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Cyprus

29 August 2018

Cyprus: Fiscal Council sticks to further socioeconomic reforms

Cyprus’s Fiscal Council has warned that despite substantial growth over the past few years, the economy of the eastern Mediterranean island is still vulnerable to unpredictable economic turbulence. The Council is mainly calling for further reforms of the pension system, the education system and the public services.

The Fiscal Council has warned that despite substantial growth over the past few years, the economy of the eastern Mediterranean island is still vulnerable to unpredictable economic turbulence. The Council was set up under the direction of the country's international lenders to watch over the government's economic planning and to make sure that it can repay its lenders. The Council points out in its 2018 Spring Report, released in June 2018, that fiscal progress has not been accompanied by necessary reforms which could enable the economy to face external challenges.

The Council was critical of the government’s citizenship-by-investment scheme that aims at attracting foreign investment. According to the Council, this policy ‘could and should be reduced to the minimum’, as the continuation and increase of the economy’s dependence on these factors could inevitably trigger the ‘Dutch disease’, i.e. the transfer of resources towards low productivity and low profit investment and away from the economy’s productive sectors.

In the report, the conclusion is drawn that it is necessary to encourage savings through a comprehensive reform of the pension system, given the very low saving rate, the ineffective institutional framework and the high private debt. The reform of the pension system should be based on the principle of adequacy of pensions for all citizens.

The Council referred to the Europe 2020 National Reform Programme 2018, which noted that the proportion of young people (15-24 years) not in employment, education, or training (NEET) remains one of the highest in the EU. This underlines the importance of joint initiatives by the authorities in close consultation with social partners aimed at improving the quality of education and its vocational relevance.

The council also criticised the lack of progress in the privatisation of the state-telecom Cyta amid union pressure for further pay rises. In the last months, intensive talks between the unions and the finance minister have taken place to find an agreement over unresolved issues concerning collective agreements and working conditions at the company.

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