About Cyprus

Economy

Throughout the post-Independence period, Cyprus has had a record of successful economic performance, reflected in rapid growth, full employment conditions and external and internal stability. The underdeveloped economy, inherited from Colonial Rule in 1960, has been transformed into a modern economy, with dynamic services, industrial and agricultural sectors and advanced physical and social infrastructure.

Cyprus is classified among the high-income countries, with a per capita income currently estimated at US $13.000 (2000). It has a standard of living that is even higher than some European Union member-states and the performance of the economy compares favourably with that of most EU countries. Cyprus holds 16th place worldwide in terms of per capita income. The average annual rate of growth in the past five years was about 3,8%, while inflation stood at 2,9% and unemployment at 3,4% over that period.

These achievements appear all the more striking, bearing in mind the severe economic and social dislocation created by the Turkish invasion of 1974 and the continuing occupation of the northern part of the island by Turkey. The Turkish invasion inflicted a serious blow to the Cyprus economy and in particular to agriculture, tourism, mining and quarrying: 70 percent of the island%26rsquo;s rich producing resources were lost, the tourist industry lost 65 percent of its hotels and tourist accommodation, the industrial sector lost 46 percent, and mining and quarrying lost 56 percent of production. The loss of the Port of Famagusta, which handled 83 percent of the general cargo, and the closure of the Nicosia International Airport, in the buffer zone, were additional blows.

The success of Cyprus in the economic sphere is attributed, inter alia, to the adoption of a market oriented economic system, the pursuance of sound macroeconomic policies by the government as well as the existence of a dynamic and flexible entrepreneurship and a highly educated labour force. Moreover, the economy benefited from the close cooperation between the public sector and the social partners.

During the last decade, Cyprus has intensified its relations with the European Union, its largest trading partner. In July 1990, the Cyprus government submitted an application for full membership of the European Union. Substantive accession negotiations between Cyprus and the EU begun in November 1998 and are expected to be completed by the 1January 2003.

The economic benefits to Cyprus as a whole from membership of the EU are quite substantial. Cyprus goods and services will have access to a huge single market consisting at present of the 15 most economically advanced countries in Europe. Cyprus%26rsquo; participation in the Union%26rsquo;s internal market, an area where free movement of goods, services, persons and goods is ensured, will lead in the long term to a more efficient allocation of factors of production towards activities in which Cyprus possesses comparative advantages. This will have positive repercussions on growth and employment.

Cyprus will have a share in the growth and development of the EU economy. It will attract investment from the EU in activities in which Cyprus possesses comparative advantages, thus accelerating the transformation of Cyprus into a regional business centre. Moreover Cyprus will benefit from increased EU financial assistance.

In the new age of globalisation and world economic integration, in an era marked by a technological revolution, which encompasses all sectors of the economy, the key to success is competitiveness coupled with high quality manufactured goods and services and the ability to adjust quickly to the ever changing preferences of the consumers.

In its effort to meet the challenges of the new century, the Cyprus Government has chosen the course of competitive economy and social cohesion, in which the state acts as a regulator and protector of its weaker citizens, while ensuring at the same time conditions of competition to the benefit of consumers.

In view of the forthcoming challenges stemming from the globalisation of economies and the liberalisation of trade, the rapid technological changes as well as the envisaged accession of Cyprus to the European Union, the Government has formulated a Strategic Development Plan, which covers the years 1999-2003.

Three main factors were taken into consideration in formulating the plan%26rsquo;s strategies:(a) the changes in the external environment that have a decisive effect on small open economies, such as Cyprus, (b) the recent trends and the growth potential of the economy and (c) its comparative advantages and constraining factors.

The main strategic objectives of the plan are the following:
The acceleration of the harmonization process with the conditions prevailing in the European Union
The achievement of the highest possible rate of growth while at the same time maintaining conditions of macroeconomic stability and social cohesion
The restructuring of all sectors of the economy, the modernization and technological upgrading of the productive units, the exploitation of the economy%26rsquo;s comparative advantages with a view to enhance the competitiveness of the Cyprus economy.
The upgrading of the role of Cyprus as an international business centre and a high quality service centre.
The improvement of quality of life and the upgrading of the environment
The adaptation of the Cyprus economy to the emerging information society
The reform and modernization of the public sector
The macroeconomic quantitative targets of the Plan take into account the commitment of the Government to satisfy all Maastricht Convergence Criteria. More specifically the plan aims at achieving an average annual growth rate of 4% in real terms, maintaining the unemployment rate at around 3%, containing inflation in the range of 2% and gradually reducing the deficit of the current account of the Balance of Payments to levels that would allow its financing by autonomous non-debt flows. It also aims also at restraining the fiscal deficit at 2% of G.D.P.

Developments in 2000

In the year 2000 the Cyprus economy exhibited for a third consecutive year satisfactory growth. The main factors that contributed to this development were the favourable external environment, which led to a significant increase of the external demand for Cypriot goods and services, the optimistic climate that prevailed among consumers and investors, as well as the positive wealth effects on private consumption from the increase of the stock exchange index observed in 1999.

A restraining factor to the further growth of the Cyprus economy, constituted the significant increase in the price of oil in international markets that implies the transfer of additional resources from oil importing to oil exporting countries.

The rate of economic growth reached 5%, in real terms, in 2000 following an also satisfactory growth of the order of 4,5% in 1999. From the demand side, the main engines of growth were the acceleration of both external demand, in particular for tourist services, as well as of domestic demand, and more specifically private consumption and fixed capital formation.

The external demand for goods and services recorded a growth of the order of around 9%, in real terms in 2000 following an increase of 6,6% in 1999. This development is attributed to the significant increase of the external demand for services, mainly tourist services, due to the acceleration of the rate of economic growth in the main tourist markets of Cyprus and the further appreciation of the sterling pound vis-%3f-vis the Cyprus pound.

At the same time, the volume of exports of goods declined, reflecting the fall in agricultural exports, due to the adverse weather conditions that prevailed, as well as to the slight fall in the volume of re-exports. In contrast, the volume of exports of manufactured goods exhibited a significant increase due mainly to the gradual adjustment of the manufacturing units to the conditions of intensified competition, the appreciation of the sterling pound and the US dollar vis-%3f-vis the Cyprus pound and the expansion of import demand in Arab countries, owing to the increase in the oil price in international markets.

The rate of increase of private consumption recorded a significant acceleration in 2000 and reached 7%, in real terms, a development anticipated, to a certain extent, following the subdued growth of consumption demand by only 3,1% in 1999. Additional contributory factors towards this development were the positive wealth effects resulting from the very large increase of the stock exchange index observed during 1999, the growth of the real disposable income (due, inter alia, to tax relief measures and the reduction of the contribution to the Defence Fund), as well as the anticipation of the increase in the VAT rate, which boosted the purchases of durable goods during the first half of 2000.

In contrast, the rate of expansion of public consumption, excluding defence, was limited to 3,5%, in real terms in 2000, as compared to 5% in 1999, mainly as a result of the implementation of the fiscal consolidation programme, as from mid-1999.

Gross fixed capital formation recorded a significant increase of the order of around 5,5%, in real terms, in 2000 as against a reduction of 1,1% in 1999. This development reflects the large expansion of fixed investment in machinery and equipment, which in turn was due to the intensified restructuring efforts of the business units as well as the allocation of part of the financial resources absorbed by the listed companies through the stock exchange, particularly in late 1999, to investment in machinery and equipment. Fixed investment in transport equipment also, recorded a significant expansion, a development attributed to the purchase of ships by a Cypriot ship owning company. A restraining factor to the further expansion of fixed capital formation constituted the subdued investment demand for new buildings and works.

From the supply side, the satisfactory rate of growth of the Cyprus economy continued to be based on the tertiary sectors of services and in particular on the sectors of hotels and restaurants and trade and the sectors of financial intermediation, telecommunications, real estate activities and business and other social services. In total, the value added of the tertiary sectors of services increased at a rate of almost 7%, in real terms in 2000, following an increase of 5,2% in 1999.

A positive development in the year 2000 was also, the recovery of the manufacturing sector. The manufacturing sector exhibited a relatively high rate of growth of the order of 4%, in real terms in 2000, following five years of subdued activity, a development attributed, inter alia, to the expansion of external demand for the sector%26rsquo;s products and particularly for exports of cigarettes, pharmaceutical products, cement and furniture. The expansion of external demand was mainly due to the favourable external environment and the gradual adjustment of the manufacturing units to the conditions of intensified competition. The production volume of the agricultural sector recorded a decline of the order of around 10% in 2000, as compared to an increase of 13,4% in 1999, as a result of the adverse weather conditions.

The satisfactory, overall, growth of the Cyprus economy was also reflected in the labour market, where full employment conditions continued to prevail, with a marginal reduction in the rate of unemployment from 3,6% of the economically active population in 1999 to 3,4% in 2000. During 2000, there was a further expansion in the employment of foreign workers raising the total number of foreign workers to about 26.000, representing 8,8% of the gainfully employed population as compared to 23.879 and 8,2% respectively in 1999.

Labour productivity increased at a satisfactory rate of around 3,4% in 2000, following a similar rate of improvement in 1999. In view of a lower rate of growth of labour productivity in the EU, there was a narrowing of the difference in the productivity level between EU and Cyprus.

As a result of the combination of a number of exogenous and transitory factors, the rate of inflation accelerated temporarily to 4,1% in 2000, as compared to 1,7% in 1999. More specifically, the acceleration in the rate of inflation was due to the substantial oil price increase in international markets in conjunction with the significant appreciation of the dollar vis-%3f-vis the Cyprus pound, the adverse weather conditions that pushed up the prices of local agricultural products and the increase in a number of excise duties in late 1999 and the VAT rate from 8% to 10%, as from 1.7.2000. It is noted, that excluding the above-mentioned factors, the rate of inflation fluctuated around 2%.

The current account deficit of the balance of payments widened from 2,4% of GDP in 1999 to 5,2% in 2000. This development is attributed mainly to the large rise of oil prices and the buoyant import demand. It is noted, that the additional cost due to the oil price increase during 2000, came to 137,7 mln. which represents 2,5% of GDP. Thus excluding the effect of the additional cost of fuel in 2000, the current account deficit amounted to 2,7% of GDP. A restraining factor to the further deterioration of the current account deficit constituted the satisfactory increase of both exports of services and exports of manufactured goods.

Noteworthy of the capital account developments in 2000 are the increased inflows of foreign direct and portfolio investments by non-residents, inter alia, as a result of the abolition of all restrictions under the Exchange Control Law, on direct and portfolio investments from EU residents, as from January 2000, and the partial liberalisation of portfolio investments from residents of third countries, as from August 2000. Foreign exchange reserves provided an increased coverage of 16,7 months of imports of goods and services in 2000, as compared to 14,8 months in 1999. The long-term external debt to GDP ratio and the debt service ratio continued to fluctuate at low levels in 2000, as compared to international standards, 27,6% and 7,6%, respectively.

The downward trend of the fiscal deficit observed in 1999, continued further in 2000. More specifically, the fiscal deficit was reduced to 2,8% of GDP, as compared to 5,5% in 1998 and 4% in 1999, satisfying the relevant Maastricht convergence criterion. This improvement is attributed mainly to the successful implementation of the fiscal consolidation programme that the Government has implemented as from mid-1999. Additional contributory factors were the strong growth of economic activity and improved tax administration, which boosted direct and indirect tax revenues and the containment in defence expenditure. The significant reduction of the fiscal deficit resulted in a moderation in the rate of increase of the public debt, which, according to preliminary estimates, increased from 60,1% in 1999 to 60,5% in 20001.

Final data which are currently being processed, indicate that the deficit would be below 2,8% of GDP and that the debt would be lower than 60% of GDP.

Monetary policy in 2000 aimed at maintaining conditions of monetary stability. The rate of increase of total money supply decelerated to 8,4% in 2000, as against 15,1% in 1999. Despite the imposition of credit ceilings on banks, as from June till December 2000, the rate of bank credit to the private sector remained at high levels, due to the significant expansion of consumption and investment demand. Net bank lending to the private sector maintained its position as the primary source of monetary expansion in 2000. Monetary growth was also enhanced, albeit to a considerably less extent, by the financial requirements of the Government and the inflows of foreign assets.

In summary, the Cyprus economy has been on a satisfactory growth path during the past three years, with the tertiary sectors of services providing the main engines of growth, from the sectoral point of view. The rate of economic growth reached 5%, in real terms in 2000, following a good growth performance of 4,5% in 1999. The unemployment rate was further reduced to 3,4% of the economically active population in 2000 and the fiscal deficit exhibited a significant improvement and was contained to 2,8% of GDP in 2000. The rate of inflation accelerated and reached temporarily 4,1% while, excluding the effect of non-recurrent factors, the inflation rate amounted to around 2%.

Prospects for 2001
Short-term developments in a small and open economy such as the one of Cyprus depend, to a large extent, on conditions prevailing in external markets. In general, the external environment is expected to remain favourable in 2001.

In the UK, which constitutes the largest tourist market for Cyprus and absorbs the largest share of Cyprus domestic exports of goods, the rate of economic growth, notwithstanding an expected slight deceleration, is anticipated to remain at satisfactory levels, 2,7% in 2001, whereas the rate of expansion of import demand for goods and services, is also forecast to remain at high levels, around 8%.

In the rest of the markets that are of interest to Cyprus, the overall picture is also generally positive, despite the fact that it is somewhat less favourable as compared to 2000. Specifically, the rate of growth for the whole of the EU countries is expected to fluctuate at 2,8% in 2001, as compared to 3,4% in 2000, whereas the rate of expansion of import demand for goods and services is anticipated to increase by around 7,5% in 2001. For the Middle East countries, the rate of increase of import demand is forecast to be at comparatively high levels. Finally, the rate of economic growth of the Central and Eastern European countries, including Russia, is expected to be maintained at a relatively high level around 4% in 2001.

An additional positive factor to the prospects of the Cyprus economy for the year 2001 constitutes the positive climate that prevails among entrepreneurs with regard to the future performance of their businesses, as is indicated in the Business Trends Surveys conducted by the Statistical service for the sectors of manufacturing, hotels and business services.

A restraining factor to the further growth of the Cyprus economy is the fall of the stock exchange index and the implied negative wealth effects that are expected to impact on the rate of expansion of private consumption.

On the basis of the above assumptions, the rate of economic growth is forecast to fluctuate at around 4,0%, in real terms in 2001, following a rate of growth of the order of 5% in 2000, with external and investment demand being the main engines of growth.

Analytically, external demand is expected to expand at a satisfactory rate around 6%, in real terms, in 2001, following an increase of almost 9% in 2000, reflecting a partial recovery of exports of agricultural goods and a continued high rate of growth of the exports of services. More specifically, a significant increase in the volume of domestic exports of goods, around 9% is anticipated in 2001, mainly as a result of the expected recovery in the volume of exports of potatoes following the large reduction observed in 2000, and the further expansion in the volume of manufacturing exports, benefiting from the favourable external environment.

Exports of services, other than tourist services, are expected to continue exhibiting the dynamism of the past few years. As regards tourist demand, a satisfactory rate of increase of tourist arrivals is anticipated.

Domestic demand, is expected to expand at a rate of around 3,5%, in real terms, in 2001, as compared to 6,0% in 2000. The rate of increase of private consumption, in real terms, is expected to decelerate to 3%, in real terms, in 2001, as against an increase of 7% in 2000. The slower expansion of private consumption is due mainly to the anticipated containment in the purchases of durable consumer goods, following the large expansion observed during the first half of 2000, that is, the period before the increase in the VAT rate, as well as to the negative wealth effects from the fall in the stock exchange index during 2000 and the first quarter of 2001.

An additional restraining factor to the further expansion of private consumption is expected to result from the differentiation of interest rates against consumer loans, which is already being observed following the liberalisation of interest rates as from 1.1.2001. A positive factor for the expansion of private consumption constitutes the further anticipated increase in the real household disposable income, which will result from the increase in employment and real earnings.

The rate of expansion of public consumption, excluding defence, is expected to be contained to 2,5%, in real terms in 2001, as compared to 3,5% in 2000, reflecting the tight fiscal policy adopted by the Government within the framework of the implementation of the fiscal consolidation programme, which in early 2001 was revised and made even more ambitious, targeting a balanced fiscal stance in 2004.

The relatively rapid expansion of gross fixed capital formation in 2000, at around 5,5% in real terms, is expected to continue in 2001. Factors contributing towards this development will include the favourable business climate that was evident in the Business Trends Surveys and the abolition in early 2000 of all restrictions under the Exchange Control Law on direct and portfolio investments from EU residents, as well as the partial liberalisation of portfolio investments for residents of third countries as from August 2000. At the same time, the increasing trend of adjustment of business units to the conditions of intensified competition observed during the past few years - 1999 being an exception - is expected to continue in 2001.

As regards investments in construction works, a small increase in real terms is forecast, reflecting an increase in the volume of the building permits granted in 2000 for dwellings, commercial buildings and tourist accommodation, whereas the planned investment expenditure of the broader public sector, i.e. the Central Government, the Semi-Government Organisations and the Local Authorities, is at higher levels compared to 2000.

From the supply side, the main engines of growth are expected to constitute, for yet another year, the tertiary sectors of services and particularly the sectors of business and social services, hotels and restaurants, telecommunications and financial intermediation. The value added of the tertiary sectors of services, as a whole, is forecast to increase by around 4,5%, in real terms, in 2001, as compared to almost 7% in 2000.

The gradual recovery of the sector of manufacturing is expected to continue in 2001. The rate of increase of the value added of the sector is anticipated to reach 2,5% in real terms in 2001, following an increase of 4% in 2000. This development is expected to result from the forecast continued satisfactory expansion of external demand for certain products of the sector, benefiting from the favourable external environment and the adjustment observed in certain sub-sectors of manufacturing to the conditions of intensified competition. In addition, the maintenance of a relatively rapid rate of growth of the economy and buoyant investment demand is expected to lead to a further increase of domestic demand for intermediate and capital goods of the sector. However, the anticipated significant deceleration in the rate of increase of private consumption will impede the further growth of the sector.

The downward trend of production of the construction sector is expected to be reversed in 2001, as indicated from the increased volume of building permits granted in 2000, both for the construction of residential, tourist and commercial buildings, on the one hand, and the higher planned investment expenditure of the broader public sector, on the other.

Finally, the volume of production of the sector of agriculture, is expected to exhibit a recovery and to increase by 5% in real terms in 2001, as against a decline of 10% in 2000, reflecting a partial revival of crop production, which was negatively affected by the adverse weather conditions that prevailed mainly during the first six months of 2000.

The satisfactory rate of economic growth is expected to be reflected in the labour market. The unemployment rate is estimated to decrease marginally to 3,3% of the economically active population in 2001 from 3,4% in 1999. Labour productivity is expected to increase by around 3% in 2001, following an increase of 3,4% in 2000. The nominal earnings are expected to be contained to around 5% in 2001, as compared to 7% in 2000. This development is anticipated to derive from the significant fall in the rate of inflation, and thus lower increases through the COLA (Cost of Living Allowance) mechanism.

The rate of inflation is expected to fall to around 2% in 2001 as compared with 4,1% in 2000, as a consequence mainly of lower agricultural prices and a levelling of energy prices. Moreover, the expected moderation in the growth of real wage earnings will help further towards containing the upward pressures on costs and prices. It is noted in this respect, that according to the available data for 2001 the rate of inflation was contained to 1,7% in the first five months of 2001.

The current account deficit is projected to improve substantially in 2001 in view of an expected considerable moderation in import demand, which is anticipated to result mainly from the negative wealth effects following the significant fall in the share price index in 2000 and in the first quarter of 2001 and the high purchases of durable consumer goods in the year 2000. The current account deficit is estimated to be contained to around 3,5% of GDP.

The tightening of the fiscal stance observed in 1999 and 2000 is projected to continue in 2001, with a further containment of the fiscal deficit to 2,2% of GDP in 2001 as compared with 2,8% in 2000.

The expected further reduction in the fiscal deficit in the year 2001 is mainly attributed to the following factors:

The full impact of the VAT rate rise from 8% to 10%, as from 1.7.2001, will be felt in the year 2001.

The expected lower increase of public expenditure on wages and salaries mainly as a result of a further containment in the rate of expansion of employment in the public sector and lower increases in wages and salaries in view of the expected lower COLA component.

Lower transfer payments mainly due to the introduction of a new fuel price mechanism as from July 2000. According to the new mechanism adopted, if the world oil market prices change by a certain level in Cyprus pounds there will be an automatic change of the fuel prices in the domestic market, without prior approval of the House of Representatives.

The beginning of 2001 was marked by important developments in the monetary policy area, as the Law liberalising interest rates entered into force, repealing the previously existing legislation which set the legal interest rate ceiling of 9,0% per annum. In late December 2000, the Board of Directors of the Central Bank, taking the aforementioned outlook of the economy into consideration and the recommendations of the Monetary Policy Committee, announced that the official Central Bank rates, i.e. the marginal lending facility rate and the overnight deposit facility rate would remain unchanged and set a reference value for credit expansion in 2001 at 11,0%. This monetary policy stance was maintained up until the end of June, as at the time of writing this report.
The Strategic Development Plan, 1999-2003


The new Development Plan will cover a very important period for the Cyprus economy, in view of the worldwide trend towards globalisation and further trade liberalisation, the rapid technological changes as well as the envisaged accession of Cyprus in the EU.

The basic elements that were taken into consideration for the formulation of the Plan%26rsquo;s strategy are (I) the changes in the external environment that have a decisive effect on small open economies, such as Cyprus, (ii) the recent trends and the growth potential of the economy and (iii) its comparative advantages and constraining factors. Taking into account all the factors affecting the Cyprus economy, the Planning Bureau of the Government of Cyprus proceeded with defining main strategic objectives of the new Plan.

1. Harmonisation with the EU
The harmonisation process will be intensified during the period of the new Strategic Development Plan. At the same time, sectoral plans will be formulated and implemented, aiming at the restructuring of all sectors of the economy, with a view to enable them to meet the challenge of intensified competition within the EU. In this context, Cyprus will utilise its participation in various EU programs, such as Leonardo da Vinci, Socrates, Youth for Europe, Fifth Framework Program, COST, INTERREG, and KAROLUS.

2. Growth-Stability-Social Cohesion
Social cohesion, the optimum allocation of economic resources and the fair distribution of income, constitute, also according to the White Paper of the EU on "Growth, Employment and Competitiveness", necessary preconditions for the attainment of a sustainable development.

The maintenance of a stable macroeconomic environment is indeed a necessary prerequisite for the flourishing of private initiative. Recent experience has confirmed that high inflation rates and large current account deficits lead, nearly always, to economic crises. This has been the case in a number of economies during the last few years, including economies that were considered robust, such as the economies of Southeast Asia.

The attainment of social cohesion and the maintenance of conditions of macroeconomic stability are not sufficient, on their own, to safeguard economic growth. Consequently, within the framework of the new Plan, the development aspect remains high on the agenda.

3. Restructuring - Modernisation - Enhancing Competitiveness
The irreversible process of globalisation and trade liberalisation and the gradual dismantling of trade barriers within the framework of the newly established World Trade Organisation and the envisaged accession of Cyprus to the EU, necessitate the restructuring of all sectors of the economy, the modernisation of the productive units and the strengthening of their competitiveness.

In order to achieve the above, it is considered necessary to improve overall productivity and efficiency of the business units, through the utilisation of advanced technology, modern methods of management, organisation of production and marketing, as well as the adaptation of the educational and training systems to current requirements.

4. Upgrading the Role of Cyprus as an International and Regional Services Centre
International trade in services exhibited accelerated growth during the past decades. Cyprus managed to exploit the arising opportunities and achieve noteworthy progress, particularly in transit trade, tourism, shipping, telecommunications, banking, business services, tertiary education and tertiary health.

Cyprus has the potential to upgrade its role as an international and regional service centre of high quality by further exploiting its comparative advantages. This is considered important, with a view to reducing the dependence of the economy on tourism and its vulnerability on exogenous factors.

The proposed policy measures attach emphasis on setting up the necessary institutional framework, extending the signing of bilateral agreements for the mutual protection of investment and avoidance of double taxation, which have proved beneficial for the export of services, improving incentives, upgrading training and promotion abroad.

5. Improvement of the Quality of Life-Upgrading the Environment
Another main objective of the new Plan is the prudent use of natural resources and the preservation of the environment, elements that contribute to the upgrading of quality of life in Cyprus.

6. Adaptation to the Information Society
The revolution in telecommunications and information technology facilitates the rapid expansion and transmission of knowledge and lead to radical changes in the production systems, organisation of work, consumer preferences and the society in general. The structure of production tends also to change in favour of the knowledge intensive activities, whilst, investment in human resources is gaining importance.

The Government of Cyprus has prepared an action plan, aiming at facilitating the adaptation of the economy to the emerging information society, which will be incorporated in the new Development Plan, 1999/2003. This action plan attaches emphasis on promoting the awareness of the population to the significance of information technology, reforming the education and training systems and adapting them to the requirements of the information society, promoting the concept of life-long learning, improving the infrastructure in telecommunications, utilising information technology systems for the modernisation of production units and encouraging enterprises engaged in information technology to expand their operations abroad, given the small size of the domestic market. The medium and long-term vision of the Government is to establish Cyprus as an international and regional centre for information technology, taking advantage of the strategic geographical location of the Island.

7. Reform of the Public Sector
A necessary precondition for Cyprus to cope successfully with current and forthcoming challenges is the modernisation of the public sector. The main objectives of the Government in this area is to improve the productivity of the civil service, upgrade the quality of services offered to the public, simplify procedures, combat bureaucracy and restrain the growth of employment in the public sector.

Quantitative Targets
The macroeconomic quantitative targets of the Plan take into account the commitment of the Government to satisfy all Maastricht Convergence Criteria during the period covered by the Plan. In specific terms, the Plan aims at achieving an average annual growth rate of 4% in real terms, maintaining the unemployment rate at around 3%, containing inflation in the range of 2% and gradually reducing the deficit of the current account of the Balance of Payments at levels that would allow its financing by autonomous non-debt flows. The Plan aims also at restraining the fiscal deficit at 2% of G.D.P.

1 Final data which are currently being processed, indicate that the deficit would be below 2,8% of GDP and that the


Entry Date 7/8/2001

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