By Lefteris Adilinis and Fiona Mullen
Opposition MPs voted down five of the government’s public-sector reform bills on December 9 at the same time as deleting any budget for privatisation, including any funds for salaries and consultants at the Privatisation Unit.
Their move, just a few days before the municipal elections, was unusual. Normally MPs debate bills and propose revisions for months. This time they simply voted them down. It also seems that that they shot themselves in the foot, since their moves mean no funds for the commercialisation of Larnaca marina, which is actually popular with Larnaca residents.
The unusual action has not put off the government from pursuing its reform agenda, however. In an interview with the Cyprus Weekly, it became clear that, if the early years of the government’s five-year term were marked by crisis management, the final year is one in which it seeks to ensure that the crisis never repeats itself.
“We shall definitely not sit back and enjoy our term in office until it ends,” Finance Minister Harris Georgiades told the Cyprus Weekly.
“The government is determined to continue promoting the reforms and presenting its suggestions to the House [of Representatives]. … We will keep the pressure up and shall continue adding to them.”
The government plans a whole raft of reforms, some of which it had hoped to pass in 2016. These include restructuring of the local authorities andthe establishment of deputy ministries to focus on sectors such as tourism and shipping. Another law will aim to simplify procedures for licensing, in order to promote local and foreign investment.
The government also plans to revise the law for alternative investment funds (AIMs), in order to promote this growing sector. There are also plans for insurance and pension funds, many of which were caught by the haircut on deposits.
Not a foreign idea
The finance minister emphasises that these are reforms the government wants to carry out, despite the fact that it exited the three-year Memorandum of Understanding (MoU) with the Troika of international lenders in March this year.
“Even though we are out of the MoU, we continued presenting balanced budgets and we continued promoting much-needed reform across sectors of the public administration and the economy,” he said.
“I do not want anyone to view such polices as an obligation to any third party. … We are not promoting these policies because someone has obliged us to do so. We are promoting them because they are the right polices and the only policies that can ensure that the growth momentum which has been established will continue and will become a sustainable one.”
For stability’s sake
Nor is he promoting them because the government has any urgent need to see them happen. The finance minister says that,with or without the reform to public-sector wages, there would not be any changes in the payroll.
“The increments, not pay rises, would have been offered in any case, with or without the law,” he pointed out.
The increases on the basis of the reformed inflation-indexation mechanism known as the Cost of Living Index (Cola)would probably not kick in next year either because of the deflationary environment.
“There isn’t a short-term negative impact. There is a missed opportunity to create a very solid framework, which would have ensured not only the short-term sustainability but also the medium-to long-term sustainability of public finances and the payroll especially.”
“In order to ensure growth of the Cyprus economy, the reform effort should be a neverending one.”
Georgiades said that the inability to be able to pay salaries and consultants was an “embarrassing one”.
“I do not remember a single example in Cyprus, and I cannot imagine a situation in Europe, where a state will engage in a contractual relation on the basis of the law and, suddenly, half way into the contract, to be left without funds to pay.”
Asked what was going to happen now with privatisation, the payment of the Privatisation Unit’s salaries and the payment of contracted consultants, he said: “Strictly speaking, the answer to this question should be provided by the political parties. We are indeed faced with a problem, including a problem for Cyta Hellas, including a problem for the development of government property in Troodos, the port of Larnaca, the lottery, which is where we could have delivered a very good, beneficial deal for the public interest.”
Glass half-full
Despite the obstacles, the finance minister remains optimistic about the prospects for the Cyprus economy in the short term.
Referring to recent statistics showing broad-based growth, he said: “We are seeing growth coming from all sectors of the economy and we project a similar outlook for 2017, in the range of 2.5% to 3%, which is an excellent performance by EU standards.”
The passport scheme is only part of the reason for economic growth.
“What seems to be working very well is the reform of our tax system, promoted during summer and autumn 2015, which includes the introduction of non-domicile status, the granting of tax deductibles for all new equity in any sector in any company across the sectors. The naturalisation scheme is only one part of the effort.”
“I continue to see the glass as half full. The rating agencies definitely do see that the Cyprus economy has achieved a remarkable recovery, with growth coming from all productive sectors of the economy,without it being artificially boosted by deficit spending. This is real growth…Cyprus can be one of the fastest growing economies of the EU and the eurozone. But not without maintaining the effort.”
Asked if parliament was going to help in this effort, he said: “Our very recent track record shows we can behave responsibily towards our fellow citizens and towards our country…I hope that this is a regrettable disagreement, which we shall manage, if we all behave responsibly, and if we realise that it is our collective responsibility to maintain the effort.”