Cyprus has been targeted as a tax haven and accused of money laundering but after the financial crisis, systemic reforms have been implemented to tackle these issues. How have these reforms changed the way international businessmen and investors see Cyprus and its system?
Cyprus’ efforts have been long term and sustained, for developing the country into an international business centre of excellence with the provision of high-quality services. Reforms have been implemented in the area of public financial management, the financial sector and the business services sector that led to improving the governance, supervisory and regulatory framework of these sectors thus, contributing significantly in successfully addressing the challenges that have been accumulated over the years.
In this context, conduit businesses have moved away from Cyprus towards other jurisdictions, since the supervisory and regulatory framework have become stricter and effective. This enabled the appreciation of international institutions as well as of other jurisdictions acknowledging the progress made by Cyprus in these areas which, in turn, led to the recognition of private investors. All these paved the way for new investments flowing to the Cyprus economy.
The reforms introduced as well as the policy stance of the government, maintaining a favorable environment for business and investments, and the return to macroeconomic stability were key in transforming the image of Cyprus. Additionally, the close cooperation of the Cyprus authorities with authorities of other jurisdictions, including the US, have contributed in regaining trust and attracting investments from these jurisdictions.
It is within this context that Cyprus has gain the trust of international businessmen who invested in the past years considerably in the financial sector, in education and in the energy sector. It is our conviction that, through the implementation of rational fiscal policies and reforms, we managed to have the stability required by international businessmen in order for them to be in a position to invest or to establish their base in Cyprus.
Cyprus is becoming an important partner of the U.S.A. in the Eastern Mediterranean and has attracted the interest of American multinational companies who now view Cyprus as an important regional business hub. How would you describe the growing business relationship with the USA?
Economic cooperation between the United States and the Republic of Cyprus is at a historic high, with the two countries working closely together, in order to advance shared priorities in the Eastern Mediterranean region. The cooperation in combating money laundering and terrorist financing contributes positively on how US businesses view Cyprus. This has led to raising awareness in the US economy of the importance of Cyprus as a business hub leading to increased investments to Cyprus from the US. Additionally, the good political relationships between the two jurisdictions was another key factor contributing to this development. This development is viewed as very positive by the Cyprus authorities as it diversifies activity allowing for a more stable and balanced economic environment. Moreover, the cooperation in energy strategy in recent years has paved the way for cooperation in a broader, regional security and economic agenda.
The new energy discoveries in Cyprus’ Exclusive Economic Zone come with great prospects and equally with great responsibility. We very much welcome the fact that the United States has consistently recognized the right of the Republic of Cyprus to develop its natural resources.
We believe that these findings can and should lead to greater prosperity and stability of the entire Eastern Mediterranean region and the U.S. multinational companies can play a pivotal role in this respect.
Besides, the energy issues not only contribute to the expected revenues of the Government but they are also considered a precondition for economic development and a catalyst for economic cooperation. We are confident that this cooperation will continue and become even broader and deeper in the future.
The government of Cyprus handled the Covid-19 pandemic impressively in all aspects – healthcare, financial and social. This has grabbed the attention of US media who started presenting Cyprus as a Covid-19 safe tourism destination.
(a) How has the government of Cyprus and the Ministry of Finance managed to contain the effects of the lockdown on the economy?
(b) When should we expect a full recovery of the economy?
Since the onset of the crisis, the government has taken very strict measures of containment, thus effectively protecting its citizens and the public health system. However, as a result, economic activity has stalled since mid-March in almost all sectors of the Cyprus economy. In order to mitigate the adverse effects of the crisis and to contain, to the extent possible, its socio-economic consequences, we adopted a generous package of fiscal and liquidity support measures amounting to approximately 15% of GDP. The measures are of a one-off nature and include financial support to the health sector, subsidized wages to keep employees on the payroll in case of suspended business operations, income support for small businesses and the self-employed, tax relief measures, as well as targeted support to help the tourism sector recover. A series of measures were also taken to support enterprises by enhancing liquidity.
In regard to the macroeconomic situation and outlook, following a robust growth path in the past few years, the economy is forecast to experience a contraction of real GDP of about 7% during 2020 with services and tourism being most affected. Despite this, our baseline macroeconomic scenario for 2021 suggests a real GDP growth of about 6%, mainly supported by domestic demand.