Despite a major economic recovery, Cyprus has put privatisation on hold, needs to take renewable energy seriously, reduce NPLs and focus on targeted business reform, said the EBRD in its 2018-19 Transition Report.
In its country assessment, the European Bank for Reconstruction and Development said privatisation remains on hold while liberalising the energy sector has been delayed.
“There appears to be little appetite for selling a majority stake of the state-owned telecommunications company (Cyta), although this had been one of the government’s priorities during the crisis,” said EBRD.
It said the law abolishing the privatisation unit in the Ministry of Finance, passed in 2017, was upheld by the Supreme Court in February 2018.
“Regarding Cyta, the plan now is to corporatise the company, with the government retaining a majority stake.”
In the report it outlined key priorities for 2019 such as a new push for renewable energy.
“The government is developing a new renewable energy strategy to help meet long-term renewable targets, but a firmer commitment to implementing a competitive tariff regime and support for auctions of renewable energy is necessary for the long-term viability of the sector.”
EBRD also urged for heightened efforts to tackle non-performing loans (NPLs).
“The level of NPLs remains exceptionally high by international standards.”
The report added: “Recent progress in restructuring of companies and banks and in sales of NPL portfolios are encouraging and should be further developed.”
There was recognition of recent legislative changes in order to speed up the process and banks selling of big chunks of their NPL portfolios but ERBD said action was not timely enough.
“NPLs are being tackled slowly. Despite the economic recovery in recent years, NPLs in Cyprus remain exceptionally high, at 44% of total exposures as of January 2018, only marginally below the level of a year earlier.”
EBRD also pointed out that targeted business environment reforms are needed.
“The authorities should focus on areas such as contract enforcement and permitting, where Cyprus continues to lag behind best practice in other EU countries.”
Although Cyprus is enjoying robust economic growth of 4% GDP, the report said, “significant downside risks remain to this forecast”.
It pointed to “the relatively undiversified nature of the economy and reliance on a few sectors and given the difficulties in reducing the burden of exceptionally high levels of NPLs on the financial sector, which are still around 40% of total loans.”
Also highlighted was the slow-down in reforms and the overall reform momentum, this mainly put down to the 2018 Presidential elections.
Concerned was voiced over “serious deficiencies” in the business environment, “notably in the areas of contract enforcement and dealing with construction permits, as illustrated by the country’s poor overall ranking (57th out of 190 countries) in the World Bank’s Doing Business 2019 report”.
On energy sector liberalisation, EBRD said the authorities are committed to liberalising electricity and gas markets by July 2019, “but progress to date has been slow, and the target may be missed”.
It said “a step forward occurred” in 2018 when a licence was given to F. E. First Electric Supply, the first independent power producer in Cyprus.
“This supplier would interact with producers and consumers of electricity based on bilateral contracts. Further licences are expected to be granted in the coming months. However, plans for full unbundling of the sector have been delayed.”
Cumulative EBRD investment in Cyprus is €312 mln, it is currently funding six projects on the island with a €189 million portfolio.
