IMF Chief Christine Lagarde praised the authorities for their achievements, however she pointed out that they need to continue the implementation of the budget cautiously.

She also referred to the non-performing loans, pointing out that the high level of NPLs, hinders the provision of credit and the resumption of growth.

“The Cypriot authorities are to be commended for their achievements during the first year of their economic program. They recapitalized and restructured the financial sector, removed domestic payment restrictions, implemented an ambitious fiscal consolidation, and initiated important structural reforms. As a result, macroeconomic and fiscal outturns have been better than expected, and Cyprus recently re-accessed international capital markets", Lagarde said. She stressed however that challenges and risks remain, and full and timely policy implementation “will be critical to the program’s continued success”.

According to Lagarde, building on the progress made in strengthening the financial sector, efforts should focus on addressing the high level of non-performing loans, which is hindering the provision of credit and the resumption of growth.

"Swift implementation of the new debt-restructuring legal framework is essential to provide adequate incentives to voluntary loan workouts. The authorities also need to intensify supervisory monitoring of banks’ loan restructuring efforts, further strengthen overall supervision and regulation, and fully implement the anti-money laundering framework", she said.

Lagarde also underlined that the full elimination of domestic payment restrictions has helped to support activity and strengthened confidence, adding that further progress with restructuring and normalizing banks’ liquidity and funding "will be needed to allow the removal of external capital controls while safeguarding financial stability" and that "adequate provision of liquidity by the Eurosystem remains essential".

“The authorities’ ambitious fiscal consolidation and prudent budget execution have helped reduce the fiscal deficit. Given lingering macroeconomic uncertainty, the authorities should continue to implement the budget cautiously. Further well-paced fiscal adjustment is needed in the medium term to ensure debt sustainability. Fiscal efforts should be complemented by structural reforms to protect vulnerable groups, modernize the revenue administration, strengthen debt and fiscal risk management, and privatize state-owned assets,” Lagarde said.

Recently, the Eurogroup endorsed in principle the disbursement of the next tranche of financial assistance to Cyprus, following Troika’s (IMF, EC and ECB) fourth review mission on the island.

Source: Famagusta Gazette