Cyprus economy to recover if no COVID setbacks

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Finance Minister Constantinos Petrides told MPs that Cyprus’ economy would recover and grow if it can avoid further COVID-19 lockdowns.

Petrides asked MPs to approve an emergency €148.5 mln budget, the second one to be submitted to combat the adverse impact of coronavirus on the economy.

Earlier in March, the Finance Ministry had asked parliament to approve a 250 mln supplementary budget.

The government’s new request will push up the budget deficit by another 0.71% to reach 4.7% GDP, compared to 5.4% in 2020, with Petrides certain the economy will thrive this year.

He said his ministry is optimistic that growth for 2021 will exceed 4% of GDP, significantly higher than the more conservative European Commission estimate of 3.2%.

Unemployment is estimated to settle at 7.4% in 2021.

“Whether we will be proven right, as is always the case with the Commission’s more conservative forecasts, will be seen in the medium term,” said Petrides.

He said any forecast must consider the high degree of uncertainty “hanging over our heads due to the pandemic”.

Petrides argued the government was successful in keeping the public debt under 120% of GDP.

Cyprus public debt was 119% of GDP at the end of 2020. However, the government aims to reduce it to 112% by the end of the year.

“The public debt to GDP ratio is a factor that is taken into account by international credit rating agencies.”

“We are confident…provided there will be no major setback to the economy or the pandemic, we will recover without derailing from our fiscal policies.”

He said the estimates take into account much-reduced tourism revenues.

A setback could be brought about with the worsening of epidemiological data and the possible need for new restrictive measures, which will have a higher impact on the economy, said Petrides.

“That is why we must all exhibit collective and individual responsibility so as not to push up unemployment, not to create further debt for our children.

“It is in our hands. Our request to everyone is to listen to the science; the weapons we need are at our disposal.”

The supplementary budget covers:

  • Special funding for businesses and employees to deal with the pandemic: €20 mln.
  • Support plan for low-income pensioners: €10 mln.
  • Benefits to asylum seekers due to increased migration flows €19 mln.
  • Purchase of medicines €10 mln.
  • Defence €45 mln.
  • Civil aviation equipment €11 mln
  • Agricultural subsidies €5 mln

The budget also provides for 245 teaching positions and establishing the Deputy Ministry of Social Welfare.