Georgiades says possible Brexit unlikely to affect Cyprus

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By Stelios Orphanides

Finance Minister Harris Georgiades does not anticipate that a possible vote in favour of a Brexit on June 23 in a referendum to decide if the UK should leave the EU, could have a negative impact on Cyprus’s economy.

While “I don’t want to give the impression that I am intervening as a minister of a member state in a process in another member state I have to say that the negative consequences (of a Brexit) will affect the UK, and not necessarily other member states such as Cyprus,” said Georgiades in an interview with the Cyprus Business Mail on Wednesday. “I am not sure whether there will be negative effects for the other member states including Cyprus”.

For the time being, the Brexit debate in the UK, which has attracted the attention of global markets, does have an impact on the Cypriot economy as the government prepares for the next market test, the first, since the completion of Cyprus’s adjustment programme in March, and the fourth since the 2013 banking crisis. The government has put on hold preparations for a new bond issue and in addition, latest Cystat data show that the sterling which depreciated 10 per cent against the euro in the past 6 months, forced British vacationers in Cyprus to adjust their holiday budget downwards (8.4 per cent in March).

Fitch Ratings said two weeks ago that a possible Brexit could upset countries exposed to the economy of the UK, including Cyprus which attracts the bulk of its incoming tourists from Britain.

“We will attempt to access markets the way we did three times after the crisis – with the most suitable market situation,” said the finance minister who oversaw Cyprus’s return to economic growth after more than three years of recession and the restoration of the island’s market access.

“The clearest indication is the drop in bond yields which allowed us to complete the programme with the market access restored,” he said. “There are no pressing financing needs, debt maturities have been smoothened. We are in a position which allows us to monitor markets and select the best possible moment to attempt our next step”.

Cyprus saw its government debt rise to 108.9 per cent of economic output in 2015, when it generated a fiscal deficit of 1 per cent mainly on the financial support worth €175m extended to the Cooperative Central Bank in December. The secondary market yields of the government bond maturing in November 2025 fell by 1 basis point to 3.67 per cent on Wednesday morning according to a Bank of Cyprus report. The bond was issued at an average yield of 4.25 per cent.

The Cypriot economy is forecast to expand 2.2 per cent this year after growing 1.6 per cent in 2016 allowing the unemployment rate to drop to 13.5 per cent from 15 per cent last year.

The finance minister, who also has a seat in the political bureau of ruling DISY, said that the government would continue with structural reforms even after DISY lost 3.7 per cent support in the May 22 parliamentary elections translating into two seats in the 56-seat House. “I am indeed concerned but it is in the hands of us all to prove these concerns groundless,” he said.
Georgiades, who served until February 2013 as a deputy in the DISY faction said that he did not interpret the election result as a rejection of the government’s economic policy.

The ballot catapulted eight parties into the Cypriot parliament, including the xenophobic ELAM, the Citizens’ Alliance of populist George Lillikas and the Solidarity movement led by the former DISY politician Eleni Theocharous.

“Despite the drop, DISY remains the strongest party and the party of the left which had a clearly different opinion, saw its support drop,” the finance minister said in reference to AKEL, which lost 7.1 per cent of its support and three seats. “I don’t believe that the economic policy was lacking”.

“The situation in the previous parliament did not offer the government a parliamentary majority, therefore we will continue to seek majorities and consensus on a case by case basis, draft bill by draft bill,” Georgiades said.“However, the responsible way that allowed a consensus necessary for the implementation of our (adjustment) programme and allow the economy exit recession needs to be reaffirmed”.

In the past three years, DISY had to rely mainly on DIKO which kept its 9 seats, to pass bills required as part of Cyprus’s bailout terms, plus the vote of at least one lawmaker, which often resulted in watered down laws.

“As a member of the DISY political bureau, I am not satisfied,” Georgiades added in reference to the election result. “DISY could have achieved much higher percentages”.

Georgiades attributed the poorer than expected (by him) election result to the unprecedented high of political formations in the vote and added that DISY will look into the results in an attempt to better assess them.

“I too share the opinion that both DISY’s credibility of political discourse and its organisational efficiency need to be further enhanced,” he said. “Our expectations as a party provide for much better election results and greater resonance”.

Georgiades said that seven draft bills on the public sector reform submitted to the parliament in the third quarter of 2015, remain the government’s “top priority” even following the elections. “I hear that some are asking for the plan that will bring about growth. We have a plan which we are implementing some years now and has already yielded results”.

Additional reform initiatives, which the minister did not specify, will follow.

“We shall continue based on the policy which allowed the Cypriot economy to register one of the highest growth rates in the European Union and one of the largest rates of decrease in the unemployment rate,” Georgiades added.

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