By Stelios Orphanides
WHILE the Supreme Court’s ruling on the constitutionality of four bills accompanying the foreclosure legislation is expected today and may determine the future implementation of Cyprus’s agreement with international lenders, the government is already working on a ‘day after’ plan for the economy in an attempt to boost growth.
“We need a growth strategy and we are already in consultations with stakeholders,” undersecretary to the President, Constantinos Petrides said in a telephone interview yesterday. “It is going to be a long procedure which will provide for regulatory and legislative adjustments”.
After Cyprus’ economy came close to collapse last year, “we are getting into a new stage with two pillars of the economy, the public finances and the banking system, already showing signs of recovery,” Petrides who is also mandated with public service reform added. “These pillars alone cannot bring growth,” therefore entrepreneurship must be given a boost.
On October 27, less than 19 months after last year’s banking crisis, Cyprus’ systemic banks succeeded in passing the European Central Bank’s asset quality review. As a result, they will be placed as of November 4, under the ECB’s direct supervision.
According to the ECB, Cyprus Cooperative Central Bank, Bank of Cyprus and the Russian Commercial Bank completed the exercise with a surplus in capital, while Hellenic Bank which posted a capital shortfall, announced plans for a capital increase through a rights issue.
Finance Minister Harris Georgiades told lawmakers on October 18, that he expected fiscal deficit to be close to 2.5 per cent of the economy this year and a primary surplus of 0.5 per cent. Two days ago, the central government posted a fiscal surplus of 1.3 per cent of the economy on a cash basis for the first three quarters.
On October 24, Fitch Ratings and Standard & Poor’s upgraded Cyprus’ credit rating to B- and B+ respectively, which is still considered non-investment grade. The economy is expected to further shrink this year less than 3 per cent, compared to 5.4 per cent last year and an initial forecast of 4.2 per cent.
“If there is some positive business environment encouraging investment in various sectors such as tourism or services, there are possibilities for the economy to grow, provided we can bring in some rationality which something the memorandum of understanding with international creditors did to some degree,” economist Michael Florentiades said in an interview. “Attracting investment is very important because there is financial deleveraging and foreign investment is the most convenient way to finance growth”.
According to a person who has knowledge of the situation but who spoke only on condition of anonymity because discussions on the preparation of the government’s master plan are still confidential, the plan, which is expected to be put to the cabinet in November, contains “short, medium and long-term measures”.
These would take the form of the “preparation of reports, actions, horizontal exercises” at various levels, including ministries and governmental departments and integrated licensing procedures. Special service centres for enterprises, comparable to the Citizens Advice Centres, a review of the Cyprus Tourism Organisation’s role, a survey on tourism, spatial planning and more are also included in the master plan.
In addition, it will include guidelines in which area’s state funds have to be diverted to create specific infrastructure.
“It is necessary that Cyprus gets a pro-business environment that will attract investment” the source said. “But we now have a lot of distortions, like the time needed to get a town planning licence, the several stages needed for an application to open up a café while elsewhere only one is needed”.
While some of the actions may be considered “easy wins,” some other will be harder to achieve, the source said, and added that not all actions included in the master plan may be completed in the term of this administration.
“It is not just a matter of what the cabinet will decide as the parliament will also be asked to vote on certain bills,” the source said. “When you go out to quash kingdoms, political parties may not easily let you do so”.