Cyprus: Third Review Under the Extended Arrangement Under the Extended Fund Facility and Request for Modification of Performance Criteria-Staff Report; Press Release; and Statement by the Executive Director

Publication Date: April 01, 2014
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Summary: EXECUTIVE SUMMARY Extended Arrangement: On May 15, 2013, the Executive Board approved a three-year Extended Arrangement under the Extended Fund Facility in the amount of SDR 891 million (563 percent of quota; about €1 billion). Three purchases of amounts equivalent to SDR 74.25 million (about €86 million) each have been made so far, and another purchase of the same amount is proposed to be released upon completion of the third review. The European Stability Mechanism has released €4.6 billion of €9 billion committed, with a disbursement of €150 million expected in early April. Recent Economic Developments: While deep, the 2013 recession was not as severe as anticipated. The adjustment is occurring through both quantities and prices, and signs of stabilization are emerging in the banking sector. However, the outlook remains challenging, with rising unemployment, falling credit, and increasing non-performing loans. In this context, growth projections remain unchanged, with a deep contraction expected in 2014 and a modest and credit-less recovery taking hold in mid-2015. Policy Implementation: The program remains on track. Fiscal targets were met with considerable margins, the coop sector was recapitalized, and additional relaxations of payment restrictions are being implemented. Delays in the implementation of structural reforms have recently been overcome. Looking forward, policies will need to focus on dealing with the high level of non-performing loans, further normalizing payment flows, maintaining fiscal prudence, and stepping up the implementation of the ambitious fiscal structural reform agenda. Risks to program implementation remain significant, including due to remaining financial sector vulnerabilities and diminished political support following the breakup of the governing coalition.
Series: Country Report No. 14/92
Subject(s): Extended Fund Facility | Fiscal policy | Fiscal reforms | Bank restructuring | Bank supervision | Economic indicators | Staff Reports | Letters of Intent | Press releases | Performance criteria modifications | Extended arrangement reviews | Cyprus

Publication Date: April 01, 2014
ISBN/ISSN: 9781484347591/1934-7685 Format: Paper
Stock No: 1CYPEA2014001 Pages: 129
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