articles | 05 December 2016

Cyprus economic growth to edge 3% in 2017

Finance Minister Harris Georgiades said the Cypriot economy’s growth rate in 2016 and next year will approach 3% on a boost from all significant productive sectors.

“Let me say that 2016 was in every respect a key year for the course of the economy,” Georgiades told lawmakers on Friday in his annual budget speech. “Cyprus came into a programme with its economy in deep recession and exited it with one of the highest economic growth rates in Europe”.

“It was a year in which the support programme which had become necessary three years before, was completed and the country proved that it can stand on its feet,” he said in reference to the completion of the adjustment programme in March, which the government agreed with international creditors as part of a €10bn bailout in 2013.

The finance minister said that the government’s slightly over €7bn budgeted expenditure for 2017, combined with projected revenue of slightly below €7bn, will generate a “marginal, imperceptible (fiscal) deficit and a satisfactory primary surplus, which we need because public debt remains high”. The central government primary expenditure, which excludes that of state-owned companies, local administration, and the social insurance fund, is set to increase 1.6%, he said.

The budget provides for a 1.8% increase in revenue, which more than offsets the phasing out of extraordinary levies on income and immovable property, “just because business activity picks up,” he said.

Georgiades, who took over in April 2013, days after Cyprus agreed the terms of its bailout, whose implementation he oversaw, helped with the strict implementation of fiscal consolidation measures and thus better than expected fiscal performance, towards restoring market access for the government last year and eliminate its reliance on funds made available by the European Stability Mechanism and the International Monetary Fund.

During his tenure at the ministry, rating agencies upgraded Cyprus from an almost-default grade several notches upwards, also citing the better than expected performance of the economy, which exited a prolonged recession last year and expanded 1.7%. Still, Cyprus’ highest credit rating, a BB assigned by Standard and Poor’s, keeps the country two grades below investment grade, mainly as a result of the Cypriot banks’ weak asset portfolio, with non-performing loans accounting for half of total loans.

Georgiades, who last month engaged in a war of words with European commissioner Pierre Moscovici, after the latter warned Cyprus of fiscal relaxation, said that a sustainability analysis demonstrated that Cyprus’s public debt, currently around 108% of economic output, was sustainable “in all scenarios.”

“Public debt follows a downward trend, and financing needs are manageable with liquid funds being satisfactory,” he said, adding that in January to October this year, public finances “showed an improvement of almost 0.3% compared to last year”.

“The European Commission’s estimates about the fiscal balance are not different than ours,” he said. “In fact, the European Commission comes to a marginally better estimate, compared to that of the finance ministry. We disagree on how the structural balance is estimated, not the actual, which is based on subjective assessments with which we disagree because they imply that the Cypriot economy is overheating”.

“It’s an unreasonable assumption” for an economy with an unemployment rate of 12%, which returned to growth from a deep recession, he said. Georgiades said that he expects for 2017 an equally strong performance of the island’s tourism sector, which directly or indirectly accounts for one quarter of the economy.

From January to September, total arrivals rose an annual 17% while revenue rose 12% to almost €2bn, according to Cystat.

The finance minister said that Cyprus’s increased flight connectivity to tourist markets, in part a result of Europe’s open skies policy, has contributed to this year’s record performance in tourism.

“Let me note that these tax breaks such as the scrapping of the extraordinary levy on salaries in the private and public sector as of January 1, 2017, could have never become possible if we hadn’t eliminated the huge fiscal deficits of up to 6% of gross domestic product,” he said.

The finance minister, a liberal proponent of market economy and privatisations, said the government will table a new proposal on the privatisation of the state-telecom Cyta. The government, which included the telecom in its privatisations list — as it initially aimed at generating up to €1.4bn in revenue to reduce public debt — withdrew its proposal to set up Cyta Ltd earlier this year after it met strong opposition in parliament. The initial government proposal provided that Cyta would transferits operations and assets to Cyta Ltd before it was sold to a private investor.

“We shall revisit Cyta with a new proposal, which will take the reservations of the parliamentary majority into account and will combine the prospect of a strategic investor who will take over the company’s management by maintaining the (current) ownership status,” he said. Common sense, he added, requires linking the increased revenue from the operation of the state lottery by a private investor in the future, to the revenue that will flow into the government coffers. Finance minister Harris Georgiades said that the Cypriot economy’s growth rate in 2016 and next year “will approach 3%” on a boost from all significant productive sectors.

“Let me say that 2016 was in every respect a key year for the course of the economy,” Georgiades told lawmakers on Friday in his annual budget speech. “Cyprus came into a programme with its economy in deep recession and exited it with one of the highest economic growth rates in Europe”.

“It was a year in which the support programme which had become necessary three years before, was completed and the country proved that it can stand on its feet,” he said in reference to the completion of the adjustment programme in March, which the government agreed with international creditors as part of a €10bn bailout in 2013.

The finance minister said that the government’s slightly over €7bn budgeted expenditure for 2017, combined with projected revenue of slightly below €7bn, will generate a “marginal, imperceptible (fiscal) deficit and a satisfactory primary surplus, which we need because public debt remains high”.

The budget provides for a 1.8% increase in revenue, which more than offsets the phasing out of extraordinary levies on income and immovable property, “just because business activity picks up,” he said.

Georgiades, who took over in April 2013, days after Cyprus agreed the terms of its bailout, whose implementation he oversaw, helped with the strict implementation of fiscal consolidation measures towards restoring market access for the government last year and eliminate its reliance on funds made available by the European Stability Mechanism and the International Monetary Fund. During his tenure at the ministry, rating agencies upgraded Cyprus from an almost-default grade several notches upwards. Still, Cyprus’s highest credit rating, a BB assigned by Standard and Poor’s, keeps the country two grades below investment grade.

Georgiades, who last month engaged in a war of words with European commissioner Pierre Moscovici, after he warned Cyprus of fiscal relaxation, said that he expects for 2017 an equally strong performance of the island’s tourism sector, which directly or indirectly accounts for one quarter of the economy.

In the first nine months of the year, total arrivals rose an annual 17% while revenue rose 12% to almost €2bn, according to Cystat.

The finance minister said that Cyprus’ increased flight connectivity to tourist markets, in part a result of Europe’s open skies policy, has contributed to this year’s record performance in tourism.

“Let me note that these tax breaks such as the scrapping of the extraordinary levy on salaries in the private and public sector as of January 1, 2017, could have never become possible if we hadn’t eliminated the huge fiscal deficits of up to 6% of gross domestic product,” he said.

Source: Cyprus Mail

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