Cyprus’ economy faces significant downside risks due to the coronavirus crisis, with tourism being impacted the most, according to a European Commission report released on Tuesday.
In its Summer 2020 Economic Forecast, the European Commission said that Cyprus’ tourism revenues are expected to be only 25 percent of last year’s level, which stood at 2.683 billion euros (3.03 billion U.S. dollars), according to the Statistical Service of Cyprus.
Tourists have started to trickle in since flights resumed in early June, but the real test for the recovery of the country’s tourism sector is expected after Aug. 1, when the British market — the largest source of tourists to Cyprus — will open.
The European Commission forecast said that as a further consequence of the drop in tourism, unemployment in the services sector is expected to significantly increase.
The European Commission projected Cyprus’ gross domestic product (GDP) to contract by 7.75 percent in 2020 and to expand by 5.25 percent in 2021.
The report noted that the impact of the crisis was somewhat mitigated by the government’s support program to businesses and households, which was reflected in a “robust increase in public consumption.”
Also on Tuesday, Finance Minister Constantinos Petrides said Cyprus has drawn one billion euros from the international markets by reopening its existing bonds to boost cash reserves and repay costlier debt.
Petrides said in a statement that 500 million euros were drawn from a bond maturing in 2024 at an interest rate of 0.34 percent. Bids for this bond totaled over two billion euros, he added.
Another 500 million euros were raised from a bond maturing in 2040 at an interest rate of 1.47 percent, with bids exceeding three billion euros.
Petrides noted that the increase in public debt will be temporary as existing debt will be repaid.
According to official figures, Cyprus’ general government debt jumped from 95.5 percent at the end of 2019 to 113 percent of GDP, totaling 24.56 billion euros in April. The Finance Ministry has borrowed money to finance the government’s support program to businesses and households aimed at mitigating the impact of the coronavirus pandemic. (1 euro = 1.13 U.S. dollars)