Steady environment and sound fiscal policy led Cyprus back to the markets, says ESM

Cyprus returned to the markets due to its steady political environment, sound and over-performing fiscal policy, a credible debt management strategy and favouring market conditions, according to the main conclusions of a special European Stability Mechanism (ESM) report on the four countries exiting the rescue programme – Cyprus, Ireland, Spain and Portugal. The special report has been conducted under Rolf Strauch, ESM Head of Economics, Policy Strategy and Banking Member of the Management Board, while the part on Cyprus was a contribution by Phaedon Kalozois of the Public Debt Management Office, the Cyprus News Agency reported.

According to the report, the first and most important goal was to restore investor confidence by fulfilling commitments and by being transparent and reliable. The ability to swiftly implement measures to remedy macroeconomic and fiscal problems is very important for convincing investors to remain active in a sovereign market during a crisis, the report says. Equally important, it notes, is the proper management of the financial system.

“Any financial crisis takes time to settle, however investors expect to see at least a gradual but clear progress.”

The report recommends to have in place a credible and rational MTDS, to be ready to take advantage of favourable market developments, but never on an opportunistic basis. Even in cases of crisis and difficulty in accessing the market, it is important to maintain contact with market participants and develop a transparent relationship with investors in order to facilitate re-entry into the market, it says. Above all, it suggests to continue on the path of sustainable economic policies safeguarding long-term fiscal sustainability.

“The policy framework described above enabled Cyprus to improve all risk indicators associated with public debt and to re-establish market access,” it points out.

Cyprus used only about EUR 7.25 billion of the approved EUR 10 billion bailout programme which did not allow for the repayment of a number of domestic government bonds that were due to mature within the official programme period.