Cyprus’ international lenders expect that austerity measures will shrink the country’s economy by a choking 8 percent this year and another 3 percent in 2014 and that the economy won’t begin to grow again until a year or two later, and then only 1 percent.
The news agency Reuters reported that Cyprus will have a budget deficit before debt servicing costs of 2.4 percent of Gross Domestic Product (GDP) this year, a bigger gap than the 1.9 percent of GDP in 2012.
As stated in the memorandum with the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB,) the Cypriot economy is expected to reach a primary surplus of 1.2 percent of GDP in 2016 and 4 percent the next year.
Similar optimistic projection by the Troika for Greece, where it is supplying $325 billion in two bailouts, have failed as austerity measures in that country have created record unemployment and shuttered more than 68,000 businesses in the three years since the conditions were imposed.
The lenders said Cyprus will have to increase tourism revenues to improve the economy although that will be difficult as confiscation taxes on bank accounts and tight limits on withdrawals prevent people from having access to money. Cyprus also is banking on hopes that some day it can find natural gas reserves off the coast although that is years away and under contention by Turkey.
The suspension of pensions and the increase of retirement age by two years in the public sector and the increase of excise taxes on alcohol, tobacco and petrol are some of the steps Cyprus will have to undertake in order to curb spending, although it will take its toll on those affected, apart from some who reportedly moved their money out of the country as Cyprus was negotiating with the lenders.
The Troika said if Cyprus sticks to the plan it could decrease its debt in half by 2020 although it said that Greece could do so as well and those predictions are already wildly off base, which could mean that Cypriots, as are Greeks, will have to prepare for many years of tough living conditions for many.
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