18 Mar 2013 10:26am

Challenges for Cyprus' economic stability

The last few months have seen a period of turmoil for Cyprus, writes ICAEW's Sumita Shah

It has entered into a memorandum of understanding (MoU) with theTroika and needs to meet the terms of agreement, a precondition for obtaining the state financing package and obtaining a bailout. The presidential elections are now over and conservative, pro-bailout candidate, Nicos Anastassiades, has been elected president. He has some critical issues to address and he appears to be ready to address them head on.

According to European Union Economic Affairs and Euro Commissioner Olli Rehn, talking to German newspaper Speigal, Cyprus might be forced to leave the eurozone if it did not get a bailout. He has warned that "if Cyprus became bankrupt in a disorderly way, the result would be almost certainly an exit from the eurozone."

With this in mind and as part of a workshop organised by UK Trade & Investment , ICAEW has supported the Cyprus government in its application of one of the terms of the MOU, public private partnerships (PPPs).

At the workshop the minister of Finance, Vassos Shiarly, reiterated his commitment to implementing the MoU with Troika, and emphasised the importance of the two-day workshop as a demonstration of the commitment of the Cyprus government.

When ICAEW was first invited to contribute to the PPP framework, it was to be a technical workshop for civil servants. The workshop brief was to support the government in creating the legal and institutional framework for PPPs as agreed by the Cyprus government in the MoU with the Troika.

The workshop’s main focus was on people, processes and systems. ICAEW’s contribution was on the skills and capabilities required for successful PPP units and on the accounting for PPPs. We also facilitated a workshop on the second day to help the Cypriot team prepare a draft institutional framework for PPPs.

The workshop had the IMF and European Commission (two of the three members of Troika) joining in observer status. These observers raised the significance of the conversations. With Cyprus, entering into an austerity programme, the Troika’s remit was to ensure that any solutions reached by the Cypriot government would be efficient and workable within the overall investment strategy of the government.

Both days were characterised by robust conversations and reminders about the constraints facing the government. The conversations reflected the hot political debate of the moment: austerity vs growth and the best way to manage aspects of the Eurozone growth and paying down the debt. These conversations go to the heart of the challenge of public sector financial management.

While governments must decide public spending priorities, there will always be a wider context of what is affordable and of the limits to spending.

Getting PPP right will be an important part of the broader package to ensure that Cyprus’ public finances return to a sustainable position and Troika’s involvement in Cyprus will continue for some time. As Minister Vassos Shiarly said, "future generations of Cyprus will look back and remember who was there in their hour of need."

These are clearly difficult times for Cyprus and much needs to be done to retain stability. It appears to be doing all it can to get the help it needs.


Sumita Shah is regulatory policy manager of public sector at ICAEW