Cyprus Mail

Government mulls extending hiring freeze to offset reform setback

Did we, or will we cut the cost of the public sector?

The government is considering an indefinite extension of the hiring freeze in the civil service imposed as part of fiscal consolidation efforts four years ago, the finance minister has said.

In an interview with the Cyprus Business Mail, Harris Georgiades said the freeze would be an attempt to partly offset the fiscal impact of the parliament’s recent decision to reject the civil service reform package, which the minister described as a “major setback”.

“We are considering some steps which will mitigate their negative consequences,” said Georgiades. “For instance we are considering extending indefinitely the freeze on new hiring so any new hiring will have to go through a process of scrutiny and ultimately to secure the consent of the House”.

Georgiades said that extending the hiring freeze would only “somewhat mitigate” the impact of the parliament’s December 9 decision to reject a bundle of four draft bills aiming at overhauling procedures in the public service, including hiring, performance evaluation of civil servants, promotions and pay increases in an attempt to promote meritocracy and contain pressure on public finances.

“Our record shows that an otherwise dynamic and growing economy can easily derail and face severe difficulties,” he continued.

The finance minister had warned repeatedly that failure to approve the reform bills submitted by the government in August 2015 could put public finances at risk as this would automatically allow the pay-out of incremental pay increases to public workers based on years in service.

“More broadly speaking, we shall continue promoting such reforms where legal actions, amendments are necessary and bring them before the House and putting everyone face to face with his or her responsibility,” Georgiades said.

The reform bills in preparation include a legislative initiative to promote economic growth and a reform of the pension and investment funds, the finance minister said. Still, the government plans no further steps to make legislation more effective in helping banks reduce their mountain of non-performing loans, which amount to roughly half of the banks’ loan portfolio and are therefore considered to be the Cypriot economy’s top challenge, he added.

Georgiades said that the government continues work on drafting a revised bill on the privatisation of the state-owned Cyprus Telecommunications Authority (Cyta), after it withdrew a previous proposal to privatise the company after opposition parties threatened to vote it down. The new bill, the finance minister continued, will take reservations expressed by the opposition, which rejects the sale of state property, into account.

The finance minister said it would provide for the government remaining owner of the majority of the state-telecom’s shares, which is continuously losing ground to competition. Alternatively, it would allow the government to retain complete ownership of the company’s assets, while granting the management to a private investor, based on a similar model applied in the case of the commercialisation of the Limassol port’s operations.

“We are talking an extra effort and in a spirit of political compromise to meet at least some of the concerns which have been expressed by the parliamentary majority,” he said.

Georgiades said that Cyprus’s return to economic growth last year, which is expected to continue well into 2017, was partly on economic reforms completed as part of Cyprus’s cash-for-reforms programme agreed with international creditors almost four years ago, partly a result of fiscal consolidation and partly the outcome of other steps, including incentives and tax breaks offered to investors over the past years. These include offering a Cypriot passport to investors, exemptions from capital gains tax to real property buyers, slashing of transfer fees on property transactions and other incentives aimed at attracting non-domiciled companies and high-income individuals.

All this, including the boost to economic growth resulting from increased tourist arrivals in the past few years was also the result of an increased flight connectivity to other countries, was not a coincidental exploitation of opportunities created by regional or global developments, he said.

“So even making best of the circumstances does not come without the right moves and right steps at the right time,” he said.

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