Growth to 2021 ‘cir­cum­stan­tial’, no long-term plan, says op­po­si­tion

Financial Mirror (Cyprus) - - CYPRUS -

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.

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