Cyprus’ economic recovery could accelerate to close to %2 GDP growth this year, according to a preliminary estimate by visiting IMF officials.
“A gradual economic recovery is underway with growth likely to reach the 1.5-2% range this year and favourable prospects for a continued upturn in 2012,” IMF official Wes McGrew told reporters.
He said the `generally favourable outlook` was subject to high risks especially from ongoing “financial turbulence” in other eurozone countries.
The International Monetary Funt said the biggest challenge facing the island’s economy was reducing the fiscal deficit which is almost double the EU ceiling of 3%.
Another possible risk is the contracting British Economy having a direct impact on a tourism industry reliant on UK visitors.
McGrew said the government needed to curb its bloated wage bill and forge ahead with pension reform. “Countries across Europe are pursuing far-reaching reforms to correct fiscal imbalances and preserve investor confidence and Cyprus should seize the opportunity.”
But he said government should pursue a policy of restraining expenditure rather than increasing revenue through taxation.
Despite going on an austerity drive the government has hiked the price of cigarettes and introduced 5% VAT on previously zero-rated food and medicines.
It also seeks to increase a levy on large property holdings to get the deficit down below 4% of GDP this year.
“long-term prosperity in Cyprus depends in large part on its continued growth as an international business and finance centre- which rests upon has no estimate of what it expects the unemployment a foundation of sound public finances,” said McGrew.
Currently, the IMF has no estimate of what it expects the unemployment level to be at this year.
The government predicts improved tourism income will help the economy to grow by around 1.5% in 2011 after an unprecedented year-long recession in 2009.
In expects GDP growth figures for 2011 to touch one percent after the economy shrank by 1.7% in 2009.
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