Filenews 24 November 2022 - by Theano Thiopoulou
"There is money" in the state's coffers (cash buffer) and the current Government will leave a dowry to the new Minister of Finance - which will emerge from the February presidential elections - a significant cash reserve, covering the financing needs of the state beyond the 12 months that follow. In a report by European Commission technocrats released yesterday (Post-Programme Surveillance Report Cyprus, Autumn 2022) and concerning the key findings from the 13th post-mortem supervision (PPS), which took place between 26-28 September 2022, it is noted that Cyprus maintains the ability to service its debt and have sustainable finances for the coming years.
In 2021, public debt decreased by 12,5%, to 101% of GDP, while by the end of 2022 it is expected, according to the Commission, to decline further to 89,6% of GDP. For 2023 and 2024, the debt-to-GDP ratio is projected to decline to around 84% and 77.7%, respectively.
According to the debt sustainability analysis, the Commission estimates that Cyprus faces low risks in the short term. The government's financing needs for 2022 were covered by the issuance of a 10-year international bond in January and by primary surpluses. Looking ahead, the report says, due to rising interest rates and yields, Cyprus faces risks of higher funding costs when accessing markets.
The new government is expected to find fiscal cushions, due to the fiscal policy pursued by the Ministry of Finance. According to the Commission's technocrats, "the projected primary surpluses are expected to keep the gross financing needs for the period 2023-2024 at relatively low levels".
Also, the debt profile (in terms of maturity) is well balanced in the coming years, with below-average debt redemptions in 2023, according to the report. Commission technocrats say state funding needs for 2023 are expected to be low, supported by improved primary surpluses and low debt repayment. Excluding promissory notes, the gross financing needs for 2023 are estimated at around €1.1 billion. or 3.9% of GDP. As for 2024, gross financing needs are estimated to be around €2 billion or 6.8% of GDP. And as the Commission characteristically states "the current cash buffer is important, covering beyond the financing needs next year". In 2023, capital repayments are expected to be lower, at €1.4 billion (about 5% of GDP).
The loans of the memorandum
The new Government will have to do a very good job, as during its term of office it will have to manage part of the refund to the lenders as a result of the memorandum adjustment in 2013. Cyprus has €6.3 billion (23.7% of GDP) outstanding loans to the ESM, which constitute about 26% of the total debt. Cyprus will start repayment in 2025, with scheduled repayments due in 2031. Under the current timetable, the first repayment amounts to €0.35 billion in 2025. In 2031, repayments will reach €0.9-1.05 billion every year (on average €0.99 billion per year).
This year, Cypriot bond yields have largely followed European trends and an exit to the markets will have higher interest rates, the Commission says. In addition to rising interest rates, according to the report, further risks relate to the macroeconomic outlook and risks to fiscal balance (due to possible measures related to energy and healthcare costs).
POINT OF VIEW
He did well
The issue is not only the cash and sustainable public debt that the current Finance Minister will hand over to his successor, but whether the new minister will be able to manage the situation properly as it develops. Something goes wrong, the edifice built over the years will be destroyed and the taxpayers will foot the bill. Usually, for finance ministers the reviews are not good, as they are considered the most... sour of cyo-hernitic schemes, mainly because of the unpopular policies they implement. Perhaps the case of Konstantinos Petrides is one of the few positive exceptions in the Eurozone, in terms of fiscals.
