Earlier this year, the European Commission released its winter package report approved by the College of Commissioners whereby it placed Cyprus and other EU Members in a category it deems to be facing budgetary imbalances.
This years findings were presented in Brussels by Vice-President Valdis Dobrobowski to Commissioners Marianne Thyssen and Pierre Moscovici; other leaders and top Economists.
Only three countries were ranked in the category of jurisdictions with “excessive imbalances”, which were:
Similarly, there was a softer ranking of countries with just “imbalances” in which the following jurisdictions are also included:
The report noted Cyprus’ key uncertainties causing the imbalances:
A very high share of non-performing loans burdens the financial sector.
High stock of private, public, and external debt hangs on the economy.
New lending to the private sector remains limited.
Relatively high rates of unemployment and weak potential growth.
The commission also cautioned that Cyprus’ current account deficit is overwhelmingly negative, even considering the existence of special purpose entities on the island, reflecting strong national demand, as well as having mostly negative figures for saving among families and households.
The report also noted that deleveraging of private sector debt is ongoing but only slowly. The deficit is not adequate to guarantee a sustainable adjustment of the large stock of net external obligations over a long-term period of time.
Good Points to Take Away from the Report
In the meantime, the transfer of a substantial slice of non-performing loans from the Cyprus Co-operative Bank to the public sector when the lender was liquidated and wound down; significantly reducing the share of non-performing loans (NPLs) within the banking system. However, the islands non-performing loans remain high for both households and companies (corporate loans).
The government support in the sale of the Cyprus Co-operative Bank had a one-off increasing impact on public debt in 2018 it added. Going forward, the high public debt was expected to be on a downward spiral following a continued strong fiscal performance and growing tourism figures.
Compared to last financial year, the motion for reform in the Republic increased particularly regarding measures to address the susceptibilities from the islands high non-performing loan portfolio, however more progress is required to take place in organisational reforms to increase and unlock the growth potential.