Nicosia.- Finance Minister Kikis Kazamias urged opposition parties to approve the 2012 budget saying he has no plan B to tackle the effects of a potential rejection. Kazamias’ plea came a day after ratings agency Standard and Poor’s cut Cyprus’ long-term credit rating by a notch to BBB, citing the banking system’s exposure to sovereign Greek debt and delays in taking further measures to shore up the economy.
The minister said the 2012 had to be approved alongside all additional measures geared towards shoring up public finances.
“I have said (before) and I am repeating it: as finance minister I have no plan B and I cannot imagine of the scenario if the budget is not approved,” Kazamias told state radio. “I am sure parliament will respond and approve budget even with some changes they deem necessary.”
Opposition parties have said that the 2012 budget was optimistic and did not address the problems adequately.
Kazamias rejected the criticism, saying he was not at all overly optimistic and he felt “very comfortable defending this budget,” which aims in cutting the deficit to 2.8 per cent.
Included in the measures are better targeting of social allowances with a view to save some €200 million, a freeze in cost of living allowance payments for the first half of the year and an increase in VAT by two percentage points to 17 per cent.
However, in its reasoning behind the downgrade, S&P expressed doubts that these measures would go through.
“We view the full implementation of these measures as unclear because of opposition from organized labor and other social partners,” S&P said.
The agency said Cyprus has delayed in putting additional measures in place after passing a raft in August.
On August 26, 2011, the Cypriot government adopted and implemented several measures totaling €104 million or 0.6 per cent of GDP in 2011, and €261 million or 1.3 per cent of GDP in 2012 – “short of the €150 million or 0.8 per cent of GDP and €650 million or 3.5 per cent of GDP needed to reach the then deficit targets of 5.5 per cent in 2011 and 2 per cent in 2012,” S&P said.
Since this time, no new measures have been implemented. Additionally, the government has revised its 2011 deficit target to 6.5 per cent of GDP, and 2012 target to 2.8 per cent, the agency said.