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Fiscal Council warns of 'reform fatigue'

19/05/2016 13:11
Cyprus` Fiscal Council has warned that the Cypriot economy is suffering from `significant reform fatigue` with its Chairman Demetris Georgiades noting that given the results so far, instead of the `fatigue` there should be a greater effort to continue with reforms.

The achievement of the budgetary targets, the exit from the economic adjustment programme and the campaign period are the main factors contributing to this negative development, Demetriades told a press conference on Wednesday during which he presented the Council`s 2016 Spring Report.

The fact that the fiscal targets have been met, some with considerable margin, and that the ceilings set in the 2017 state budget are in line with the rules of the national and the European institutional framework, constitute positive developments, he added.

The Chairman of the Fiscal Council warned that "risks remain" for the economy of Cyprus and could increase the borrowing costs for both the public and the private sector and noted that the government bond yields already presented an upward trend.

Delayed and ineffective reforms pose a risk for the economy and become obstacles to improving the efficiency of the economy, create uncertainty, increase the lack of confidence and render the Cypriot economy less attractive as an investment destination for both domestic and foreign investors, he said.

The lack of modernization of the pension system, delaying a shake up of the public sector, missing the targets of the economic adjustment program, the high rate of the non performing loans, external challenges and risks (i.e Greece, Brexit, Middle East and Russia), macroeconomic imbalances, the lack of competitiveness and the challenges of a possible solution of the Cyprus problem that would include provisions that could hinder the effectiveness of the economy and prudent fiscal policy, are also dangerous to the economy of Cyprus, according to the Chairman of the Fiscal Council.

He also stressed that the financial and economic stability remain particularly vulnerable because of the high public and private debt, that exceed 400% of GDP, and noted that “dealing with the risks, moving on with reforms and avoiding actions that could have a negative impact on the credibility of the economy, should constitute a key pillar in the decision making process”.

Georgiades explained that Cyprus` borrowing cost has been rising in the last three months because of a `reform fatigue`, the country’s exit from the bailout agreement and the fact that it`s bonds remain in a non-investment grade.