Mass Bankruptcies Threaten Amid COVID-19 Pandemic – Finance Minister

First published on CyprusBusinessReport.com

Mass bankruptcies and unemployment as high as 15 to 20 percent threaten the economy if there is a third wave of COVID-19 without the financial resources to manage it, said Finance Minister Constantinos Petrides.

So far, good financial management has staved off the worse consequences of the pandemic, but if there’s a third wave, there’s no telling what might happen, according to the minister’s comments.

The minister commented after a meeting with the House of Representatives Finance Committee and warned of headwinds if the new budget isn’t passed in the second attempt. The amended budget includes additional support measures for businesses and will be submitted in the next few days, he said.

The last annual budget was blocked in the House of Representatives, not least because of sour grapes between DIKO and President Anastasiades over an investigation into the state’s golden passports investment scheme.

If the bill fails the second vote, the state could be blocked from borrowing from the international markets as planned and businesses will not get the support they need.

Access to the international lending markets

The government’s most important weapon to fight an economic downturn is the ability to sell its bonds to the international markets, said the minister.

To do that, Cyprus’ fiscal position needs to be credible, meaning that mass bankruptcies would damage the island’s ability to borrow from international lenders. Already, ratings agency Moodys mentioned that there the pandemic threatens Cyprus’ fiscal position.

Non-performing loans

To help its credibility, the state is also trying to reduce non-performing loans inherited from the 2013 crash and epic collapses of Marfin Popular Bank and the Co-operative Bank.

An analysis of the borrowers who applied to the government’s ESTIA housing loan programme shows that 10 to 15 percent of them are unviable and are on such low incomes that they would be eligible for state aid, said Mr. Petrides.

Another category of borrowers become viable with a loan reduction from the bank and an increased contribution from the government. A third category of borrowers become viable with an increased reduction of the loan from the banking sector, he said.

The truly vulnerable group of borrowers will not be abandoned by the state, said the minister.

COVID vaccinations

The COVID vaccination programme is a bright spot but a lot depends on how long it takes to reach 70 percent of the population and hopefully, mass immunity, said the minister.

If the Treasury is blocked from international lending markets for too long, the only alternatives are a loan from the IMF or massive state assistance from the EU.