The Executive Board of the International Monetary Fund (IMF) today completed the combined fifth, sixth and seventh reviews of Cyprus’s economic adjustment program supported by the Extended Fund Facility (EFF). The completion of these reviews enables the disbursement of SDR 222.75 million (about €278.4 million), which would bring total disbursements under the program to SDR 594 million (about €742.4 million).
The Executive Board also approved a revised schedule of future disbursements and reviews, given the delay in concluding the current ones. Conclusion of the eighth review is now expected to take place during September 2015, with two more reviews following on a quarterly basis.
The three-year, SDR 891 million (about €1 billion) arrangement was approved on May 15, 2013 (see Press Release No. 13/175). Cyprus’s economic program is also supported by financial assistance from the European Stability Mechanism (ESM) amounting to €9 billion.
Following the Executive Board’s discussion, Mr. David Lipton, IMF First Deputy Managing Director and Acting Chair, issued the following statement:
“Cyprus’s Fund-supported reform program continues to produce positive results. Economic and fiscal outcomes have been better-than-expected, with growth turning positive in the first quarter of 2015 and public finances exceeding targets. Liquidity and solvency in the banking system have improved, allowing the elimination of external payment restrictions. Going forward, it will be important to maintain the reform momentum and strong program ownership.
“Addressing the high level of non-performing loans remains an urgent priority to preserve financial stability and boost growth and job creation. In this respect, adoption of the new insolvency and foreclosure legislation is a key step. To maximize the legislation’s effectiveness, it will be important to make any necessary adjustments to correct identified deficiencies that hinder implementation.
“Continued efforts are needed to strengthen banking supervision and build the capacity of the banking system to restructure loans in a sustainable manner. It is important that financial institutions continue to implement their loan restructuring plans, monitor progress on the basis of performance indicators, and address any deviations.
“The strong fiscal performance is impressive. Nevertheless, high public debt together with sizeable contingent liabilities warrants continued prudence and efforts to lock in fiscal savings from better-than-expected macroeconomic developments. Thorough implementation of the new welfare system is important to protect vulnerable groups, while public investment allocations need to be executed to support economic recovery.
“The authorities should continue to advance structural reforms to strengthen public finances and lay the ground for sustained growth. Fiscal reforms should focus on revenue administration, public financial management, and public administration. Progress in privatization and further efforts to improve the business environment and reduce unemployment are also needed”, Mr. Lipton said.