These advantages are an inevitable outcome of the presence of a large number of market participants and the further unfolding of the Financial Services Action Plan, which will enhance the tradability of euro assets in the euro area and beyond. Participation in the single currency area provides scope for further cost savings in the form of lower risk premia resulting from adherence to the EU’s strict macroeconomic policy framework. This aspect is particularly relevant in the Maltese context, as the small size of the country and the prevalence of micro-enterprises make the economy highly susceptible to developments abroad. Foreign banks and suppliers seek to cover this perceived risk by building a higher risk premium into the prices quoted to Maltese businesses. The insurance provided by the discipline of EMU, and the high level of intra-EU integration should reduce this perceived vulnerability and, with that, the risk premium. This is conducive to lower interest rates and to access to financing on more favourable terms. A related advantage is the improved marketability and acceptance of collateral. Maltese lira assets are not considered sufficiently liquid by foreign lenders in view of the thinness of domestic financial markets. Many SMEs are consequently either denied foreign financing altogether, or offered prohibitive rates. This constraint should ease considerably with the adoption of the euro, as the redenomination of domestic assets into euro will improve the marketability of the collateral offered by local businesses.
These incentives are offered in the context of the so-called "international headquartering" policy. According to the latest Central Bank of Cyprus forecasts of December 2022, the growth of the Cypriot economy is expected at 2,5% this year which compares well to the euro area average of 0,5%. Inflation is expected to decelerate in 2023, levelling at 3.3%, from 8.1% in 2022. Foreign investment in Cyprus, as I mentioned before, constitutes a significant driver for development. In recent years, major multinational firms in the Information, Communication and Technology industry (ICT), have relocated or expanded their activities in Cyprus, supporting Cypriot GDP and reinforcing the vision to transform Cyprus into an emerging technology hub in the Mediterranean. Cyprus' importance as a foreign investment hub is also reflected in the Greenfield FDI Performance Index1, created by FDI Intelligence, according to which in 2021, Cyprus was ranked in 18th place out of 84 countries included in this index (climbing by 50 places compared to 2020). Undoubtedly, the shipping sector is another important pillar of Cyprus' economic success. Limassol, Cyprus' maritime capital, is the home of influential names in the shipping industry, which boosted the country to the top ranks of the sector. Indicatively, Cyprus is the largest third-party ship management centre in the European Union, one of the largest in the world2 and is primed for further growth.