Cypriots who were hoping to gain some respite from this summer’s unusually high temperatures once 15th August had passed have been disappointed this week. However, consumers, workers, employers, business people and even the Cyprus government all had some reason to feel more cheerful on 24th August!
The first drop of good news was a confirmation by the government that it intended to continue financial support given to businesses to support them during the Covid 19 pandemic. This was swiftly followed by an announcement from the Labour Ministry that it would continue to support, on a targeted basis, many businesses through September. The original four support schemes put in place to help workers, businesses and the unemployed were due to expire at the end of August but businesses and trade unions viewed continuation of some form of state support as essential to avoid mass layoffs of workers and consequential economic fallout.
24 August also saw the European Commission (the ‘Commission’) present proposals to the European Council for decisions to grant financial support of €81.4 billion to 15 Member States under the SURE instrument. Included within this sum was an allocation of EURO 479m to Cyprus. The Cyprus government had requested financial assistant to complement its efforts to tackle the impact of the Covid 19 outbreak and its socio-economic impact on workers. The SURE instrument is one of the three safety nets agreed by the European Council to shield workers, businesses and countries from the negative effects of the pandemic. The Commission’s proposals are expected to be approved in their entirety by the Council. SURE funds will be provided in the form of loans with an average maximum maturity of 15 years. The Cyprus government may use them to finance any, or all, of the seven support schemes it put in place to counter the impact of the pandemic on the Cyprus economy and its people.
A third note of bonhomie for the day was provided by the Deputy Ministry of Tourism when it announced the launch of an ‘Extraordinary Plan for the Support of Domestic Tourism’. The plan will cover the period 1 September 2020 through to 30 November 2020. It aims to stimulate local tourism and associated business via, in particular, the subsidy of accommodation costs. The objective is to help minimise the Covid 19 recession in Cyprus and to maintain employment in the hospitality sector which has suffered badly from the various restrictions linked to the pandemic.
Together the various measures represent an acknowledgement of the important role state spending has played in minimising the economic fallout of Covid 19 in Cyprus. Whilst the predicted contraction of 7% of GDP for Cyprus in 2020 is hardly a cause for celebration, it could, as Finance Minister, Constantinos Petrides, recently inferred have been so much worse! In his words “The fact that we implemented a programme to support disposable income without simultaneous cutbacks … in conjunction with supporting the economy through increased public spending, is one of the reasons private consumption was maintained and there was no drop in economic activity,”.
Mr. Petrides, the EU, and a raft of independent agencies all expect Cyprus to return to a growth rate of around 6% GDP in 2021. Assuming this is correct, it will in part have been made possible because skilled workers have been supported to stay in their posts ready to deal with any sudden upswing in demand. Forecast unemployment levels are generally in the vicinity of 9% for the year end as opposed to the more usual 7.1% without the various support schemes it is probably that the figure would be catastrophically higher.
Critics worried at the levels of borrowing that Cyprus has incurred as a consequence of the pandemic can take comfort in the fact that the monies borrowed are being effectively used and the government coffers are more than adequate to meet repayment requirements. That places Cyprus in a much stronger position than many other countries which have also borrowed heavily to see themselves through the pandemic and have achieved lesser results!