## IMF Executive Board Concludes 2019 Article IV Consultation with Cyprus

_IMF News, December 10, 2019_

## Source details

**Canonical URL:** [IMF Executive Board Concludes 2019 Article IV Consultation with Cyprus](https://www.imf.org/en/news/articles/2019/12/10/pr19447-cyprus-imf-executive-board-concludes-2019-article-iv-consultation)

## Other formats

- [Markdown version](/en/news/articles/2019/12/10/pr19447-cyprus-imf-executive-board-concludes-2019-article-iv-consultation/index.md)
- [Structured JSON version](/en/news/articles/2019/12/10/pr19447-cyprus-imf-executive-board-concludes-2019-article-iv-consultation/index.json)
- [Bundle manifest](/en/news/articles/2019/12/10/pr19447-cyprus-imf-executive-board-concludes-2019-article-iv-consultation/bundle-manifest.json)

## Bibliographic details
- Published: December 10, 2019

---

### Context and timing
- 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.

### Near-term outlook and growth projections
- 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.

### Banking sector and financial vulnerabilities
- 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:
  - Ensure a well‑functioning NPL resolution toolkit, including implementation of a credible foreclosure framework.
  - Complementary reforms in the judiciary.
  - Strengthen supervisory and regulatory framework of credit acquiring companies.
  - Finalize the governance structure of state‑owned Cyprus Asset Management Company.
  - Minimize moral hazard risks inherent in the state‑subsidy scheme for primary homeowners (Estia).
- Need for broader efforts to further strengthen banks’ balance sheets and profitability:
  - Banks should continue to maintain adequate provisions and capital buffers.
  - Policies should encourage lower cost‑to‑income ratios through diversifying income sources, rationalizing operations, and implementing digitization solutions.
  - Macro‑financial risks from the property market appear limited now but warrant close monitoring.

### Fiscal performance and public finances
- 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:
  - Contain expenditure growth, particularly the wage bill.
  - Improve efficiency of education spending.
  - Increase investment in technological innovation and human capital buildup to reduce skills mismatches and achieve more inclusive growth, particularly among the youth.
  - 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.

### Structural policies and growth potential
- Productivity growth has been weak, reflecting institutional bottlenecks and slow technology adoption.
- Directors emphasized structural reforms to raise medium‑term growth potential:
  - Support greater market diversification, competition, and technology adoption.
  - 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.
  - Continue efforts to improve the efficiency of the judiciary and strengthen public sector governance.
  - Mitigate existing inherent AML/CFT risks as a critical priority.

### Executive Board assessment (summary of Directors’ views)
- 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:
  - Continuing to reduce debt vulnerabilities,
  - Improving public spending efficiency,
  - Raising economic growth potential and inclusiveness.

### Selected economic indicators, 2016–2020 (highlights from IMF staff projections)
- 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

*IMF Communications Department, Press Release No. 19/447, December 10, 2019.*

---


## References

- [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)

_Source: https://www.imf.org/en/news/articles/2019/12/10/pr19447-cyprus-imf-executive-board-concludes-2019-article-iv-consultation_