One of the biggest shocks is the economy and society due to the COVID-19 pandemic which continues to be a threat. The health crisis is also having a significant impact on the economy, businesses, employees, borrowers and the banking system. In two months, a year has passed since the coronavirus appeared in Cyprus and the country is experiencing one of the most painful periods in its history.
Especially the private sector, companies and employees with the resilience have hit red. The lockdowns by which governments tried to curb the deadly Covid-19 sparked a contraction in economic activity. The extent of the fall was such that it makes the road to recovery more uphill and with significant obstacles. Even if expectations for rapid growth are confirmed, the global economy may remain smaller than it was before the pandemic next year.
The coronavirus crisis will go down in black in the economic history of Cyprus, an invisible enemy that has put a lock on the economy and threatens health. After 2013, it will be engraved in the memories in 2020 but as it seems in 2021, years when financial, banking, business, personal and health endurance are tested. At present the antidote to the crisis is the provision of support to the economy, households and businesses. In March 2020, the economy received a major shock after the first lock down that limited economic activity, while after May, it began to recover timidly after the lifting of restrictive measures. But that did not last long. The economy at the beginning of the new year is experiencing a second lock down and no one can predict when the cycle of the pandemic will close and the cycle will open for a return to normalcy. At a time when the economy is experiencing dramatic moments, the Parliament has not yet voted on the 2021 budget, with the result that the Minister of Finance Konstantinos Petridis mentioned last Friday in the Parliament that Cyprus will be faced with the spectrum of the suspension of payments.
The preliminary budget results prepared by the Statistical Office for the period January-October 2020 show a General Government deficit of € 727.9 million (3.5% of GDP) compared to a surplus of € 639.3 million ( 2.9% in GDP) for the period January-October 2019.
What is considered certain is that the government will plan a new exit in the markets in the near future and a necessary condition is the approval of the budget. According to the Office of Public Debt Management, the 2021-2023 strategy period is characterized by manageable financing needs, despite the impact of the Covid-19 pandemic on public finances.
Quarantine growth in 2020
In Cyprus, the Ministry of Finance predicts that the recession will be 5.5% in 2020 to be followed by a recovery of 4.5% in 2021. Historically, depending on the events, growth and recession alternated with large differences. For example during the period of invasion 1974-1975 the economic recession was 17.9% and after the invasion in the period 1976-1997 at 6.7%. The growth rate of the economy has gone through various phases, as shown by the historical background. In 1996 the growth was 1.2% in 1997 at 2.6%, in 1998 at 6.1% in 1999 at 5% and in 2000 at 6%. The next decade ended in a majority of years with a positive sign. In 2001 the growth rate was at 4%, in 2002 at 3.7%, in 2003 at 2.6%, in 2004 at 5%, in 2005 at 4.9%, in 2006 at 4.7%, in 2007 at 5.1%, in 2008 at 3.6%, in 2009 there was a recession of 2% and in 2010 there was a recovery of 2%. The next decade has seen a reversal in growth. In 2011 the growth was marginal at 0.4%, in 2012 the recession was 3.4% and in 2013 it was even higher reaching 6.6%. In 2014 the recession was lower at 1.9% and in 2015 there was a recovery of 3.4%. The following years had a strong recovery. In 2016 the rate was 6.7%, in 2017 at 4.4%, in 2018 at 4.1% and in 2019 at 3.2%.
Cyprus is vulnerable
Moody's said in a report released last week that Cyprus was vulnerable to a possible prolonged decline in tourist arrivals, along with Portugal, Greece and Malta, but also with two major countries, Spain and Italy. Cyprus, along with Spain, Italy, France and Greece, are particularly vulnerable to further corporate bankruptcy and rising unemployment as they have a large percentage of small businesses that are under more financial pressure, the house said. In addition, he warns that the credit risks for Cyprus, Italy, Spain and Portugal are higher, given their high exposure to the crisis, as he notes, along with the limited fiscal space available to these countries.
The house expects that the second lockdown in Cyprus will be negative for the quality of banks' assets and predicts an increase in non-performing loans (NPLs). Banks may reschedule loans to sustainable borrowers to better meet revised cash flow expectations, “but we expect that some borrowers will not be considered eligible or will eventually go bankrupt.” “Because the majority of troubled borrowers have already benefited from the 2020 moratorium, they will not be eligible for the new moratorium this year and we expect the number of deferred loans to be limited, with the majority of deferred loans repeating loans “, it is emphasized.
What are the great events in its history
In the 60 years of existence of the Republic of Cyprus, the economy went through great shocks that were either due to internal poor financial management or were influenced by external factors or both. The last big shock that the Cypriot economy is experiencing was due to a health crisis, as well as the whole planet. It fears the possibility of mass bankruptcies, people losing their jobs, the creation of a new generation of unemployed, padlocked businesses and an increase in non-performing loans. The Cypriot economy in all periods of recession managed to stand on its own two feet and come out stronger, despite the magnitude of the problems created during the given period, both at the fiscal level, with deficits, increased public debt, recession. It came out strong but also had collateral losses: unemployment, declining incomes and jobs, business and banking padlocks, corporate bankruptcies and a seven-year haircut. The periods that negatively affected the economy are:
– in 1964, due to the inter-communal unrest that broke out at the end of 1963,
– in 1974-75, due to the Turkish invasion,
in 1981, due to the oil crisis
– in 1991, due to the war in the Gulf
in 2009 due to budgetary problems
– in 2012 due to the expansion of problems
– in 2013 due to the memorandum adjustment program
– in 2020 the magnitude of the problem due to the coronavirus pandemic is currently unknown. 2021 came in but the Parliament has not yet voted on the budget and any non-vote will have a series of negative effects.
