By Stelios Orphanides
Cyprus must continue its reform efforts even after it completes its adjustment programme, and not to over-rely on its hydrocarbon findings, the head of the European Stability Mechanism said on Tuesday.
“Reforms don’t end with the programme, for the sake of Cyprus and future generations of Cypriots, they need to continue,” Klaus Regling, ESM managing director, said at the Economist Conference in Nicosia.
“We do not know yet what the exact potential from hydro-carbon reserves might be, so let’s leave this as potential upside, but not count on it,” he said.
“Taken together, these advantages should enable Cyprus to reposition itself so that during the coming decade it can build a more diversified, balanced and prosperous economy with sustainable growth and high employment”.
The ESM, which provides bailout money to euro area countries, has provided €5.35 billion in bailout money, with €1.5 billion earmarked for the recapitalisation of the Cooperative Central Bank.
Due to the low interest rates of ESM loans, Cyprus, which together with the other bailed-out countries is one of the top reformers in the euro area, was able to save up to 1.5 per cent of gross domestic product in interest payments, Regling said.
“Cyprus also benefits from a lengthy repayment schedule, with the first principal loan repayment due to the ESM in 2026 – 12 years from now,” the ESM boss said. “Because of this, the debt profile for Cyprus is very sound as long as reforms continue”.
Measures Cyprus has to take in order to continue its reform programme include “removing barriers to competition by opening closed professions and reducing bureaucracy, reforming labour markets, cutting public expenditure, reforming tax systems, and other important structural measures,” such as strengthening public administrations, he said.