Firstly, let me begin by thanking the Insurance Companies Control Service and the Insurance Association of Cyprus, for hosting this webinar and for the invitation to address the esteemed Board Members of the Cyprus insurance industry, such an important pillar of the economy.
Let me also extent my greetings to all esteemed speakers of the webinar.
It is a fact that the Covid-19 pandemic has placed enormous pressure globally and hence, on the Cyprus economy, both from the demand and the supply side. However, with the rollout of the vaccination program and the subsequent re-opening and recovery of the international economy, we are now going through the growth and resilience phase.
Since the onset of the crisis, Cyprus has taken very strict measures of containment to primarily protect its citizens and the public health system. As a result, the government’s fiscal policy had to be particularly expansionary, mostly through the direct support of incomes. The fiscal buffers of the last few years, played a significant role in allowing the Government to respond in a timely manner and address the scarring effects of the pandemic on the economy. As expected, the extraordinary fiscal support to the economy has had negative consequences on public finances.
Nevertheless, I am pleased to note that the government measures have been highly effective so far and it is anticipated that the Cyprus economy will enter into a recovery trajectory from 2021 onwards. In particular, real GDP growth is forecast at 5.5% in 2021 and the budget position is expected to improve considerably from 2022 onwards, reaching a surplus by 2024. The 2022 budget sets the target for a serious fiscal correction to reduce the deficit to close to 1.5% of the GDP from 5% of the GDP recorded in 2021. It includes increased development spending by 10% and projects related to green development, digitization and reforms related to the Recovery Plan.
The Government’s policy priorities aim in achieving macroeconomic stability, implementing prudent fiscal policies, ensuring financial stability and establishing a competitive, business-friendly regulatory environment of high standards.
During this recovery and growth period, the Ministry of Finance stands by the insurance sector, which has showed consistency and resilience during the pandemic. Insurance, in parallel with the fulfillment of its institutional role which is the absorption of risk for the benefit of the society, can act as a catalyst in the overall effort to return to economic growth. This cannot be done without strong, committed and effective Boards on board.
Looking at the economy in current terms, the critical element is still the evolution of the pandemic. We also have to consider the risk of potential financial market corrections that could be caused by higher inflation, sovereign debt sustainability concerns, increased credit risk related to the phase-out of fiscal measures or risk related to the real estate market. On top of that, we also have to take into account emerging risks such as cyber and climate related risks. There is growing emphasis on environmental, social, and corporate governance (ESG) aspects of businesses. The pandemic forced the market to make the transition to the digital era in a very fast way. As much as new technology has provided a platform for business innovation and growth, it has also brought new risks such as cyber-security. Cyber-security, being more important than ever is vital for insurers in two ways. Firstly, as part of their own operational profile as you have a wealth of data points on individuals and secondly, as part of underwriting risk.
At the same time, globally, efforts are under way to promote clean energy in response to climate change. Economic policy is changing with the Green Deal.There is no denying that the current market situation puts Europe under pressure, but the focus needed to stay on the engagement for a shared commitment and joint action in order to reduce emissions by 2030 and to have tangible goals to become climate-neutral economies by 2050.
We have to give our children a different, more environmentally friendly planet, acknowledging at the same time that the green transition will not be easy.
The insurance industry must expand its role in clean energy. It needs to look at new and renewable energy projects that are less sensitive to financial market conditions and that have high potential to generate stable profits over a long haul.
All the challenges currently faced in the economy and in the society, are your milestones and you are now more than ever required to try to conquer by having effective and active Boards.
For its part, the Ministry of Finance and the Superintendent of Insurance will continue to assist you and the insurance industry in your efforts to meet the current challenges, with a view to ensuring transparency, solvency and trust whilst ensuring the well-being and protection of both the undertakings and the policyholders.
Ladies and Gentlemen,
We are going through turbulent times but I am confident that we will rise to the challenge once again.
Let me conclude by wishing you success to this event.