Newsroom / CNA
Cyprus Minister of Finance Constantinos Petrides told the Cyprus News Agency that the government will begin reducing public debt, increased due to strategic cash reserves, once the pandemic begins to normalise.
The government’s cash reserves amounted to €3.84 billion in end-2020, approximately 20% of the island’s GDP, despite the pressure on both public finances and the economy as a result of the coronavirus pandemic. The government opted to tap the markets in 2020 in a bid to increase its reserves that would provide fiscal space for support packages seeking to boost the economy which was severely hit by lockdown measures and restrictions, while the tourist sector in 2020 received the heaviest blow as arrivals dropped by an annual 84% in 2020.
“Our strategic target since the beginning (of the pandemic) was to roughly double our reserves without jeopardising rating downgrades or the sustainability of the public finances,” Petrides told CNA, noting that the increased cash reserves provided the government with the capacity to support the economy with timely interventions while pursuing a three-pronged target. This included the replacing of more costly maturing debt, maintaining presences in capital markets and borrowing smaller amounts than the island’s needs, incresing the country’s credibility, he said.
“If all goes well, with the vaccinations especially, we will gradually reduce our reserves, reducing our public debt at the same time,” Petrides said.
According to data published by the Central Bank of Cyprus, the island’s cash reserves declined to €3.84 billion in December from roughly €5 billion the previous month, mainly reflecting the repayment of a €750 domestic bond issued to Hellenic Bank as part of the sale of the state-owned Cyprus Cooperative Bank in 2018. According to the data, fiscal needs for December amounted to €390 million compared with a deficit of €240 million in December 2019.
In January 2021, Cyprus tapped the markets with a €1 billion 5-year EMTN bond, its first bond with a zero coupon, further increasing its reserves along with public debt which rose to €25.9 billion. The cash received from this bond issuance will be used to repay a domestic 52-week Treasury Bill amounting to €1.25 billion issued last year, thereby maintaining cash buffers unchanged.
Furthermore, the Cyprus Public Debt Management Office said that in 2021 the government gross financing needs amount to €2.3 billion, of which €2.1 billion in debt amortisations (€1.25 billion to be repaid in April) while fiscal needs amount to €0.2 billion.
Cyprus economy shrinks by 5% in 2020, beating recession projections
The Cypriot economy contracted by an annual 5% in 2020, beating projections of a deeper recession amid the coronavirus pandemic, according to a flash estimate issued on Tuesday by the Statistical Service of Cyprus (Cystat).
During the two-month total lockdown in March and April 2020, social distancing and restrictions which led various sectors of the economy to underperform and dealt a severe hit to the tourism sector with arrivals down by an annual 84% in 2020, the Cypriot output returned to negative territory after five years of growth.
According to the Cystat flash estimate, the Cypriot economy in the fourth quarter of 2020 amounted to -4.5% compared with the respective period of last year. Seasonally adjusted, the growth rate in the fourth quarter also amounted to -4.5%, Cystat said.
The negative GDP growth rate is mainly attributed to specific sectors: hotels and restaurants, manufacturing, transport, storage and communication, wholesale and retail trade, repair of motor vehicles, arts, entertainment and recreation, and other service activities, Cystat said.
Throughout 2020, the real GDP growth rate amounted to -5.05%, while on seasonally adjusted terms real GDP contracted by 5.05%.
“The implementation of precautionary measures and relevant decrees to address the negative consequences of COVID-19 disease had a direct impact on the Cypriot economy which exhibited a slowdown during the first quarter of 2020 and a substantial decrease during the second quarter of 2020,” Cystat added.
The Cypriot Finance Ministry projected a contraction in the region of 5.5%, the European Commission forecasted a -5.8% growth rate, the Cyprus Central Bank estimated -6.2%, the IMF forecasted -6.4%, while the University of Cyprus Economic Research Centre revised its forecast to -5.7%.
Furthermore, according to Cystat on a quarterly basis, compared with the third quarter of 2020, the Cypriot economy grew by 1.4% in the fourth quarter 2020, following growth of 8.9% in the third quarter.
Quarterly growth decelerated due increased restrictions and the shutdown of shopping malls and retail stores as well as restaurants in December, as part of measures to contain the second wave of the covid-19 pandemic, while local lock-downs were enforced in Limassol and Pafos
“During the fourth quarter the preventative measures were re-introduced initially at local level (Limassol and Paphos) and eventually at national level by December”, Cystat said.