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It is with great pleasure that I am attending today the 55th Ordinary Pancyprian Congress of the Union of Cyprus Banking Employees (UBC). My presence here and that of the Ministers is an indication of the importance I attach to the banking sector in general, and in this context, and to all of you who are an important pillar of service delivery for the country.
Our economy, like the banking sector, has recovered and shown resilience in recent years in a very difficult international environment, facing unprecedented challenges such as the pandemic, as well as the ongoing war in Ukraine, with all the attendant consequences we are experiencing.
Despite these difficult conditions, it is a fact that the performance of our economy has demonstrated its resilience, and in the medium term it is expected to continue to show positive growth rates, despite the expected slowdown, mainly due to exogenous factors. Public finances are expected to remain on a sustainable path, while high inflation remains a challenge, although it has started to gradually ease.
One of the measures we have adopted, which we promised during the election campaign to mitigate the impact of high inflation, is the agreement in principle on the Automatic Price Indexation, including the conclusion of discussions to ensure the sustainability of the institution. This positive development, which satisfies neither you nor the employers' side, is a good example of what happens when there is a sincere willingness - and it is something we credit the social partners for the responsibility shown over time. You mentioned earlier your initiatives when things were very difficult in 2013, which unfortunately were not listened to by the executive. But it proves that this agreement, which was one of the objectives that we had in the first 100 days of our government, that, despite significant disagreements, we can reach agreements if these disagreements are put aside and there is a willingness to move forward. That is why I want to take this opportunity today to thank you for the responsibility your Guild has shown.
Another measure that we implemented in the first 100 days of government was the amendment of the Social Security Act to correct an injustice - when I was here during the election campaign I promised it, we did it in the first 100 days - that had been created and to grant unemployment benefits to workers who left their jobs under voluntary separation plans.
The Government is also looking, and I believe we are close to a solution, at the issue of clipped funds, and I have instructed the Minister of Finance and the Minister of State for Research, Innovation and Digital Policy to activate the Solidarity Fund immediately, and the annual state contribution to the Fund will be increased, and you will see this in the budget submission, as I promised again during the election.
In addition to the current challenges, it is important to look ahead and define a long-term development strategy, taking into account, among other things, the ever-changing shape of globalisation and the geopolitical landscape, the challenges and impacts of digitalisation, climate change and population ageing on the economic growth model. The issue of population ageing is of great concern to us, we are currently at 1.3%, we need 2.1% to be able to replenish the population at 25 years. You understand what a huge challenge it is for us where we need to look at it from today so that we do not expect to reach a negative development. In particular, with regard to the ever accelerating developments in the dual transition, digital and green, which present serious challenges but also opportunities, we need to ensure that Cypriot businesses and their employees not only survive but can grow even more and create new jobs.
In this environment, banks have a key role to play, showing adaptability on the one hand, and at the same time being partners Cooperation between us will lead to results that benefit us all if this cooperation is strengthened. And you understand that in a partnership, in a consultation, in a negotiation, none of us can take everything. Negotiation leads to a compromise, as long as we all look in the same direction, if the economy is doing well, the banks are doing well, the workers in the banks are doing well and so on.
It is in this context that our philosophy, in terms of the economic governance of the country, aims precisely at strengthening the competitiveness and resilience of the Cypriot economy, on the basis of the implementation of a specific governance programme and in the context of an integrated vision for a new and modern model of development.
Within this framework, our philosophy, in terms of the economic governance of the country, aims precisely at strengthening the competitiveness and resilience of the Cypriot economy, on the basis of the implementation of a specific governance programme and in the context of an integrated vision for a new and modern model of development. It is on the basis of what we are working on, on the basis of our governance programme, and what we have promised to Cypriot society we approach as our contract with the people.
This vision, which has a strong people-centred character, aims at creating the necessary conditions for the growth and expansion of Cypriot businesses, increasing trade and employment, attracting more quality investment and talent from abroad and upgrading our domestic human capital, which is our most important wealth and advantage we have as a country.
This new vision is being implemented on the basis of the Long-Term Strategy for the Sustainable Development of Cyprus "Vision 2035". A strategy which is in full alignment with the National Recovery and Resilience Plan. I have a strong conviction, I said it during the election campaign and I say it now, that the vision for the economy should not be influenced through electoral cycles.
One of our key priorities, too, is the establishment of a Business Development Agency to address funding gaps in the economy by facilitating access to finance for SMEs, particularly in priority areas for the Government, and to support the Government's overall economic policies. The Business Development Agency is a flagship project in our efforts to promote economic growth in the country, and the successful development of its future activities depends to a large extent on close cooperation with local commercial banks.
Important reforms include the further promotion of financial literacy. I remember during the election campaign when we raised this issue there were some spoilers disparaging the importance of financial literacy. On the contrary, in our case we want to help. I had a meeting with the Governor of the Central Bank specifically on this issue and we will promote actions in the coming period to promote financial literacy and financial education and in the long run it will benefit all the citizens of Cyprus as it will educate them on basic financial issues and better management of both the family and corporate budget.
It is a fact that Cypriot banks have recorded remarkable progress in relation to non-performing loans, in particular in the area of financial literacy and financial education. This rate, however, is still higher than the EU average of 1.8%, indicating that efforts should continue to further reduce it. On the other hand, high inflation combined with rising interest rates is expected to reduce the disposable income of borrowers, which may lead to difficulties in repaying their loans.
It is for this reason that we as Government have called on the banks, at this economic juncture, to absorb part of the increase in lending rates, which will have minimal impact on the banks themselves and I am sure there will be a response
At the same time and taking advantage of my presence here today, I would like to call on banks to follow restructuring procedures where and when they can be implemented, giving special priority to our vulnerable compatriots.
Recent banking developments in America and Switzerland remind us of the need for continued vigilance. I note, however, with great satisfaction, the fact that our banking sector has successfully coped with the shocks of these recent events.
On the issue of corruption, particularly the image of our country abroad, it is something on which we must all work together to reverse the negative image. It is for this reason that the Government from the very first moment reacted in the specific way that it reacted to the issue of the American and British sanctions that were announced. We will not allow a very small minority of people in our country to tarnish a name that was built through many efforts and after many years. An action plan has already been launched by the Government to improve the name of our country and I am here to use our economic diplomacy strategy, to use our Diplomatic Missions, and it is a matter of concern to us.
More generally, as an open economy we are inevitably affected by regional and international developments, but the size of our economy and its inherent resilience allows us to recover under difficult circumstances. Above all, of course, we as a State must closely monitor developments and intervene promptly and effectively where and when necessary to avoid storms. The most important thing is to prevent them and not to run firefighting in storms.
I wish you every success in the work of your conference.
(PM/NG)
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