Cyprus will soon begin repaying a loan from the International Monetary Fund (IMF), helping further reduce public debt, Finance Minister Harris Georgiades said on Tuesday.
“Having repaid what remained of the loan from Russia, we are planning, and have set in motion the formal process for the early and full repayment of the IMF loan,” the minister told MPs during a discussion of the state budget for 2020.
According to government calculations, early repayment of the IMF loan will result in a debt reduction to 91.1 per cent of GDP in 2020. The IMF loan now stands at around €690 million euros.
For 2019, public debt will come to 96 per cent.
Although 96 per cent is still high, Georgiades noted, it is not unusually excessive for an EU member state, and is deemed to be viable under all stress test scenarios.
For his part, Phaedon Kalozois, director of the Public Debt Management Office, said interest on the IMF loan stands at 1.99 per cent, while the Republic of Cyprus can now borrow from markets at a far lower rate, around 1 per cent.
In late 2018 Cyprus’ sovereign credit rating was upgraded back to investment grade after having been rated ‘junk’ for more than six years.
Georgiades said the government has managed to not only produce balanced budgets in recent years, but more than that yield fiscal surpluses.
In 2019 Cyprus will boast the best fiscal performance across the EU with an estimated budget surplus of just over 3.6 per cent.
“We need to view budget surpluses as a buffer, given that the economic environment is uncertain and we cannot take it for granted that current growth trends will continue,” the minister told lawmakers.
The 2020 budget provides for projected government revenue of €10bn and government expenditure of €9.4bn. The budget surplus will be around 2.7 per cent.
Georgiades stressed that the chief risk to fiscal stability is an internal one. He cited demands by public sector employees for a retroactive reimbursement of prior cuts to their wages and benefits, which the government is fighting in the courts.
Should the civil servants prevail, it could cost the state some €900m in reimbursement payouts, dragging public finances back into deficit territory.
On the citizenship-by-investment scheme, Georgiades reiterated that it has not caused an overheating of the economy due to the concomitant uptick in the construction sector.
“Were the scheme to be scrapped today, the growth capacity of the Cypriot economy would remain robust,” he claimed.
From 2016 to 2018, GDP grew overall by 15.2 per cent, of which only 1.2 per cent is related to construction activity directly tied to the citizenship-via-investment programme.
GDP growth for 2020 is projected at between 2.5 per cent to 3 per cent, although an anticipated global slowdown – due to the uncertainty from Brexit and protectionist trade policies – could put a damper on growth in the years to come.
In his last presentation of a state budget, as he is due to step down as finance minister soon, Georgiades said more work needs to be done to render the economy more competitive.
There are currently nine major reform drives in the form of legislation pending before parliament, he recalled.
These included reforms to the judicial system, local government, tweaking the law governing large-scale investments by slashing red tape, the privatisation of the state lottery, and the privatisation of the stock exchange.
Regarding the banking sector, the minister said despite its stabilisation since the 2012-2013 meltdown, there is no room for complacency.
Non-performing loans on bank balance sheets remain the primary concern and risk.
This is although total NPLs have declined to around €10bn from their peak of €28bn.
Speaking to reporters later, Georgiades was asked whether he had any regrets from his seven years serving as finance minister.
“If there is something I do regret, it is that certain things might have been done sooner, such as the reforms I referred to earlier. We should have pushed these more vigorously.”