Ladies and Gentlemen,
Thank you for the invitation to this exclusive gathering. It is surely a pleasure and an honor to be amongst such a distinguished audience and I appreciate the opportunity of saying a few words and about the Cyprus economy.
It is well known that our economy recently faced a crisis of unprecedented proportions.
What was traditionally one of the fastest growing economies in Europe was lead into a double‐dip recession. Unemployment was on a steep rise. The country faced successive rating downgrades, and eventually lost access to the international capital markets.
By 2013, Cyprus was faced with a severe banking crisis and at the same time with an equally severe fiscal crisis. One of our systemic banks actually collapsed, others were shaken and the public coffers were literally on the brink of exhaustion. It was a “perfect storm”.
Ladies and gentlemen,
Since then things have improved significantly.
The newly‐elected, at the time, government of President Anastasiades quickly came to an agreement with the EU and the IMF on a conditions‐based support programme. According to the programme, we would be able to borrow cheaply from the ESM and the IMF itself, for a period of 3 years.
This support programme offered us valuable breathing space and enabled us to focus towards the implementation of an ambitious programme of economic reform and consolidation.
The one pillar of this programme which we have been implementing has to do with the banking sector. Inevitably we would have a smaller banking sector, without the excesses of the recent past, but the aim was to ensure that this would be a better capitalised, better managed, and better supervised banking sector.
The second pillar of this programme deals with the fiscal situation of the country. Public expenditure and particularly the public payroll would have to come under control. The excessive deficit would have to come down and eventually eliminated in order to reduce the overall debt burden from our economy.
And a third but equally important pillar has to do with the promotion of structural reform including a reform of the welfare system, a reform of the public administration and the first ever privatisation programme in Cyprus.
Our progress in implementing this programme is closely monitored by the IMF and the Troika institutions. And it is, in fact, a programme which is delivering. Let me show you:
- This is the economic performance of Cyprus during the last four years. We can see the deteriorating path throughout 2011 and 2012 and also during the first half of 2013. But we can also see a pretty strong rebound just a few months after we commenced the effort to consolidate and reform our economy. Obviously we still have some way to before we can safely say that the difficulties are behind us. But if we maintain the effort we can reasonably expect that this trend will continue throughout 2015.
- The same story is told by the unemployment rate. This is obviously the most sensitive of indicators socially and politically. In 2008 it stood at an envious 3.6%. By the first quarter of 2013, it had reached 15.8%. It continued to grow for a while but it has now stabilised and it is showing the first signs of de‐escalation. Once again, we are not satisfied because unemployment still remains high, so we cannot be complacent.
- We must and we shall continue the effort.
- Moving on to the public finances, I can say that they are now safely under control. We had to take difficult decisions during the last year. We had to cut spending significantly. There have been pay cuts in the public sector and we are now strictly implementing a pay freeze together with an equally strict policy of no new hiring in the civil, not even for replacement purposes. As a result the overall public deficit in 2014 has been eliminated. Some refer to this as austerity; I call it a balanced budget.
- All this of course reflects positively on the overall public debt which is now on a downwards path at 20% lower than what the Troika originally expected.
- This combination of economic recovery and fiscal consolidation has also been instrumental when it comes to meeting yet another key policy objective, which the restoration of international confidence and sustainable access to the international capital markets. We have already been able to secure successive rating upgrades and we have been able to tap the markets on the basis an impressive improvement of our bond yields.On the contrary, economic activity is more likely to be encouraged by conditions of trust and confidence, by fiscal stability and the establishment of viable public finances.For instance, by placing a leash on public expenditure we were able to avoid the need for imposing any new taxes. This is a very clear policy commitment which I would like to repeat. Maintaining a stable and competitive tax regime is, with corporate tax at 12,5% and an extensive network of double tax treaty is a key element of retaining a competitive edge as a jurisdiction and creating a business friendly environment. Having seen the worst and having stabilized the situation the focus of our attention as a government will now shift towards structural reform. Essentially we are interested not only in dealing with the crisis, but turning crisis into opportunity, to lay the foundation to a much more viable, sustainable growth model. We have already implemented a ground‐shifting reform of our welfare system. We want to continue with further public administration reform, deregulation and cutting back on red tape which, I have to admit, is still a problem. Presenting a rosy picture about everything would serve no good. Instead we are openly acknowledge that we must further improve, we are not shying away from problems and we remain committed to doing our best in resolving them.Speaking of foreign investment gives me the chance to refer once again to our banking sector. Here also the progress has been significant, but obviously more needs to be done. I do believe that similar investment opportunities are on offer across the sectors of our economy. In any case, I fully acknowledge that it is the private sector, it is the key productive sectors of our economy, including tourism, business services, shipping and real estate, which have been able to remain strong and resilient, and which are spearheading, together with new sectors like energy and renewables, the way towards economic recovery. Ladies and gentlemen,The economy of Cyprus was lead into an unprecedented crisis. This effort is delivering. We are seeing results. And we are determined to continue. Thank you very much.
- But most of all, let me modestly say, that Cyprus remains an excellent place to live, to spend holidays, to buy a house, to do business, to invest.
- But we are on the job, correcting, reforming and consolidating this economy and laying the foundations for a much more viable growth model.
- Let me conclude, by repeating once again my main message.
- I know that timing is important in any investment decision. I do feel that now is the time to invest in Cyprus and be part of what is ahead becoming a success story.
- But I consider the presence of foreign investors both in Bank of Cyprus and the Hellenic Bank as the single most important stabilizing and confidence building development of the past year.
- Within this framework we also want to proceed with privatization, focusing initially on telecoms, ports and the state lottery. We see privatization not so much a cash‐raising exercise but primarily as a reform that will boost competitiveness and attract foreign investment in key sectors of our economy.
- Ladies and gentlemen,
- So instead of pondering around the austerity vs growth dilemma, I think we could be more productive also at a European level by ensuring that fiscal consolidation and economic growth go in hand.
- But let me repeat once again something which I feel strongly about: the perception that fiscal consolidation always leads to deeper recession and rising unemployment is false. This is what we have demonstrated. In fact we have shown that economic recovery does not always require continuously increasing public expenditure.