The data from the Commission's spring forecasts show that our economy is on the right track and my goal as Minister of Finance is to maintain this track, recognizing at the same time the multifaceted and complex challenges we face, points out Makis Keravnos, invited by “F ” to comment on the praise the country received from the European Commission.
On the issue of interest rates, the minister points out that “inevitably, the common monetary policy in the Eurozoneit often creates problems,as it does at the present time. For example, for a Eurozone country with relatively low inflation, such as Cyprus, very high lending rates are not justified.” He also informs that he raised the issue in the context of his participation in the Eurogroup meetings “where I can honestly state that my concerns were well received by fellow ministers”.
In response to a question as to whether the announcement is likelyof new consumer support measures, the minister is content with the assurance that “if and when it needs to support groups of the population, the Government will be ready to implement the appropriate measures”.
In what situation is it the Cypriot economy, Mr. Minister, and what are its prospects based on the spring forecasts of the European Commission?
Despite the adverse and challenging international economic environment, through correct and rational economic policies we have succeeded in making the Cyprus economy one of the best in the EU. in terms of economic performance.
This is also confirmed through the spring forecasts of the European Commission, where credit is given to the Republic of Cyprus for the management of the economy. In particular, Cyprus showed the greatest acceleration in the Eurozone and the EU as a whole, with a growth rate of 3.5% in the first quarter of 2024, when the average growth in the EU was only 0.4%.
For the years 2024 and 2025, economic growth is predicted to strengthen compared to 2023 and reach 2.8% and 2.9%, respectively, with Cyprus being among the 3 countries in the Eurozone with the highest growth rate in 2024 and in the 4 countries in 2025.
Unemployment is projected to remain on a downward trajectory, while inflation will continue to slow. At the same time, Cyprus and Portugal are predicted to have the best fiscal performance among the EU member states. in 2025.
These figures demonstrate that our economy is on the right track and my goal as Minister of Finance is to maintain this track, recognizing at the same time the multifaceted and complex challenges we face.
< strong>You get a lot of criticism for running budget surpluses while citizens face the consequences of accuracy. What do you answer to that?
It is a fact that, as the Ministry of Finance, we have implemented a particularly careful and rational fiscal policy. The fiscal balance for 2023 was in surplus at 3.3% of GDP and is projected to hover around 2.9% of GDP in 2024, while public debt is expected to rise to levels close to 60% of GDP until 2026.
These positive fiscal performances will allow us, on the one hand, to deal with any negative developments in the future, providing the possibility and flexibility to exercise social policy, while at the same time meeting our European obligations in terms of fiscal rules, in particular to reduce of the debt ratio to 60% of GDP in the medium term.
It is noted that, based on the new economic governance framework agreed in the EU, weight will now be given to the growth rate of net primary expenditures. More specifically, with the aim of reducing public debt in the medium term, the European Commission will determine a maximum annual growth rate of net primary expenditure for the next four years. If the upper limit is exceeded, the state will risk financial sanctions from the European Union.
Another factor to be taken into account is that the repayment of the loan contracted by the Republic of Cyprus from the European Stability Mechanism, amounting to 6.3 billion euros.
At the same time, I would like to point out that, in order to mitigate the effects of inflation, this Government implemented three support packages, totaling approximately 400 million euros, which included mainly targeted measures, providing, to the extent possible, a safety net mainly for the vulnerable groups of the population. Also, the Government implements a specific plan to subsidize interest rates for housing loans, while the more general housing policy that the Government has begun to implement is relevant and helpful.
How do you comment on the course of interest rates in Cyprus and the fact that their level is one of the highest in the EU?
It is a fact that the successive increases in lending rates by the European Central Bank have significant and multifaceted effects on the economy, as they increase the cost of borrowing for housing, education and other necessary financing, limiting the disposable income of households. They also create costs for the Government, since it is forced to borrow at higher interest rates.
Although these increases have contributed to the strengthening of bank profits, at the same time they have increased the risks for banking institutions, since now households and businesses are faced with higher costs of servicing their loans.
It is known that, as Minister of Finance, respecting the independence of the Central Bank of Cyprus, I have made many recommendations to the banking institutions to re-evaluate their interest rate policy and have received criticism for this from time to time.
Our interventions have yielded results, since the banks have adopted some positive measures in terms of absorbing the increased costs from the increase in interest rates, as well as in terms of setting deposit rates. I am sure, however, that the banks, assuming their share of social responsibility, will continue to carefully monitor these developments and I hope that additional positive measures will be taken.
I would also like to point out the fact that, inevitably, the common monetary policy in the Eurozone often creates problems, as it does at the present time. For example, for a Eurozone country with relatively low inflation, such as Cyprus, very high lending rates are not justified. I have raised this issue personally in the context of my participation in the Eurogroup meetings, where I can honestly say that my concerns were well received by fellow ministers.
How is the Cypriot economy affected? from geopolitical developments and what policy measures are you taking?
It is a fact that a series of negative developments have taken place, starting with the pandemic, then the war in Ukraine and the Middle East, ending with the hostile operations of the Houthis in the Red Sea. These events have caused significant problems in the global economy, such as the very high levels of energy prices and, more broadly, the rise in interest rates, problems in the supply chain and others. As a small and open economy that is the Cypriot one, we are inevitably affected to a significant extent by these external factors and therefore we monitor the developments constantly in order to intervene where and where required.
At the same time, Cyprus faces significantly increased arrivals of immigrants, which, in addition to other social impacts, also burden public finances.
The measures we take as a Government are multidimensional and in various sectors, such as in the tourism sector and energy, while, as the Ministry of Finance, through the implementation of a balanced economic policy, we kept our economy resilient, intervening where and when required, achieving positive growth rates and gradual taming of inflation.
Challenges are still ahead and create significant uncertainty, so the Ministry of Finance continues to closely monitor developments and implement a proactive economic policy.
The electricity subsidy expires at the end of June. Does the Government intend to continue the measure? Are there any other measures being considered for the middle class, in addition to vulnerable citizens?
First of all, I want to clarify once again that subsidizing the increase in electricity is not a horizontal measure , since in reality this is determined on the basis of scaled household consumption and up to a certain level.
Also, it must be said that, established by the Consumer Service and the Consumer Price Observatory, the measures contributed decisively to the containment of prices.
Weighing all the facts, the Government is closely monitoring the developments and if and when it needs to support groups of the population it will be ready to implement the appropriate measures.
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