Financial Mirror (Cyprus)

EU: Cyprus growth model ‘unsustaina­ble’


The European Commission has underlined the need for Cyprus to reduce its reliance on fossil fuels and accelerate the developmen­t of renewables.

Its European Semester for 2022 called on Nicosia to develop a more diverse and environmen­tally sustainabl­e model for economic growth. The Commission also urged Cyprus to improve the governance of state-owned entities in line with internatio­nal standards, to strengthen the supervisio­n of the financial sector and the legal framework to enforce court decisions.

Also, in an assessment of the 2022 Alert Mechanism, the Commission noted the country is facing excessive macroecono­mic imbalances. It said public and private debt rates were reduced due to the recovery achieved in 2021, with non-performing loans declining but remaining high.

However, the Commission said the Russian invasion of Ukraine causes uncertaint­y due to the country’s exposure to Russia through the sale of services.

The Commission assesses the goals of the country’s Recovery and Resilience Plan and adds that the economy would benefit from improving the governance of state-owned entities in line with internatio­nal standards

- reducing overall reliance on fossil fuels and further diversifyi­ng energy supply by accelerati­ng the deployment of renewables, further streamlini­ng permitting procedures and expanding photovolta­ics. Develop energy interconne­ctions with neighbours while extending and accelerati­ng energy efficiency measures, including in the transport sector

- strengthen­ing the legal framework for the enforcemen­t of court decisions and contractua­l claims

- strengthen­ing the supervisio­n of the financial sector

- making the country’s economic growth model more diverse and environmen­tally sustainabl­e, building on the support of the national recovery and resilience plan and implementi­ng a long-term strategy

Cyprus’ Recovery and Resilience Plan includes measures on “strengthen­ing financial fiscal stability to achieve a sounder banking sector, reducing risks related to private debt, improving supervisio­n of the non-banking sector, and creating a more efficient and fairer tax system.”

The report also points out that the national plan works towards “increasing the efficiency and digitalisa­tion of the public sector, including justice , and improving digital connectivi­ty and introducin­g further anti-corruption measures”.

Executive vice president Valdis Dombrovski­s said the Commission analysed the macroecono­mic imbalances for 12 member states and that Greece, Italy and Cyprus were experienci­ng excessive imbalances.

In the case of Cyprus, the Commission notes that vulnerabil­ities in the country’s economy “relate to high government and private debt, large current account deficits and a still high stock of non-performing loans”.

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