Cyprus`s economic adjustment program is on track and Cypriot authorities have made good progress towards meeting their objectives, IMF Mission chief Delia Velculescu said on Wednesday duri6ng a conference on the completion of the Troika’s first mission to Cyprus to review the island’s bailout programme.
Velculescu said that “Bank of Cyprus- which together with Laiki Bank was put on the resolution in March- has now been fully recapitalized and taken out of the resolution. This represents a key step towards restoring normal operations for this Bank, although much remains to be done for Bank of Cyprus to adopt its business model during new circumstances”.
As part of a €10 billion rescue package for Cyprus, Bank of Cyprus, the island`s largest lender, entered a resolution process, with an initial 60% of deposits over €100,000 blocked for capital to equity conversion to recapitalize the bank. However, the final figure was reduced at 47.5% following the completion of an independent evaluation of the Bank`s balance sheet, after it absorbed the “good part” of Laiki Bank which will be wound down.
IMF Mission chief said that “there is a concrete plan in place to recapitalize other banks, including recapitalizing and restructuring Cyprus’ cooperative credit sector. This will be done with program resources as needed and will not require depositor’s involvement”.
She also said that “authorities are developing a milestone-based roadmap to gradually relax capital controls in an orderly way in line with progress in the overall banking strategy.”
Velculescu said that “measures will be taken to strengthen financial sector supervision and regulation and in hand implementation of the anti-money laundering framework”.
On the fiscal policies, she said that “some measures implemented at the end of last year and in April of this year together with prudent budget executions have lead to a better fiscal performance measured against programme targets”.
Nevertheless, she added, high uncertainty remained for the macro economic outlook which called for continuous fiscal prudence.
“Available economic indicators do not indicate that a revision to the macro economic projections underlying the programme are warranted at this time, however uncertainty remains large”, she said.
On structural reforms, she said that the authorities are embarking on an ambitious reform agenda to modernize their fiscal institutions.
In conclusion, she said that the authorities have made good progress in program implementation and have set an ambitious agenda for the months to come.
“Still with large risks still clouding the outlook, fiscal prudent and strong and timely policy implementation are critical for the program success”, she concluded.
