Finance Minister Constantinos Petrides urged parties to approve a government bill for state-backed loans to people and businesses affected by the fallout of the coronavirus crisis, warning that the country did not possess unlimited fiscal weapons.
Speaking at the presidential palace on Wednesday, Petrides said Cyprus could not fight the war without the state guarantees.
“In this war we want to use all available weapons in our possession,” he said.
The minister added that Cyprus was among the first countries which announced one of the boldest fiscal packages aimed at supporting workers and businesses.
Petrides warned that effects on the economy did not only stem from the rise in expenditure but also a drop in revenues.
Cyprus raised €1.75bn from two bond issues on Tuesday designed to boost the state’s liquidity.
“However, our fiscal resilience is not without limits.”
Petrides said it was wrong for parties to think that the state-backed loan scheme was support to banks.
“Not a cent is given to banks; we are using bank liquidity with a set, very favourable interest rate of 0.75 per cent to 1.5 per cent,” he said. The aim is to support businesses, he added.
Under the scheme, banks were assuming 30 per cent of the risk, with the state accepting the rest.
“I don’t think we should be a country going into this big war without this weapon,” the minister said adding that 22 other countries had adopted similar schemes.
Petrides said the ministry was drafting a new mid-term plan based on three pillars: the first was to redefine the country’s financial programme in line with the new state of affairs; rationalising budgets, and the recovery of the economy.
“The plan we are drafting at the moment concerns recovery, based on certain assumptions concerning the period after September, on how best to readjust our economic policy so that we recover better.”
The plan takes into account the possibility of the virus remerging in the autumn, he said.