Cyprus is preparing a €700 mln government support package for the country’s economy which is in dire straits after COVID-19 hit the island last week.
Speaking on Monday, Finance Minister Constantinos Petrides said: “the Cyprus economy, like all the eurozone economies, could not remain unaffected by the repercussions of the coronavirus”.
An extraordinary cabinet meeting on Sunday approved a multi-million financial aid package to buffer the economic impact of the virus.
The minister called it an “unprecedented and unexpected crisis” with consequences that are not foreseeable for the time being as the virus has just got a grip of the country and is still spreading.
All actions are underway to lessen the repercussions, said the Finance Minister, adding that the new measures will have serious financial implications and will test the collective strength.
He said that authorities are to make use of all the tools they have at their disposal in order to get through this difficult time in the coming months.
The aim, said the Minister, is to “provide an effective and strong social safety net for employees, to support the resilience of our businesses and to strengthen our health system. ”
The support package includes measures worth of €450 mln for businesses and employees affected by the shut down after a presidential decree, while some €250 mln from the package will go to boosting business liquidity over the next two months.
The €693 mln government package corresponds to 3% of the country’s GDP.
Closed bars, cafes, restaurants and gyms will be financially supported while staff will be allowed to get unemployment benefit for as long as businesses are shut.
The scheme will also support parents who take “special leave” to stay home with their children.
Petrides said that another €100 mln will go to the health sector to combat the pandemic if needed, such as the employment of additional medical staff.
He said that additional contributions to the General Health Scheme will be postponed for two months.
As from 1 March 2020, contributions to the GHS were to increase to 2.65% for employees and pensioners, 2.90% for employers, 4.70% for the government and 4% for self-employed.
He said that as things stand the timeline for the implementation of the GHS phase II will not be affected, with hospital care added to the services offered by the scheme.
On measures to support businesses, Petrides said that VAT payments will be temporarily frozen to provide liquidity, this is for companies whose turnover is less than €1 mln euro, according to the tax declarations submitted in 2019 and businesses whose turnover dropped by more than 25%.
There will be arrangements for VAT to be gradually paid off until 11 November 2020 this measure is expected to boost liquidity by around €240 mln.
There will be a temporary reduction of VAT from 19% to 17% over a two-month period, the reduced rate of 9% for restaurants, catering and other tourism services will drop to 7% over a three-and-a-half-month period immediately after the relevant legislation is adopted.
The aim is to strengthen the purchasing power of consumers at a cost of €70 mln.
Hundreds of students are offered an additional grant of €750 if they choose not to return to the country during the Easter holiday. The measure is expected to cost the state some €15 mln.
Tax statements can be submitted until the end of May 2020 instead of the end of March.
Some €11 mln is earmarked to support the tourism sector from June to September in cooperation with airlines and tour operators and to increase tourist arrivals from October 2020 – March 2021.
Petrides said the ECB with the help of the Central Bank, has already studied measures, to support bank lending, Cypriot financial institutions will be able to obtain liquidity from the Eurosystem on favourable terms.
“The measures decided by the ECB concern the release of capital reserves of around €1.3 bln, which means that the banks should be more flexible over households and businesses repaying loans.”
The minister also said that for 30 days from 17 March, civil servants will be able to work remotely while services will carry out emergency tasks with limited staff at the offices.
Essential Services are excluded from the above restriction.