Drought the biggest immediate risk to the economy, according to survey

Prolonged drought was rated as the biggest immediate risk to the Cypriot economy in a survey carried out for the Cyprus Economy and Competitiveness Council (SOAK).

The survey also highlighted cybersecurity threats, worsening climate conditions, and failure to execute digital transformation as key concerns.

The survey, which was presented at a press conference on 19 February, was conducted between 29 November and 31 December, 2024 and involved 50 executives in the economic field, who were asked to give their own assessments of the potential risks. Pulse Market Research was the firm responsible for data analysis.

According to the survey, the highest risk index (a combined measure of likelihood and severity of impact) was assigned to the risk of “prolonged drought leading to water shortages,” with an index score of 85%. The concern over water scarcity has increased significantly in recent years, with an 88% probability of occurrence and 82% severity rating. This risk is expected to materialise within the next two years.

Cyberattacks on critical infrastructure ranked second, with a risk index of 84%. The likelihood of such an event occurring was estimated at 85%, with a severity rating of 83%. Like the drought risk, cyber threats are also expected to emerge in the short term (0-2 years).

Climate change deterioration followed closely, scoring a risk index of 82% (85% likelihood and 79% severity). However, this issue was considered a long-term threat, expected to unfold over the next 5-10 years.

Other important risks included "Failure of digital transformation" with a risk index of 81% (78% likelihood and 85% severity). "Escalation of existing military conflicts outside Cyprus with economic consequences in Cyprus" with a risk index of 78% (80% likelihood and 75% severity of) and "Economic collapse of the general health system" with a risk index of 77% (68% likelihood and 86% severity).

The survey evaluated 18 risk factors, including geopolitical tensions in the Eastern Mediterranean and the possibility of a military incident with Turkey, Cyprus' deteriorating ranking in corruption indices, prolonged inflationary pressures, worsening public finances and rising national debt, significant corporate tax increases, and a steep decline in Cypriot exports.

Additionally, the risks assessed included prolonged drought leading to water shortages, worsening climate conditions, potential terrorist attacks in Cyprus, cybersecurity threats targeting critical infrastructure, mass migration influx, the continuation of the pandemic or a new health crisis, economic collapse of the general healthcare system, a major decline in tourist arrivals, natural disasters such as wildfires, floods, and earthquakes, failure to implement digital transformation, the potential collapse of a systemic bank, and the escalation of existing armed conflicts outside Cyprus with economic repercussions for the country.

Need for structural reforms

Speaking at the press conference, SOAK President Demetris Georgiades emphasised that effective risk management is crucial for economic stability and resilience. He warned that past mistakes and inaction during economic growth periods have led to serious crises.

He also said that the survey, conducted for the third consecutive year, aims to identify and prioritise potential risks, providing recommendations for reforms that will strengthen Cyprus’ economy against global uncertainties.

"Any reforms should be practical and workable to avoid mistakes that cause problems and distract from the intended goal," he added.

Planned interventions

At the same time, Georgiades referred to interventions planned by the council in several sectors.

These include interventions on tax reform to ensure that taxpayers are treated equally, and that unfair competition is not created. At the same time, interventions are planned on undeclared work and the informal economy.

Georgiades also said that SOAK plans to intervene on issues related to the justice system that causes problems for the economy and especially for investments.

Interventions are also planned on labour issues, since the problems of labour shortage and ageing population are identified.

He also noted the need for changes in technology, digitisation and artificial intelligence as tools to solve systemic issues.

(Source: CNA)