Nicosia.- By Kyriaki Demetriou/CNA
The Cypriot economy will face important challenges even after the country`s exit from the bailout program, Mark Lewis, the outgoing IMF mission chief for Cyprus, said on Friday.
The core challenge, Lewis told a press conference call, is the high level of the non performing loans which has to be addressed in order for the banks to lend to businesses and to households again, as this will lead to growth.
“The program is producing results” Lewis noted, giving credit to the Cypriot authorities and the Cypriot people for their efforts.
Nevertheless he stressed that “looking ahead we are not all the way there” and noted that there are still important challenges that remain and will continue in the coming months in the context of the program and after the program as well.
He said that the problem of the non performing loans in the banking system is an “essential challenge”, linked to growth, jobs and incomes.
He noted that the new insolvency and foreclosure frameworks must become fully operational, the authorities must deal with problem of title deeds and another step is to deal with the access in loan sales, “which will enable banks to deal with the NPLs problems and go back in the business of lending to households and to businesses”.
Mark Lewis said that the public finances are quite positive, but “public debt levels are still high”. He added that it is important to maintain sound public finances in the period ahead, “while at the same time ensuring sufficient public spending to protect the poor and to support growth oriented public spending”.
This also includes reforms to improve the business and regulatory environment to facilitate economic activity, he noted.
“Cyprus continues to recover from the crisis, and program performance remains generally strong. Economic activity in the first half of this year turned out better than expected, mainly supported by private consumption. Fiscal outturns are running ahead of projections, and conditions in the core banking system have continued to normalize. All end-June performance criteria were met, and the authorities have made good progress on structural reforms” said a staff report released by the IMF on Friday on the eighth review of Cyprus` bailout program.
It noted that resolving the high level of non-performing loans through effective implementation of the new private debt restructuring framework is crucial to consolidate financial stability and boost growth.
It also said that the authorities should maintain prudent public finances given the still-high public debt ratio and continue advancing structural reforms to support fiscal sustainability and promote growth and job creation.
“Risks to the program remain, although their impact would likely be manageable” according to the report, which said that “the domestic political situation remains a challenge to policy implementation”.
It was also noted in the report that “developments in Greece have the potential to affect Cyprus through the confidence channel”.
Finally the staff report noted that “some reforms under the program have encountered delays, and with the May 2016 legislative elections in sight, implementing the ongoing structural reforms will remain a challenge”.
The IMF`s Executive Board completed on Wednesday the eighth review of Cyprus’s economic adjustment program and approved the disbursement of about €126 million, which brings total disbursements under the program to about €882 million.
Completion of the ninth review would be expected to take place before the end of the year, the fund said.
Since March 2013, when Cyprus concluded on the €10 billion bailout with the EU and the IMF, Cyprus received approximately €7 billion.