Speaking to the press following the approval by the IMF board of the disbursement of €83.5 million to Cyprus, its Managing Director, Lagarde said that the Cypriot authorities have established a record of strong policy implementation, meeting fiscal targets with comfortable margins, making strides in restructuring and recapitalising the financial system, and advancing structural fiscal reforms. The IMF approved the third tranche of Cyprus’ €10 billion assistance programme during a recent board meeting.

It was the second review of Cyprus’ performance in the economic programme which is being supported by a three-year Extended Fund Facility (EFF) arrangement amounting to 891 million units of Special Drawing Rights (approximately €1 billion or $1.3 billion US dollars). However, she went on to say that while macroeconomic outcomes have been somewhat better than expected, the economic situation and outlook remain difficult and subject to significant risks. “Full and timely implementation of the adjustment programme, as well as broad public support, is therefore crucial to restore confidence and growth,” she said.

The IMF director added that considerable progress has been made in stabilising the financial sector, adding that Cyprus’ largest bank, Bank of Cyprus, had put in place a restructuring plan, and initial steps were taken to consolidate the cooperative credit sector. “Building on these efforts, banks will need to implement their restructuring plans, and the recapitalisation and consolidation of cooperative credit institutions should be completed rapidly. These will help pave the way for a further gradual relaxation of payment restrictions in line with the authorities’ roadmap, while safeguarding financial stability,” she said. She also underlined that the resumption of credit flows and output growth will depend on progress in addressing banks’ problem loans, adding that this requires an effective framework for private sector debt restructuring with appropriate incentives. At the same time, she added, efforts should continue to strengthen bank supervision and regulation and the implementation of the anti-money laundering framework.

“The 2014 budget is appropriately conservative, given the uncertain outlook. Continued prudence in budget execution is necessary, complemented by structural reforms to ensure adequate protection of vulnerable groups, improve revenue administration, and strengthen public financial management. The authorities also need to accelerate efforts to jump-start the privatisation process,” Lagarde said.

Cyprus and the troika (European Commission, European Central Bank and International Monetary Fund) agreed on March 25 on a €10 billion bailout, which included imposing losses on bank uninsured deposits as well as fiscal consolidation measures amounting to 7.2 per cent of Gross Domestic Product (GDP) by 2016.

Source: Cyprus Mail