OUR politicians pay no attention to reports about the Cyprus economy by experts at the IMF, ECB or World Bank. One reason might be that they do not understand the economists’ jargon about “increasing external headwinds” and “slow pace of technology diffusion”, but a more plausible explanation is that they have a habit of ignoring what they do not like to hear.
Ignoring the advice and warnings from foreign economists is a national policy. In fact, the only time a government heeded the advice of foreign experts and closely cooperated with them was during the assistance programme, when bailout money was given with strings attached. Since exiting the programme, the old, bad habits, marked by short-termism, have gradually returned, funded by the citizenship by investment scheme and successive bumper years for tourism.
The healthy rates of growth of the last few years and the fiscal surpluses have ushered in the old complacency embodied in the mindless state spending that everyone supports and the sweeping of structural problems under the carpet. All this was mentioned in the IMF’s concluding statement for 2019, with the Fund censuring the parties’ attempts to neutralise the foreclosures frameworks and thus undermining efforts to reduce NPLs, the ratio of which was still among the highest in Europe.
The IMF said: “Priorities are to steadfastly implement the strengthened legal tools to lower NPLs and private debt and to build bank capital buffers; to reduce public debt by ensuring strict spending discipline and improving the efficiency of public spending, and to increase productivity through institutional reforms and the promotion of technology adoption.” We have done none of this nor pursued any of the measures that will boost productivity and increase competitiveness because such policy targets are unpopular.
Speaking to CNA, the IMF mission chief for Cyprus, Anita Tuladhar, also warned that the “level of public wages is high if you compare it with other advanced economies.” If this kept increasing, she said, “it will crowd out more spending in areas in research and development, in high technology, improvements even in the education sector…” Spending in these areas would improve the country’s competitiveness in the medium term, but they have never been spending priorities of government and parties, which prefer to allocate funds for keeping public employees happy.
There is no better time to implement reform, set new targets and change spending priorities than when the economy is doing well. It ensures growth will continue and the economy would be protected, to a large extent, from external factors. But such long-term thinking seems anathema for our politicians who invariably pursue fast returns on policy.