The expenditures for health, and especially the operation of OKYPY and the return of KEDIPES, the largest asset of the Republic of Cyprus, are the main sources of concern of the European authorities that emerged during the eleventh post-program evaluation of the country, which was completed on 22 September.
The findings of the evaluation (which is conducted every six months) will be reflected in a report expected to be released by the end of November and will be discussed at the EU Finance Ministers' Meeting on 6 December.
“P” is informed that the content of the report will be positive for Cyprus, as the Cypriot economy moved better than expected during the pandemic and this year the growth rate will exceed 5%, resulting in “gathering” in One year the losses of 2020. The prospects are also positive, with the National Recovery Plan (NES) giving additional impetus to the economy through the financing of investments and reforms. It is recalled that the EES is called upon to address all the recommendations addressed to the country in recent years.
The “bells”
The officials of the European Commission, the European Stability Mechanism and the European Commission who participated in the post-program evaluation, in addition to the positives, in their report will focus on two issues that can overturn or mitigate the prospects.
1st The growing expenses for health.
The 2022 budget, which was submitted to Parliament last Thursday, envisions an increase in health spending of 474m euros to 1.8 billion euros, up from 1.32 billion euros in 2020. The 400, 9 million euros concern the Health Insurance Organization (OAY), ie the GESS. Were it not for these additional costs, the 2022 budget would be in surplus.
The budget risk report that accompanies the budget lists as a challenge the excessive expenditures that may result from the improper operation of the General Health System (GSY) and the State Health Services Organization (OKYPY).
The anxiety in the government is that OKYPY will not be able to attract patients, with the result that in the end the deficits in the operation of public health structures will be called to cover the budget, despite the commitment to maximum expenditures set by its so-called global budget. system and the forecast for OKYPY to become financially autonomous within a horizon of five years (the period of financing the OKYPY deficits from the budget ends in 2024).
The assessment of the technocrats of the European institutions is that the implementation of quality protocols in medical operations (a project funded by the EES) will make a decisive contribution to reducing spending.
It is worth noting that the IMF, in its own report on the Cypriot economy published in June, had described the main challenge as the containment of fiscal risks by the GESS.
In the long run, the financial performance and efficiency of OKYPY and the growing demand for healthcare pose budget challenges, the IMF notes.
The Cypriot authorities, commenting on the Fund's labeling, recognized the fiscal risks posed by the GESS and agreed that more measures should be taken to strengthen the competitiveness and achieve the financial autonomy of OKYPY.
“Measures to improve the efficiency and enhance the competitiveness of OKYPY during the five-year transitional period are crucial to reduce budgetary pressure in the future. To address the expected increase in health care demand resulting from increased health coverage from reform and an aging population, authorities need to contain the prices of basic medicines and health care services and reconsider their treatment. , is the recommendation addressed by the IMF.
2nd The performance of KEDIPES
KEDIPES, the successor entity of the Co-operation, is currently the largest asset of the state from which the Republic can recover the state aid of 3.5 billion euros to finance the sale of works to the Hellenic Bank.
The success of KEDIPES goes through the effective implementation of the framework for the sales. It is a timeless suggestion – from the period of the memorandum – the need for an effective framework of sales and insolvency, a suggestion that remains relevant.
The volume of non-performing loans on banks' balance sheets has shrunk significantly, but NPLs have passed into the hands of credit companies, one of which (and the largest) is KEDIPES.
In 2018, KEDIPES took over the management of loans amounting to € 7.2 billion (€ 6.7 billion non-performing portfolio and € 0.5 million non-performing portfolio) and a real estate portfolio of approximately € 0.67 billion from the former Cooperative Central Bank. In 2019, KEDIPES started the repayments against the state aid with the payment of an amount of € 120 million. In 2020, the amount of € 280 million was further paid, to date the amount of € 400 million has been paid. of state aid will be done through the concession of real estate to the state, whose value amounts to approximately € 135 million, as well as through the concession of other assets of lower value. This process is expected to be completed within 2021.
KEDIPES is invited to take on a new role and transform into a National Asset Management Company in order to purchase MES portfolios, securing the 1st home or business with a market value of up to € 350,000 from banking institutions. Finally, it is examined how KEDIPES offers to its borrowers, but also to the borrowers of loans that will be acquired, a “Mortgage to Rent” plan, ie the payment of rent by staying at home or business.
For all the above reasons, the performance of KEDIPES is of great concern to the European institutions. Its success goes through the effective implementation of the sale process, while by taking out all the loans securing a first home it will provide a solution to a social problem.
European institutions, as well as the IMF, call for the effectiveness of management and decision-making based on market criteria. At the same time, it is requested to strengthen the supervision of credit repurchase companies, which from now on will have a decisive role in the restructuring of “red” loans.
“The current proposed expansion of the public asset management company (s.s. KEDIPES), which is subject to the approval of the European Commission, should be carefully evaluated in terms of its cost and benefit, as well as its impact on behavior. repayment “, notes from its side the IMF.
