The second phase of managing the Covid-19 crisis which Cyprus enters in the next few days, is the most difficult and dangerous, as Minister of Finance, Constantinos Petrides stated speaking at “Cyprus Economic Summit Covid-19” webinar, organized by IMH.
Petrides said that after the first phase, with restrictive measures and a financial intervention to support the employees and the companies, Cyprus enters tonight with the speech of the President of the Republic the second phase, which as he said he considers “the most difficult and the most dangerous, because it will determine the success of the third phase” for the recovery of the economy.
“We are making a step forward but if we do not follow the rules of this second difficult phase then we could make two steps back. And two steps back will be disastrous for both our health and the economy, ” he said.
As for the first phase, he said it was estimated that it could not last more than two months and that’s why the government`s policy was to support very strict restrictive measures, knowing that the direct impact on the economy would be more unfavorable during the first period but would be more beneficial in the medium and long term.
He also said that in contrast to the 2013 crisis in which there were significant spending cuts and painful decisions to shrink the banking sector, in the curretn crisis the government aims at very high spending in the first period to prevent bankruptcy and the liquidity of the banking sector will also be used.
Success in this second phase, he added, will determine what the government’s policy will be in September.
Three scenarios for the Cypriot economy
The finance minister spoke of three possibilities for the Cypriot economy. The worst case scenario, as he said, would be the management of the economy in the first and second phases to fail and Cyprus to lose investment grade and access to markets.
The second case, as he said, would be a successful crisis management that would allow Cyprus to avoid the worst development in the economy, but the public debt might become unsustainable. In that case, he said, the government would have to take painful measures to increase revenue and reduce spending.
In the best-case scenario, as he said, Cyprus would continue to do well in the period June-August and a more extended recovery plan will be prepared to mitigate the negative effects on the sectors that will be more affected.
Saying that currently the government didn’t know what would happen, he asked for the cooperation of everyone to achieve the best-case scenario. “This is where our credibility as a country will be judged,” he said.
At the same time, he said that in addition to proper economic planning, there’s a need for flexibility and speed in order to adjust policies at the right time. He added that the effort of the government with the consent of the political parties, was to submit next week a draft bill to the parliament, for cheap lending from banks with state guarantees.