Nicosia and Moscow to renegotiate the loan to Cyprus
VOICES calling for measures to boost growth keep increasing, three days after Cyprus was downgraded to ‘junk’ status by ratings agency Standard and Poor’s, making it even more difficult for the island to attract investment.
“Certainly the continuous downgrades of the Cypriot economy are not the best thing in the effort to attract foreign investment,” said Christos Mavrellis, vice chairman of the Cyprus investment promotion agency (CIPA).
He said Cyprus was already faced with problems in attracting investment in the past due to the high cost of production and small size of the market and “these developments make things even harder.”
Mavrellis said activity had slowed down but stressed that the global recession was also to blame and not only the condition of the economy and the negative ratings.
Cyprus has suffered successive downgrades by all ratings agencies in the past year, culminating in S&P’s two-notch cut on Friday to below investment grade, BB+.
S&P downgraded the ratings of nine eurozone countries in total on Friday, including France which lost its AAA rating.
Mavrellis said a broad meeting must be held with the participation of all the actors and it should be understood that measures must be put in place.
He said the highest consensus must be achieved and it should be stressed that inaction could have irreparable results.
CIPA, he said, will organise a special meeting of its own to exchange views and come up with specific recommendations.
Economist Dr. Stelios Platis said Cyprus must sort out its fiscal situation by taking more austerity measures, but not taxes.
“I think the first thing we need to do is tighten our finances even more,” Platis said. “We must have a surplus in 2012 and we must boost growth and there are ways.”
Cyprus has adopted a raft of austerity measures to cut high government deficits. The budget passed by parliament in December projected a deficit of no more than 2.5 per cent of GDP in 2012compared with about 6.0 per cent last year.
Platis said Cyprus had a huge potential to attract foreign investment companies though some small changes must take place in the country’s legislation.
He added that Cyprus still has the advantage of better taxation but it needed to promote this and provide incentives.
“And certainly we should not tax. We need to cut taxes,” he said. “You cannot raise VAT for example and expect an increase in consumption.”
Platis said he favoured cutting VAT and taxes affecting enterprise and these could be offset by taxing immovable property and introducing a luxury tax.
He also called for a cut in public sector allowances and “if these are not enough then we should have further cuts in the public sector payroll.”
As part of the austerity measures, the government has frozen salaries in the public sector whose workers also have to pay a temporary staggered contribution – as do private sector employees.
Platis stressed however that none of this would have any effect if Cyprus does not resolve its banking problems.
Cyprus’ two largest banks, Bank of Cyprus and Marfin Popular, are exposed to Greek sovereign debt. Both banks are due to give the national regulator their plans for recapitalisation by January 20.
CIPA chairman Christodoulos Angastiniotis struck a note of optimism yesterday, stemming from the discovery of natural gas offshore Cyprus.
Speaking to financial news portal Stockwatch, Angastiniotis said big companies from Russia, China, Europe and the US have shown interest to use Cyprus as a regional base for related services.
He said a big company that manufactures pipes and other equipment used in the extraction of hydrocarbons has shown interest in setting up shop in Cyprus. At the same time a Chinese company is interested in using Cyprus as a logistics centre
Published on January 18, 2012
|||Inaction on economy could be irreversible