Biased and Misleading Reporting on Cyprus Economic Performance

According to the organization “Reporters Without Borders” Cyprus ranks number 69 on the “press freedom” index for 2022 descending from 26st place in 2020. The steep decline in press freedom is attributed to “the increasing significant influence of political parties, the church, and commercial interests over the media in the Republic”. In this connection this piece contends that official statements and press releases providing information including statistics are biased toward presenting a favorable, though often misleading, assessment of the performance of the Cyprus economy. And many of the media in turn take this information at face value and provide reports in line with the interests and propaganda of the Government administration and ruling political party.

Inflation Rates and Assistance

Take the latest statement of Minister of Finance Constantinos Petrides under the heading “the next few years will be difficult” reported by at least one newspaper on May 2. Despite this challenging headline the newspapers reported that Petrides painted a rosy picture of the performance of the Government in keeping the inflation rate and energy prices below that of many EU countries. However, statistics cited by Petrides are misleading. Petrides said that consumer prices in Cyprus rose by 7.1 per cent in the 12 months to April 2022, “which is lower than other EU countries”. But, Eurostat preliminary data shows that the Harmonised Index of Consumer Prices (HICP) for Cyprus increased by 8.6 per cent over the year to April 2022 and was above the EU average of 7.5 per cent. Furthermore, the consumer price index which is used for COLA in Cyprus increased by 8.8 per cent over the 12 months to April 2022.

In addition, Petrides stated that Cyprus “still has the cheapest fuel in the EU at the moment”. But as of May 2 the price of gasoline (euro 95) in Cyprus was 1.516 euro per liter and higher than in four other EU countries including Malta which charged 1.329 euro per liter. And the Minister contended that the Government has done much to alleviate the suffering of vulnerable groups arising from higher energy prices citing the reduction of the VAT from 19 per cent to 5 per cent on the electricity bills for vulnerable groups and the 50 per cent increase in benefits for residents in mountainous areas to assist with their heating expenses. However, such assistance is low compared with that given in certain other EU countries such as France where 5.8 million households with monthly incomes of less than 2,000 euro receive Government grants of 100 euro monthly on top of an annual energy voucher of 150 euro to help them cope with higher energy costs.

Labor Market

President Anastasiades in a Labor Day speech referred to government achievements in improving the labor market saying selectively among other things that “between 2015 and 2019 a total of 72,118 new jobs were created, with an increase of 21% in net employment, while at the end of 2021 unemployment was at the lowest rate of since 2008”. However, by citing these statistics to cast a favorable light on developments in the labor market the President ignores the deterioration in the real incomes and benefits of employees in the private sector during most years of his administration. Whereas many jobs were created and real wages increased over the four years prior to the impact of the pandemic beginning in 2020, this period continued to be characterized by the scarcity of well-paying decent jobs for the bulk of the labor force. Even by 2019 the average compensation of private sector employees excluding those in the financial sector was still below levels prior to the 2012/13 financial crisis and was merely one half of the average compensation of government employees.

Furthermore, the quality of the jobs offered by the Government has increasingly worsened over recent years with a strikingly large increase recorded in the employment of casual workers compared with a marked decline in the number of permanent workers. In fact, between 2015 and March 2021 the number of casual workers in the Government more than doubled to 19,524 employees, while the number of permanent workers fell by 7 per cent to 27,803. Together casual and hourly workers by March this year constituted 51.6 per cent of total government employees, undoubtedly indicating that gaining employment is increasingly determined by political factors rather than the skills of applicants to contribute to public service.

It is noted also that the low recent unemployment rate mentioned by President Anastasiades cannot be compared with the low unemployment rates of Cyprus in the mid-2000s since the official unemployment rate now only includes those persons registering online as unemployed. In fact, it is claimed by Government critics that the unemployment rate of Eurostat for Cyprus of 5.9 per cent for March grossly understates the level of unemployment in Cyprus.

Non-Performing Loans and Excessive Liquidity

There are excessive glowing reports by the Cyprus authorities and banks on progress in reducing NPLs and in maintaining very comfortable liquidity ratios that go unquestioned by media commentators and academics. There appears to be no acknowledgement or even understanding by the media and many commentators that the prolific sales of NPLs for cash to third parties (mainly to so-called credit acquiring companies) is keeping the private sector highly indebted and overwhelming banks with excess liquid assets carrying negative interest. Even the Governor of the Central bank of Cyprus in a recent speech stated approvingly that “The Liquidity Coverage Ratio (of Cyprus banks) amounts to 344 per cent as at February 2022 which is almost double of the respective EU average of 175 per cent”.

The failure of banks to convert most of their accumulating and ample cash balances into interest bearing loans means that they are hardly supporting the private sector with productive financing. Indeed, with the feeble expansion of new credits and the large accumulation of cash balances the quality of Cyprus bank balance sheets in terms of revenue earning capacity has greatly deteriorated. In fact, ECB supervisory banking statistics show that the proportion of total bank assets held as cash balances was 38.0 percent for Cyprus banks, whereas the corresponding ratio for banks in 18 euro area countries averaged a much lower 15.6 per cent at end-2021. And the share of loans and advances of Cyprus banks as a proportion of their total assets was 40.1 per cent at end-2021, while the same ratio for these other euro area banks was 59.1 per cent.

Accordingly, it is contended that the Cyprus authorities, including the Central Bank and media commentators in assessing financial sector performance should be much more critical of banks in not doing enough in using their excessive liquidity to restructure impaired loans and extend new credits to contribute to real economic growth, rather than welcoming without question the very large bank sales of NPLs and their extremely high liquidity ratios.

Concluding Remarks

The foregoing examples indicate that the Anastasiades administration and banks, supported in most part by a biased and gullible media, are window-dressing the performance of the economy and the appropriateness of current policies by their prejudiced and misleading reporting of economic and financial developments. However, if this window-dressing of economic and financial performance succeeds and goes unchallenged it is most likely the Government will, even in the current high inflationary environment, continue its inequitable policies that enrich the few at the expense of the majority of households earning income from employment in the private sector.