A second lockdown would be a grim financial equation

With the rise in coronavirus cases which are mainly located within the local community and not just at the country’s points of entry, whispers of a second lockdown looming have resumed.

Economic data however show that a second lockdown, beyond the psychological repercussions on the public, will have far-reaching economic consequences that the state won’t be able to support this time round.

The total sum needed for fiscal interventions since March 2020 is estimated at around 1.2 billion euros, and corporate liquidity-enhancing interventions required just over 1.7 billion euros.

Discussions are currently revolving around the ongoing program running from March until October this year, supporting many businesses and households, but also around another program which, though it hasn’t been advertised enough, will run after the others expire. The Ministry of Labour is drafting an incentive plan in the form of salary costs subsidies aiming to motivate companies to recruit employees from the list of unemployed. The program is expected to cost around 12 to 15 million euros.

Currently, the state has enough liquidity to cover its financial needs until September 2021. In early July, Cyprus issued government bonds to cover its ‘financial gap’ of 360 million euros, borrowing a total of 1 billion euros, which leave the Cyprus government with a theoretical immediate firepower of a roughly 600 million euro surplus, Kathimerini Cyprus estimates.

In January 2020, Cyprus issued two European bonds, of a duration of 10 and 20 years, amounting to 1 billion euros and 750 million euros respectively. It then issued two more bonds, a 7-year and 30-year one, in early April to boost its liquid assets, valued at 1.25 billion euros and 0.5 billion euros respectively. Finally, the government decided to absorb a total of 1 billion from the last double bond issue through the reopening of existing bonds maturing on December 3, 2024 and January 21, 2040.

Ultimately, epidemiologists will have the final say on whether Cyprus will be seeing another partial or total lockdown. Safety is the priority, but it’s easy to see that a second lockdown cannot be as easily shouldered financially as back it had until mid-May.