By Stelios Orphanides
The chairman of the euro area finance ministers, Dutchman Jeroen Dijsselbloem, said that the economic performance of Cyprus is “very strong and very good” and that growth may exceed 3 per cent this year.
“There is very good news on the economic recovery which, together with progress in previous years in fiscal consolidation, has led to a strong primary surplus,” Dijsselbloem told reporters following Friday’s Eurogroup meeting in Valetta, Malta.
“There is now a growth rate in Cyprus of, I believe, 3 per cent or maybe even over 3 per cent,” he said.
The Cypriot economy which emerged in 2015 from a prolonged recession expanded 2.8 per cent last year and is forecast to grow at the same pace this year. The government is projected to have produced a marginal budget surplus last year and a primary surplus on a cash basis of €473.8m or 2.6 per cent of economic output.
“So, very strong and very good performance in Cyprus, on which, of course, we complimented the Cypriot authorities,” the Eurogroup chairman said. “The Cypriot government also reconfirmed its commitment to the reform effort. The time that they still have will be used to the max to work further on dealing with some of the remaining vulnerabilities in Cyprus, as are the financial sector, non-performing loans and any budgetary challenges.”
Dijsselbloem’s comments came after Finance minister Harris Georgiades and the institutions participating in Cyprus’s post-programme surveillance briefed the goup about last week’s mission to the island. The European Commission, which together with the European Central Bank and the International Monetary Fund (IMF) participated in last week’s post-programme surveillance mission, encouraged Cypriots to continue the reform effort and safeguard and build upon hard-earned achievements.
The EU Commission also said that the government, which faces re-election in February and agreed to pay-rises for medical staffers at public hospitals to match their academic qualifications, should “better prioritise public expenditure” and ensure via a fiscal impact analysis that the introduction of the national healthcare scheme lies within existing fiscal space.
The Commission also advised in favour of introducing a permanent mechanism that will ensure wage moderation, after the parliament rejected in December a bundle of bills aimed at reforming the public sector’s human resources management.
In a separate statement, the Eurogroup said that there was “no risk” for Cyprus which received a total of €6.2bn in bailout funds from the European Stability Mechanism (ESM) not to repay its loans.
Dijsselbloem also said that Finance minister Euclid Tsakalotos of Greece, the country which sparked the euro-crisis when it signed a bailout seven years ago and the only euro area country still in a programme, pointed out that Cyprus enjoyed high growth rates already before it was engulfed by the crisis.
“But then it was based on over expenditure on the public side and over-crediting in the banking sector,” Dijsselbloem said, shortly after he announced progress in talks between Greece and its creditors “on the main elements of policy reforms” required for a review of Greece’s adjustment programme.
On Saturday, the European Union’s finance ministers are expected to hold informal talks at the Ecofin meeting on an internal paper on non-performing loans in the EU.
Bad loans which account for half of the banks’ portfolio are considered to be Cyprus’s top challenge in economic and financial stability.