News Column

Government debt stable, deficit falling

August 6, 2014

THE GENERAL government debt remained stable at 18.56 bln at the end July 2014 (preliminary data) compared with the of December 2013 when it was 18.4 bln., figures released by the finance ministry on Wednesday showed.

Average short term debt yields continued to drop in June and July with short term rates falling at 4.22 per cent at the end of July from 4.48 per cent at the end of Q1 2014.

Long term bond yields displayed relative stability during June and July, hovering around the 5.0 per cent mark despite negative international developments.

According to the report, developments in public finances continue to exceed expectations.

General government budget balance was in deficit during the first half of 2014, of the order of 22 mln (-0.1 per cent of GDP) compared with a forecast deficit of -145 mln (-0.9% of GDP). General government primary balance was in surplus during the first half of 2014, of the order of 171 mln (1.1 per cent of GDP) compared to target a surplus of 46 mln (0.3 per cent of GDP).

Total revenue reached 3.2 bln during the first half of 2014, in line with the forecast. Total expenditure reached 3.2 bln during the first half of 2014, a 124 mln fall compared with the forecast.

In accordance with the macroeconomic scenario agreed with international lenders, the budget balance is expected to show an improvement with the deficit falling to 4.7 per cent of GDP in 2014 compared with a deficit of 5.4 per cent the year before.

In the macroeconomic environment, in Q1 2014, GDP (in seasonally adjusted terms) contracted by -4.1 per cent compared with -4.9 per cent in Q4 2013.

The contraction was mainly due to the subdued performance of the secondary sector (construction, manufacturing) and the financial sector. From the expenditure side, the contraction was more pronounced in investments of construction, while net exports made a positive contribution.

The business operating environment remains constrained, given that lending to non-financial corporations is subdued and interest rates are still high.

Exports of goods decreased by 7.1 per cent year-on-year between January and May.

Unemployment, in monthly seasonally adjusted figures, decreased from 15.9 per cent in May 2013 to 15.3 per cent in May 2014.

The most affected segment of the population is youth. Particularly worrying is also the rapid increase in long-term unemployed.

Compensation per employee in the 1st quarter of 2014 declined by around 4.5 per cent compared with Q1 2013, contributing to a decline of nominal unit labour costs and improving cost competitiveness further. The wage adjustment is expected to help contain the upward pressure on unemployment, the report said.

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Source: Cyprus Mail

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