1 week Ago
I read with interest, and eventual dismay, the Easter article of President Nikos Christodoulides in Kathimerini newspaper where he enthused about his recent visit to the US and the miracle investments that are going to descend on Cyprus following the government’s efforts. I have been listening to these foreign investment arguments for over 40 years. How Cyprus’ attractions at the crossroads of three continents, its highly educated workforce, its great telecommunications infrastructure and attractive tax regime, blah, blah, blah, would somehow transform Cyprus into the Singapore of the Middle East.
The arguments have been used extensively by successive governments, and results have been modest at best. The picture that Christodoulides was painting, however, was one where all is rosy in Cyprus’ economy and the patches he was offering would be enough to drive the country onto a path of sustained growth and prosperity. Nothing is unfortunately further from the truth.
Unless fundamental reforms are made, the Cyprus economy will not suddenly become another Singapore but more likely will stagnate and eventually deteriorate. The recent IMF report on the health of the Cyprus economy raises some of these concerns. Again, predictably, Christodoulides, in his public commentary, portrayed the report as a vindication of his government policies.
Can we honestly expect our politicians to express the true picture on any issue, I wonder? He based this on the downward trajectory of the debt to GDP ratio, which is moving towards the 60 per cent mark in what appears to be the IMF’s recommended target. I have written before why concentrating on this ratio is not a good indicator of economic soundness. As the LSE economics professor Charles Goodhart explained, in what has now become known as Goodhart’s Law, “When a measure becomes a target, it ceases to be a good measure.
”For one thing, the ratio has improved not because of control over government expenditure, but rather due to the growth of GDP (among the highest in Europe) which itself was based on the growth of tourist arrivals as opposed to the decline of the industrial sector other European countries rely upon. Whereas the international growth in tourism is something that the government has little control over, state expenditures are more dependent on the government’s own actions. The public sector wage bill needs close attention, and the IMF has warned that this should be contained.
The reality is that the public sector’s share of the economy, as opposed to the wealth producing private sector, is too big to give confidence that future prospects for Cyprus are going to be positive. I reflected on how the government can become more effective in another article, saying that reforming how the government works is a painstaking and ongoing process. This requires vision, boldness and a willingness to take risks, something that I fear is outside President Christodoulides’ DNA.
He has been a career government employee all his working life. An effective government needs to have departments that work more like profit or service centres with authority over their budgets, recruiting and, yes, firing flexibility. More power should be devolved to independent institutions, where staffing should be made on merit rather than political patronage.
In this respect the conflict of interest that impinges on this independence in one of the key institutions serving the judicial sector, that of the attorney-general, has not yet been resolved. Although the government has appointed a committee of experts which was supposed to hand in its report by the end of 2024, nothing has been seen in the public domain. If we needed reminding why the independence of the attorney-general is so important, this was driven home recently, when the European Court of Human Rights asked for the files of the 2012 fatal traffic accident in Mouttagiaka where there was an alleged government cover-up.
One of the IMF report’s key recommendations was the need for structural reforms aimed at improving the efficiency of the judiciary. A key aspect that companies from abroad are looking for in making inward direct investment is the ability for a speedy and fair resolution of disputes that arise. This is the type of reform that would indeed make a difference as opposed to marketing trips abroad serving old recipes.
It would be some sort of consolation if President Christodoulides’ arguments in Kathimerini were just an attempt to boost his profile as he sets out a strategy for his re-election in 2028. What I am afraid of, however, is that it is not just to boost his public image. He actually believes the things he is saying.
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