Addressing inefficiencies in the justice system in Cyprus is key for improving the business environment and the enforcement of claims, the European Commission said on Friday at the conclusion of the seventh post-programme visit to the island.
European Commission staff, in liaison with staff from the European Central Bank (ECB), arrived on September 16 to conduct the seventh post-programme surveillance (PPS) mission.
The mission was coordinated with an International Monetary Fund (IMF). Staff from the European Stability Mechanism (ESM) participated in the mission on aspects related to the ESM’s Early Warning System.
The visit covered several areas including the justice system. According to a statement at the end of the visit, addressing inefficiencies in the justice system is essential for the effective implementation of the insolvency and foreclosure frameworks as well as NPL resolution.
“Furthermore, setting up a reliable and transparent system to issue and transfer title deeds and resolving backlogs in the title deeds issuance are long overdue,” the statement said.
Other reforms to improve the business environment and attract investment need to be accelerated, it said, such as privatisation, the simplification of procedures to obtain building permits and introduction of fast track approval for strategic investments.
“Public administration reform and the reform of local governments remain a high priority, in view of the expected significant increase in administrative efficiency. Furthermore, the implementation of the national health system continues to require close monitoring given the potential sizeable fiscal implications, particularly in the initial set-up years,” it added.
On the economy, it said while remaining strong, economic growth is gradually decelerating.
After real GDP growth of 3.9 per cent in 2018, the pace of economic expansion moderated in the first half of 2019, largely reflecting external headwinds. Private consumption held up well on the back of a tightening labour market with still rising employment and disposable income, while investment benefitted from a number of large-scale foreign-financed tourism and infrastructure projects, the Commission said.
It also said that following record high growth rates in 2016-2018, tourism revenues showed some weakness in the first half of 2019.
“Robust, albeit weaker growth is forecast to continue over the medium term on the back of resilient domestic demand. Risks are tilted to the downside, as the sizable current account deficit and the declining, but still elevated private sector indebtedness render Cyprus vulnerable, including to potentially tightening financial conditions.”
The Commission said good progress was made in consolidating the banking sector and reducing non-performing loans but important challenges remained.
“Despite the recent sizable reduction, the Cypriot banking sector still has the second-highest NPL ratios in the euro area. Therefore, efforts to further reduce NPLs remain a priority, including plans for further loan sales and securitisations,” the statement said.
In this context, it added the amendments to the foreclosure framework approved by Parliament on 2 August 2019 backtrack on key elements of the reform adopted in July 2018, which was an important step towards improving financial stability and payment discipline through more effective enforcement of claims and NPL workout.
Referring to the Estia loan debt-relief scheme, the Commission said, “rigorously enforcing compliance with the eligibility criteria and swiftly triggering foreclosure procedures in the case of re-defaults are crucial for the ultimate performance of the scheme”.