A statement by the European Commission, the European Central Bank and the IMF on the Second Review Mission to Cyprus said that its approval would pave the way for the disbursement of €100 million by the European Stability Mechanism (ESM), and about €86 million by the IMF. However, in their assessment of progress in meeting a three-year adjustment programme, they said a recession this year would be less pronounced than anticipated, but upped their forecast for a loss in output next year. The international lenders now believe the Cyprus economy will contract by 7.7% this year from an earlier 8.7% projection on restrained spending and better revenue performance, IMF Cyprus mission chief Delia Velculescu said.

She said that recession forecasts for 2014 were raised to 4.8%, from earlier calculations of 3.9%, on a smaller disposable income and growing unemployment. The programme’s objectives, the lenders said, are to restore financial sector stability, strengthen public finance sustainability, and adopt structural reforms to support long-run growth, while protecting the welfare of the population. "Cyprus’ programme is on track. All fiscal targets have been met with considerable margins, reflecting the ambitious fiscal consolidation underway, prudent budget execution, and a less severe deterioration of economic activity than originally projected," a statement said. It added that "structural reforms are also advancing" and that, "furthermore, since the last review, there has been significant progress toward the recapitalisation and restructuring of the financial sector", which "has allowed further relaxation of payment restrictions since July, in line with the government’s milestone-based roadmap." It added that "the authorities have made important strides with the recapitalisation and restructuring of the financial sector." 

Furthermore, it said that, "looking ahead, the main challenge is to repair the banks’ balance sheets and restore depositor confidence," noting that "this is key to the resumption of credit to the private sector, which is needed to support the economic recovery."  It pointed out that "these efforts need to continue and be complemented by further steps to advance the privatisation agenda in the coming weeks." Furthermore, it says that "the authorities’ strong programme implementation so far is welcome, nevertheless, given still significant risks ahead, continued full and timely policy implementation remains essential for the success of the programme."

The daily Alithia reported on Friday that “We have passed with ease the second test, but the biggest challenge is the privatization” of state companies, such as telecoms provider Cyta, power generator EAC, the ports authority, the postal service and several others deemed profitable and attractive to investors. President Nicos Anastasiades said in a speech on Friday morning that “the Troika has praised Cyprus with the second review of the economy.” “No other country has produced the same results as Cyprus, as determined by our toughest of lenders.” “This all came upon us because we did not take the right decisions at the right time. But we should look ahead.”

Source: Financial Mirror