by Jerry » Tue Jul 22, 2008 11:43 am
Oh dear it looks like the economy in the north is on the verge of collapse, who is going to bail them out, Turkey or the ROC?
North seeks ‘miracle’ to stave off public finance collapse
By Simon Bahceli
TURKEY’S refusal to bankroll the Turkish Cypriot authorities this month means it will take a “miracle” to pay public sector salaries, ‘finance minister’ Ahmet Uzun has warned.
Uzun’s comments came in the wake of industrial action sparked by the authorities’ attempts to implement further austerity measures aimed at capping public spending. Since January, all pay increases within the public sector have been frozen, along with a ban on overtime. Despite the freeze, however, public servants’ salaries are still linked to inflation and subject to a two-monthly review – a mechanism Uzun now wishes to see abolished.
Backing Uzun against already-inflamed trade unionists, ‘prime minister’ Ferdi Sabit Soyer said last week his administration had pleaded with the Turkish government for additional funds to help foot the salary bill, but that the plea had been refused. He described the Turkish government’s refusal as “understandable” and announced that he would seek the implementation of measures that would “address structural shortcomings” within the public sector. Neither raising taxes, nor further borrowing were options, he insisted.
A budget deficit is the norm for the Turkish Cypriot authorities, and has in the past been plugged by donations from the Turkish government. This time however, Turkey has refused to provide funds beyond the approximately $500 million annual budget.
Uzun warned that while the current lack of funds stemmed partly from rising oil prices and the global credit crisis, their primary cause was “structural problems” in the north’s public sector inherited from administrations dating back to the division of the island in 1974. These earlier administrations, he added, had managed to pay salaries because of previous Turkish governments’ willingness and ability bankroll them, and through now-unviable ways of raising revenue.
“In the past we had a closed economy where there was no competition [from outside]. Now we have to compete with the Greek Cypriot side and abide by EU norms. To do this we cut VAT and import duties,” he said.
Speaking to the Cyprus Mail yesterday, economist and former ‘economy minister’ Ayse Donmezer said the need for radical reforms within the Turkish Cypriot economy was well known. A World Bank report on the north’s economy published in June 2006 clearly stated that excessive spending on public sector salaries and uneconomic public corporations was untenable and held back real economic growth.
“In normal economies you have a ratio of one person receiving a retirement pension from the state to four active workers. Here we have only two working to every one getting a pension,” Donmezer said. She said the problem was being further compounded by a gradually ageing population and still-growing employment in the public sector.
“Workers’ contributions are low, but the government’s spending on pensions and wages are constantly rising.”
She also highlighted a need to either close down or privatise ‘state-run’ corporations such as electricity provider KIBTEK and CYPRUVEX, a corporation that oversees the citrus fruit industry.
Donmezer believes “painful reforms” are needed if the north’s ‘finance ministry’ wishes to avoid total bankruptcy.
“We need constantly to review public spending and adjust contributions according to the revenue coming in. We also need to force sectors of the economy that do not pay tax to do so,” she said, quoting a study that found 30 to 40 per cent of incomes in the north were not declared and therefore left untaxed. She also called for changes in the law to make investment, including foreign investment, more attractive.
“Turkey could bail us out and we could get by in the short term. But we will simply have to face the same problem next month. Or we could borrow, which will mean our children will be ones to pay,” she concluded.
Cyprus Mail