{
  "title": "IMF Executive Board Concludes 2019 Article IV Consultation with Cyprus",
  "publication": "IMF News, December 10, 2019",
  "sourceUrl": "https://www.imf.org/en/news/articles/2019/12/10/pr19447-cyprus-imf-executive-board-concludes-2019-article-iv-consultation",
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  "summary": "Press Release No. 19/447",
  "publishDate": "2019-12-10",
  "sections": [
    {
      "heading": "Context and timing",
      "content": "- Press Release No. 19/447\n- December 10, 2019\n- On November 27, 2019, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Cyprus."
    },
    {
      "heading": "Near-term outlook and growth projections",
      "content": "- Growth decelerated to 3.2 percent (year-over-year) in the first semester of 2019, from 4.0 percent in 2018.\n- Real GDP growth is projected to moderate to around 3 percent in 2019–20.\n- Over the medium term, economic growth is projected to slow to its long-run potential rate of around 2½ percent.\n- Private consumption expected to remain resilient due to tightening labor markets and gradual credit recovery.\n- Public debt is projected to decline to 65 percent of GDP by 2024 on the back of continued high primary surplus.\n- Risks: Predominantly on the downside arising from sharper-than-expected external shocks."
    },
    {
      "heading": "Banking sector and financial vulnerabilities",
      "content": "- Non-performing loans (NPLs) remain high at 30 percent of loans.\n- A large private sector debt overhang persists, given continued difficulties in debt workouts.\n- Directors emphasized steady NPL resolution and sustainable debt workouts:\n  - Ensure a well‑functioning NPL resolution toolkit, including implementation of a credible foreclosure framework.\n  - Complementary reforms in the judiciary.\n  - Strengthen supervisory and regulatory framework of credit acquiring companies.\n  - Finalize the governance structure of state‑owned Cyprus Asset Management Company.\n  - Minimize moral hazard risks inherent in the state‑subsidy scheme for primary homeowners (Estia).\n- Need for broader efforts to further strengthen banks’ balance sheets and profitability:\n  - Banks should continue to maintain adequate provisions and capital buffers.\n  - Policies should encourage lower cost‑to‑income ratios through diversifying income sources, rationalizing operations, and implementing digitization solutions.\n  - Macro‑financial risks from the property market appear limited now but warrant close monitoring."
    },
    {
      "heading": "Fiscal performance and public finances",
      "content": "- Underlying general government primary surplus rose to 5.4 percent of GDP in 2018.\n- Directors welcomed strong fiscal performance and stressed need to reduce debt sustainability risks and enhance expenditure efficiency.\n- Recommendations on spending:\n  - Contain expenditure growth, particularly the wage bill.\n  - Improve efficiency of education spending.\n  - Increase investment in technological innovation and human capital buildup to reduce skills mismatches and achieve more inclusive growth, particularly among the youth.\n  - Manage incentives and costs of services and ensure competitiveness of the public health sector to control fiscal risks from the recently implemented National Health System."
    },
    {
      "heading": "Structural policies and growth potential",
      "content": "- Productivity growth has been weak, reflecting institutional bottlenecks and slow technology adoption.\n- Directors emphasized structural reforms to raise medium‑term growth potential:\n  - Support greater market diversification, competition, and technology adoption.\n  - Continue authorities’ strategy to improve STEM training and research and development innovation and to ease access to finance, as well as implement the national digital strategy.\n  - Continue efforts to improve the efficiency of the judiciary and strengthen public sector governance.\n  - Mitigate existing inherent AML/CFT risks as a critical priority."
    },
    {
      "heading": "Executive Board assessment (summary of Directors’ views)",
      "content": "- Welcomed strong economic recovery and declining unemployment rate.\n- Commended authorities for progress in addressing banking sector vulnerabilities and improving macroeconomic fundamentals.\n- Highlighted weak productivity growth and high private sector indebtedness amid ongoing debt workout challenges.\n- Encouraged steadfast efforts to address crisis legacies by:\n  - Continuing to reduce debt vulnerabilities,\n  - Improving public spending efficiency,\n  - Raising economic growth potential and inclusiveness."
    },
    {
      "heading": "Selected economic indicators, 2016–2020 (highlights from IMF staff projections)",
      "content": "- Real GDP: 2016: 6.7; 2017: 4.4; 2018: 4.1; 2019: 3.1; 2020: 2.9\n- Domestic demand: 2016: 8.2; 2017: 7.2; 2018: 2.5; 2019: 3.5; 2020: (not listed)\n- Consumption (annual percent): 2016: 3.4; 2017: 4.0; 2018: 3.3; 2019: 3.0\n- Private consumption: 2016: 4.5; 2017: 3.6; 2018: 3.2\n- Gross capital formation: 2016: 37.9; 2017: 22.1; 2018: 7.8; 2019: 5.9\n- Foreign balance (contribution to growth, percentage points): 2016: -1.1; 2017: -2.7; 2018: 1.5; 2019: -1.3; 2020: -0.7\n- Exports of goods and services: 2016: 8.7; 2017: 4.6; 2018: 0.2\n- Imports of goods and services: 2016: 9.0; 2017: 12.8; 2018: 1.9\n- Potential GDP growth: 2016: 1.8; 2017: 2.2; 2018: 2.6; 2019: 2.8\n- Output gap (percent of potential GDP): 2016: -3.0; 2017: -1.0; 2018: 0.6; 2019: 1.0; 2020: 1.1\n- HICP (period average, percent): 2016: -1.2; 2017: 0.7; 2018: 0.8; 2019: 1.6; 2020: (not listed)\n- HICP (end of period, percent): 2016: 0.1; 2017: -0.3; 2018: 1.2; 2019: 1.3\n- Unemployment rate (EU standard, percent): 2016: 13.0; 2017: 11.1; 2018: 8.4; 2019: 7.0; 2020: 6.0\n- Employment growth (percent): 2016: 1.4; 2017: 5.6; 2018: 2.0\n- General government balance: 2016: 1.7; 2017: -4.4\n- Revenue (percent of GDP): 2016: 37.7; 2017: 38.6; 2018: 39.2; 2019: 41.4; 2020: 43.7\n- Expenditure (percent of GDP): 2016: 37.6; 2017: 36.9; 2018: 43.6; 2019: 37.8; 2020: 41.3\n- Primary Fiscal Balance (percent of GDP): 2016: 4.2; 2017: -2.0; 2018: 4.8\n- General government debt (percent of GDP): 2016: 103.4; 2017: 93.9; 2018: 100.6; 2019: 94.8; 2020: 87.9\n- Current account balance (percent of GDP): 2016: -4.2; 2017: -5.1; 2018: -5.2; 2019: -4.8\n- Trade Balance (goods and services): 2016: -0.4; 2017: -1.4\n- Nominal GDP (billions of euros): 2016: 18.9; 2017: 20.0; 2018: 21.1; 2019: 22.0; 2020: 23.1\n- Memorandum item — Underlying primary fiscal balance: 5.4\n\nIMF Communications Department, Press Release No. 19/447, December 10, 2019.\n\n---\n\n\n References\n\n- https://www.imf.org/-/media/images/imf/bios/imfboard.jpg\n- The Executive Board\n- Cyprus and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- http://www.imf.org/external/np/sec/misc/qualifiers.htm\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2019/12/10/pr19447-cyprus-imf-executive-board-concludes-2019-article-iv-consultation"
    }
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    "[Bundle manifest](/en/news/articles/2019/12/10/pr19447-cyprus-imf-executive-board-concludes-2019-article-iv-consultation/bundle-manifest.json)",
    "Published: December 10, 2019",
    "Press Release No. 19/447",
    "December 10, 2019",
    "On November 27, 2019, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Cyprus.",
    "Growth decelerated to 3.2 percent (year-over-year) in the first semester of 2019, from 4.0 percent in 2018.",
    "Real GDP growth is projected to moderate to around 3 percent in 2019–20.",
    "Over the medium term, economic growth is projected to slow to its long-run potential rate of around 2½ percent.",
    "Private consumption expected to remain resilient due to tightening labor markets and gradual credit recovery.",
    "Public debt is projected to decline to 65 percent of GDP by 2024 on the back of continued high primary surplus.",
    "Risks: Predominantly on the downside arising from sharper-than-expected external shocks.",
    "Non-performing loans (NPLs) remain high at 30 percent of loans.",
    "A large private sector debt overhang persists, given continued difficulties in debt workouts.",
    "Directors emphasized steady NPL resolution and sustainable debt workouts:",
    "Need for broader efforts to further strengthen banks’ balance sheets and profitability:",
    "Underlying general government primary surplus rose to 5.4 percent of GDP in 2018.",
    "Directors welcomed strong fiscal performance and stressed need to reduce debt sustainability risks and enhance expenditure efficiency.",
    "Recommendations on spending:",
    "Productivity growth has been weak, reflecting institutional bottlenecks and slow technology adoption.",
    "Directors emphasized structural reforms to raise medium‑term growth potential:",
    "Welcomed strong economic recovery and declining unemployment rate.",
    "Commended authorities for progress in addressing banking sector vulnerabilities and improving macroeconomic fundamentals.",
    "Highlighted weak productivity growth and high private sector indebtedness amid ongoing debt workout challenges.",
    "Encouraged steadfast efforts to address crisis legacies by:",
    "Real GDP: 2016: 6.7; 2017: 4.4; 2018: 4.1; 2019: 3.1; 2020: 2.9",
    "Domestic demand: 2016: 8.2; 2017: 7.2; 2018: 2.5; 2019: 3.5; 2020: (not listed)",
    "Consumption (annual percent): 2016: 3.4; 2017: 4.0; 2018: 3.3; 2019: 3.0",
    "Private consumption: 2016: 4.5; 2017: 3.6; 2018: 3.2",
    "Gross capital formation: 2016: 37.9; 2017: 22.1; 2018: 7.8; 2019: 5.9",
    "Foreign balance (contribution to growth, percentage points): 2016: -1.1; 2017: -2.7; 2018: 1.5; 2019: -1.3; 2020: -0.7",
    "Exports of goods and services: 2016: 8.7; 2017: 4.6; 2018: 0.2",
    "Imports of goods and services: 2016: 9.0; 2017: 12.8; 2018: 1.9",
    "Potential GDP growth: 2016: 1.8; 2017: 2.2; 2018: 2.6; 2019: 2.8",
    "Output gap (percent of potential GDP): 2016: -3.0; 2017: -1.0; 2018: 0.6; 2019: 1.0; 2020: 1.1",
    "HICP (period average, percent): 2016: -1.2; 2017: 0.7; 2018: 0.8; 2019: 1.6; 2020: (not listed)",
    "HICP (end of period, percent): 2016: 0.1; 2017: -0.3; 2018: 1.2; 2019: 1.3",
    "Unemployment rate (EU standard, percent): 2016: 13.0; 2017: 11.1; 2018: 8.4; 2019: 7.0; 2020: 6.0",
    "Employment growth (percent): 2016: 1.4; 2017: 5.6; 2018: 2.0",
    "General government balance: 2016: 1.7; 2017: -4.4",
    "Revenue (percent of GDP): 2016: 37.7; 2017: 38.6; 2018: 39.2; 2019: 41.4; 2020: 43.7",
    "Expenditure (percent of GDP): 2016: 37.6; 2017: 36.9; 2018: 43.6; 2019: 37.8; 2020: 41.3",
    "Primary Fiscal Balance (percent of GDP): 2016: 4.2; 2017: -2.0; 2018: 4.8",
    "General government debt (percent of GDP): 2016: 103.4; 2017: 93.9; 2018: 100.6; 2019: 94.8; 2020: 87.9",
    "Current account balance (percent of GDP): 2016: -4.2; 2017: -5.1; 2018: -5.2; 2019: -4.8",
    "Trade Balance (goods and services): 2016: -0.4; 2017: -1.4",
    "Nominal GDP (billions of euros): 2016: 18.9; 2017: 20.0; 2018: 21.1; 2019: 22.0; 2020: 23.1",
    "Memorandum item — Underlying primary fiscal balance: 5.4",
    "[https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg)",
    "[The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)",
    "[Cyprus and the IMF](http://www.imf.org/external/country/CYP/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Press Releases](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[http://www.imf.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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