Cyprus MPs agree to 10 per cent pay cut

(NICOSIA) - Cypriot lawmakers on Thursday unanimously passed a law that will see their basic pay cut by 10 percent in an effort to reduce a fiscal deficit double the European Union's three-percent limit.

The vote, which was broadcast live on Cyprus state television, means each of parliament's 56 MPs are set to lose about 340 euros (430 dollars) a month from their salaries.

Total savings would amount to more than 455,000 euros (almost 580,000 dollars) over two years, an amount which is symbolic but carries the message that everyone must do their bit to help the troubled economy.

The cost-cutting measure follows similar moves made by ministers to agree comparable wage cuts, taking the lead from Cyprus President Demetris Christofias.

With a fiscal deficit threatening to balloon out of control, the government needs to drastically reduce spending and find ways of raising revenue as income has plunged from its key tourist and real estate sectors.

The Mediterranean holiday island is slowly recovering from being in recession during 2009, when the economy shrank by 1.7 percent.

The International Monetary Fund said this week that the Cyprus economy should bottom out this year and return to modest growth in 2011, stressing however that tough measures are needed to trim the budget deficit.

Last year the deficit reached 6.1 percent and the government is seeking to keep it at around six percent this year by cutting 1,000 public sector jobs and freezing general pay increases.