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CYPRUS: Not out of the woods yet (Part II)

24 September, 2018

The Financial Mirror spoke to seven economists and financial analysts who shared their views on Cyprus returning to the investment fold and what the future holds for the country’s economy. Despite the positives, high private and public debt, trade wars, the Cyprus problem and regional instability all pose risks to a brighter investment outlook (Part II).


Reducing high debt levels is key
Demetris Georgiades
President of the Fiscal Council

The S&P upgrade is a clear indication that we are moving in the right direction and that Cyprus is regaining its credibility. However, we are just marginally within the investment grade. Cyprus is still a state with a very high rate of private and public debt.
We need to continue our efforts to bring down our borrowing. What we should be doing from this point onward, is to take advantage of the low interest rates we are now able to enjoy and get the economy moving again.
Getting the economy moving again and lowering our borrowing is essential if we want to be able to withstand any future crisis.
All countries are faced with the same risks and dangers. However, countries with economies with a lower debt rate have a better chance of weathering the storm.
A big part of the public risk has been taken over by a private bank, with Hellenic’s acquisition of the Co-op. However, the state has kept on Co-op’s NPL portfolio, and how the state will manage it is of grave importance.

Still at the bottom of investment grade
Andreas Assiotis
Chief economist of Hellenic Bank’s Economic Research Department

It is a clear message to us, but also the investment world that Cyprus is moving in the right direction.
The upgrade, as S&P themselves have noted in their notes, is closely tied to the packaging and sale of loans from the Bank of Cyprus and the sale of Hellenic Bank loans to the Norwegian B2K. Of course, the acquisition of the Co-op by Hellenic also played its role as noted by S&P.
We expect this to be reflected also in Fitch’s evaluation of the Cyprus economy, expected in mid-October.
The upgrade of our investment grade reflects a decrease of the risk factor surrounding Cyprus economy. However, this is not the end of the road. We have just made it out of the ‘junk’ category and we are at the bottom of the investment grade, while our NPLs rate, public and private debt are still very high.
There is a significant downward trend as far as our debt is concerned, but we still need to do more. The country needs to continue with its reforms and improving the banking system while keeping to the fiscal policy it has been applying over the past years.

People will feel tangible effects of recovery in 2020
Pambos Papageorgiou
Financial Analyst

Perhaps the most important thing is that while the numbers are good, we are also seeing that the real economy is also recovering.
We are seeing employment on the rise with figures dropping to 7.2%. As is always the case with economic recoveries, it takes a few years for the improvement to be felt by the citizens. But if economic growth continues and is within S&P’s projections, then people will see significant improvement in their lives by 2020.
We are not out of the woods yet. Besides the danger of side-tracking from our path and our policies on reducing the country’s NPLs, there are also external dangers that need to be taken into consideration.
Possible turbulence in the region which is already unstable as it is or the continuation of the trade wars can very well lead to a slowdown of the global economy with serious implications for a small economy such as Cyprus.
The country needs to work towards a smooth de-escalation of the NPL problem. The Estia scheme is a step towards that direction, as it has a social dimension too, helping people who have found themselves in a tight spot with the crisis, to be able to keep their first home.
It is one of the most serious problems facing the country’s economy and society, which is being addressed with the contribution of the state, the banks and the borrower.
The crisis is over
Christoforos Stylianides
Head of Corporate and SME Lending, RCB Bank

The upgrade of the sovereign credit rating of Cyprus to investment grade reflects the fact that the Cyprus economy has successfully overcome the 2013 economic crisis and is ready for new investments. It is a sign of confidence and international acknowledgement of Cyprus’ success; success of the authorities, Cypriot businesses and employees working very hard towards economic recovery and sustainable growth.
The economy demonstrates growth, fiscal surpluses and decreasing unemployment. This paves the way for even more investment opportunities in Cyprus.