An improved government financial package for reviving the economy after COVID-19 lockdown will act as the confidence boost needed for a quick recovery, said Cyprus Finance Minister Constantinos Petrides.
Petrides presented on Thursday a second government package to restart economic activity as Cyprus emerges from a two-month lockdown to curb the spread of coronavirus.
The new package worth around €2 bln follows the first fiscal support measures amounting to €1.2 bln.
The new measures feature direct grants to very small business and the self-employed worth €100 mln and interest rate subsidies for new loans for companies suffering a liquidity squeeze with an estimated fiscal package of €200 mln over four years.
There are also €1.7 bln in loans from the European Investment Bank (EIB) issued with state guarantees.
“We need to focus on boosting confidence in the market. After the lifting of restrictions…the engines of the economy must restart,” said Petrides.
He said, so far, Cyprus has avoided mass layoffs or bankruptcies.
“A small country like Cyprus, which did well in tackling the health crisis, will manage to exit the economic crisis stronger despite the recession.”
The government decided to participate in the EIB’s recently approved Pan-European Guarantee Fund which will generate new lending between €300 and €400 mln to Cypriot SMEs and mid-caps that employ up to 3,000 persons.
The fund will provide loan agreements to banks with a guarantee of up to 80%.
Furthermore, the government decided to increase by €500 mln state guarantees provided to the EIB which provide cheap loans to Cypriot SMEs and mid-caps through Cypriot banks.
The scheme launched in 2014 has led to new loans amounting to €930 mln so far.
Interest rate subsidy
The scheme provides for new loans with a maturity of up to 12 years and interest rates lower by 50 basis points than the banks would normally charge banks without EIB funding.
Borrowers will benefit by an additional 50 basis points interest reduction if the comply with the Jobs for Youth criteria.
Participating businesses could also benefit from the interest rate subsidy scheme under the condition they do not layoff over 2% of their employees since the launch of the scheme.
Petrides also said the government approved an interest rate subsidy scheme for new business loans, including the self-employed.
The scheme concerns loans that were granted or will be granted from 1 March until December 31 2020.
During the first two years, the interest rate will be subsidized up to 3.5 percentage points, while for the third until the fourth year the interest rate will be subsidized by 2 percentage points for SMEs and by 1.5 percentage point for large enterprises.
The government decided to subsidize the interest rate for new mortgages that were granted or will be granted from March 1, 2020, until December 31 2020.
The scheme covers loans with a value of up to €300,000 with a maximum interest rate of 2.30% and will cover 1.5% of the rate for a period of four years.
The package also includes direct grants to 50,000 very small enterprises as well as the self-employed with a total value of €100 mln.
Moreover, the government approved a new scheme of incentives up to €6.3 mln to help tourism by boosting Cyprus’ connectivity.
The scheme complements the current plan of €9.37 mln providing subsidies for flights to Cyprus with a passenger capacity between 40% and 70% for a period of seven months.
For tourist accommodations and restaurants, the government decided to reduce VAT from 9% to 5% from July 1, 2020, until January 10, 2021.
The government will also pay tourist agents €10 mln to co-finance advertising campaign to promote Cyprus as a safe destination.
“In this second phase (out of lockdown), as the economy restarts, the government is adopting a new more targeted package that is socially fair and financially effective,” Petrides said.