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Thursday, October 21, 2021

The potential of the economy

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The spread of the pandemic has affected all economies as a whole, but the joint initiatives taken to reduce the negative effects are an encouraging phenomenon. In addition to the medical / humanitarian part, there was coordination on measures to support economies and employment. For the first time, we have seen Europe issue Eurobonds to finance the Recovery Fund and other financing programs.

Such solutions were also heard in the period 2008-2013, for the financing of the Support Mechanism and consequently of the countries that joined it, but the agreement of the Member States was not possible (the disagreements between the European South and the North were bridged).

At present there is plenty of capital (liquidity) to invest and finance (both from the private sector and through institutional programs such as the Reconstruction Fund), while there is a gradual recovery of interest in investment opportunities. According to statistics, due to the pandemic, more than 40% of international investments were postponed. Of course, this abundance also leads to inflationary trends, a phenomenon that must be monitored.

In addition, there is a significant reduction in non-performing loans of banks and clearing of their balance sheets, mainly due to the sale of loan portfolios to management companies. This, combined with the liquidity they have, leads their leaders to seek projects for funding.

The increase in demand for lending, both by households and businesses, is reflected in the data of the Central Bank and is fed in addition to other factors and by interest rate subsidy programs by the government.

Of course it should be noted that the transfer of loans to management companies does not reduce private debt, with the result that while banking institutions are in the mood for new financing this is not possible due to existing borrowing and the inability of the applicant to prove a stable possibility repayment.

Another potentially optimistic element is the fact that Cypriot companies (not all of them, since many economic sectors have been restructured) went through two important periods of recession, in 2013 with the country's accession to the memorandum and recently with the spread of the pandemic, and showed endurance. So with the recovery of the economy, the acceleration of business activity is expected.

Of course, this concerns companies whose managements have shown proper reflexes, with a full understanding of the new economic and political environment, they have adapted their business models. Businesses that are stuck in the past will face serious problems.

Summarizing the above and supporting the argument that there is a prospect, it is emphasized that there are available funds, investment and financing mood and companies that have proven to be resilient and can be a pillar of growth. The prospect becomes even greater when there is state support and the strengthening of reforms.

Entrepreneurs and investors in general, in addition to the stable tax and legal framework, also evaluate the procedures applied. No one would like to incur administrative costs and long delays in their investments, due to the problems that government services may present.

There is a great opportunity for institutional change through the European Union programs, since the funds that are being completed will have to be checked for the disbursement of funds.

Changes in the economy and reforms do not in any way mean erasing the past, but strengthening the existing economic sectors through more flexible processes, synergies and modernization and development of new ones, by examining the needs of entrepreneurs / investors and society in combination with the comparative advantages offered by the place.

In addition, it is necessary to make decisions and moves that will boost the economy in the short term, so that by tackling the problem of the virus there is strong growth, otherwise we will lead to a horizontal course of deterioration. It is at this time that significant issues will arise regarding unemployment and business viability problems.

For an economy like Cyprus, exogenous without a large internal market, it is legitimate to provide specific incentives to raise capital, provided there is proper planning and control so that they are not exploited.

It is stressed that a measure to be able to attract foreign investors must be competitive with other countries, such as our country's tax system that has made it a strong financial center. If there are such provisions that make it uncompetitive, then it is better to abolish this measure.

At the same time, Cyprus is gradually gaining momentum in the field of technology with more and more companies from abroad showing interest. The package of measures / incentives that the government is expected to announce in the next period is expected to give a significant impetus to the sector.

Source: politis.com.cy

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