In 2012, Cyprus entered into a financial crisis that stripped the country of economic growth for the following three years. Yet, a reform program prescribed by the IMF and EU has helped to guide Cyprus back on track, and without ever having to raise taxes. Cypriot Minister of Finance Harris Georgiades details why he believes the worst days have already past Cyprus.
How did Cyprus grow 2.8% last year after such a devastating recession?
Cyprus was indeed led into a severe crisis, but the growth fundamentals of the economy were never in question, and were never put in jeopardy. For instance, the tourism sector, which is a flagship industry, never lost its potential throughout the crisis and remained strong. Indeed, tourism spearheaded the recovery of the economy, and now we are achieving record growth in terms of economic output. The shipping industry is also a very important industry for Cyprus. Indeed, Cyprus is the largest ship management center in the EU. This, again, was a sector that was essentially unaffected during the economic crisis.
Today, the business services sector, which comprises legal services, accounting and auditing services, and fiduciary services is built around a number of comparative advantages. Our recovery is primarily a result of the resilience of these productive sectors of the economy.
How has the reform program prescribed by the IMF and EU changed Cyprus?
Cyprus has completely reformed the banking sector, which is now smaller but better capitalized and supervised. Another area that was addressed was public financing, which were previously characterized by excessive and unsustainable deficits. We tackled this by balancing the budget in one go, which gave us the chance to keep it steady and not revert to fiscal measures. In fact, we didn’t need to raise taxes at all.
Do investors still need to be worried about operation risks considering the recent recession?
It all comes down to confidence and confidence in the banking sector has been restored. We have seen a significant influx of new foreign investors in the banking sector itself, and also a return of deposits, both confirmations of restored confidence. Investor confidence extending beyond the banking sector is also notable. There is significant investment in tourism-related projects, ranging from the largest integrated casino-resort in Europe to new seaside hotels; notable investments also extend to the retail and pharmaceutical sectors. Overall, we have seen very significant investments over the course of the last year.
What is Cyprus doing to privatize some of the state’s assets?
We have recently privatized the largest port of Cyprus, Limassol, to consortiums from Germany and Dubai. By the end of the year, we want to complete the privatization and development project of the second port, the port of Larnaca. In addition, Cyprus will proceed with at least two or three additional privatization projects, including the stock exchange. We want to eventually to proceed also with the telecom authority even though we have not been able to secure parliamentary support yet regarding this one. In all of these cases, we operated the tender in an open, competitive process and we would welcome the participation of Chinese investors.
What impact would a unified Cyprus have on the economy?
I see a possible resolution and reunification as a potential upside. But I do not see the lack of a reunification as a significant drawback to the already excellent prospects that I foresee for Cyprus. It’s a very regrettable situation, but one which has existed for the last 43 years. Cyprus is a small economy that is better known as a tourist destination rather than anything else. But at the same time, it is also a very attractive investment destination, a very good place to do business.