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MOODYS: Christodoulides to be prudent, back economic reforms

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Elected President Nikos Christodoulides is expected to continue the government’s fiscal discipline and rollout economic reform, said an analysis by rating agency Moody’s.

The former foreign minister is described as independent and moderate after winning Sunday’s run-off with 51.9% of the popular vote, beating AKEL-backed Andreas Mavroyiannis.

“Christodoulides’ term in office will be five years, and we expect him to form a government with wide appeal,” the agency said.

It expects the new government “will comprise technocrats, members of the small centre parties that supported him, and potentially members from his former party, the ruling Democratic Rally (DISY).

“We expect the Christodoulides administration will try to maintain Cyprus’ prudent fiscal policy along with economic reform policies.

“We expect the new administration to follow a prudent fiscal stance”.

Recalling that harmonised consumer price inflation was 6.8% in January and averaged 8.1% for 2022, Moody’s added that Christodoulides has announced that any additional support for households and businesses with the energy and cost of living crisis would need to be targeted “without allowing fiscal discipline to slip.”

The incoming president has also argued in favour of a gradual expansion of the Cost-of-Living Allowance against the more radical demands of private-sector labour associations to avoid weakening the economy’s price competitiveness.

“We expect a greater emphasis on long-term solutions to diversify Cyprus’ energy mix, which relied on imported oil and petroleum products for 83% of its total energy supply in 2021, with biofuels and renewables comprising 13%.

“Apart from focusing on the expansion of renewables, the incoming administration is focused on completing energy diversification projects, such as the Vasilikos LNG gas facility, the EuroAsia Interconnector project (connecting the power grids of Cyprus, Greece and Israel, and fast-tracking the development of some proximate offshore gas discoveries.”

Reforms

Moody’s said Christodoulides’ pre-election campaign included pledges of ongoing support for the reforms package under the NextGen EU programme and for the national healthcare system, a key reform enacted by the previous administration.

“Cyprus received the first tranche of Recovery and Resilience Facility (RRF) funds – €85 million – in December 2022.

“It is behind only seven other EU countries in terms of how fast it is progressing in the implementation of its National Recovery and Resilience Plan (NRRP).

“Additionally, the new president promised a renewed effort to resolve the long-standing Cypriot reunification talks with the goal of achieving a bizonal, bicommunal federation and pursuing the EU’s active involvement in the diplomatic resolution process.

“Nonetheless, any talks will be difficult and potentially hindered by the stricter line of smaller parties that supported the new president.”

Christodoulides was supported by three small parties of the political centre and centre-left, the Democratic Party (DIKO), the Democratic Front (DIPA) and the Socialist Party (EDEK), and groupings that did not manage to enter Parliament.

“Crucially, Christodoulides also attracted substantial voters from the ruling, conservative DISY party: he was a DISY party member until very recently and was foreign minister under DISY party leader and outgoing President Nicos Anastasiades.

“It is uncertain whether DISY, which holds the largest number of seats in Parliament with 17 out of the 56 seats, will support the new president’s agenda.”