Cyprus among best COVID recovery plans

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Finance Minister Constantinos Petrides and ESM chief Klaus Regling highlighted the importance of implementing the Recovery and Resilience plans to diversify the economy in boosting growth potential post-pandemic.

Regling in Cyprus to attend the 17th Economist Summit in Nicosia, met with Petrides Tuesday and discussed the economic outlook, the ESM treaty ratification and the national strategy to unlock funds through the EU Recovery and Resilience Fund (NextGenerationEU).

Petrides said projections over the growth of the Cypriot economy have exceeded expectations while unemployed is declining, noting the Cyprus National Recovery and Resilience Plan has been commended as “one of the best in the EU.”

“Our focus concerns the implementation of the plan, a plan that would lead us to the next day, the next generation and to a more green and resilient economy, a plan which is accompanied by reforms which we will try to approve in consultation with Parliament,” Petrides said.

He also assured Regling that Cyprus supports swift ratification of the ESM treaty by the Parliament.

Regling said that the next “big issue” for EU member-states will be the implementation of NextGen EU and the national Recovery and Resilience Plans.

“Cyprus has submitted a good plan and can receive a significant amount of money out of the NextGen package of €1.2 bln.

“That is, I think a very good incentive for promoting reforms, accelerating reforms that can lead to a further diversification of the Cypriot economy.”

According to Regling, implementing these reforms will lead to the green and digital transformation that Cyprus is looking forward to.

“It is a common European interest because if all countries succeed in implementing more reforms transforming the economy, then Europe has a chance to move to a higher growth path.”

The ESM treaty ratification will give it a broader mandate, including the backstop to the single resolution fund and a broader monitoring role for all member-states of the euro area together with the European Commission.

The Economist

Addressing the Economist Summit, Petrides said Cyprus is one of the few Euro area countries which, in 2021, will recover the ground lost during the 2020 pandemic.

“Challenges are many, in the economy, nothing should be taken for granted, and we should protect public finances, and that is one of the government’s main objectives so that we can prepare for the next crisis which we don’t know when it will come but it will,” he said.

Petrides estimated that inflation pressures due to the disruption in the supply chain will be transitory but will continue to be a concern.

Regling said the revival of economic activity in the EU was largely due to the “swift and powerful” response both on a national and an EU level, noting the most important measure was the €750 bln Recovery Plan.

“If countries successfully implement the reforms they proposed in their Recovery and Resilience Plans, they could sustainably raise their growth potential and transform their economies.”

He also noted that the policy response to the pandemic came at a cost, as higher deficits and a drop in economic activity last year have led to substantial increases in public debt-to-GDP ratios.

“Nevertheless, public debt currently is sustainable in all member states of the monetary union.

“Countries now have a higher debt carrying capacity than what was assumed in the Maastricht Treaty.

“Going forward, a simplified EU fiscal framework could be built around a 3% deficit limit and a higher debt-to-GDP ratio.”

Regling said he did not suggest that countries should continue on a path of expansionary fiscal policy.

“We know there will be a crisis one day; we don’t know when we don’t know where it comes from we did not know two and a half years ago there will be a pandemic with such a high cost, so fiscal space is an important element when we look at efficient management of fiscal policy.

“No carte blanche on spending money, we have to be prepared for the next crisis; we do need extra space over time for the cost related to ageing and also don’t overreact on high debt ratios.”