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Our View: Ten years on, chance to tackle public sector payroll was missed

Υπουργός Οικονομικών – Απολογισμό
Finance Minister Constantinos Petrides

Nobody could disagree with finance minister Constantinos Petrides’ assertion that the government will be handing over a robust and healthy economy, which is in a much better state than it was in 2013, when President Anastasiades was elected.

Back then we were in recession, the banking system was heading for collapse, the state was on the verge of bankruptcy, government bonds were considered junk and unemployment had hit unprecedented levels.

Guided by the Troika and some arm-twisting by Brussels the economy was gradually stabilised, the banking system put on a sound footing – admittedly at a big cost to depositors and shareholders – and small steps of progress were taken. Cyprus was finally able to return to the markets for its borrowing, the banks eventually sold off most of their non-performing loans and return to modest profitability and in 2019 the growth rate was 5.5 per cent. The public debt which was 120 per cent of GDP was now below 90 per cent, while the government’s credit rating is now at investment grade.

These are impressive achievements considering the state of the economy 10 years ago, but there should be one regret for this government – its failure to tackle the public payroll and place it on a rational basis. There was a real opportunity to do this in 2013 and 2014, when there would have been very little, if any, resistance from the public sector unions, particularly Pasydy, but it was not taken. On the contrary, a few months after the bailout, Anastasiades addressed the Pasydy AGM and pledged that the government would never again ask civil servants to make any sacrifices.

And he kept his word because he had already set his sights on his re-election. The small cuts made to wages and pensions during the crisis (the sacrifices the president spoke about) were gradually phased out, and from this year everything is back to normal. There were pay increments, pay rises and CoLA for all public employees and the public sector wage and pension bill in 2023 will exceed €3 billion. Petrides avoided mentioning this because he wanted to focus on the positives of the economy, but the growth of the public payroll could be a problem for the next government.

In fairness, no president has dared to touch the pay and benefits of public employees, because this would incur a big political cost. But in the immediate aftermath of the meltdown in 2013, radical reform could have been carried out that would have been to the long term benefit of public finances. It would have rationalised the state payroll and eliminated the possibility of it getting out of control again. It was an opportunity that Anastasiades knowingly missed.



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