articles | 22 April 2015

Cyprus budget deficit skewed by coop recap

The recapitalisation of the cooperatives makes Cyprus look like it had the highest deficit in the EU in 2014 but the underlying number is far more favourable.

The budget deficit in Cyprus was reported at 8.8% in 2014, making it technically the highest deficit in the EU. However, once the accounting treatment of the cooperative recapitalisation is taken out, the deficit was the smallest in the EU, at 0.3% of GDP. The Ministry of Finance has explained that the difference is because of the accounting treatment of the recapitalisation of the cooperatives.

In 2013, the government received funds from the troika of international lenders for the recapitalisation of the cooperatives – an amount that was added to gross government debt.

The coops were actually recapitalised to the tune of €1.5 billion in February 2014. Since this counts as government spending, it brought the accounting deficit to €1.5 billion, or 8.8% of GDP.

However, without this treatment for the recapitalisation, general government deficit was just 0.3% of GDP and one of the smallest in Europe.

The Ministry, which uses a different methodology, estimated that the fiscal balance would show a marginal surplus in 2014.

In the euro area as a whole the government budget deficit to GDP ratio decreased from 2.9% in 2013 to 2.4% in 2014, and in the EU28 3% from 3.2% to 2.9%.

In the euro area the government debt to GDP ratio increased from 90.9% at the end of 2013 to 91.9% at the end of 2014, and in the EU28 from 85.5% to 86.8%. In Cyprus the debt/GDP ratio was 107.5% of GDP.

In 2014, Denmark (+1.2%), Germany (+0.7%), Estonia and Luxembourg (+0.6% each) registered a government surplus, and the lowest government deficits in percentage of GDP were recorded in Lithuania (-0.7%), Latvia (-1.4%) and Romania (-1.5%).

Twelve Member States had deficits higher than 3% of GDP: Cyprus including the cooperative accounting treatment (-8.8%), Spain (-5.8%), Croatia and the United Kingdom (both -5.7%), Slovenia (-4.9%), Portugal (-4.5%), Ireland (-4.1%), France (-4.0%), Greece (-3.5%), Belgium, Poland and Finland (all -3.2%). At the end of 2014, the lowest ratios of government debt to GDP were recorded in Estonia (10.6%), Luxembourg (23.6%), Bulgaria (27.6%), Romania (39.8%) and Latvia (40.0%).

Sixteen Member States had government debt ratios higher than 60% of GDP, with the highest registered in Greece (177.1%), Italy (132.1%), Portugal (130.2 %), Ireland (109.7%), Cyprus (107.5%) and Belgium (106.5%).

In 2014, government expenditure in the euro area was equivalent to 49.0% of GDP.

Source: InCyprus

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