FINANCE minister Harris Georgiades is justified to feel proud about what has been achieved in the economy since the 2013 meltdown. In these four years, the banking system has been stabilised, even though the large number of NPLs are a concern, public finances have been put on a healthy footing, the government has regained access to the markets and last year the rate of economic growth was an impressive 2.8 per cent. And this has been achieved without a big increase in taxes.
The minister pointed out the following: “Growth is not based on circumstantial and misleading policies, through reckless public spending and budget deficits, nor on excessive and unviable bank lending, as has unfortunately been the case in the past. It comes from real re-ignition of economic activity.” He also said that “we need such satisfactory but viable growth rates to make up for the lost ground.” The European Commission, meanwhile on Monday, forecast the Cyprus economy would continue to grow this and next year, but at a slower rate than in 2016.
While there has been a turnaround, for which the government deserves credit, it is not only “our bad selves” that was a risk to a viable growth rate, as Georgiades claimed, but also government complacency, which has been evident both in the words of the finance minister and in government actions. For instance, last year’s healthy growth rate was, to a large extent, based on a bumper year for tourism with record arrivals and unprecedentedly high hotel occupancy rates. But had terrorist attacks in rival destinations such as Tunisia, Egypt and Turkey not contributed to the record numbers? The Cyprus tourist product had not changed so much to justify the increase in demand.
There has also been the citizenship-for-investment programme which, according to interior minister Socratis Hasikos, brought in close to €3.5bn by the end of 2016. The big part of this ‘investment’ has been spent on the purchase of properties, giving a boost to hard-up developers, but not having a big impact on the rest of the economy. Both citizenship for investment and tourism have contributed to the growth rate in difficult times, but we should see neither as the long-term answer for our economy.
They helped fuel growth when confidence was low and bank credit tight, but we cannot keep relying on them. We need to move on, focus on other areas of possible growth and encourage innovation by local companies. Attracting foreign investment is of big importance, but we should not rely exclusively on it. We need to start doing things ourselves and exploring new ideas, because the ‘build villas and luxury apartments and sell to foreigners in exchange for citizenship’ business model will not last.
Georgiades and the government should be thinking up a new direction for the economy, instead of resting on their laurels and acting as if they have solved all our economic problems.