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Coronavirus: Economy on the rebound track says minister

Finance Minister Constantinos Petrides

Finance Minister Constantinos Petrides on Monday unveiled the second supplementary state budget for 2021, a stimulus package aimed at continuing support to businesses struck by the coronavirus-related measures – although the single largest spending item consisted of €45 million on military defence.

Laying out the supplementary budget to MPs – who will need to green-light it – Petrides said that barring unexpected events during the rest of the year, or a resurgence in the pandemic, the Cypriot economy is on a rebound track.

For 2021, the finance ministry projects GDP growth of 4 per cent, compared to the European Commission’s more conservative 3.2 per cent.

Petrides said time would tell whose forecasts were more accurate, but that one should take the uncertainty factor into account given the chance of a new wave of the coronavirus pandemic.

At any rate, the ministry’s forecasts do factor in the declining revenues from tourism – expected to take a major hit this year as well.

The supplementary budget amounts to €148.5 million. It is the second supplementary budget this year, the first (€250 million) having been approved by the cabinet in March.

The ministry predicts a fiscal deficit of 4.7 per cent of GDP, compared to 5.4 per cent in 2020. Unemployment is expected to decline to 7.4 per cent.

Petrides noted that during the pandemic Cyprus tapped the money markets in order to support the economy, but that current policy provides for reducing the public debt.

The government anticipates that the debt to GDP ratio will drop to 112 per cent, from 119 per cent last year.

“Our strategic objective…is to not exceed 120 per cent – a threshold we managed to stay under. It is an index which credit rating agencies and international markets take into account, ” Petrides told lawmakers.

“We believe that with these numbers, unless there’s a major setback in the economy or with regard to the pandemic, we shall recover without having slipped.”

The minister linked a potential economic reversal to a possible worsening of the epidemiological situation and new restrictions which, he said, would have “a different impact” compared to the start of the pandemic in Cyprus.

“And that is why we must all display collective and individual responsibility, so as not to create unemployment, and avoid creating debt for our children, but rather to go forward.

“I think we do have these capabilities, it is up to us, and my plea to everyone is to listen to the science so that together we can move forward as a society with the same solidarity we displayed during the crisis.”

He did not elaborate on what he meant by “listen to the science” in this context – although it could have been an allusion to the government drive to vaccinate 65 per cent of the population.

The supplementary budget features €20 million on various schemes supporting businesses and workers; €10 million in support to low-income pensioners; €19 million in benefits to asylum seekers; €10 million for the purchase of medicines; €11 million on equipment purchases for the department of civil aviation; and €5 million in subsidies to farming and animal husbandry.

But the biggest single item by far was €45 million in extra defence spending.

The budget also provides for the creation of 245 new teaching jobs, and the creation of a junior ministry for social welfare.

House finance committee chair Christiana Erotokritou (Diko) said the €20 million geared at supporting businesses was nowhere near enough.

Answering questions from MPs regarding reports that many eligible businesses did not receive support, Petrides said everyone who applied got the money.

“If mistakes happened, they happened, but we corrected them to the largest degree possible. Thousands of companies were subsidised,” he offered.

The minister assured MPs that, beyond the new junior ministry for social welfare – which will focus on processing and dispensing benefits, one of the current duties of the Labour Ministry – there exist no plans to create new junior ministries.

On immigration flows, Petrides noted that EU funds alone were not enough to deal with the issue.

“These are not sufficient, they comprise a very small part of the whole fiscal burden sustained by the country,” he said, noting that the problem is not primarily a fiscal one.

“The way the situation is unfolding, immigration will exert enormous pressure on Cyprus’ welfare state.”

Neither was it a question of infrastructures. With some 15,000 migrants arriving a year, “will Cyprus become one big large reception centre?” he asked rhetorically.


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