The Cypriot authorities have made commendable progress in implementing near-term stabilsation policies and they remain committed to taking further steps to restore financial stability and the sustainability of public finances to support long-run growth, IMF Chief Christine Lagarde said Monday.
She however pointed out that risks to the rescue program remain substantial, leaving no room for ‘implementation slippages’.
The Executive Board of IMF today completed the first review of Cyprus’ performance under an economic program supported by a three-year, Extended Fund Facility (EFF) arrangement.
According to a statement released by the IMF, the completion of this review enables the disbursement of about €84.7 million, which would bring total disbursements under the arrangement about €169.4 million.
Speaking to the press, Lagarde said that important policy actions were taken to advance the banking sector strategy, including the recapitalization of the two largest banks without the use of public support, and the exit from resolution of the merged institution.
She added that adequate short-run liquidity support by the Eurosystem remains critical to restoring confidence while a strong business and funding model is being put in place to ensure the bank’s long-run viability.
“Steps are being taken to recapitalize and restructure remaining solvent banks and the cooperative credit sector. The authorities will also strengthen the supervision and regulation of these institutions, and ensure the full implementation of the anti-money laundering framework by banks. Improvements to the private debt restructuring framework aim to facilitate corporate and household deleveraging and maximize asset recoveries”, she underlined.
According to the IMF Chief, “payment restrictions that were earlier introduced to safeguard financial stability will be eased gradually to boost confidence and support economic activity”.
Lagarde noted that the authorities need to implement carefully the measures included in their recently published roadmap, based on achieving specific milestones in the banking sector strategy, while maintaining sufficient flexibility in the event of unanticipated developments.
She went on to say tat Cyprus is on track to meet its 2013 fiscal targets, “thanks to the significant consolidation underway and prudent budget execution”. Lagarde also pointed out that there is a need for continued ‘fiscal prudence’.
According to Lagarde, the Cyprus authorities are embarking on an ambitious structural reform agenda. She said that revenue administration reform aims to protect revenues and boost the efficiency of collections, while overhauling the welfare system will help mitigate the impact of the crisis on vulnerable groups.
“Risks to the program remain substantial, leaving no room for implementation slippages. Continued strong ownership, including steadfast policy implementation, is critical for the program’s success,” she concluded.
The Extended Fund Facility (EFF) arrangement, approved on May 15, 2013, is part of a combined financing package with the European Stability Mechanism (ESM) amounting to €10 billion.
The package featured a sizeable reduction of the island’s banking sector, as well as bail-in of uninsured deposits, which hampered the services sector, one of the island’s main source of income.