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Tourism: Cyprus is the most vulnerable country in Europe

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Tourism: Cyprus is the most vulnerable country in Europe

Cyprus is in a negative position as the country that is most vulnerable in Europe due to the tourism sector and the lending openings that exist from companies of the wider sector in the banks.

In the latest report of the International Monetary Fund, published the day before yesterday, special reference is made to tourism, while the positives indicate the good epidemiological picture of the country. The Fund's technocrats give Cyprus a negative lead, stressing that “the high exposure of the Cypriot banking system in the tourism sector increases the risk in servicing loans. “Loans for accommodation and catering services accounted for 46% of the banks' Tier 1 capital, one of the highest in the euro area.”

According to IMF data, Greece, which is in second place, completes the top five vulnerable countries. Greek loans for accommodation and catering were 40% of the capital of category 1 of Greek banks. By far the largest is Ireland, with loans in the tourism sector accounting for 20% of banks' Tier 1 capital, followed by Spain and Portugal with loans representing 18% of Tier 1 capital.

The Cypriots do not compensate

The high dependence of Cyprus tourism on international arrivals indicates a slower prospect of short-term recovery, the Fund said. The smaller share of domestic tourism can not compensate for the decrease in international arrivals. In addition, the technocrats explain, the major countries in the tourism market of Cyprus have made good progress in vaccinations. Two of the top three countries of origin (UK and Israel) are advanced in vaccination, with about 60% and 110% of the population having completed vaccinations by mid-April. Another positive factor is that two of the top three markets (Russia and Israel) expect a faster recovery in 2021. The IMF notes that “the share of its top three markets (UK, Russia, Israel) remains very high, making tourism vulnerable to developments in these countries. “Greater diversification of the tourism market will help Cyprus deal with the shock.”

The IMF report notes that flights continued to decline in early 2021 and this is not a good sign for tourism in Cyprus, given its complete dependence on air travel. Hotel occupancy remains low, around 10% to 15%, compared to southern European competitors such as Portugal and Greece. For Cyprus, based on the current rate of vaccine distribution in the country, as well as the vaccination program of inbound tourism, IMF analysts have predicted that a 30% recovery on average from the 2019 level is expected in 2021, with a full recovery by in 2024.


The Cypriot economy, according to the IMF report, is highly dependent on tourism, which makes it more vulnerable to the impact of the shock than Covid-19. Revenues from tourism accounted for more than 18% of Cyprus' total exports in 2019. The balance of tourism expenditures (inflows minus outflows) reached about 8% of GDP in 2019. Tourism also has a large impact on businesses outside hotels (services food, retail, transport, construction, other services). The economy of Cyprus, the IMF notes, is highly dependent on the tourism-related industries, with the total direct and indirect contribution representing almost 14% of GDP in 2019, which was higher than many other European countries. Tourism and related services also made a large contribution (around 13%) to total employment.

Cyprus 3rd in debt growth

Third in the European ranking with the largest increases in public debt is Cyprus, with an increase of 24.2%, according to data published yesterday by Eurostat. Large increases were recorded in Greece (+ 25.1%), Spain (+ 24.5%), Italy (+ 21.2%) and France (+ 18.1%). The gross debt-to-GDP ratio of general government increased in the European Union (EU27) by 13.2 percentage points (from 77.5% at the end of 2019 to 90.7% at the end of 2020). According to Eurostat, debt in the euro area increased by 14.1 percentage points (from 83.9% of GDP at the end of 2019 to 98.0% of GDP at the end of 2020).

The share of public debt held by the domestic financial corporations sector at the end of 2020 was highest in Sweden (73%), Croatia and Denmark (67%) and the Czech Republic (64%).

At the end of 2020, the ratio of initial short-term debt to total debt for general government was higher in Sweden (29.9%), Denmark (21.6%), Portugal (16.7%) and Finland (15.6%) as well as Norway (21.3%). The short-term debt ratio also exceeded 10% in the Netherlands, Italy, France, Germany, Malta and Ireland.

At the end of 2020, the highest shares of short-term outstanding debt to total central government debt were reported: Sweden (39.7%), Estonia (28.4%), Portugal (26.4%) , in Latvia (23.8%) and in Italy (23.4%). The lowest shares were observed in Bulgaria (3.1%) and Romania (3.6%).

Of the reference countries, only three issued more than 50% of their foreign currency debt: Bulgaria (82.0%), Croatia (72.1%) and Romania (51.1%). The average cost of central government gross debt ranged from 0.4% in Estonia, 0.7% in Finland, 0.8% in Germany and 3.2% in Hungary and 3.8% in Romania in 2020. Comparing data from 2020 to 2019, indirect interest rates for all reference countries decreased. Finally, between 2019 and 2020, the stock of guarantees provided by central governments increases for all countries for which data are available.


Source: 24h.com.cy

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