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Cyprus

Fiscal council warns against complacency

File photo: Head of the Fiscal Council Demetris Georgiades (L)

Staff reporter

Cyprus must not get complacent despite improving public finances and the stabilisation of the banking sector, the Fiscal Council cautioned on Thursday.

At a news conference presenting the council’s autumn 2018 report, chairman Demetris Georgiades reiterated the need for reform in a number of areas.

Georgiades warned that one of the most significant risks facing the economy is the “very low or even negative savings which we have in Cyprus throughout the years.”

According to the Fiscal Council, there is a limited risk of diverging from fiscal rules in 2018 and 2019.

Despite projecting that the public debt will have a satisfactory downward trend in coming years, the council advocates for establishing a mechanism for future debt repayments.

The mechanism would work by committing either part of current reserves or part of primary surpluses and use these towards the repayment of the public debt.

On the booming construction sector, Georgiades said one should not expect growth to continue indefinitely.

At the end of the day, he noted, either there will be no more land left to build on, or cities will no longer have the capacity to maintain the extra population.

Moreover, organisations abroad could intervene to put the brakes on Cyprus’ citizenship-by-investment scheme.

“We should not consider revenue from this sector as permanent and start creating permanent expenditures. This is a mistake we made in the past, from the late 1980s,” Georgiades pointed out.

He said that based on the primary surpluses Cyprus is posting, and assuming no changes to fiscal policy or any significant shocks from abroad, “it is projected that Cyprus’ public debt will follow a satisfactory downward trajectory.”

The council’s estimate, which follows projections by the International Monetary Fund, is that by 2029 public debt may drop below the threshold of 60 per cent of GDP.

He said the Fiscal Council is working with professors Andrea Consiglio of the University of Palermo, and Stavros Zenios of the University of Cyprus, to develop a model that will quickly track risks posed to public debt and suggest necessary corrective steps.

Georgiades also presented data from the World Bank, the European Union and Transparency International which indicate that Cyprus faces problems in several areas: the education and public health sectors, red tape, delays in issuing titles, and a slow justice system.

On the ‘Estia’ scheme providing state assistance to bank debtors with non-performing loans, the Fiscal Council proposed improving the eligibility criteria.

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