Rigorous promotion of Cyprus as a safe destination should ensure enough revenue from the crucial tourism sector this year to pave the way for economic recovery, Finance Minister Constantinos Petrides has told the Sunday Mail.
“I always want to be reserved but I cannot hide the fact that I’m cautiously optimistic about economic recovery. But we need the recovery of tourism to make it happen,” he told the newspaper this week.
He recognised that the hit Cyprus has taken in the wake of the coronavirus crisis might spark agitation.
“There is a great uncertainty about the crisis – we cannot anticipate the length or the depth of it. This is one of its main characteristics. Yet, as we proceed we are becoming more certain about where the economic fundamentals are heading.”
What makes the tourism factor so critical is that the current account balance gets very wide unless there is an inflow of funds from abroad. This inflow in Cyprus comes largely from tourism. Petrides said this is a structural issue for the economy. “But we are going to have satisfactory receipts from tourism this year, and that will mitigate these effects.”
He said that the government is negotiating at all levels to give tourists who don’t usually throng to Cyprus, particularly northern Europeans, some good reasons to make the trip.
“Here at the ministry of finance, and at the ministry of tourism, we are hard at work on this; we are in contact with agents and with airlines, and we are offering new incentives, and all of this will lead to a good number of tourist arrivals,” he said.
“Because we have managed the crisis well (and contained the disease), we are in the core focus of some tour operators. So my anticipation is that, if we don’t take a U-turn regarding the health issues – and I don’t see us taking a U-turn – then we can make the best of this crisis.”
If Cyprus can now make deals with airlines and tourist operators to bring in tourists that are not part of its established tourist base, Petrides believes there is a slight window of opportunity for the tourist industry well beyond the crisis.
“It could mean that the crisis will be the start of more new tourists and that will lead to growth.”
This is, of course, quite different from what everyone expected two months ago when the tourist industry totally collapsed, but Petrides said that is now all in the past.
He said that the decision by Wizz Air to set up a base at Larnaca airport, from which there will be a number of new flights, shows that the government’s actions are bearing fruit.
“Prolonging the tourist season through October will also help.” Again, Petrides is cautiously confident that tourists will come.
“And what this means is that the damage to our economy will be repaired this year, and it will recover quite quickly next year.
“Having managed successfully to contain the virus, having been able to re-open on time, in parallel with our economic policies which have limited bankruptcies and maintained the level of disposable income, for employees and citizens – if the private economy works, recovery will follow. And I have every reason to be optimistic and to believe that the economy is now recovering.”
In the years since the financial crisis, the island has developed a solid economy, he said, and this will get moving now that the restrictions have ended. “It’s notable that we’ve been able to keep unemployment under control, and that the only sector seeing large-scale job loss is tourism – and only because it stopped operating completely.”
Essentially, in his view, what has happened is that the economy has been frozen for two months. “It has been contained. Now it is no longer. There will be some problems, but on the whole, there is no reason why it should not recover.”
What about economic growth in the non-tourist economy?
“GDP is largely based on consumer demand,” Petrides explained, “And I don’t see consumer demand hit to a great extent – this is not like 2013. At that time, consumers were hit by a great number of layoffs, a large number of people who suffered in the banking crisis and who lost their savings There was a structural issue then.
“But we still recovered, we still showed our resilience, and we recovered faster than the EU observers and other international organisations expected. I was there in 2013 and I know what the estimations were. We were expected to see an 8.9 per cent contraction, and we only had about half that much.”
This demonstrated flexibility and resilience. “If Cyprus is successful on the tourist side and on the consumer-demand side, we recover.”
One area where Petrides does see a need for attention is in savings. “Cypriots no longer are savers,” he admitted.
“The older generation were savers, and, in the past, supported future generations. But, after the 90s there was an erosion of savings and the replacement of consumer expenditure by credit – this was a factor that lead to the banking crisis.”
Petrides acknowledged that there is still massive private debt. “This is a weak area that must be strengthened,” he said.
Yet, the fact that the Cyprus economy was able to generate surpluses has been a key factor in the government’s ability to manage the current crisis.
“When the crisis hit there were savings in the public sector with which to affront this crisis. The fact that we are able to intervene to this large extent with public support schemes shows this.
“It is indicative that the public sector could support the agriculture sector, the tourist sector and others – there are about 60 measures with budgetary impact – due to the fact that for the first time post invasion, the economy was saving, the public sector was saving, and this gave us the ammunition to fight this crisis.”