Cyprus’ State-Owned Enterprises Governance Still in Shambles

Lack of Capacity and Limited Understanding Hinders Reform Efforts

Nicosia, Cyprus - Despite repeated warnings and recommendations from international organizations, the Cypriot government’s efforts to improve the governance of state-owned enterprises (SOEs) have been hindered by a lack of capacity and limited understanding among SOEs on their obligations.

IMF Report Highlights Challenges

According to a recent report by the International Monetary Fund (IMF), only partial implementation of guidelines has taken place due to the absence of:

A consolidated inventory of public entities
A unified classification system for public entities
Inadequate monitoring mechanisms

SOEs Failing to Submit Strategic Plans and Statements

The report highlights that SOEs currently do not submit three-year strategic plans to the parent ministry or the Ministry of Finance (MoF). While they do submit statements on their compliance with the Public Sector Governance Code to the MoF, no entity is assigned to analyze these statements or report on the implementation of the code.

Recommendations for Improvement

The IMF has recommended that Cyprus:

Establish a comprehensive inventory of public entities
Adopt a unified classification system for public entities

This would enable effective monitoring and identification of SOEs, distinguishing them from non-commercial public entities.

European Council Emphasizes Need for Transparency and Accountability

In its recommendations, the European Council has also emphasized the need to:

Increase transparency and accountability in SOE governance
Implement merit-based processes for nominations to SOE management bodies
Separate ownership functions from policy-making functions
Open up commercially viable markets where SOEs have a dominant position

Challenges Persist Despite Recommendations

Despite these recommendations, Cyprus’ SOEs continue to struggle. According to the IMF report, in 2021, SOEs managed assets equivalent to about 22.3 percent of GDP, with their net result equivalent to only:

1.9 percent of assets
0.4 percent of GDP

Implications for the Economy

The lack of effective governance and oversight has significant implications for the country’s economy, including:

Reduced government debt
Increased public sector efficiency
Improved business environment
Potential for growth

Uncertainty Remains

It remains to be seen whether the Cypriot government will take concrete steps to address these issues and implement the necessary reforms to improve SOE governance and accountability.