Cyprus government announces measures to ‘jump start’ the economy following Covid 19 ‘lockdown’.

Following the apparent success of the Cyprus Government’s strategy to contain the spread of the Covid 19 virus, attention has now been turned to mitigating, and reversing, the economic damage caused to the island by the pandemic and its associated containment measures.  On Wednesday 27th May President Nicos Anastasiades addressed the nation to announce a raft of proposals designed to restart and revitalise the economy. The proposals were further clarified the following day by Finance Minister Constantinos Petrides who expressed confidence that the gradual easing of Covid 19 related restrictions within Cyprus, coupled with this second stimulus package, would enable the country to quickly regain ‘lost ground’ and return to a position of economic growth.

Named ‘Plan B’, the measures announced have five main strands as follows:

  1. Improving the liquidity of both businesses and the self-employed
  2. Stimulating new investment
  3. Accelerating existing development projects
  4. Boosting the tourism market
  5. Strengthening the agricultural sector

Liquidity and investment

Many of the measures announced will have an impact on both of these goals.  The most significant are as outlined below:

  • Cyprus will be participating in the Pan-European Guarantee Fund, which, will be specifically set up to tackle the adverse economic consequences of the pandemic. In return for a contribution of EURO 32.5 m, Cyprus expects to be allocated EURO 3-400m of direct guarantees for the needs of businesses.  The guarantees will apply to 80% of a business’ bank indebtedness and include businesses with up to 3,000 employees, with the caveat that they must not have laid off staff during the ‘lockdown’ period.  The guarantees are intended to encourage the banks to cover working capital shortfalls for businesses which were viable before the onset of Covid 19.
  • The government will provide an additional EURO 500 m of state guarantees to the European Investment Bank (EIB) which will, in turn, advance loans at lower interest rates to businesses in the SME sector. The loans will have a maximum term of 12 years. This is an extension of an existing successful scheme which has been in operation since 2014.  Beneficiaries must be companies registered and operating in Cyprus and may employ up to 3,000 people.
  • The Cyprus Entrepreneurship Fund, established in 2013 via a partnership between Cyprus and the EIB, will be expanded by EURO 800m. Businesses with a maximum of 250 staff will be eligible to apply for a maximum loan of EURO 1.5m repayable over a period of up to 12 years at interest rates currently ranging from 2.55% to 4.5%. The rate varies according to the perceived risk of the business venture.  The Cyprus government will fund 50% of the new money via a loan from the EIB with local lenders providing matching funding.  The risk will be evenly split between all parties.
  • A scheme which will subsidise interest rates for new loans. All previously viable businesses which have been adversely impacted because of the pandemic will be eligible to participate.  The loans may be used for the purpose of investment or, as working capital, but they cannot be used to repay existing indebtedness or to underpin a restructuring of a business.  They cannot be extended to companies which are considered ‘problematic’ as defined by the European Commission. There is no upper limit on the size of eligible loans, but the subsidy will only cover double the sum of the business annual payroll in 2019, or, one quarter of its annual turnover in the same year.  Additionally, the European Commission has stated that the total amount of subsidy given to any one business cannot exceed EURO 800,000.  The subsidy will run for four years and cover loans taken out between 1 March 2020 and 12 December 2020 provided that the maximum interest rate on them does not exceed 4.25%.  In years 1 and 2 for all businesses the subsidy will be 3.5 percentage points.  In years 3 and 4, for SMEs it will be 2 percentage points, and, for large businesses it will be 1.5 percentage points.
  • EURO 100m of grant aid will be made available in the form of direct grants to small businesses and the self-employed. This will apply to approximately 50,000 business entities with a maximum of 50 staff which partially or wholly suspended their activities as a result of ‘lockdown’ regulations and, which enrolled in the special assistance programmes of the Labour Ministry for the period 13 April 2020 to 12 May 2020.  The grant may be applied towards covering rental and operational costs.  The amount available varies as follows:

Number of staff employed

Grant (EURO)

1

1,250

2-5

3,000

6-9

4,000

10-50

6,000

 

  • To assist the housing market sector, the Cyprus government will subsidise interest rates for new housing loans taken out during the period 1 March 2020 and 31 December 2020. The subsidy will last 4 years and may be applied to loans of up to EURO 300,000 with a maximum interest rate of 2.3%.  The subsidy will be 1.5 percentage points of the rate.

Accelerating existing development projects

In a measure with distinctly Keynesian overtones the Council of Ministers will instruct all competent authorities to make immediate calls for tenders for all development projects based on the Presidents announcements, or, for other mature projects irrespective of their original scheduled timing.  Thus, development projects will be accelerated thereby promoting employment and consumer spending.

Boosting the tourist sector

The following measures were announced:

  • Euro 10 m will be used to fund campaigns promoting Cyprus as a ‘safe’ tourist destination.
  • Euro 6.3m is to be allocated, over a seven-month period, to subsidising airlines flying to Cyprus to encourage them to maintain routes in a period of probable reduction in demand. The subsidy will be applied to aircraft operating at between 40% and 70% of total capacity and will bring the total spend on this sector to EURO 15.7m by the year end.
  • For the period 1 July 2020 to 10 January 2021 the VAT rate applied to the tourism accommodation and catering sector will be reduced from 9% to 5%, thereby reducing the ‘end price’ to tourists and local consumers.

Strengthening the Agricultural sector

Recognising the importance of securing the island’s food supply it was confirmed, as previously announced by the Agriculture Minister, that EURO 22m will be allocated, in the form of grant aid, to supporting and boosting the agricultural sector of the economy.

In addition to the ‘headline’ measures outlined above, the deadline for the submission of corporate and self-employed tax returns has been extended to 31 October 2020 and late submission fees imposed this year will be written off.  The deadline for submission of supporting documents for the Estia borrower relief plan has been extended to 31 July 2020 and, new applicants will now be allowed up until 15 June 2020.  The impact of this is likely to be minimal.

The development of Plan B has been contentious, however, in its current format approximately 90% of it can be implemented without the need to obtain a confirmatory vote in the House of Representatives.  Importantly for the government too, it has been welcomed by the Cyprus Chamber of Commerce which, in reference to the plan stated, “It is rational and targeted and will certainly help restart the economy,”.  Following the recent European Commission announcement of proposals for a EURO 750 bn Covid 19 recovery fund for Europe, Cyprus can also hope for some external assistance.  There is certainly a clear message emanating both at national and at European level that whatever steps are necessary to put Cyprus and Europe back on the path of economic growth can and will be taken.

If you have any questions about these measures, or any other issues affecting you or your business as a result of the Covid 19 crisis, please contact our special taskforce at [email protected], or your usual contact at Elias Neocleous LLC.