Key Challenges

False sense of
security a danger
The major challenges facing Cyprus today remain largely the same as those identified in the bailout agreement, though new predicaments are emerging. The government must be vigilant against a false sense of security provided by the economic recovery. Sustained growth is only possible if significant improvements in the overall environment are achieved. Declarations in favor of reform must be accompanied by a willingness to adopt policies based on sound regulation. For such policy actions to shield the country from another crisis, they must aim beyond solving the immediate economic crisis. Instead, they must address those deficiencies in the administration and beyond that caused the crisis as well as expand strategic planning at all levels. Close monitoring and continuous reassessment of policies is required. Deepening respect for democracy and enhancing fundamental democratic practices remain essential for the rule of law.
Reestablishing trust in economy is critical task
Within the financial sector, the government must solve long-standing challenges to reestablish trust in the economy and increase the country’s international competitiveness. Effectively settling the challenge of non-performing loans will require more measures than those taken in mid-2018. Clarifying policies on the privatization of quasi-governmental institutions also remains a necessity so that their eventual market valuation does not suffer from the current uncertainty.
Holistic environmental policies needed
In the interest of sustainability, the government must radically revise its social and environmental policies and, going forward, consider them holistically. A review of the persistently excessive emphasis on business and financial interests – which has led, among others, to the irregular granting of permits for the construction of skyscrapers – is urgently needed before the resulting environment destruction becomes irreparable. Environmental policies should shift to favoring broader social benefits. The development of reliable infrastructure by expanding public transportation and investment in renewable energy sources would benefit the economy, the environment, and society. The current economic recovery relies excessively on business-cycle-dependent sectors (e.g., tourism and construction); government policy could alternatively be used to shift economic activity to productive sectors, including tertiary education, research, and innovation.
Seeking tax equality, funding adequacy
As stressed by the European Commission in 2017, the tax system requires revision so that taxation increases equality. Solving challenges in tax collection and tax avoidance remain imperative, as is the timely processing of tax declarations. While the system should treat all persons equitably, a fair reallocation of resources should be the system’s goal. Adequate funding of family, pension, health care and other welfare policies would enhance social equity. A medium-term target should aim at gradually returning to a functioning welfare state, rather than simply reducing the risk of poverty.
Transparency must
be enhanced
To achieve a sustainable recovery based on policies featuring greater transparency and enhancing legal compliance, the discretion and authority afforded the Council of Ministers must be reviewed. Policies such as the citizenship-by-investment scheme and granting construction permits for skyscrapers should be reexamined with closer scrutiny for legality and impact. Generally, there is a necessity for efficient oversight of governance through clear monitoring mechanisms. A speedy resolution of procedural and structural challenges within the justice system is also necessary. Transparency is urgently needed on most policy decisions, including media ownership and the criteria and procedures that govern appointments to public bodies. Likewise, the 2016 law on political parties and campaign funding requires an efficiency and transparency assessment.
capacity lacking
The attainment of these diverse reforms will require the government to review its actions and operations at the highest level. Following the parliament’s rejection of the creation of a sub-ministry for development, a proper resolution is urgently required for the creation of bodies with clear mandates for coordination and coherent action. Reforms of state structures and procedures within the central and local governments can only be successfully advanced by units with sufficient strategic planning capacity.
Merit-based system
would enhance reforms
Though the government and political parties stress the need for overcoming favoritism in appointments, action is also required to ensure that capable managers in key positions can efficiently promote reforms. This would facilitate the realization of projects that warrant being sustained. A successful outcome is possible once a meritocratic administration prevails, with a culture that places serving citizens and the rule of law above all else.

Party Polarization

Decades-old cleavage
has weakened
A cleavage between right- and left-wing forces began in Cyprus in the 1940s and persists to today, albeit quite weakened. Under the presidential system, the impact of party polarization is mitigated. The president is elected for a term of five years and the government is not subject to a vote of confidence by the parliament. Parties vote for or against government legislation without destabilizing the political system.
Expediency trumps ideology
The main challenges derive from precarious or circumstantial party alliances and from political expediency, rather than from ideological polarization. The political system allows for laws to be promoted, amended or delayed in ways that are opaque. Political parties generally avoid legislation which would weaken their support from voters. Sometimes, a spillover effect is observed, such as with the highly polarized party positions regarding the national problem – the Cyprus problem – which motivates voting patterns of some parties on parliamentary matters unrelated to the Cyprus problem.
Polarization strongest around elections
Ideological polarization becomes more visible right before and immediately after a change of government, with those rising to power reversing the previous government’s policies. This occurs, in particular, with education reforms. (Score: 7)
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