Court decision may seriously disrupt Cyprus's economy: IMF

NICOSIA, March 29 (Xinhua) -- Cyprus's top administrative court issued a decision on Friday which the International Monetary Fund (IMF) had warned would raise the prospect of a serious disruption of the economy of the eastern Mediterranean island as it is recovering from its 2013 crisis.

The decision said that cuts in the salaries and pensions of civil servants and additional levies imposed as part of fiscal measures taken to face the crisis were unconstitutional.

The IMF warned in a report on Cyprus's economy on Thursday that the outcome of court cases brought by civil servants against bailout austerity measures could result in additional spending for the government.

The measures helped reduce the public payroll from 2.9 billion euros (3.26 billion U.S. dollars) in 2011 to 2.2 billion euros in 2015.

These included a freeze on incremental pay raises; a 3 percent contribution by public servants towards their pensions; a 12.5 percent permanent reduction in civil servants' pay; and a 10 percent drop in hiring salaries.

The court said in its 2-to-1 majority decision that salaries and other benefits enjoyed by public servants were to be considered part of their property, and consequently their impairment constituted a violation of the article of the Constitution protecting the right to property.

The austerity measures, which became known as "fiscal consolidation measures," were approved by the Cypriot Parliament in 2012 as part of a bailout package, which was under discussion with the Eurogroup and the IMF.

The Cypriot government held up the discussions as presidential elections were coming up, and the new government signed the terms of the 10 billion euro bailout in March 2013.

Depending on the outcome of an appeal being considered by the Legal Service of Cyprus against the court's decision, the government may be forced to disburse hundreds of millions of euros in compensation to public servants for the cuts in their salaries and additional contributions.

It will also have to redraw its plans on the economy, taking into consideration the increased expenditure on public services.

The IMF pointed out in its report that massive surpluses generated over the last few years may be in danger of being wiped out, impairing the government's capacity to repay the sovereign debt, which currently stands at over 100 percent of gross domestic product (GDP). (1 euro = 1.12 U.S. dollar)