Speech by the Minister of Finance, Mr Constantinos Petrides, at the 11th Nicosia Economic Congress
“A New Vision for the Cyprus Economy in 2021-2030”
First of all, let me thank the organisers for hosting this event and for providing the opportunity to talk about the heart of our policies, our vision for the Cyprus economy for the next decade. My speech will also be delivered on behalf of the President of the Republic of Cyprus, Mr Anastasiades.
In 1961, the President of the United States, John Kennedy, delivered a speech, where he announced that the US would set foot on the moon in the next decade. At that time, the required technology was not available and nobody had any clue whether this was even going to be possible. Well, we all know the outcome. Neil Armstrong landed on the moon in 1969. This is when the term “moonshot thinking” was coined. Basically, this notion is about big ideas and ambitions, but also about making the proper strategic decisions to make sure that those will be achieved.
In other words, we need to think where we want the Cyprus economy to go in the next five to ten years and how to get there.
But before we start thinking “big”, we need to evaluate and assess the current situation, where we stand now. And this assessment needs to be accurate and honest.
As you know, we are currently living unforeseen and unprecedented circumstances; we are living amidst a global pandemic, a great misfortune that has caused chaos worldwide. A “black swan” event as I said last year from this stand.
It has affected our daily lives and it continues to weigh heavily on our economies. As the spread of the pandemic shows signs of acceleration especially with new variants, many economies continue to be severely affected and full recovery seems further delayed, mainly pending on the speed of the vaccination rollout.
This is obviously an extraordinary situation which demands an extraordinary response. This is what we were called to do and this is what we have done.
We have implemented stringent measures of containment, in order to effectively protect our citizens and the public health system. In order to alleviate the negative economic consequences, the Government responded in a timely manner, by adopting a comprehensive and generous fiscal support package in order to assist businesses and prevent job loss. Given this significant state support, widespread defaults and high unemployment have largely been avoided so far.
Economic growth in 2020 is estimated to have contracted at a rate of -5.1%, which is, though, significantly less than initially anticipated and compares favourably against other European countries. A rebound is expected to materialise in 2021, of the magnitude of around 3.5%, notwithstanding risks.
In the labour market, the level of unemployment increased in 2020 given the slowdown of the economy, but the increase was much less than initially anticipated; only by 50 basis points rising at 7.6% of the labour force from 7.1% in 2019. With the resumption of economic activity in 2021, the unemployment path is expected to reverse and start declining again.
The inflation rate in 2020 was negative of the magnitude of 1.1% but it is expected to pick up from 2021 onwards given the expected economic recovery.
As regards public finances, there has been a significant deterioration in 2020, given the slump of economic activity and government revenues, together with significant increase of public expenditure in order to assist the economy. As a result, there has been a significant increase of public debt, but is expected to start declining as of 2021 onwards.
Based on this analysis, it is clear that Cyprus is in the face of recovery, expected to be fully achieved by 2022. The Cyprus economy also exhibited signs of resilience but there are, admittedly, weaknesses and vulnerabilities.
Ladies and gentlemen,
Let me now focus on the future, where we want to go and how to get there.
Our moonshot and the spaceship.
If I had to squeeze my moonshot for the next decade in a single phrase, it would be the following:
“A business-friendly green and digital economy that nurtures entrepreneurship, for the benefit of all.”
This might sound cliché but it’s not. Not going “green” is not an option. The French President, Mr Macron, couldn’t have put it better when he said that “there is no Planet B’. There are various scenarios on the impact of climate change on our planet and I fear that the worst case scenarios might actually be the baseline ones. We have to act boldly and fast.
Not going “digital” is also not an option. The use of new technologies in a rapidly changing world is a prerequisite for remaining competitive, otherwise you risk staying behind. We need to provide a series of digital services to citizens and through this digital transformation, to transform the fabric of the state itself.
Becoming “green” and “digital” are actually two fundamental pillars of the new European instrument, the “Recovery and Resilience Facility”. According to this tool, the European Commission will raise EUR 750 billion from the markets and distribute these resources to all Member States. As the President of the European Commission said “this is a step change in Europe’s approach to be able to borrow at the European level and channel grants to Member States”.
In this context, we have recently prepared our national Recovery and Resilience Plan that apart from the green and digital aspect, it includes a series of other structural reforms, spanning from the justice system, education to local government reform.
This Plan, which will basically constitute the blueprint for our growth policies for the years to come, includes a combination of investments and reforms that will be undertaken for a period of 6 years. I strongly believe that this could be a gamechanger regarding the sustainability of the recovery and the rationalisation of the Cypriot economy. However, we need to absorb the totality of funds, and secondly and most importantly, we need to properly implement the reforms that come with it.
The fact that the Government has full ownership of the Plan is very important for the success of its implementation. However, this is not enough as the release of funds will depend on the implementation of reforms that will require the support of the political parties. In this context, it has to be understood that the national Recovery and Resilience Plan does not concern only the Government, it concerns the whole country. It is an opportunity to build a broader consensus. But it is primarily a huge stake that we must all win together. This is why I have personally engaged in extensive discussions with the political parties regarding the reforms included in the Recovery and Resilience Plan, so as to ensure maximum support.
Ladies and gentlemen,
The need for establishing a long-term growth strategy and addressing the resilience and sustainability of Cyprus’ economy was also identified by the Cyprus Economy and Competitiveness Council. It might be the case that Cyprus’ growth model which has been based on services served us well in the past, however, this might not be sufficient in the future. We need to further develop our services and make them even more attractive. We also need to further diversify the economy and limit dependency on only a few sectors, by putting emphasis on sectors with high value added in terms of growth and sustainability.
In this context, the Competitiveness Council is currently in the process of preparing a growth strategy, including the identification of challenges the country is facing, barriers to growth and the reforms needed to unleash the country’s growth potential. It also includes certain sectors that could be expanded further so as to improve the diversification of the economy.
I would like to stress that the national Recovery and Resilience Plan and the strategy prepared by the Competitiveness Council constitute communicating vessels, there are moving in the same direction and they are fully in line with each other.
Ladies and gentlemen,
We are going through tough and challenging times but we have a plan.
This plan is our compass for the exodus from the crisis and for the modernization of our economy. It is up to us to deliver.
Quoting the ancient Greeks “συν Αθηνά και χείρα κίνει”, meaning it’s not enough to ask for help “from Gods and luck”; you must also make the necessary effort on your part.
And we will.
Thank you very much.
Relevant Press Releases
Registered Unemployed: April 2021
Consumer Price Index (CPI): April 2021 (Inflation 1,6%)
Industrial Turnover Index: February 2021
Index of Industrial Output Prices: March 2021