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Passports scheme could bring Dutch disease

Cyprus passports scheme could bring Dutch diseaseTHE FISCAL Council is warning that the passports-for-cash scheme could mean that some sectors of the economy could suffer while others grow, a phenomenon known as the Dutch disease.

In its Spring 2018 report, the Fiscal Council says that the current growth in sectors associated with big foreign investors could lead to the transfer of resources away from other productive sectors of the economy.

Investment hypes are short-lived

The council, which is charged with issuing public warnings to avoid a fiscal derailment in the future, said in its report dated May 30 that the citizenship programme in Cyprus is associated with foreign investment that is based on factors that could change later on.

Favourable external factors, loose monetary policy from the European Central Bank (ECB), and a number of investor programmes are expected to run their course and could be significantly limited according to the fiscal council.

The citizenship programme has come under fire, citing fears that real estate prices are driven up so much that it could create a bubble down the line

The report also includes a warning of an imminent Dutch disease, where some sectors of the economy end up suffering due to high administrative and operating costs while others grow.

The citizenship programme has come under fire from critics in Europe but also some circles on the island, citing fears that real estate prices are driven up so much that it could create a bubble down the line.

While the programme is designed to draw in millions in investment and development money in exchange for citizenship to individuals who make a lasting business commitment to the island, many reports from local and foreign media have pointed out a major loophole which allows investors to give up their business interests in Cyprus years later but still keep their EU-wide passports.

The fiscal council is concerned that the reform momentum may have been diminished during a time of positive growth, warning that it is better to do the hard work now rather than waiting for a crisis to force reform upon a fragile economy.

“Reforms should be an ongoing process that would cover all sectors of the economy,” said a statement by the fiscal council.

Source: Knews

Further reading

Cyprus Fiscal Council Spring Report 2018