IMF Survey : Cyprus Turns Economy Around, Successfully Exits IMF Program

IMF News, March 15, 2016

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IMF arrangement had two main goals: to put the banking sector on a sound footing and to return public finances to a sustainable path; "Both of these objectives were met."
Positive growth returned earlier than expected, "already last year," despite large fiscal consolidation; unemployment has begun to fall.
Institutional and legal improvements introduced to reduce future vulnerability.
Fiscal achievements:
- Strong fiscal adjustment under difficult economic circumstances.
- Adoption of a well-targeted income support scheme to protect the most vulnerable.
- New legislation modernized the budget process, strengthened accountability for public spending, and established medium-term fiscal planning.
- Tax collection made more efficient and equitable.
Banking-sector achievements:
- Capital positions and liquidity have been restored.
- New foreclosure and insolvency rules encourage banks and borrowers to find workable solutions for unpaid loans.
- System for issuing and transferring real estate title deeds changed to address long-standing property ownership assignment problems.

Cyprus cancelled its program on March 7.
Non-performing loans (NPLs) remain very high at 60 percent, equivalent to 150 percent of GDP.
Public debt is "just over 100 percent of GDP."
Unemployment stands at over 15 percent.
The IMF and ESM made available to Cyprus €9 billion and €1 billion under their respective programs.
Cyprus regained access to international financial markets "barely 16 months after the crisis" and has successfully issued debt three times since then.

Vigorously apply program tools to reform the economy and build resilience.
Banking sector:
- Continue to work down the large stock of NPLs to shore up banks.
Fiscal policy:
- Maintain primary fiscal surpluses to lower public debt.
- Continue to implement prudent policies and reforms after the program period.
- Complete the pending reform of the public administration, with a goal to ensure the wage bill does not outpace the overall economy.
Structural reforms:
- Implement growth-enhancing structural reforms to reduce unemployment and sustain output growth.
- Continue to carry out the privatization strategy.

IMF and ESM programs were closely aligned in objectives and conditionality, with good collaboration among IMF, European Commission, and European Central Bank staff, enabling a single-voice approach.
Division of focus:
- IMF concentrated on financial and fiscal policies.
- European institutions handled structural policies including privatization, health reform, competition, and labor markets.

IMF assisting Greek- and Turkish-Cypriot communities with technical advice on economic and financial aspects of settlement negotiations.
Work underway includes:
- Developing macroeconomic and fiscal frameworks for a united Cyprus.
- Integrating public finances through an efficient federal structure.
- Assessing health of the financial sector.
- Developing a strategy for the euro changeover in the Turkish-Cypriot community.
- Constructing a reliable set of integrated macroeconomic statistics.
Several missions have already taken place to support efforts toward an economically viable solution that will encourage trade and investment and raise long-term growth.

IMF Survey : Cyprus Turns Economy Around, Successfully Exits IMF Program — By Eszter Balazs, IMF Survey, March 15, 2016