Finance Minister Kikis Kazamias has described the 2012 state budget as “realistic and tight”, noting that the goal to achieve a fiscal deficit of 2.8% of GDP is “pragmatic”. He also expressed the view that Cyprus’ economy will soon start to recover.

Kazamias appeared before the Committee on Financial and Budgetary Affairs of the House of Representatives and briefed parliamentarians on the state budget in detail.

He explained that if the House does not approve the bill for an increase in VAT from 15% to 17%, this does not necessarily mean that Cyprus will have to join the European Financial Stability Facility (EFSF), however “the country will draw closer to it”.

The Minister said that “there isn’t a plan B, should the House reject the particular bill, however the government will have to develop new plans”. He added that if the VAT bill and the social spending cuts bill are not approved, then the deficit will rise to 4.8%.

The Finance Minister told the House that the government will announce new methods for the taxation of state allowances as well as for the various loan schemes the government provides.

He explained that, given the current financial circumstances, the budget is “as realistic as it could have been”.

The Finance Minister said the government evaluates the growth rate to be 0.2% whereas the International Monetary Fund has predicted it to be -1% for 2012.

The 2.5 billion euro loan from the Russian Federation will not solely cover refinancing needs. He explained that the loan will partially be used for the conversion of current loans which have adverse terms and conditions.

The target for zero budget deficit will be postponed to 2014 instead of 2013, given the adverse financial conditions.

Replying to questions about the plans to “cut” the Greek debt and whether this possibility will affect Cyprus, Kazamias said that “we are aware of all these scenarios, we have discussed it with the Central Bank so that we can have a joint plan of action”.

Speaking to the press following the Committee’s session, the Finance Minister said that for the first time the government has focused on social benefits, adding that the bill will be presented before the House next Monday.

He explained that government’s goal is to execute the growth expenditure by 90% , in comparison to 70% in the previous years.

the 2012 state budget provides for revenue of 6.220 million euro and expenditure of 7.541 million euro.

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