Cyprus’s remarkable revival from near-basket case four years ago to a flourishing economy that has rid itself of the legacy of a once-toxic banking system, is a model for any nation that finds itself in financial and economic dire straits. “The reason we are having this meeting here is to showcase a genuine success story,” said EBRD president Suma Chakrabarti. “And it really is a success story — one of recovery and return to growth. There is still a lot to do, but we have had a good start.”
The London-based development bank has invested €223m in six local projects since the country received recipient country status in May 2014. Capital was focused at first on the financial sector, the source of much of the woes during the 2012-2013 financial crisis, which stemmed from a banking system overleveraged to local property companies and contagion from the Greek sovereign debt crisis.
In its wake, the EBRD channelled capital into two local lenders, Hellenic Bank and Bank of Cyprus, making equity investments in both. In recent years, it has widened its approach, seeking to aid small businesses, boost inclusion and grow the island’s nascent renewables sector. This week, the bank unveiled a new, 1.5 megawatt solar power plant in Nisou, a market town south of Nicosia.
HIGH JOBLESS RATE
Looking ahead, EBRD officials said there was much cause to cheer, but also reason to guard against overconfidence. Libor Krkoska, head of the bank’s Cyprus office, said the island’s revival was due to a series of decisions, each carefully considered, planned, supervised, and followed to the letter.
“We focused on key issues, starting with recapitalising the banking system and putting in place a framework for dealing with non-performing loans [NPLs],” Krkoska said. “And we didn’t lose faith, even during those difficult early years. Who would have thought that three years on from our arrival here, no one would remember capital controls, or the effort involved in listing Bank of Cyprus on the London Stock Exchange?”
Krkoska reserved special praise for Harris Georgiades, who has been finance minister since 2013, and who was seen as crucial to steering Cyprus through the initial squalls, then setting it on an even keel.
Challenges remain. Unemployment is still north of 10%, with jobless rates particularly high among young people. Banks also face a long slog in dealing with a huge backlog of soured loans, with the NPL ratio standing at an eye-watering 45% at the end of 2016.
Then there is the issue of reunification, which seems to get closer every year without ever quite arriving. The EBRD will remain present on the island until the end of 2020. By then it is hoped that both sides can settle their differences and knock down the wall that divides Nicosia and the rest of the island. “Reunification is a must for the island,” said Krkoska. “It would help the economy, and it would improve regional stability.”