CYPRUS: Fiscal Council calls for reform while warning over passport scheme

Cyprus must implement reforms, boost competitiveness, maintain fiscal surpluses and reconsider its passport for investment scheme, Fiscal Council president Demetris Georgiades said on Thursday.

He pointed out that external risks such as trade wars and a change in the favourable monetary policy could adversely affect the Cypriot economy.

Cyprus is a small, open but indebted economy and a sharp deceleration of the world economy or a change of the European Central Bank’s monetary policy would lead to a significant increase in financing costs for households and companieswith huge consequences, said Georgiades.

Presenting the council’s spring report, Georgiades highlighted the need to create a rational mechanism that would limit the public wage bill, increase nominal GDP growth, further strengthen the NPL framework especially as a large share has been assumed by the state and channel state cash reserves to public debt reduction.

We are seeing a trend for increased claims and concessions; fiscal surpluses should be safeguarded. It would be appropriate to create a mechanism that would earmark these surpluses for public debt servicing, Georgiades said.

He also highlighted the need to boost the economy’s competitiveness, an issue raised by many international organisations and surveys.

The economy may be doing well, we may have good results from tourism, real estate and other measures taken in the public and private sectors, but we are not in position to swiftly respond in a new crisis.

Georgiades said the Cyprus Investment Scheme should change but he did not imply that it should be terminated.

He said the passport scheme could not go on for ever as Cypriot land cannot absorb more high-rise towers while the programme has caused a negative reaction from the EU and other countries.

A termination of the programme would create problems but if it continues it would create problems to other sectors when a crisis hits the construction sector.

Georgiades argued that the scheme has caused property prices to spiral, construction costs to go up while rent in the areas like Limassol were going through the roof.

We point out the risks and then it is up to the politicians to weigh these issues and take the decisions.

Source: The Financial Mirror