Growth to 2021 ‘circumstantial’, no long-term plan, says opposition
The Central Bank of Cyprus (CBC) expects the Cypriot economy to maintain robust growth for another three years, while opposition parties are skeptical over such prospects, as they argue growth is circumstantial and the government is following short-sighted policies.
In its December 2018 quarterly economic bulletin, the CBC said that growth will reach 3.8% in 2018 and will decelerate to 3.7% in 2019, while economic expansion is projected to decline further to 3.2% and 3.3% in 2020 and 2021, respectively.
“Large private investments amounting to ?3 bln with a sizeable funding percentage coming from foreign capital have already begun and are projected to conclude by 2021,” the CBC said, noting these investments include renewable energy projects, housing, commercial and mixed developments, marinas, hotels and the casino resort.
The CBC said these projects “are expected to give great momentum to the Cypriot economy in the coming years.”
Commenting on the Central Bank’s findings, the Government spokesman Prodromos Prodromou said that implementation of structural reforms would further strengthen and deepen the positive growth climate prevailing in the Cypriot economy.
Prodromou added that “this positive growth climate will be strengthened and deepened with the implementation of structural reforms which would strengthen the strategy for growth, such as the operation of the Deputy Ministry for Tourism, the implementation of development provisions of the investment law, reforms in local administration and the public sector, and the systematic promotion of research, innovation and entrepreneurship.”
However, opposition parties do not seem convinced, worried over the sustainability of growth rates recorded and the impact on social welfare.
Opposition AKEL spokesman Stefanos Stefanou, commenting both on the CBC report and Prodromou’s comments, told the Financial Mirror that growth is based mainly on circumstantial developments and that the government is not acting with a long-term strategic plan.
“The government’s decisions are opportunistic based on circumstantial factors such as the Citizenship-forInvestment scheme. There is no strategic long-term plan,” he said.
Akel’s spokesman stressed that the results of such policies are that any benefits end up in the hands of the ‘few and chosen’, while the equality gap within society widens.
“The government does not have a targeted wealth redistribution policy, which, coupled with the pay cuts suffered over the past years has led to high levels of social and work-related insecurities, and is creating bubbles in the economy,” said Stefanou.
Commenting on Prodromou’s statements on reforms, the Akel spokesman said that the government dubs as reform any change they want to make such as the privatisation plans being put forward. “The government is currently privatasing the wealth, and nationalising the damages, just as they did with the banking sector,” he added.
He said that he did not find it odd that, according to the latest Eurobarometer, 63% of Cypriots found that the economy is in a bad state.
Social Democrat Movement EDEK, commenting on the latest Eurobarometer said that living conditions in Cyprus are worsening as the cost of living is rising and wages remain at the same levels, especially in the private sector.
EDEK notes that rents have increased significantly putting a strain on Cypriot households, while the number of homeless people is increasing.
Meanwhile, the Central Bank also expressed concerns, saying that “the continued deleveraging efforts by the domestic private sector and the banks’ efforts to rationalise their balance sheets and reduce the high burden of non-performing loans will to a certain extent weigh down economic growth”.
“Despite the noted progress which will reduce the NPL rate below 30%, we are still far from the European average levels of 3.6%,” the CBC stressed.
Moreover, the CBC expressed reservations over the government scheme called ESTIA (home) aiming to subsidise part of the repayment plan for borrowers who have defaulted on their mortgages.
Approved by the EU Directorate-General for Competition, the plan is expected to be launched in 2019 and will cost tax payers some EUR 33 mln annually for the next 25 years.
While expressing concerns over the possible moral hazard, which could be manifested through deliberate defaults by borrowers, the CBC expressed fears that the trend for demands which increase state spending may lead to a fiscal slippage.
“Any increase in state expenditure should be controlled and targeted to avoid a fiscal derailment,” the CBC underlined.