## IMF Lending Case Study: Cyprus

## Source details

**Canonical URL:** [IMF Lending Case Study: Cyprus](https://www.imf.org/en/countries/cyp/cyprus-lending-case-study)

## Other formats

- [Markdown version](/en/countries/cyp/cyprus-lending-case-study/index.md)
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### Background and objectives
- Publication: Cyprus: Restoring the Banking Sector and Public Finances, May 2019, by the International Monetary Fund.
- Cyprus approached the IMF for a three-year lending arrangement of about €1 billion with two goals: putting the banking sector on a sound footing and returning public finances to a sustainable path.
- The IMF arrangement was part of a combined financing package with the European Stability Mechanism.

### Banking sector stabilization
- Immediate priority: stabilize the banking sector.
- Measures undertaken:
  - Completed a challenging bank recapitalization process and restored liquidity.
  - Undertook decisive steps to restructure weak banks.
  - Introduced new foreclosure and insolvency rules to encourage banks and borrowers to find workable solutions for unpaid loans.
  - Strengthened supervision and regulation of banks.
- Outcome: While legacy challenges remained at the conclusion of the arrangement, much progress was made in restoring stability.

### Fiscal consolidation and public finance reforms
- The Cypriot authorities undertook a strong fiscal adjustment under difficult economic circumstances.
- Measures undertaken:
  - Reduced overall public spending while protecting the most vulnerable through a well-targeted income support program.
  - Introduced legislation to modernize the budget process, strengthen accountability for public spending, and establish medium-term fiscal planning.
  - Made tax collection more efficient and equitable.
- Fiscal outcomes cited:
  - Fiscal balances swung to large surpluses, which helped public debt decline rapidly and permitted repayment earlier than scheduled.

### Macroeconomic outcomes and market access
- Market access:
  - Cyprus regained access to international financial markets barely 16 months after the crisis.
  - Cyprus has successfully issued debt on favorable terms multiple times since then.
- Growth and labor market:
  - The economy returned to a growth track and the banking system to more solid footing.
  - Growth returned earlier than expected, and unemployment began to fall.
- Program completion:
  - Thanks to strong performance, Cyprus ended its IMF bailout program before term.

### Policy implications and recommendations going forward
- The publication emphasizes that sustaining progress requires continued policy discipline and reform.
- Key recommendation:
  - Only steady and resolute implementation of reforms can ensure a sustained return to jobs and prosperity.
- Implementation priorities highlighted:
  - Secure recent achievements and overcome remaining challenges by steadfast continuation of economic reforms and policy discipline.

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## References

- [Effectiveness of IMF Lending Programs: Country Case Studies](https://www.imf.org/en/about/effectiveness-of-imf-lending)
- [Cyprus and the IMF](https://www.imf.org/en/countries/cyp)

_Source: https://www.imf.org/en/countries/cyp/cyprus-lending-case-study_