Reforms facilitate Cyprus overcome financial crisis

Muscat: Overcoming an unprecedented financial crisis, Cyprus’ recovery has been impressive, following a three year period of reform, bank restructuring and fiscal consolidation, according to a government statement.
After the March 2013 decision to use the ‘bail-in’ instrument for the first time as a remedy in the Cyprus banking crisis, very few observers could have predicted that three years later Cyprus would see economic growth of 1.6 per cent, a nearly balanced budget with a primary surplus of some 2.5 per cent, steadily reducing public debt, a well-capitalised banking sector, and that the country would not be requesting an extension of the current support programme, said Nikos Christodoulides, a Cyprus government spokesman.
In fact, Cyprus is now referred to as a role model of economic reform and consolidation. Key to this success is that Cyprus managed to successfully turn the crisis into an opportunity to effectively address and correct long-term weaknesses, and to re-build a strong economy anchored on solid foundations.
This was done not by increasing taxes but, rather, by cutting public spending, freezing new hiring in the public sector and rationing welfare spending by reforming the welfare system. Further, a policy of privatisation and licensing was adopted by the ports, along with the establishment of an integrated casino resort, building new marinas, along with restructuring the national lottery and the telecoms sector.
The banking sector has also been transformed through restructuring, resulting in a smaller, yet much healthier banking sector, which operates under stricter supervision and oversight. With strong recapitalisation, achieved mainly through significant foreign investments, and with new management in most Cypriot banks, it is fair to say that the Cypriot banking system has overcome the recent crisis.
Equally significant, if not more so, is the strategic reorientation of the business and financial services sector, which no longer relies on an oversized banking sector, nor on notably high foreign deposits.
Notwithstanding this progress, it is acknowledged that challenges remain, such as high unemployment and non-performing loans. “As Cyprus decisively continues to reform and restructure, we are confident that we will overcome the remaining challenges. In the last three years, Cyprus has proven that it has learned from past mistakes, that its economy and its people are resilient, that it has the commitment and the capability to build and sustain a stable economy and to be a credible member of the EU and the euro-zone,” added Christodoulides.
The results of this effort have been a result of close cooperation between the government, political parties, social partners and the Cypriot people.
“This collective effort will continue. The completion of the aid programme is, therefore, not the end of the road for Cyprus, but signifies the continuation of our plans, with a strong emphasis on sustainable reforms,” added Christodoulides.