Filenews 27 February 2022 - by By Theano Theiopoulou
The government's economic staff is closely following the developments surrounding the war in Ukraine, wanting to assess whether this new uncertainty will create internal conditions that will necessitate a package of effective and targeted relief measures for a specific period of time.
The General Director of the Ministry of Finance George Pantelis told "F" that the burden falls on energy and the rise in the price of fuel, which in turn will be transferred to the prices of products and services and will eventually lead to the reduction of household incomes.
If the situation with the Russian-Ukrainian crisis drags on for a long time and fuel prices remain high or rises further, then the interaction of energy on inflation will begin. In fact, with the first estimates made in the Ministry of Finance, as noted by Mr. Pantelis, it emerges that if the energy crisis continues for a long time, it is not excluded that the target for 2% inflation will be surpassed by developments and we will reach 3% to 4%. Rising inflation, he explained, will affect growth, workers' incomes and investment.
He made no secret of the fact that various thoughts began to be made in the ministry as to what can be done to help households, but always in the light of the financial intervention being effective, targeted and operating for a specific time frame. For the time being, no decision has been taken, but depending on the developments that the war will bring to Ukraine and its side effects, the necessary plans will be made.
Changed the Eurogroup's agenda
It was no coincidence that the agenda of last Friday's Eurogroup, held in Paris, was changed. While the original planning provided for a general discussion on inflation and macroeconomic developments, a specific topic of discussion on the Ukrainian issue and the implications was included. On the table is the proposal for a common European Fund, through which support measures for households and businesses can be financed, along the lines of the Recovery Fund. Against this background, the scenario for providing an extraordinary allowance to vulnerable households seems to be moving away, so that their additional support is carried out by subsidising electricity and gas bills.
No worries
Mr. Pantelis explains that in the financial sector there is no cause for concern because Cypriot banks do not have direct exposure to Russia, but, in the event of a ban on transactions with certain Russian banks, companies of Russian interests based in Cyprus, which will not be able to trade with Russia through these banks, are expected to be affected to some extent.
The real estate market does not see it affected by the crisis, as the naturalization program has stopped and the reduction of the contribution to the construction sector has already passed. Mr. Pantelis also does not see Cyprus' trade relations with Russia and Ukraine affected, saying that imports and exports with both countries are negligible.
Dependence on tourism
However, where he sees that the situation is changing is in the dependence that Cyprus has on the Russian tourist flow and on financial services, two important sources of revenue for the state coffers. The director general of the Ministry of Finance is cautiously optimistic about tourism, taking as an example what happened in 2014-2015 with the sanctions that entered Russia due to Crimea. We had some decrease in Russian tourists, he says, about 100,000, but the loss, which was covered by other tourist markets, was not so significant.
