Cyprus wel­comes IMF progress re­port

Financial Mirror (Cyprus) - - FRONT PAGE -

Ni­cosia has wel­comed as “pos­i­tive” IMF’s sec­ond an­nual re­port on the Cyprus econ­omy, fol­low­ing the coun­try’s exit from the bailout in 2016.

Gov­ern­ment spokesman Pro­dro­mos Pro­dro­mou said the IMF has con­firmed that “the coun­try is con­tin­u­ing on the steady growth path it em­barked on in re­cent years, while it pre­dicts that eco­nomic growth is to ac­cel­er­ate this year and the next”.

“IMF Ex­ec­u­tive Di­rec­tors have wel­comed the boosted re­cov­ery of the econ­omy, which is ac­com­pa­nied by a con­tin­u­ing drop in the un­em­ploy­ment rate, a sig­nif­i­cant pri­mary sur­plus and a re­duc­tion in the gov­ern­ment debt ra­tio, “Pro­dro­mou said.

Pro­dro­mou said that the gov­ern­ment is es­pe­cially pleased with IMF’s fore­cast of GDP growth of 4% for 2018 and a fur­ther ac­cel­er­a­tion in 2019 reach­ing 4.2%.

The IMF re­port states that if the cur­rent fis­cal pol­icy con­tin­ues be­ing im­ple­mented with sig­nif­i­cant pri­mary sur­pluses of 4.04.5% com­bined with the ro­bust growth, then the gov­ern­ment debt ra­tio will be lim­ited to 72% of GDP by the end of the 2018-2023 pe­riod.

And the IMF fore­sees the un­em­ploy­ment rate fall­ing this year to an av­er­age of 9.5% from 11% last year, be­fore drop­ping to 8% in 2019.

At the same time how­ever, the IMF is­sued a warn­ing for the Cyprus econ­omy, stat­ing that it is still at risk from lega­cies left be­hind from the cri­sis in 2013.

“De­spite strong re­cov­ery, non-per­form­ing loans con­tinue to ex­ac­er­bate the prof­itabil­ity of banks and have pre­vented a sig­nif­i­cant im­prove­ment in the eco­nomic ro­bust­ness of house­holds and busi­nesses,” said the IMF re­port.

Com­ment­ing on the Cyprus Co­op­er­a­tive sale pro­ce­dure, the mone­tary fund said that the CCB is highly ex­posed to non-per­form­ing hous­ing loans.

“It has made lit­tle progress in ad­dress­ing non-per­form­ing loans, cur­rently close to 58%, while the bank has pro­vi­sions for only 47% of its NPLs. The cov­er­age tar­get of 65% would re­quire some EUR 800 mil­lion in ad­di­tional pro­vi­sions, re­sult­ing in a sig­nif­i­cant cap­i­tal deficit.”

IMF of­fi­cials also ap­peared to be con­cerned over the gov­ern­ment’s in­ten­tion to set up a non-per­form­ing loan man­age­ment body which is to take over CCB’s NPLs and po­ten­tially the NPLs of the whole of the Cyprus bank­ing sys­tem.

In its re­port, the IMF states that it con­sid­ers the ven­ture to en­tail more risks than ben­e­fits, it “fears a weak gov­er­nance struc­ture, po­lit­i­cal in­ter­ven­tions and slow re­struc­tur­ing pro­cesses”.

Fur­ther­more, the IMF ap­pears to be con­cerned over the sit­u­a­tion for­mu­lated in the con­struc­tion sec­tor.

The Fund ad­vises Cyprus to avoid ex­ces­sive con­cen­tra­tion in con­struc­tion, cur­rently aided by in­vest­ment in real es­tate made by high net worth in­di­vid­u­als ac­quir­ing real es­tate to ben­e­fit from the gov­ern­ment’s Cit­i­zen­ship by In­vest­ment scheme.

It said there were risks from an abrupt growth slow­down or a re­newed boom-bust cy­cle.

“Cur­rent strong GDP growth is de­pen­dent on con­struc­tion ac­tiv­ity and tourism and could be sen­si­tive to a scal­ing back of the CbI scheme, a much sharper-than-ex­pected tight­en­ing of global fi­nan­cial con­di­tions, or a re­duc­tion of tourism de­mand owing to re­gional geopo­lit­i­cal de­vel­op­ments. “

It said in­cen­tives sup­port­ing the con­struc­tion sec­tor should be with­drawn.

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