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

See all articles by Leslie Manison

Leslie Manison

Independent

Savvakis C. Savvides

Queen's University - John Deutsch Institute for the Study of Economic Policy

Date Written: May 23, 2016

Abstract

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

Manison, Leslie and Savvides, Savvakis C., Towards Sustainable Growth (Rebuilding the Foundations of the Cyprus Economy) (May 23, 2016). John Deutsch International Development Discussion Paper, Queen's University, DDP 2016-07, Available at SSRN: https://ssrn.com/abstract=2784802 or http://dx.doi.org/10.2139/ssrn.2784802

Savvakis C. Savvides

Queen's University - John Deutsch Institute for the Study of Economic Policy ( email )

Canada

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