Cyprus launches EUR 300 million stimulus plan

(NICOSIA) - Cyprus President Demetris Christofias unveiled a 300 million euro financial package on Tuesday in a bid to boost the Mediterranean island's flagging tourism and construction sectors.

"We did not relax but timely and effectively put together a fiscal programme to address the crisis we find ourselves in. We are always prepared to take additional measures to limit the visible consequences," he said.

He was speaking after an emergency cabinet meeting that had been called to rush through more measures to revive a stuttering economy and avert stagnation.

Around 250 million euros (192 million dollars) will be made available to stimulate construction, with low-interest loans to be offered to first-time home-buyers and plans to upgrade school buildings.

Another 51 million euros are earmarked for tourism, which includes tax and airport landing fee reductions. At the same time, a scheme to encourage Cypriots to holiday at home will also be introduced.

"The Cyprus economy is expected to be affected to a lesser degree than other countries, especially compared to those in the eurozone," said Christofias.

He also pledged that the government would not increase taxes to pay for the spending package, insisting the plan was "affordable".

Commercial banks should ease the grip on a credit squeeze as the government has already deposited some 700 million euros in bonds to help improve liquidity and those deposits are to remain for an extra three and a half months, he said.

Although Cyprus hopes to avoid the full brunt of the European recession, being one of the few eurozone countries still enjoying economic growth, the measures are seen as a pre-emptive strike against job losses.

In November, the government agreed a 52-million-euro injection for tourism and construction -- the island's major employers -- but the economy is slowing faster than first predicted.

The finance ministry has trimmed its GDP growth projection to 3.7 percent for 2008 and to 2.1 percent for this year over concerns the global financial crisis will trigger lower tourism revenues.

The EU's executive arm, the European Commission, estimates 2009 growth will be one percentage point lower.

Unemployment in 2009 is also expected to rise to 4.5 percent from 4.0 percent last year.

A projected 0.4 percent fiscal surplus has now turned into a 0.8 percent deficit although cheaper fuel will see inflation peak no higher than two percent this year from five percent in 2008.

Tourism and construction jointly contribute 30 percent of GDP.