Insider / ΚΥΠΕ
The Cypriot economy will enter a recovery trajectory from next year, stressed the Minister of Finance Konstantinos Petridis, presenting the positive steps that the country has taken after the pandemic and emphasizing that the Government firmly supports the development of the capital sector in Cyprus, as well as has been recognized as an area in which Cyprus has a competitive advantage.
The Minister addressed a greeting at the 7th International Conference of Investment Funds, organized by the Cyprus Investment Fund Organization – Invest Cyprus.
Initially, Mr. Petridis stated that it is a fact that the Covid-19 pandemic has put enormous pressure on the global economy, both in terms of demand and supply, noting, however, that with the development of the vaccination program and the subsequent re-opening and recovery of the international economy, we are now going through the phase of growth and resilience.
He stressed that since the beginning of the crisis, Cyprus has taken very strict restraining measures to primarily protect its citizens and the public health system and as a result, the Government's fiscal policy should have been particularly expansionary, mainly through direct revenue support. . He added that fiscal security stocks in recent years have played an important role in enabling the government to respond in a timely manner and deal with the effects of the pandemic on the economy. At the same time, the minister said, the government used to its advantage the easing of fiscal rules allowed by the EU, and stressed that government measures were very effective, as statistics show.
Referring to the results, Mr. Petridis said that the size of the recession in 2020 was smaller than the EU average and much less than other countries, which also depend to a large extent on the tourism sector. These measures, he continued, also helped to reduce the increase in the unemployment rate significantly.
The Minister noted that with the gradual opening of the economy, the basic scenario is that the economy will enter a recovery trajectory from 2021 onwards. In particular, Mr. Petridis said that real GDP growth is projected at 5.5% in 2021, thus fully recovering the lost ground.
Regarding the tourism sector, which is one of the main levers for the development of the Cypriot economy, Mr. Petridis said that we do not expect terrible consequences from the pandemic. Based on recent data, he said, arrivals are expected to exceed those in 2020, while similar numbers are expected in 2022 compared to 2019.
In the labor market, Mr. Petridis said that the implementation of temporary income support measures has helped keep unemployment low so far. The unemployment rate increased marginally only from 7.1% in 2019 to 7.6% in 2020 and is expected to decrease to around 7.5% in 2021.
On the fiscal front, the Minister said that, as expected, the extraordinary fiscal support of the economy had negative consequences on public finances. The government balance recorded a deficit of 5.7% of GDP in 2020, after the strong performance of the last four years, while it is expected to record a deficit of about 5.0% in 2021.
However, he continued, the fiscal position is expected to improve significantly from 2022 onwards, reaching a surplus by 2024. At the end of 2020, public debt stood at 119.1% of GDP compared to 94% in 2019. Debt growth, As he pointed out, it was mainly attributed to the decisive increase in security cash reserves as a precautionary measure, due to the uncertainty caused by the pandemic, but also to the integrated budget support measures. He said that from 2021, debt to GDP is expected to fall to around 107% and remain declining in the medium term.
The Minister then stressed the urgent need to ensure that during this recovery and development process, the opportunities offered by the EU Recovery and Sustainability Fund for the benefit of the economy will be fully exploited. He described the National Plan for Recovery and Sustainability as the key to the reform of the Cypriot economy.
Through the measures of the Plan, as he said, we aim at promoting Cyprus as a country with high levels of resilience, productivity and competitiveness through a sustainable model of long-term development, in which the education system and the development of the workforce will be aligned with the skills required for the future.
He expressed the desire for Cyprus to be included among the pioneers in the Green and Digital Transition and to become a country with a resilient health system and a welfare state with a strong protection network for those in need.
The Minister said that despite the setback caused by the pandemic economy, the Government's policy priorities remain the same, namely achieving macroeconomic stability, implementing prudent fiscal policies, ensuring financial stability and creating a competitive, business-friendly high standard regulatory environment.
In this context and as part of an incentive package to promote the economic recovery of the island, Mr. Petridis said that investors will be able to benefit from the “Business Facility Unit”, which is expected to be established in early 2022. included in this initiative, as he explained, cover incentives for residence and employment, simplification and digitization of procedures, as well as promotion of Cyprus as an attractive investment destination.
In addition, said Mr. Petridis, the Government strongly supports the development of the capital sector in Cyprus as it has been recognized as an area in which Cyprus has a competitive advantage, resulting from its specialized human resources, the relatively low operating and installation costs. , as well as its access to European and regional markets, within the European Union's robust framework for financial services.
He said that the capital sector in Cyprus has shown steady growth with the assets under management increasing by more than 200% from 2.7 billion euros in 2016 to 8.5 billion euros in 2020.
The Minister noted that in addition to the general development of the sector, which provides employment, specialization and value through the financial services sector, 25% of the funds under management in 2020, were invested in Cyprus, directly financing the economy, emphasizing that both dimensions of the mutual fund sector are important for growth and are interlinked.
Mr. Petridis stated that the enhanced activity of Private Equity and Venture Capital in recent years can benefit the emerging and growing Cypriot ecosystem of business startups and innovation.
According to data from Invest Europe, the Cyprus-based Investment Funds have invested more than 28 million euros in companies based in Cyprus in 2020. However, he continued, there is still a significant equity financial gap, as and a difficulty in accessing funding in Cyprus.