COVID19: Cyprus economy heading for recession

Cyprus’ economy is heading for a recession this year as a result of the crisis brought on by the outbreak of COVID-19, said Finance Minister Constantinos Petrides on Tuesday.

Speaking to CyBC radio, Petrides conceded the economy could contract by around 5% in 2020 after five years of impressive growth.

Commenting on government measures to support the economy the minister admitted that “nobody can forecast the real extent of the fiscal consequences” from the coronavirus crisis.

The government’s package for buffering the economy includes subsidising the wages of private-sector workers whose employers have been shut down, is worth €813 mln, about 3.8% of GDP.

“We have a buffer, but we will still need additional borrowing, to cover our needs,” said Petrides.

He noted there is no way of telling what state needs will be in terms of cash flows over the coming months.

“Just as no epidemiologist can predict the extent and depth of the crisis at the moment, no doctor can predict what the Cyprus health system will need in two weeks or a month, so no economist or Minister of Finance can  predict the true extent of the economic impact.”

He acknowledged that going to the markets would not be as easy as it was three months ago.

“The government’s goal is to ensure this additional liquidity so that we can have a presence in the market for as long as needed even with revised plans due to the crisis”.

Not all states had a triple-A credit rating like Germany and with most states wanting to fund their spending through borrowing it might be difficult to secure money in the markets, added the minister.

“Public finances will take the impact of the added borrowing, that is why we need a mechanism for securing cheap loans via the EU.”

He said Brussels could help in this and efforts were being made for the bloc to issue Eurobonds, distributing the money raised among member-states.