€ 380 mln in Troika funds by mid-July

Financial Mirror (Cyprus) - - FRONT PAGE -

The main fi­nanciers of the EUR 10 bln Cyprus bailout pro­gramme have agreed to pay up the next in­stal­ments to­talling some EUR 380 mln within the next three weeks, fol­low­ing a pos­i­tive re­view by in­spec­tors that had been de­layed by the fore­clo­sures and in­sol­ven­cies law that were out­stand­ing in par­lia­ment since last Septem­ber.

The IMF said that eco­nomic and fis­cal out­comes in Cyprus have been bet­ter than ex­pected, but that the high level of non­per­form­ing loans re­mains an ur­gent pri­or­ity and must be ad­dressed in or­der to pre­serve fi­nan­cial sta­bil­ity and boost growth and job cre­ation.

On Fri­day, the IMF Ex­ec­u­tive Board in Washington com­pleted the com­bined fifth, sixth and sev­enth re­views of the Cyprus eco­nomic ad­just­ment pro­gramme sup­ported by the Ex­tended Fund Fa­cil­ity (EFF) en­abling the dis­burse­ment of EUR 278.4 mln, with to­tal dis­burse­ments un­der the pro­gramme since March 2013 reach­ing EUR 742.4 mln.

The Ex­ec­u­tive Board also ap­proved a re­vised sched­ule of fu­ture dis­burse­ments and re­views, with the eighth re­view now ex­pected to take place in Septem­ber, with two more re­views fol­low­ing on a quar­terly ba­sis.

The three-year, EUR 1 bln ar­range­ment was ap­proved on May 15, 2013 in ad­di­tion to EUR 9 bln in fi­nan­cial as­sis­tance from the Euro­pean Sta­bil­ity Mech­a­nism (ESM).

Fol­low­ing Fri­day’s Ex­ec­u­tive Board dis­cus­sion, David Lip­ton, IMF First Deputy Man­ag­ing Di­rec­tor and Act­ing Chair, stated that “Cyprus’s Fund-sup­ported re­form pro­gramme con­tin­ues to pro­duce pos­i­tive re­sults.”

“Liq­uid­ity and sol­vency in the bank­ing sys­tem have im­proved, al­low­ing the elim­i­na­tion of ex­ter­nal pay­ment re­stric­tions. Go­ing for­ward, it will be im­por­tant to main­tain the re­form mo­men­tum and strong pro­gramme own­er­ship,” he said.

“Ad­dress­ing the high level of non­per­form­ing loans re­mains an ur­gent pri­or­ity to pre­serve fi­nan­cial sta­bil­ity and boost growth and job cre­ation. In this re­spect, adop­tion of the new in­sol­vency and fore­clo­sure leg­is­la­tion is a key step,” Lip­ton added.

More­over, he said that “con­tin­ued ef­forts are needed to strengthen bank­ing su­per­vi­sion and build the ca­pac­ity of the bank­ing sys­tem to re­struc­ture loans in a sus­tain­able man­ner.”

Lip­ton warned that “high public debt to­gether with size­able con­tin­gent li­a­bil­i­ties war­rants con­tin­ued pru­dence and ef­forts to lock in fis­cal sav­ings from bet­ter-than-ex­pected macroe­co­nomic de­vel­op­ments.

Thor­ough im­ple­men­ta­tion wel­fare sys­tem is im­por­tant vul­ner­a­ble groups, while public al­lo­ca­tions need to be ex­e­cuted eco­nomic re­cov­ery.”

He con­cluded that “the author­i­ties should con­tinue to ad­vance struc­tural re­forms to strengthen public fi­nances and lay the ground for sus­tained growth. Fis­cal re­forms should fo­cus on rev­enue ad­min­is­tra­tion, public fi­nan­cial man­age­ment, and public ad­min­is­tra­tion. Progress in pri­vati­sa­tion and fur­ther ef­forts to im­prove the busi­ness en­vi­ron­ment and re­duce un­em­ploy­ment are of the new to pro­tect in­vest­ment to sup­port also needed.”

Ear­lier on Fri­day, the Eurogroup of Eu­ro­zone fi­nance min­is­ters wel­comed the con­clu­sions pre­sented fol­low­ing the sixth re­view mis­sion that the Cyprus ad­just­ment pro­gramme has been brought back on track, call­ing on Cypriot author­i­ties to lend re­newed mo­men­tum to the im­ple­men­ta­tion of the fis­cal­struc­tural and struc­tural re­form agenda, in­clud­ing pri­vati­sa­tion and public ad­min­is­tra­tion re­form, “in or­der to im­prove eco­nomic growth prospects and strengthen public fi­nances, while safe­guard­ing the pro­tec­tion of the most vul­ner­a­ble groups”.

The Eu­ro­zone min­is­ters sub­se­quently en­dorsed the dis­burse­ment of the EUR 100 mln next tranche of fi­nan­cial as­sis­tance by ESM in mid-July.

Meet­ing in Brus­sels, the Eurogroup noted that the fis­cal per­for­mance con­tin­ues to be solid, the debt out­look has im­proved, and struc­tural re­forms are pro­gress­ing in sev­eral ar­eas, although un­em­ploy­ment re­mains high.

It in­di­cated that re­forms in the fi­nan­cial sec­tor have pro­gressed and that af­ter re­peated de­lays, the le­gal frame­work es­tab­lish­ing a new fore­clo­sure pro­ce­dure has en­tered into force and that a com­pre­hen­sive re­form of cor­po­rate and per­sonal in­sol­vency laws has also been adopted, an es­sen­tial step to­wards ad­dress­ing the very high level of non-per­form­ing loans, which is a drag on restor­ing growth and job cre­ation in Cyprus.

One key is­sue was fa­cil­i­tat­ing the sale of loans and en­sur­ing that ti­tle deeds are trans­ferred with­out de­lay to prop­erty buy­ers.

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