduce budget deficit by 4 percentage points from the current deficit level.
Public debt is expected is reach the 65 to 67 percent mark in 2012, which will be a slight increase on 2011.
This will be reduced to 64.2 percent in 2013 and 62.8 percent in 2014.
Cyprus economy is expected to grow by 1 to 1.5 percent of the GDP in 2012, which will be more than 2011 when the maximum growth rate has been estimated at 0.5%.
The wages of public sector employees will stay the same in 2012. The taxes imposed on salaries in excess of 2,500 euros or $3,352 will be proportionately structured.
Sales taxes will also be increased to 17 percent from 15%. This will be effective for a 3 year period and has been highly criticized by the opposition parties.
The drafted version of the 2012 Cyprus budget is expecting an additional fund of 840 million euros or 1.14 billion dollars from tax increases and spending reductions. This will help to bring down fiscal deficit to 2.3%.
The public sector will amount for almost 33.33 percent of the governmental expenses. 1,100 public sector employees will be laid off in 2012 and there will be a 10 percent reduction in the salaries of the new workers.
Social expenses will be reduced by 200 million or $272.6 million.
The projected budgetary deficit for 2011 fiscal will range between 6 and 6.5 percent of the GDP.
It is estimated that the budget deficit could be brought to approximately 1 percent by 2013-14.
Cyprus is facing a tough situation in the international financial markets because the high interest rates of its bonds � the rates have been increasing of late owing to its credit rating that has been decreasing steadily.
This has happened because the banks in Cyprus do a lot of business with Greece, which is presently in critical economic condition itself. The continued decrease in credit rankings has also led to apprehensions that Cyprus might be forced to ask for a bailout from its partners in the European Union.
Cyprus� aggregate economic worth is 18 billion euros or 24.14 billion dollars. It has recently got a loan of �2.5 billion or $3.35 billion from Russia, which is one of its major allies. It is expected that this aid, which comes at low interest rates will help Cyprus to operate its economy for the next couple of months.
Kazamias feels that if Cyprus is able to reduce its deficit it will not face further sanctions regarding its expenditure. The budget is expected to be approved on 15th December in spite of the present political scenario. He opines that there is less possibility that the ruling legislators will vote against it.