Speaking at the 5th Nicosia Economic Congress in Nicosia, Petrides said although he had been asked to speak on how a growth model for Cyprus could be redeveloped, believed a more pertinent question was how sustainable growth could be achieved: “Because this is the only kind of Growth that creates – through productive jobs and higher incomes – lasting prosperity”. He said the alternative– bubble-led growth– was partly what had contributed to Cyprus’ financial problems.

“After a couple of decades of being one of the most dynamic and fastest growing economies in Europe, by 2013, we were faced with an unprecedented crisis,” Petrides noted.

“There are no magical solutions to generate growth. The answer is found in the obvious. In taking advantage of the country’s comparative advantages, in a healthy banking sector, sound public finances, and bold structural reforms, in peace and stability. It works,” Petrides said.

He said that since the state had entered into an agreement with the Troika and gained valuable breathing space through the support programme, things had improved significantly.

Petrides continued: “I consider Cyprus to be an economy in transition. We still have a long way to go if we want to turn Cyprus into a modern competitive economy, able to produce more, able to sustain growth”.

“Any effort to generate sustainable growth should always lay its foundations on three main pillars,” he said.

Petrides said the first pillar had to do with the banking sector. He said the inevitably smaller banking sector would function “without the excesses of the recent past. Built on healthy grounds. Better capitalised, better managed, and better supervised”.

He said its main challenge was to handle non-performing loans (NPLs) “perhaps the single most negative factor restricting our growth potential”.

The second pillar deals with the fiscal situation.

“Public expenditure and the excessive deficit did come down and was eventually eliminated in order to reduce the overall debt burden from our economy. We did make significant progress but more has to be done,” Petrides said.

The government, he said, had to ensure public finances and the payroll remain on a sustainable path and the need for future tax hikes will be avoided.

“It is a key element for creating an attractive business and investment environment which by itself is a sine qua non for growth,” Petrides noted.

The two pillars, he added, need to be complemented by a ‘comprehensive national structural reform program’, which goes beyond the basic requirements of the support program.

Economic reform makes up the third pillar including strengthening the governance for Growth in key areas of the economy such as the Research and Innovation sector, shipping, tourism, or agriculture.

Elements of this include new, comprehensive, medium term and long-term National Strategies in all of those key sectors of the economy which will include concrete actions and not just yearly subsidy programs, a bold public administration reform which will create a more efficient and more growth-friendly public service, and deregulation in over-regulated sectors of the economy such as land administration, tourism and urban planning.

They also include creating the necessary institutional and regulatory environment for promising sectors of the economy that suffer from a lack of a modern institutional and legal framework, privatisations, a streamlining of procedures, reforms in local government and education.

The final two elements are liberalisation in key sectors of the economy such as the electricity and the energy sector and judicial reform, Petrides said.

Source: InCyprus