Bailout-imposed reform policies for structural changes in various government sectors may be a cause for concern in light of the Troika’s second visit to review the island’s economy.
Based on the terms of the current bailout programme, large structural changes to the civil service, the consolidation of tax services, privatisations and benefit cuts are lagging behind and may contribute to a negative evaluation.
According to the Finance Ministry, the reform of the civil service is being prepared as a study by the World Bank and experts from the UK’s National School of Government is near completion.
The study will look to modernise the civil service and cover issues related to staff management, including among others the state payroll, the evaluation system and mobility of civil servants.
According to the Statistical Service, in June, 49,942 people were employed in the public sector, education service, security forces and part-time staff.
The wider public sector including NGOs, local authorities, as well as government-controlled companies and businesses employed a total of 59,708 people at the end of March.
The consolidation of tax services to create a unified taxation authority including VAT, Inland Revenue and Customs, is expected to improve the collectability and auditing of taxes, both in terms of the taxpayers and between services, but has yet to be implemented.
Meanwhile, strategies for the privatisation of semi-government bodies Electricity Authority Cyprus (EAC), Cyprus Telecommunications Authority (CyTA) and the Port Authority are currently under review by Pricewatershouse Coopers (PwC), while the outcome is expected to determine the government’s next step in completing another Troika demand.
According to the adjustment programme, privatising the three semi-government services is expected to bring €1 billion in state revenue.
In terms of restructuring the state’s benefits policy, Labour Minister Zeta Emilianidou announced that a Guaranteed Minimum Income policy will be implemented that will take into consideration the needs of every citizen and household including nutrition, clothing, consumption of electricity and other indispensable items.
According to Emilianidou, the ministry’s proposal is currently being examined by the social partners and the reform policy will be underway as soon as the procedure has been completed. Despite delays in the reform of the public sector, other chapters of the Cypriot economy including the restructuring of the banks and state finances appear to have improved since the Troika’s first evaluation in July. Bank of Cyprus has been completely recapitalised and handed over to its new shareholders who have selected the bank’s board of directors, led by its new CEO Irish banker John Patrick Hourican.
A draft of the bank’s restructuring plan has already been extensively discussed with the Troika and Central Bank officials and is expected to receive approval from the BoC board this week.
BoC has also posted its financial results for 2012 and has announced that its half yearly results for 2013 will be issued in late November.
The co-operative banking has also gone ahead with its restructuring plan and a new board of directors has been approved. In terms of the co-ops supervision, 18 persons have been transferred from the co-operative supervisory authority to the Central Bank to man the new department.
Progress has also been achieved in terms of the co-op mergers, with the latest merger including 16 local branches merging into the Paphos branch over the three-day holiday weekend.
Hellenic Bank will attempt to recapitalise with private funds and its needs will be covered either by issuing new shares for current shareholders or by voluntary conversion of bonds and securities into stock.
Furthermore, no surprises are expected in the Troika’s evaluation of public finances, as figures are said to be better than anticipated, while the 2014 budget which includes cuts reaching €626 million and new measures are currently being examined by the House Finance Committee that has already received the Troika’s approval.
Finance Minister Haris Georgiades has pointed out however that the government is open to a new redistribution of expenses and that any suggestions for further savings are welcome.