The main pillars of the economic policy of the Government, also contained in the agreed Memorandum of Understanding, involve the return of stability in the banking sector, the achievement of fiscal consolidation and the implementation of structural reforms for improving the competitiveness of the economy. In parallel to the MoU, the Government aims to implement specific measures for boosting economic growth, focusing on encouraging employment, attracting foreign investment, supporting tourism, encouraging land development and green growth and facilitating the financing of SMEs.
Monetary and Exchange Rate Policy
Since the accession of Cyprus to the Eurozone in January 2008, the Central Bank of Cyprus is a member of the European System of Central Banks (ESCB). Together with the European Central Bank (ECB), it conducts monetary policy for the whole Eurozone, based on conditions prevailing in this region.
Fiscal policy is geared towards consolidating public finances, with a view to reducing further public debt and thus addressing the long-term sustainability of public finances. The Memorandum of Understanding includes specific fiscal targets until the year 2018. Particular emphasis is placed on the need to curtail current expenditure and restructure public spending, in favour of high value added expenditure. Emphasis is also attached to targeted social spending.
The Memorandum of Understanding also includes fiscal measures of structural nature, which can be summarised as follows:
- The implementation of a Medium-Term Budgetary Framework (MTBF), which will institutionalise expenditure rules, give more independence to spending ministries and, at the same time, increase their accountability for achieving important quantifiable targets
- The reform of the social welfare system in favour of those who are in greater need
- The modernisation of the public sector, which will result in leaner and more productive public services
- The improvement of tax collection, within the present system, by focusing on tackling tax evasion and improving tax administration.
The promotion of further structural reforms will enable Cyprus to develop a robust and flexible economy, exhibiting the desired resilience to external shocks, while enhancing the efficiency of the market mechanism and raising the production potential of the economy. Ongoing reforms include:
- Reforms in the labour market, aiming at boosting the supply of labour among females and addressing the high gender pay gap, increasing employability and labour force adaptability particularly through lifelong learning and raising the employment level. Further measures included in the Memorandum of Understanding involve combating youth unemployment, minimum wage, etc.
- Reforms aimed at strengthening competition, especially in the professional services sector, improving the overall business climate, streamlining the regulatory framework and cutting red tape.
- Reform of the social security and of the healthcare provision systems, which are crucial for tackling the long term sustainability of public finances.
- Reform of the public sector with a view to increasing its productivity and performance
- Reform of the good and services market.
The Cyprus economy is currently facing a number of challenges. These are related to the deceleration of the economy and the resulting increase of unemployment, the confidence problems in the banking system and the achievement of fiscal consolidation within the deadlines set in the agreed Memorandum of Understanding. Through the strict implementation of the Adjustment Programme and the implementation of complimentary measures to support economic growth, the prospects of effectively dealing with these challenges are positive.
For further information:
Central Bank website: www.centralbank.gov.cy
Ministry of Finance website: www.mof.gov.cy
On 1 January 2008 the Republic of Cyprus joined the euro area and in so doing introduced the euro as its official currency, replacing the Cyprus pound. Thus, euro banknotes and coins are the country’s legal tender and the Cyprus pound ceased to be legal tender as from 1 February 2008.
The euro banknotes are exactly the same in all euro area countries. The euro coins have a side which is common to all euro area countries and a national side with country-specific designs. As with banknotes, euro coins can circulate in all euro area countries irrespective of the issuing country.