By Fiona Mullen
Director, Sapienta Economics
The Mari explosion, which claimed 13 lives, occurred two years ago tomorrow.
At the time various projections were made for how much it had cost the economy. There was the direct cost to the Electricity Authority of Cyprus (EAC), which was insured for EUR 1.96 bln but only EUR 600 mln for one event.
Then there was the wider cost to the economy. Electricity prices shot up even higher and electricity output, which contributes to economic growth and accounts for around 2% of gross value-added, plunged by 6.4% in 2011.
At the high end of estimates was Alex Apostolides of European University. Taking the combination of losses to EAC as well as losses to the wider economy, he estimated that the explosion would cost the economy just under EUR 3 bln, or 17% of GDP.
Credit Suisse estimated a rebuild cost for Vasilikos power station of EUR 1.5 bln and a total cost to the economy of EUR 2.4 bln, or just under 14% of GDP.
The University of Cyprus expected a drop in GDP of 2.4% (either my Greek is bad or they did not specify whether it was a nominal or real drop).
I also made some estimates in this newspaper, in which I estimated that debt/GDP ratio would rise to 75.6% of GDP by the end of 2012, compared with a debt ratio of 69.5% without the explosion, implying a debt-cost of around EUR 1.2 bln.
The final debt/GDP ratio for 2012 was 85.8%. But without the EUR 1.9 bln bond to bail out Laiki, the ratio would have been close to my estimate, at 75.2% of GDP.
Of course, this underlines the fact that separating out the impact of Mari from the impact of a deteriorating banking sector is in the end an impossible task.
Cyprus had already lost access to international markets in May 2011 because of Cyprus’ exposure to Greece and the final deal on the Greek haircut came out in February, which made Laiki effectively bankrupt.
Perhaps the most we will ever be able to say, looking at the quarterly GDP growth rates, is that the Mari explosion tipped us decisively into recession.
Real GDP moved from 1.5% growth in the second quarter of 2011 to a decline of 0.3% in the third quarter. The pace of decline has been on an accelerating trend ever since.
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