Harris Georgiades - Cyprus Profile

Insights | 30 March 2017

Harris Georgiades, Minister of Finance

New foreign investment, sound public finances and a stable banking sector, has positioned Cyprus as an economy with one of the highest growth rates in the EU, says Finance Minister Georgiades.

Cyprus has made remarkable progress in bouncing back to growth, how would you describe the current economic situation of the country?

I would describe the overall economic situation as one of renewed opportunity and good prospects. Cyprus has achieved a remarkable rebound. It has been steadily edging out of recession and now enjoys one of the highest growth rates in the EU, nearing 3% of GDP. Confidence has been restored and it’s important to note that growth comes from all the key productive sectors of the economy. It is also important to highlight that this is real growth, without being artificially boosted through deficit spending or an excessive credit expansion.

What important goals and reforms were achieved in 2016?

During 2016, we successfully completed the IMF/ EU support programme. This was done on time, without utilising the full financial envelope and without a need for an extension. More importantly, the exit from the support programme came hand in hand with the strong recovery of the economy. The public finances are sound, and the banking sector is stable. We have also seen significant investment, both through private initiative and government initiatives, such as the privatisation of the Port of Limassol, which was sealed just a few months ago.

What key priorities have you set for 2017?

The primary objective of economic policy for 2017 is to see a continuation of the recovery and growth of the economy. We are aiming for a growth rate in the range of 2.5-3% of GDP. In this way, we expect to see a further drop in the unemployment rate. We also expect 2017 to be the 4th consecutive year with an essentially balanced budget. The combination of fiscal discipline with real economic growth has been the hallmark of our economic policy, which has delivered tangible results and shown that the growth versus austerity dilemma can be avoided. And of course, we shall continue pursuing foreign direct investment, for instance with the licencing of the largest integrated casino resort in Europe and to promote further reforms, for instance in sectors like investment funds and pension funds.

It’s been almost four years since the devastating banking crisis, how is Cyprus’ financial sector performing today and what goals are yet to be achieved?

Today, we have a much smaller, but healthier banking sector. Cyprus banks now operate under a stricter and more credible regulatory and supervisory framework; they are under new management with significant presence of new foreign shareholders, and obviously with comfortable levels of capital adequacy and solvency. Admittedly, the legacy problem of non-performing loans has not been fully tackled, but the pace of loan restructurings and settlements is satisfactory. On the other hand, we have recently seen the last of the other legacy problem, that of the Emergency Liquidity Assistance drawn by Bank of Cyprus, the biggest lender of the island. This has been fully repaid, in the run-up to the bank’s listing on the London Stock Exchange, a move which I consider as the epitome of the new era of Cyprus banking.

What key opportunities do you see in terms of investment and growth and what incentives have been introduced to attract more foreign investment?

Cyprus is currently offering excellent investment opportunities across the sectors. I already mentioned the Limassol Port and the integrated casino resort. Other recent major investments include marinas, the pharmaceuticals industry, renewables, retail, hotels and real estate. Cyprus enjoys a restored reputation and this is a result of the determined and combined efforts of government and industry over the last few years. Working together we have established a stable and safe pro-business environment. To give an example, we were very clear and determined to maintain a stable and attractive tax regime. We brought down a budget deficit of almost 6% to practically 0% over a single year, and we have kept it steady ever since without raising a single tax. Instead we significantly reduced public expenditure, which has enabled us to offer significant tax reductions and incentives to both individuals and corporates, and in this way to boost consumer and business confidence. Stability, predictability and a pro-business economic environment is what investors need, andthis is exactly what we have established.

What major challenges does Cyprus continue to face and what measures are you taking to ensure the country’s future economic wellbeing?

We still face some legacy problems. Nonperforming loans is one. This goes back to the unsustainable credit expansion of the previous decade. High public debt is another problem, which also goes back to the times of reckless and loose fiscal policy. Also unemployment is still high, an inevitable consequence of the deep recession we went through. What is encouraging, however, is that on all these fronts we are seeing progress, through the healing process of the banking sector, the fiscal discipline and of course through the strong recovery of the economy.

Cyprus and the UK have a long shared history and close economic ties, how will Brexit affect Cyprus?

It was a regrettable decision, but one which we fully respect. Our primary objective now is to support a new relationship between the UK and the EU, which will be as strong as possible, assuming that this is what the UK would seek. That said, I have to say that we are not so concerned about any direct negative impact on Cyprus. My primary concern would be about the course and direction of the EU from now on. But I repeat, as far as Cyprus is concerned there may be more opportunities rather than risks.

Cyprus has seen much investment from the US into its banks and energy landscape in the last few years, how do you see US-Cyprus relations developing in terms of business?

Our relationship with the US is of strategic importance and one of immense potential. I expect USCyprus relations to remain close and strong during the new US administration and we look forward to seeing a widening of economic and commercial ties. You have rightly mentioned the banking and energy sectors, but I would also point out the new casino resort, where the selected consortium includes a major US entertainment group. So I am optimistic that the scope for more investments will continuously expand.

Financial and business services account for a significant segment of the country’s economic output, how do you see the future of Cyprus as an international business centre?

Our business and financial services sector has demonstrated remarkable resilience and adaptability during the difficult last few years. The sector has been successfully adapting to the new international norms on transparency, and has been highlighting the unique hub of know-how and expertise which exists in our jurisdiction that operates with a restored reputation. The government works very closely with the industry in ensuring that the comparative advantages of the sector are enhanced, for instance through a major initiative in improving our investment funds framework. We are confident that Cyprus can successfully be the new kid on the block when it comes to investment funds.

How do you see the overall economy of Cyprus developing in the next five years, and what message would you like to relay to the international community?

My message would be that Cyprus is back. It has emerged through a crisis stronger, smarter, safer and more stable. We are confident that Cyprus can be one of the fastest growing economies in the EU, on the condition that we remain firmly on a path of prudent economic policy and we avoid the mistakes of the past.

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