The global pandemic of COVID-19 has left no country unaffected, with a second wave currently sweeping through Europe. Since its arrival on the island in March 2020, the Cypriot government closely monitored the situation and acted swiftly. Early lockdown measures and widespread testing were effective in flattening out the initial infection curve, providing valuable reaction time to better equip and organise the healthcare system with medical resources and staff. The government’s response subsequently shifted from containment of the virus, which had brought the economy to almost a virtual standstill, to a re-opening of the economy with reinforced protection. To this effect, various measures, plans and schemes were enforced by the government in order to support the economy, its citizens, and workers from the severe impact of the pandemic.
As part of a budgetary policy response in the wake of COVID-19, Cyprus introduced its “Stability Programme 2020–2023”. The aim of the Programme has been to provide emergency relief and support the Cyprus economy under the present exceptional economic crisis that has arisen as a result of the pandemic. One of the measures introduced by the Stability Programme was the suspension of loan instalments for enhancing liquidity, enabling a payment moratorium for nine months to apply to credit-worthy borrowers that have been affected by the restrictive measures imposed by the authorities.
These temporary measures are applicable for a period from 30 March 2020 to 31 December 2020. The moratorium covers capital, interest and compound interest payments, and both physical and legal entities are eligible.
Liquidity Aid Measures
In addition to the above in May 2020, the Cyprus government announced further stimulus measures to "jump-start” the Cypriot economy, impacted by the COVID-19 pandemic, with major input from the European Investment Bank (“EIB”), in the form of loans worth approximately EUR 1.2 billion, along with interest rate subsidies for businesses and housing loans. By utilising the tools provided by the European Union and European financial institutions, the Cyprus government introduced various liquidity aid measures, as follows:
Pan-European Guarantee Fund
By participating in the Pan-European Guarantee Fund (established to tackle the adverse economic consequences of the pandemic), and in return for a contribution of EUR32.5 million, Cyprus expects to be allocated EURO 300-400 million of direct guarantees from the Fund for the needs of businesses. The Fund will guarantee up to 80% of the bank’s indebtedness to small- and medium-sized enterprises employing up to 3,000 people, 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 that were viable before the onset of COVID-19.
The government will provide an additional EUR 500 million of state guarantees to the EIB, which will, in turn, advance loans at more favourable interest rates to businesses in the small- and medium-sized enterprise sector.
The Cyprus Entrepreneurship Fund
The Cyprus Entrepreneurship Fund will be expanded by EURO 800 million. Businesses with a maximum of 250 staff will be eligible to apply for a maximum loan of EURO 1.5 million, repayable over a period of up to 12 years at interest rates currently ranging from 2.55% to 4.5%, depending on the perceived risk of the loan. The Cyprus government will fund 50% of the new money via a loan from the EIB, with local lenders providing matching funding with a 50/50 split of the risk between the parties.
Scheme to Subsidise New Loan Interest Rates
A scheme that will subsidise interest rates for new loans taken out between 1st March 2020 and 12th December 2020 provided that the maximum interest rate for such loans does not exceed 4.25%. The subsidy will run for four years and cover loans taken out between 1st March 2020 and 12th December 2020, provided that the maximum interest rate on them does not exceed 4.25%. All previously viable businesses adversely impacted by 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 for the purposes of restructuring a business.
Aside from the aforementioned measures, and in order to further aid business liquidity, numerous tax and other measures were implemented, providing temporary suspensions of the duty to pay VAT (without any penalties) for February, March and April 2020, until November 2020, and an extension for the submission of tax returns and the settlement of overdue tax liabilities. Relief from import duties and VAT on imports of goods needed, from the European Commission to combat the effects of COVID-19 for the first seven months of 2020, was introduced as a further measure.
Extensions of two months were provided for the settlement of overdue contributions to social-insurance-related funds.
The increase in special contributions regarding the General healthcare system (GESY) was suspended for the period of three months, applicable from April–June 2020.
Business Suspension of Operations Schemes
Certain business and other emergency measures were quickly introduced to alleviate hardship in households, to support businesses and to prevent termination of employees’ employment.
Among these was the payment of unemployment benefits to employees under the plans for the Complete or Partial Suspension of Business operations. This was an extremely useful measure, as business employers were encouraged to retain their employees during the lockdown period between March–May and thereafter, and to participate in these schemes, under which the employees received a percentage of their salary ranging from 60% for partial suspension, to 90% for complete suspension of business operations (in the form of a state benefit). During this period for which Special Unemployment Allowance was paid, the employer’s duty to pay the salaries was waived with regards to employees who received the allowance. A business employer could participate in the Special Complete Suspension Scheme, subject to it not carrying on any business other than the administrative work of the business while the entire business was required to suspend activity, provided by the decrees of the related Ministries and decisions taken by the Council of Ministers and in addition that the business’s nature was not altered. A business employer could participate in the Special Partial Suspension Scheme, provided its operations were partially suspended due to its turnover decreasing by more than 25% in March 2020 until April 2020, in comparison to the previous corresponding period and such decline in turnover was caused solely by COVID-19.
One of the essential conditions to enable participation in the Scheme was the pre-requisite that no employee had been dismissed from 1st March 2020, and once approved to participate in the scheme, no employee could be dismissed for the duration of business participation in the scheme and for an additional period equal to the period of participation – plus an additional month, except for reasons justifying dismissal without notice. Hence, participating businesses were unable to dismiss employees for financial reasons during this period.
Other measures included special sickness benefits, special leave for the care of children, and amendments to the Statutory Tenants Law to suspend eviction of tenants until the end of May 2020.
In summary, the Cypriot government took immediate measures to combat and contain the effects of the pandemic, and has continued to take measures to restart much of the social and economic activity which came to a standstill in the past months, as well as to support the economy through these challenging times. How substantial and effective these measures will be to relieve and reverse the socioeconomic impact of the pandemic, especially in light of the inevitable domino effect of other world economies and how they fare from the crisis, remains to be seen.