Posts by fionamullensapienta

28 February 2019 Executive Summary Sapienta Country Analysis Cyprus

Overview 28 February 2019 Political analysis and outlook. There has been modest progress on issues relating to the Cyprus problem, probably owing to pressure from the UN Security Council. However, there are signs that a fundamental re-think of settlement design is under way, with ideas ranging from a decentralized federation, to two separate states within the EU, possibly combined with a “step by step” approach to reunification.   Structural reforms and natural gas. ExxonMobil’s discovery of an estimated 5 to 8 tcf of natural gas in Block 10 is reasonably large but not enough to be a game-changer in the region.  Meanwhile, Turkey’s foreign minister has said that Turkey still intends to drill close to Cyprus. Parliament is due to vote on a narrowed down version of the hydrocarbons fund law. The government has made changes to the citizenship by investment scheme after criticism from abroad. The new GESY healthcare system will start on time but will have teething problems. Fiscal performance and forecast. Cyprus has issued its first-ever 15-year international bond, of €1bn at a yield of 2.758%, and will use the proceeds to repay older debt. Available data suggest that there was a budget surplus in January. We expect new social insurance and healthcare payments will boost revenue in the short term. In northern Cyprus, a number of initiatives are under way to modernize the electricity production and supply system. Banking sector. Bank of Cyprus has found a resolution to the “Helix” deal to sell €2.8bn in mainly non-performing loans. It will comfortably meet regulatory capital requirements. Hellenic Bank’s €150m capital increase to fund its acquisition of the most of “good” part of the Cyprus Cooperative Bank (CCB) is due to be completed on 18 March. Data show that new loans have been declining. Macroeconomic trends and forecast. Fourth-quarter figures suggest an annual real GDP growth rate of 3.9% in 2018. External demand seems to be behind the uptick in the fourth quarter, as other sectors have been slowing and inflation may have been eating away at real earnings. The current-account deficit narrowed in January-September and foreign real estate investment rose. Northern Cyprus inflation picked up again in...

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21 December 2018 Executive Summary Sapienta Country Analysis Cyprus

Overview 21 December 2018 Political analysis and outlook. We do not expect negotiations to solve the Cyprus problem to resume before September/October 2019 at the earliest, which increases the risk of them failing. A two-state solution, which might be the desired end-game for some parties, would be unlikely to gain Turkish Cypriot assent, as it would leave them out of EU structures. Meanwhile, regional dynamics are changing in ways that bring both opportunities and risks. Structural reforms and natural gas. An inter-state agreement with Cyprus, Greece and Israel marks the first step in the proposed East Med pipeline but the economic challenges to building it remain extremely high. Paediatricians say they will not take part in the new National Health System (GESY). The government is making another attempt at local government reform and has the support of the opposition Democratic Party (DIKO). Fiscal performance and forecast. New data confirm €1.9bn in debt repayments due in both 2019 and 2020 but the government already has enough cash to meet all of its obligations in 2019. Parliament has passed the 2019 budget, providing for a general government budget surplus of 3% of GDP and a primary surplus of 5.5% of GDP. We expect the debt/GDP ratio to drop below 80% of GDP in 2022. Banking sector. Hellenic Bank’s results show that its balance sheet grew by €9.2bn as a result of absorbing most of the “good” part of the Cyprus Cooperative Bank (co-op). Its loan market share is now 21%. The bank’s exposure to household loans has increased in absolute terms but its non-performing exposure (NPE) ratio has declined. The ESTIA state subsidy scheme for qualifying non-performing loans (NPLs) will be rolled out in 2019. Macroeconomic trends and forecast. The third-quarter real GDP growth rate was revised up slightly but growth slowed overall, as the deceleration in household consumption was only partly offset by investment in construction. Employment continues to expand but has come off its peak. We expect real GDP growth of 2.8% in 2019, after an estimated 3.8% in 2018. In northern Cyprus, inflation and tourism arrivals from Turkey have benefited from an appreciation of the Turkish...

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30 November 2018 Executive Summary Sapienta Country Analysis Cyprus

The following is a shortened version of the executive summary in the subscription product. Contact us for a free trial. POLITICAL ANALYSIS AND OUTLOOK: There are few indications that negotiations to solve the Cyprus problem will resume in the coming weeks or months. Questions are being raised about any form of settlement that involves power-sharing and incentives to get started are weak. Early natural gas drilling results could change dynamics but we believe that some Greek Cypriot players may want to bolster geopolitical partnerships first before coming to any deals. STRUCTURAL REFORMS AND NATURAL GAS: Preliminary results of Exxon’s first well in Block 10 could be known in the first few days of January and Turkey still intends to drill in the Republic of Cyprus Exclusive Economic Zone (EEZ). Political agreements have reportedly been made on the East Med pipeline, although costs and schedules are highly ambitious. Private hospitals and doctors continue to raise concerns about the forthcoming National Health System (GESY). FISCAL PERFORMANCE AND FORECAST: Cyprus will undergo another EU in-depth review in 2019, partly owing to the impact on statistics of special purpose entities (SPEs), but we expect the outcome to show an improvement relative to 2018. Revenue growth remains high but has been slowing. The debt/GDP ratio should drop back below 100% of GDP in 2019. BANKING SECTOR: Bank of Cyprus reported a small profit in the third quarter and does not appear to need any equity capital in the short term. The bank expects to see a significant reduction in non-performing exposures (NPEs) after the Helix loan-sale is finalized. Parliamentarians are pushing for state support for even performing loans, which could prevent an increase in already high housing NPEs. Non-performing loans (NPLs) in the Turkish Cypriot banking system remain low but continue to rise in absolute terms. MACROECONOMIC TRENDS AND FORECAST: Real GDP slowed slightly in the third quarter partly owing to tourism and retail sales. The current-account deficit narrowed in January-June largely owing to strong re-exports, while available data suggest that foreign direct investment in real estate rose in the same period. We have kept our real GDP forecast unchanged at 3.8% in 2018 and 2.6% in 2019. The weak lira has hit tourism and inflation in northern Cyprus. For more information about Sapienta Country Analysis Cyprus and a sample visit...

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