Cyprus is lifting all capital controls

Cyprus is lifting all capital restrictions on Monday that were imposed on the island two years ago when the economy reached a melting point and international lenders offered a €10 bln bailout plan, conditional to rebuilding the over-borrowed banking system and reforming the public sector.

“The full lifting of capital controls marks the full restoration of confidence in our banking system and the stabilisation of the economy,” President Nicos Anastasiades said on Friday, announcing a series of measures that aim to boost growth and create new jobs.

He said that Cyprus was now on “a course of total reversal of an unprecedented crisis we were called to deal with. We managed to avert total collapse and restore the international credibility of our country, to stabilise our banking system and … to exit from the memorandum”, signed with the Troika of international lenders. He added that “indications suggest that we may not need all €10 bln from the memorandum and some of this money may be better utilised as low-cost finance to fund development projects.

The President announced six key measures to revive the economy. These include lifting all restriction on capital transfers, launching public development projects and infrastructure worth €280 mln, fast-tracking European Investment Bank lending, incentives to boost jobs, incentives to boost the construction and tourism sectors, and speeding up and transparency of the tenders process for public contracts, with harsh sanctions for those who break the rules. Anastasiades said the Cabinet decided on Thursday to speed up development projects worth €200 mln within 2015 in the areas of environmental and town planning, sewerage and infrastructure, and road improvements.

A further €80 mln will be used on mature projects such as upgrading of hospitals and building new health centres, construction and upgrading of schools, and improving the tourist infrastructure and road networks, with all projects expected to get underway by the autumn. As regards EIB funds, Anastasiades said that the a government guarantee will allow the second phase of the University of Cyprus campus to get underway at a cost of €162 mln for new facilities and laboratories, as well as a solar park that will make the campus self-sufficient on energy.

He said that the Cabinet also approved a series of nine subsidy schemes for employment, gaining of work experience and training of the unemployed at a cost of €58 mln. Last year, he added, four similar programmes were implemented that gave jobs to 6,200 people and that this year that number may be exceeded. As regards extending Sunday shopping hours, the President said that his administration actively supported liberalising the retail sector and as a result, some 7-7,500 were employed, albeit on a part-time basis. He said the financing for all the measures will come from the €400 mln budget surplus recorded in 2014 and European funds. The Council of Ministers also decided to boost private investments by extending the period for town planning incentives, introduced in April 2013, especially in the construction and tourist industries. Answering questions from the press, Anastasiades said that the prospect of converting the Bank of Cyprus emergency liquidity assistance (ELA) owed to European banking authorities into long-term bonds, was raised twice with the European Central Bank. “This is a sensitive matter which cannot be discussed in public, nor is it allowed (by ECB regulation). On the other hand, ELA does not prevent dependent banks from moving ahead,” he said. In its annual report for 2014, Bank of Cyprus said ELA had been reduced to €7.4 bln and direct ECB funding to €880 mln, while by March 31 this year, ELA and ECB funding were further reduced to €6.9 bln and €800 mln, respectively. As regards tapping into European Commission chief Jean Claude Juncker’s €300 bln growth budget, the President said that the Finance Ministry, CIPA and the chamber of commerce KEVE are working to identify large and mature projects to offer to foreign investors.

Avoiding to give a projection for growth rates, Anastasiades said the announced measures aim to boost prosperity of the general public and in turn the general numbers. He said that with confidence returning, and yields on government bonds now below 4%, the government may return to the international markets soon after April 17, when parliament is expected to finally approve the long-overdue framework on foreclosures and insolvencies, while securing primary homes in cases where mortgage holders are bankrupt.

As regards hydrocarbons exploration, Anastasiades denied that the national ‘energy plan’ was put on hold. “They continue. Noble Energy said it will announce its commercial plans, we have renewed our contract with Total and ENI is readjusting its programme due to technical reasons after two failed drills.” “But all oil majors are currently revising their plans due to the falling crude prices and in effort to cut back on exploration spending.” On the issue of re-establishing a national carrier, Anastasiades said that “if there is no interest, the government cannot establish another company. What we should think about is how we handled the bankruptcy of our state carrier which cost taxpayers hundreds of millions in losses.”