NICOSIA, Oct 29 (Reuters) - Cyprus on Wednesday said it was working on a financial contingency package that it would implement if hit by global financial turmoil.
The Mediterranean island, a euro zone member since Jan. 1 2008, has been largely buffered from a meltdown on markets worldwide because of an insular retail-based banking system.
But there are underlying concerns that tourism, footing about 13 percent of its GDP, could be affected if turmoil persists. Most of its holidaymakers are British, with an 11.6 percent plunge in arrivals from the UK in September.
"Cyprus is in a considerably better position compared to other countries and has not, essentially, been affected by the crisis," said government spokesman Stefanos Stefanou.
"The government is working on an action plan which would deal with any problems which may arise if the crisis continues," the Cypriot official said after a ministerial meeting chaired by President Demetris Christofias.
He said it would be ready in about 10 days' time.
Finance Minister Charilaos Stavrakis would not specify what measures authorities had in mind. To date, Cyprus has only pledged to raise the minimum bank guarantee for deposits to 100,000 euros from 20,000 euros.
"You might find us a bit frugal but that is because we have faith in the system," Stavrakis said.
Fiscal policies which project a 1.0 percent budget surplus this year would allow the government to plug any holes in the economy, he said.
"Of course it's taxpayers' money so the various measures we are looking at have be assessed carefully, and be targetted in such a manner which will effectively deal with any likely problems."
The tourism lobby has sought tax breaks from the government which would make the island a cheaper tourism destination.
Until now, Cyprus's communist-led government has ruled out any cutbacks in government spending for 2009, where economic growth is expected to expand by 3.0 percent compared to 3.8 percent in 2008.
The finance ministry says it has already factored in a drop-off in demand next year. Demand grew by 15 percent in 2008, but the rate of growth is expected to expected to slow to a forecast 5.0-6.0 percent next year, Stavrakis said.
(Reporting by Michele Kambas, editing by Victoria Main)