Cyprus post-COVID: so much stronger than after 2013
9 June 2020: As many economies brace themselves for deep recession, PwC Cyprus has already done the maths and is optimistic Cyprus will stand in good stead after the pandemic.
Cyprus is no stranger to economic turmoil. In 2013, it experienced a banking crisis that resulted in a €10 billion international bailout. As COVID-19 struck and the economy was closed to save lives, the 2013 crisis was still ringing in Cypriot ears.
However, by early 2020, Cyprus could boast much more robust economic fundamentals than in 2013. With its economy on a growth path until COVID struck, there is good potential for recovery in 2021; this is not like 2013, says PwC Cyprus.
Cyprus was also in a strong fiscal position when the virus struck. It had access to international money markets, unlike before; and in April 2020, the Cypriot Government raised €1.75bn internationally and €1.25bn from Cypriot banks. The upshot? The State has been able to support struggling businesses during the pandemic, thereby preventing a significant rise in unemployment.
In fact, State support has been determined and robust. A total funding pot of €823m has been made available to businesses, self-employed and citizens. Of this, €237m has been allocated to pay benefits to employees and the self-employed; €304m has been allocated to the suspension of VAT payments; €147m to the increase in General Health System payments; €100m to healthcare spending; and €35m to various other measures.
Thanks to an early and effective lockdown, a lot of testing from the onset of the pandemic, contact-tracing and quarantining, Cyprus has seen just 18 deaths, points out Evgenios Evgeniou, CEO of PwC Cyprus. “Testing has enabled the government to relax the necessary restrictions and the economy has largely re-opened.”
He continues: “A big next step is the re-opening of the airport. We plan to link with countries with a similar risk profile to us.” There are two lists of such countries. On one list are countries with the same COVID-19 risk profile as Cyprus; and on another list are countries with a slightly higher risk profile, but passengers from countries on this list are tested before they arrive. Science will lead decisions around opening borders on a point-to-point basis. Passenger volumes will be around a quarter of those experienced in 2019 but, at least, the foundations will be laid for better times ahead.
Reflecting on his organisation’s response to COVID-19, Evgeniou says connectivity has played a key role in meeting audit commitments; and he comments that technology will play a key role in the recovery too, both in the public and private sectors. “We are taking big steps forward in terms of technology in Cyprus,” he says, “and, if anything, the pace of change should accelerate.”
Beyond the opportunities for tech, Cyprus’s traditional sectors – tourism, real estate, construction, transportation, the wholesale and retail trade, and professional services – will remain the main pillars of the economy, although, says Evgeniou, they will be seen through a new diversification and sustainability lens. For example, he explains that there could be a unique opportunity for collaborative effort to accelerate the transformation of the hospitality and leisure industry and to upgrade and diversify Cyprus’s tourist product, creating a new identity for Cyprus as a tourist destination of high quality “philoxenia”.
In addition, the construction industry in Cyprus has the opportunity to focus on sustainable and affordable housing, as opposed to building holiday villas going forward.
“We need to align with trends,” he says. “This is an opportunity to drive transformation in the economy, especially around healthcare, education and the impacts on social cohesion.”
Then Evgeniou turns to public debt; very much the elephant in the room. “There will be a fiscal impact of all this,” he says.
Clearly, the COVID-19 pandemic is a global issue, affecting all economies, and, in Europe, the EU Commission and European Central Bank have been flexible in terms of fiscal and monetary supervision to foster economic recovery. However, a responsible response to this flexibility from individual economies is now in order.
“We all need to show we are responsible, transparent, can be trusted and that we are able to repay this debt,” says Evgeniou. “Not just that, we also need to show that we are capable of sustainable growth, digital transformation and other reforms that will drive competitiveness to justify this level of borrowing.”
And Cyprus has the talent, know-how and opportunity to set new policies and pursue a new agenda. “Cyprus was on the side-lines in terms of following expert advice,” says Evgeniou. “Instead we just followed our policy agenda.”
He continues: “During this pandemic politicians have learned to listen to the experts. We can now listen to the tax experts, the sustainability experts and the technology experts in the same way we have listened to the scientists. There has been a step change.”