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
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