The Finance Ministers of Cyprus and Greece Constantinos Petrides and Christos Staikouras have sent positive signals over the two economies’ prospects following a successful management of the coronavirus outbreak in their respective countries.
Speaking to the virtual 10th Nicosia Economic Congress, both stated the aim is to promote follow a prudent fiscal stance, promote structural reforms which would boost growth prospects and reduce legacies of the past crises.
Moreover Constantinos Herodotou, Governor of the Central Bank of Cyprus, said he optimistic the Cypriot economy could emerge stronger from the crisis, while Health Minister Constantinos Ioannou said Cyprus could lift restrictive measures in faster pace due to the successful handling of the pandemic and the country’s positive epidemiological image.
Speaking to the conference held via teleconference, Staikouras said the coronavirus pandemic abruptly halted Greece positive economic growth observed in 2019 and in early-2020.
“The health crisis leads Greece in a deep recession and high unemployment rate leading the government to a temporary policy shift. This shift in political direction was necessary with a view to limiting the financial and social consequences of the pandemic,” Staikouras added, pointing out that the Greek government designed and is implementing a cohesive and realistic plan with a series of tools to boost liquidity and strengthen social cohesion.
The Greek Finance Minister said that both Greece’s and Cyprus handling of the pandemic have been hailed by the Eurozone Finance Ministers, adding that preliminary data by ELSTAT on the Greek GDP show a lower recession pace in Greece compared to the EU average.
Turning to the post-Covid-19 era, Staikouras said the government aims to restore the Greek economy’s momentum to the pre-crisis levels and to strengthen it even further, via the promotion of reforms to restructure the country’s productive forces, promote prudent fiscal management with a gradual reduction in the tax burden, the reduction of private debt and the stability of the banking system and to promote privatizations.
“This is a particularly demanding bet which Greece will win. I believe the same for Cyprus whose economy has all the capacity to achieve the aims set out by its government,” he went on to say.
On his part, Petrides described the coronavirus pandemic as the greatest recession since the 1929 Great Depression, noting the current crisis has a distinctive uncertainty.
He said that from on crisis onset, Cyprus opted to follow a policy of strict restrictive measures believing that would lead to a more modest economic impact in the medium term, adding that the government has launched “an unprecedented state intervention for Cypriot standards amounting to €1.2 billion or 7% of GDP with another 9% of GDP in liquidity measures.
“What we manage to achieve, is to provide a comprehensive protective net and to support businesses by providing the oxygen the needed to breath. From the beginning we said the public sector could absorb a large o the largest part of the shock during the lockdown period and we have done so,” Petrides said.
He however highlighted that policy fiscal policy of the past gave fiscal room for the immediate government response to the pandemic. “If we were able to react timely and immediately this was due to a very prudent fiscal policy we have been following since 2013, a policy of creating fiscal buffers that would enable us to act,” Petrides added, noting that “I believe we have achieved our aims.”
He however stressed that expansionist policies should only be for the short-term and cannot go on forever, noting that he does not believe in “magic solutions” but he is believer of economic orthodoxy.
The Cypriot Minsiter reiterated the three-pronged strategy for fiscal discipline that would create fiscal buffers, promoting structural reforms that would boost the economy’s competitiveness and create jobs and the reduction of non-performing loans which he described as the “heavy legacy and the sins of the past.”
On his part, Herodotou referred to the CBC’s scenarios for economic growth to be published in its economic bulleting shortly.
He said that the basic scenario estimates that the Cyprus economy will shrink by 7.3% of GDP in 2020, followed by growth of 5.5% and 4.1% in 2021 and 2022 respectively.
The CBC’s adverse scenario features a second wave of virus infections with the GDP shrinking with a rate of 9.9% in 2020, while a modest scenario estimates a recession of 5.6% in 2020, he added.
Herodotou pointed out that NPLs are not expected to rise in 2020 due to the debt repayment suspension which will end in the end of 2020, adding that NPLs are expected to increase in 2021.
But he noted that economic activity is returning due to the relaxation of lockdown measures while debt suspension is in still in place strengthening income for businesses and households alike.
“In other words, income recovery has started both for households and businesses as the moratorium in in still in place,” Herodotou said, adding that sound management of the recovered income is needed.
“We should not forget the day after and with sound management and if we are rightly prepared, I believe that in 2021 our economy could emerge stronger,” the CBC governor added.
Health Minister Constantinos Ioannou told the conference that Cyprus took the necessary decisions and contained the outbreak and could relax lockdown measures sooner that other EU states.
He said the government took strict measures to protect the national health scheme that was put into force just a few months earlier.
Ioannou also added that the National Health Scheme provides incentives for more investment in health infrastructure and attracts investors to local hospitals.
“A well organised health system no longer acts as a burden to the public finances but a multiplier for economic growth,” he said.