Although strict and painful the financial adjustment programme constitutes the country’s only choice to exit the crisis, the Central Bank of Cyprus notes in a six monthly economic bulletin published on Monday.
It warns that there is no room for complacency and that Cyprus must stay focused on all fronts implementing policies which will help it recover, boost confidence in its financial system and protect macroeconomic stability.
At the same time the Central Bank cautions that although significant steps towards restoring the country’s financial stability are been taken, the risks from unforeseeable or external developments remain.
It further notes that the adjustment programme offers the opportunity for correcting many structural distortions in the country’s economy as well as for creating the right circumstances for a return to conditions of viable growth and full employment.
According to the Cyprus Central Bank it (the adjustment programme) is the only way to ensure our smooth exit from the crisis whilst at the same time being ready to face any challenges ahead.
In its economic bulletin for December 2013, the institution points out that the fact that in recent reviews of the programme there were positive deviations both in the fiscal and the financial areas is important as these deviations can give the country breathing space for any adjustments that may need to be made.
Such positive deviations, it notes, will give the country the ability to better deal with any negative developments from time to time, while at the same time they reinforce the country’s credibility both vis-à-vis the markets and its international lenders (EC, ECB, IMF).
The adjustment programme, the Central Bank acknowledges, includes radical adjustments measures, many of which are unprecedented for Cyprus while they have to take place at a period when unemployment is excessively high.
Despite the fact that there is no room for complacency, the satisfactory course of implementation of the programme under difficult circumstances should be recognized, it stresses.
The Central Bank also notes that fiscal targets have so far been met with a significant margin, something which is reflected in the responsible implementation of the state budget as well as in the lower than initially expected deterioration of the economic activity for 2013.
Finally, it points out that the state budget for 2014 remains conservative with a view to implementing part of the additional fiscal adjustment required for the years 2015 – 2018 at an earlier timeframe.
In late March Cyprus averted a collapse of its banking sector after agreeing on a €10 billion bailout with the Troika (EC, ECB and IMF), that featured a haircut of banking deposits over €100,000 in its two larger lenders and an array of public spending cuts and salary reductions.