Filenews 17 January 2021 - by Theano Thiopoulou
One of the biggest shocks is experienced by the economy and society due to the COVID-19 pandemic which continues to be a threat. At the same time, the health crisis has a significant impact on the economy, businesses, workers, borrowers and the banking system. In two months, one year will have passed since the crown appeared in Cyprus and the country is experiencing one of the most painful periods in its history.
Especially the private sector, businesses and workers with the strength struck red. The lockdowns that governments tried to put the brakes on the deadly Covid-19 sparked a contraction in economic activity. The extent of the fall was such that it makes the road to recovery more uphill and with significant obstacles. Even if expectations of rapid growth are confirmed, the global economy may remain smaller than it was before next year.
The crisis of the crown will pass in black letters in the economic history of Cyprus, an invisible enemy that has put a lock on the economy and threatens health. After 2013, it will be etched in the memories in 2020 but as it seems in 2021, years when financial, banking, business, personal and health resistance are tested. At present the antidote measures to the crisis are to provide support to the economy, households and businesses. In March 2020 the economy came under great shock after the first lock down that restricted economic activity and after May began timidly recovering after the lifting of the restrictive measures. But that didn't last long. The economy early in the new year is experiencing a second lock down and no one can predict when the pandemic cycle will close and the cycle will open for a return to normality. At a time when the economy is experiencing dramatic times, the Parliament has not yet voted on the 2021 budget, leading Finance Minister Konstantinos Petridis to tell the Parliament last Friday that Cyprus will be faced with the spectre of the payment stance.
Preliminary budgetary results prepared by the Statistical Office for the period January-October 2020 show a General Government deficit of €727.9 million. (3.5% in GDP) compared to a surplus of €639.3 million in the same period last year. (2.9% in GDP) for the period January-October 2019.
What is considered certain is that a new exit to the markets will be planned by the government in the next period and a prerequisite is the adoption of the budget. According to the government debt management office, the 2021-2023 strategy period is characterised by manageable financing needs, despite the impact of the Covid-19 pandemic on public finances.
Quarantine development in 2020
In Cyprus, the Finance Ministry predicts that the recession will be 5.5% in 2020, followed by a recovery of 4.5% in 2021. Historically depending on the events growth and recession alternated with large differences. For example, at the time of the invasion 1974-1975 the recession of the economy was 17.9% and after the invasion in the period 1976-1997 at 6.7%. The growth rate of the economy has gone through various phases, as shown by the historical flashback of the data. In 1996 growth was 1.2% in 1997 at 2.6%, in 1998 at 6.1% in 1999 at 5% and in 2000 at 6%. The next decade ended in the majority of years with a positive sign. In 2001 the growth rate was at 4%, in 2002 at 3.7%, in 2003 at 2.6%, in 2004 at 5%, in 2005 at 4.9%, in 2006 at 4.7%, in 2007 at 5.1%, in 2008 at 3.6%, in 2009 there was a 2% recession and in 2010 there was a 2% recovery. The next decade has reversals in the growth rate. In 2011 growth was marginal at 0.4%, in 2012 the recession was 3.4% and in 2013 it was even higher reaching 6.6%. In 2014 the recession was less than 1.9% and in 2015 there was a recovery of 3.4%. The following years had a strong recovery. In 2016 the rate was 6.7%, in 2017 at 4.4%, in 2018 at 4.1% and in 2019 at 3.2%.
Vulnerable Cyprus
Moody's in its report released last week says Cyprus is vulnerable to a possible prolonged decline in tourist arrivals, along with Portugal, Greece and Malta, but also with two larger states, Spain and Italy. Cyprus along with Spain, Italy, France and Greece are particularly vulnerable to further corporate bankruptcy and rising unemployment as they have a large proportion of small businesses under more financial pressure, the firm points out. In addition, it warns that credit risks for Cyprus, Italy, Spain and Portugal are greater, given their high exposure to the crisis, he notes, along with the limited budgetary space available to these countries.
The firm expects the second lockdown in Cyprus to be negative for the quality of banks' assets and predicts an increase in non-performing loans (NSRs). Banks may reschedule loans for viable borrowers to better meet revised cash flow expectations, "but we expect that some borrowers will not be considered eligible or eventually go bankrupt." "As the majority of troubled borrowers have already benefited from the 2020 moratorium, they will not be eligible for the new moratorium this year and we expect that the number of loans deferred for new payments will be limited, with the majority of deferred loans repeating the repayment of loans," it stressed.
What are the great events in the history of
In the 60 years of existence of the Republic of Cyprus the economy went through great shocks that were either due to internal poor financial management or were influenced by external factors or by both together. The last major shock the Cypriot economy is experiencing was from a health crisis, as was the whole planet. It scares the possibility of mass bankruptcies, people losing their jobs, creating a new generation of unemployed people, businesses with padlocks and increasing non-performing loans. The Cypriot economy in all periods of recession managed to get back on its feet and come out stronger, despite the magnitude of the problems created during the period, both at the budgetary level, with deficits, increased public debt, recession. It came out strong but also had collateral damage: unemployment, falling incomes and jobs, business and banking padlocks, corporate bankruptcies and seven years ago a deposit haircut. The periods when the economy has been adversely affected are:
- 1964, due to the inter-communal unrest which broke out at the end of 1963,
- 1974-75, due to the Turkish invasion,
- 1981, due to the oil crisis
- 1991, due to the Gulf War
- 2009 due to budgetary problems
- 2012 due to the swelling of the problems
- 2013 due to the Memorandum adjustment programme
- in 2020 the scale of the problem due to the coronavirus pandemic is unknown at present. It came in in 2021 but the House has not yet passed the budget and any failure to pass it will have a negative impact.
