Time to make strategic plans for the future economy of Cyprus

By Andreas Charalambous and Omiros Pissarides

The economy of Cyprus depicts positive features as regards growth, employment and public finances. However, its economic development model requires radical adaptation in order to keep up with future requirements.

During the recent electoral campaign period, various suggestions to modernise the economy were put forward, a number of which deserve attention from the new government. This article attempts to identify important strategic priorities for the next years, taking into account the current and forthcoming challenges.

The vision to establish Cyprus as an international business centre of high standing should be the guide moving forward, with the relevant study commissioned by the Council for Economy and Competitiveness as the basis and the year 2035 as the time horizon. The ultimate aim should be to preserve the flexibility and adaptability of the economy, with the private initiative as the main driving force, accompanied by government support targeted at promising future sectors.

Such sectors include energy, telecommunications, sustainable tourism, professional and financial services and tertiary education and health. The construction sector may also contribute to the developmental effort provided, however, that the focus shifts to high environmental and town planning standards and utilisation of existing buildings, instead of the erection of new buildings, which are particularly burdensome to the environment.

The proposed strategic priorities include:

(a) Coverage of long-term labour shortages. In this context, the modernisation of the education and training sectors is of central importance, with emphasis on the actual skills required by labour markets and attraction of young Cypriots, who are currently employed abroad.

Adoption of a balanced migration policy is also important in order to address gradual population aging and the resulting intensified demographic challenge.

Furthermore, the implementation of a housing policy should be pursued, aimed at ameliorating the socioeconomic repercussions, mainly emanating from the establishment of foreign enterprises in rapidly expanding numbers and the resulting upward pressures on the prices of immovable properties and rents.

(b) Energy saving and promotion of renewable energy, through an urgently required upgrading of the electricity network and the establishment of connectivity with neighbouring countries. Low-cost energy constitutes an important prerequisite for the realisation of our developmental vision.

(c) Digitalisation of the economy, via facilitating collaboration between the private and the public sectors and simplifying the administrative procedures in order to better service the citizens of the country.

(d) Reform of the pension scheme, aimed at safeguarding its adequacy and long-term viability. The main priority should be the reform of professional pensions, leading to a broad coverage of the private sector.

(e) Effective quality control mechanisms in the national health system. As one of the most important achievements which positively affects the life of all citizens, it is imperative to ensure the enduring economic viability of the national health system.

(f) Public sector reform, focusing on meritocracy and mobility of civil servants and aiming at a mission-oriented and adaptable state and the modernisation of local authorities and semi-governmental organisations.

(g) Reform of the justice system via the simplification of administrative procedures and the avoidance of undue delays, targeting the effective operation of courts and award of justice.

The effective implementation of the above-mentioned strategic priorities requires rapid implementation mechanisms within the context of the Recovery and Resilience Plan. It also requires the adoption of a culture that is conducive to change, as well as commensurate political commitment.

Andreas Charalambous is an economist and former director at the Ministry of Finance. Omiros Pissarides is the Managing Director of PricewaterhouseCoopers Investment Services