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IMF Praises Cyprus Impressive Recovery
December 18, 2017
he IMF Executive Board praised Cyprus “impressive recovery” since the 2013 crisis, pointing out the Cypriot authorities should to hammer out a strategic plan to tackle legacy issues mainly high private debt and the high stock of non-performing loans.
“Executive Directors commended the authorities for the Cypriot economy’s impressive recovery from the 2012–13 banking crisis, facilitated by prudent macroeconomic policies and progress on structural reforms, together with strong foreign demand,” the IMF said after approving a report on Cyprus issued in the context of article IV consultation.
Cyprus GDP growth has been accelerating for three consecutive years on strong foreign demand, reaching 3.8 percent during the first nine months of 2017, while rising labour demand has sharply lowered the unemployment rate to 10.3 percent as of September, the Directors said.
IMF project the Cyprus GDP to grow by 3.8% in 2017 followed by 3.6% in 2018.
The IMF said that “the current strong growth momentum is expected to persist for the next several years, underpinned by ongoing large construction projects and, albeit undesirable, weak payment discipline alongside slow progress with NPLs that will support consumption.”
“This strong growth cycle could be threatened by excessive concentration of activity into construction and real estate and by potentially-volatile capital flows. Persistently slow resolution of NPLs would keep financial sector vulnerabilities elevated. Growth prospects could be significantly boosted if development of offshore hydrocarbon deposits proves financially viable.”
The IMF Directors however, observed that progress on reducing nonperforming loans has been tepid, and that private and public debt remain high, the Cyprus News Agency reports.
“They urged the authorities to take advantage of the current strong growth momentum to resolve legacy problems and generate a broader basis for future growth,” the IMF added.
The called for “the prompt implementation of a comprehensive deleveraging plan, supported by measures to improve payment discipline,” while “simultaneously reducing excessive private debt and banks’ weak loan portfolios would help protect macro-financial stability."
The IMF also called for strengthening competition and productivity to attract investment and help diversify the economy.
“Restarting the privatization program and undertaking governance reforms in the public and private sectors will also be important. In this regard, Directors recommended establishing a dedicated commercial court to strengthen the enforcement of commercial claims,” the IMF added.