IMF Completes Ninth Review of Cyprus’ EFF and Approves €126.3 Million Disbursement

The Executive Board of the International Monetary Fund (IMF) today completed the ninth review of Cyprus’s economic adjustment program supported by the Extended Fund Facility (EFF) arrangement. The completion of the review would make SDR 99 million (about €126.3 million) available to disbursement, which brings total disbursements under the program to SDR 792 million (about €1 billion). One more review remains to be completed.

The three-year EFF was approved on May 15, 2013 (see Press Release No. 13/175). Cyprus’s economic program is also supported by financial assistance from the European Stability Mechanism (ESM) amounting to €9 billion.

Following the Executive Board’s discussion, Mr. Mitsuhiro Furusawa, IMF Deputy Managing Director and Acting Chair, issued the following statement:

“Macroeconomic achievements under the Fund-supported program have been favorable. Economic and fiscal outcomes are better than expected, non-performing loans have stabilized, and bank liquidity has continued to improve. However, with recent delays in implementing structural reforms, there is a need to re-energize reform implementation to protect confidence and longer-term growth. At the same time, public debt and non-performing loans need to be reduced from their current high levels.

“Accelerated workout of non-performing loans is critical to reviving lending and improving growth prospects. Following the recent passage of key legislation, the toolkit for debt restructuring is now largely in place. However, progress on the legal framework to facilitate securitization of loans and transfer of property title deeds in non-legacy cases should be accelerated.

“The updated restructuring plan for the cooperative banking sector provides a sound basis for bolstering its long-term health. More generally, efforts to enhance financial sector oversight should continue by strengthening the Central Bank of Cyprus’s governance and supervisory capacity.

“Sustaining fiscal prudence over the medium term is necessary to securely place the high public debt-to-GDP ratio on a downward path, ensure room for investment and social safety net spending, and cope with contingent liabilities. Prompt adoption of overdue reforms in tax administration, civil service employment, public financial management, and governance of state enterprises will strengthen fiscal performance and safeguard sustainability.

“Implementation of other growth-enhancing reforms also needs to be accelerated. Pressing ahead with a comprehensive privatization program and concrete actions to improve the business environment, while abstaining from relying on tax incentives, would stimulate investment and improve efficiency,” Mr. Furusawa said.

Compliments of the International Monetary Fund