Towards Sustainable Growth (Rebuilding the Foundations of the Cyprus Economy)
John Deutsch International Development Discussion Paper, Queen's University, DDP 2016-07
27 Pages Posted: 26 May 2016 Last revised: 8 Dec 2016
Date Written: May 23, 2016
Following the severe financial crisis of 2012/2013 and the subsequent contraction of the Cyprus economy, the authors consider the policies and institutional changes required to regenerate economic growth. It is argued that the crisis emanated largely from the wasteful use of investable funds both in the private and public sectors. The authors contend that only a substantial trend increase in quality public and private investments can produce the sustained economic growth necessary to alleviate the very high levels of unemployment and non-performing loans currently afflicting the economy.
Subsequent to an analysis of the factors affecting investment performance, policies are proposed for raising productive investments. These should focus on building a capability to source funds and competently appraise and select investment projects, and also to restructure debt-laden, but potentially profitable enterprises. It is proposed that an institution with expertise in project financing, such as a National Development Finance Agency, be established to disentangle the complex web of the outstanding loans of enterprises and ascertain their viability and repayment capability. Furthermore, through a conversion of debt to equity and by attracting new funds this institution should facilitate potentially viable enterprises to undertake investments. In addition the institution should play a key role in the appraisal and financing of major developmental public sector projects and Public Private Partnerships.
Keywords: Investment-led growth, institutional capability, project evaluation, public comparator analysis, corporate lending, credit risk
JEL Classification: D61, G17, G21, G32, G33, H43
Suggested Citation: Suggested Citation