The core challenge, Lewis told a press conference call, is the high level of non-performing loans (NPLs), which has to be addressed in order for the banks to lend to businesses and to households again, as this will lead to growth.
“The programme is producing results,” Lewis noted, praising the Cypriot authorities and the Cypriot people for their efforts. However, he said that “looking ahead, we are not all the way there”, and noted that important challenges remain and will continue in the coming months in the context of the program and after the program as well.
He said that the problem of NPLs in the banking system is an “essential challenge”, linked to growth, jobs and incomes.
He noted that the new insolvency and foreclosure frameworks must become fully operational and the authorities must deal with problem of title deeds. Another step, he added, is to deal with the issue of loan sales, “which will enable banks to deal with the NPLs problem and go back in the business of lending to households and to businesses”.
Lewis said that public finances are quite positive, but “public debt levels are still high”. He added that it is important to maintain sound public finances in the period ahead, “while at the same time ensuring sufficient public spending to protect the poor and to support growth-oriented public spending”.
This also includes reforms to improve the business and regulatory environment to facilitate economic activity, he noted. Meanwhile, a staff report released by the IMF on Friday said that “Cyprus continues to recover from the crisis, and programme performance remains generally strong”.
The report followed the successful completion of the eighth progress review of Cyprus’ bailout programme.
“Economic activity in the first half of this year turned out better than expected, mainly supported by private consumption,” the report said.
“Fiscal outturns are running ahead of projections, and conditions in the core banking system have continued to normalise. All end-June performance criteria were met, and the authorities have made good progress on structural reforms.”
The IMF noted that resolving the high level of NPLs through effective implementation of the new private-debt restructuring framework is crucial to consolidate financial stability and boost growth.
It also echoed Lewis’ remarks in that the authorities should maintain prudent public finances given the still-high public debt ratio and continue advancing structural reforms to support fiscal sustainability and promote growth and job creation.
“Risks to the programme remain,although their impact would likely be manageable,” according to the report, which added that “the domestic political situation remains a challenge to policy implementation.”
It was also noted in the report that “developments in Greece have the potential to affect Cyprus through the confidence channel.”
Finally, the document noted that “some reforms under the programme have encountered delays, and with the May 2016 legislative elections in sight, implementing the on going structural reforms will remain a challenge.”
Following completion of the eighth review of Cyprus’s economic adjustment programme, the IMF’s Executive Board on Wednesday approved the disbursement of about €126 million to Cyprus, which brings total disbursements to date to about €882 million.
Completion of the ninth review would be expected to take place before the end of the year, the fund said.
Source: Cyprus Mail
