August 2015

Cyprus Economy Review

Cyprus’ adjustment programme

Staff teams from the International Monetary Fund (IMF) and the European Commission (EC), in liaison with the European Central Bank (ECB), visited Nicosia during July 14-24 2015 to review Cyprus’ economic reform programme (seventh review of the programme).

The teams have reached staff-level agreement on policies that could serve as a basis for completion of the review, reflecting the progress and policies under the programme. The financial situation of the banks is gradually improving, and there is tentative evidence that the slow pace of debt restructuring is picking up. The fiscal targets in the first half of 2015 were met with substantial margins. In addition, the authorities are making progress on their structural reform agenda.
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The authorities’ commitment to the programme is bearing results in several areas, with the economic recovery starting in early 2015 and unemployment starting to decline from still-high levels.

Looking ahead, increasing the pace of reform will be essential. Notably, addressing the excessive level of non-performing loans in the banking system remains the number one priority. It is a necessary condition for a sustainable stabilization of the banking system and will require further steps as a matter of priority. To this end, legislation to expedite the transfer of title deeds and to facilitate the sale of loans should be adopted as soon as possible.

The authorities should also make all necessary efforts to effectively implement the new insolvency and foreclosure legal frameworks. Continued sound public finances are needed to ensure that public debt returns to an acceptable level while steering public spending toward growth-enhancing activities.

Finally, firmly moving ahead with structural reforms - including the privatization process and the public administration reforms - is critical to cement the improvements in public finances and restore sustained economic growth.

Conclusion of the reviews is subject to the approval processes of both the European Union and the IMF, which is expected to be initiated in September/October (Source: European Commission/IMF).
GDP growth revised to 0,5%

In statements after the final meeting with the heads of the Troika, in relation review of the economic adjustment programme, Finance Minister Harris Georgiades stressed that the most important point of the review is the upward revision of the expectations for 0,5% GDP growth in 2015, compared with -0.5% last Spring.

According to the Minister this revision is an indication that the implementation of the programme was bearing fruit. At the same time, he said, it refuted the impression that the implementation of the program leads to a deeper recession.

The Finance Minister has also stated that the state of public finances was good and that no additional measures were required. However, he pointed out that there was no room for any relaxation.

"The prudent fiscal policy will continue and I think that the combination of fiscal consolidation with the return to growth and the gradual adjustment of the economy that we have achieved, is perhaps the most important success of the Cypriot programme and confirms the need to continue to follow this prudent but effective policy to promote reforms and consolidation," he said.

According to the Minister, the emphasis is now focusing on further promotion of the major structural changes that both the economy and the country need (Source: Cyprus News Agency).
Casino in Cyprus

In July, a law governing the operation of a casino has been adopted by the House of Representatives.

The legislation provides for the development of an integrated casino resort of international standards that will include a hotel or hotels exceeding the requirements for a five-star establishment under existing laws with at least 500 luxury rooms, 100 gaming tables and 1.000 gaming machines. The operator will choose the district in which the resort would be located in. Government owned land will not be used to build the casino.

The integrated casino resort may operate 24 hours per day, seven days per week. Any requirement for an entrance fee or membership by the integrated casino resort operator on casino customers is subject to the prior written approval of the CGC. The minimum age for admission to casino gaming shall be 21.

The term of the license will be 30 years, which will be renewable following a request to the Cyprus Casino Gaming Commission (CGC) of the holder, any time after 12 years for a further agreed term. The operator will be given a 15 year exclusivity period. The bidder will have the option to operate up to four additional satellite casinos in different areas from the original. Only one of them will be allowed to include up to 5 gaming tables and 50 gaming machines whilst the rest three will be limited to 50 gaming machines.

A competitive and transparent two stage procedure will be employed to select the single licensee. The process will comprise a pre-selection stage. The Steering committee appointed by the council of ministers shall limit the number of preselected candidates to (3) persons. The second stage will include a procedure of submission of a comprehensive offer. The Steering Committee shall select the successful candidate, on the basis of the total score secured by the candidates during the evaluation of the second stage of the procedure.

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Participation to ECB’s Quantitative Easing Programme

Following the approval of the European Stability Mechanism of the sixth review of Cyprus’ adjustment programme, the Central Bank of Cyprus has begun purchases of Cypriot government bonds in the secondary market, in the context of the European Central Bank Quantitative Easing Programme (QE) in July.

Through its expanded asset purchase programme, the European Central Bank will expand purchases to include bonds issued by euro area central governments, agencies and European institutions. The purchases are intended to be carried out until at least September 2016 and the combined monthly asset purchases to amount to €60 billion (Source: Cyprus Mail).
Increase in tourism arrivals

During the first semester of 2015, tourist arrivals recorded a decade record high, reaching 1.035.898 compared to 979.838 in the corresponding period of 2014, recording an increase of 5,7%.

Moreover, on the basis of the results of the Passengers Survey, arrivals of tourists reached 336.967 in June 2015 compared to 342.221 in June 2014, recording a decrease of 1,5%. An increase of 9,9% was recorded in tourist arrivals from the United Kingdom (from 111.792 in June 2014 to 122.894 in June 2015), 5,5% increase from Sweden (from 17.065 to 18.005) and 48,8% increase from Greece (from 8.584 to 12.769 this year, however, a decrease of 23,8% was recorded in tourist arrivals from Russia (Source: CYSTAT).
Total property sales

According to the data published by the Cyprus Department of Lands and Surveys, property sales in Cyprus have been increasing during the first semester of 2015 compared to the corresponding period in 2014.

In particular, deeds of sale increased during the first six months of 2015 from 2.110 to 2.348 (11,31% increase) compared to the same period in 2014. The increase was evident in Larnaca (36%), Paphos (17%) and Limassol (10%). The largest decrease was experienced by Famagusta (19%), followed by Nicosia (4%).

During the same period, 27% of total buyers (representing 635 deeds of sale) were overseas residents. Specifically, 38,1% of these purchases were made in Paphos and 26,1% in Limassol (Source: Cyprus Department of Lands and Surveys).
Reduction of NPLs

Non-Performing Loans (NPLs) recorded a drop in May, as according to data of the Central Bank of Cyprus, NPLs fell in late May 2015 to €26.94 billion from €27.75 billion at the end of April 2015.

In relation to the domestic operations of the banks and cooperatives, non-performing loans fell to 45.85% of a total of €58.7 billion. In April 2015 they had increased to 46.82% of a total of €59.3 billion.

Of the total of €26.9 billion in the system, measures have been taken to restructure 23.21% of the loans. In April, measures were taken for the restructuring of 21.88% of the NPLs (Source:
Deposits and Loan

Despite the stabilization signs in the economy, according to new data of the Central Bank of Cyprus, adjusted for exchange rates, in June 2015 deposits fell by €398.3 million against a decline of €213.6 million in May.

When taking into account the exchange rate, deposits fell by €617.4 million in the sixth month of 2015 against an increase of €15.9 million in the previous month. Total deposits in the banking system dropped to €45.78 billion from €46.39 billion in May 2015 and €46.53 billion in June 2014.

While deposits are decreasing, the granting of loans recorded an increase compared with May 2015. Without taking into account exchange rates, loans increased by €453.4 million against a monthly reduction of €7.6 million in May.

Total loans in the system after the exchange rate were €62.55 billion at the end of June from €62.68 billion in May and €61.45 billion in June 2014 (Source:
Companies registrations

According to new data from the Registrar of Companies and Official Receiver, applications for company registrations increased to 905 in June 2015 compared to 756 in June 2014, recording an increase of 19,7%. As to the first semester of the year, figures show a decrease of 4%, with companies registrations falling at 5.186 compared to 5.410 in the corresponding period of 2014 (Source:
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