Fiscal Council: Implement reforms and maintain surpluses

Cyprus needs to implement reforms, boost competitiveness and maintain fiscal surpluses, President of the Fiscal Council Demetris Georgiades said on Thursday indicating that risks such as trade wars or a change in monetary policy could adversely affect the Cypriot economy.

“Cyprus is a small, open but indebted economy and a sharp deceleration of the world economy or a change of the European Central Bank’s monetary policy which would lead to significant increase in financing costs for households, companies and the state ” Georgiades told a press conference during the presentation of the council’s spring report.

“The response to these risks is reform, reform, reform”, Georgiades said.

The President of the Fiscal Council highlighted the need to create a mechanism whereby public wage bill increases are tied to nominal GDP growth.

The report recommends the setting up of a binding mechanism that would channel the state’s cash surpluses towards public debt reduction.

“We are seeing a trend for increased claims and concessions - fiscal surpluses should be safeguarded. It would be appropriate to create a mechanism that would earmark these surpluses for public debt servicing,” Georgiades added, noting such mechanism would lower debt servicing costs.

He also highlighted the need to boost the economy’s competitiveness, an issue raised by many international organisations and surveys.

“The economy may be doing well, we may have good results from tourism, real estate and measures taken in the public and private sectors, but we are not in position to swiftly respond in a new crisis,” he said.

Responding to question, Georgiades said the Cyprus Investment Scheme should change but he did not imply that it should be terminated.

“A termination of the program would create problems but if it is left to grow, this would create problems to other sectors such as when a crisis hits the construction sector,” he added, noting the scheme could not go on forever.

Georgiades also highlighted that the scheme has caused increases in plot prices, increase in construction costs and rent in the areas involved and especially Limassol.

“We point out the risks and is up to the politicians to weigh these issues and make decisions,” he said.