Cyprus’ macroeconomic adjustment program remains on track and good progress has been made in all areas, IMF Mission Chief for Cyprus Delia Velculescu said on Thursday.
Speaking during a teleconference, upon the finalization of the second review mission in Cyprus, Velculescu said that fiscal performance has been strong and all program targets were met with comfortable margins.
She noted that this is due to an ambitious consolidation that is now underway and also to restraint in budgetary spending and better than projected revenue performance, given a less severe economic contraction than initially expected.
She added moreover that program projections for growth for this year were revised to -7.7%, one percentage point better than expected. “While the data is better than expected the situation remains difficult with disposable income falling and unemployment rising” Velculescu said.
According to IMF mission Chief, for 2014 growth is now projected at -4.8%.
She said moreover that significant progress was made in the restructuring and recapitalization of the financial sector. Hellenic Bank was recapitalized ahead of schedule with private funds, including foreign direct investments and without any state support.
She added that the Bank of Cyprus has a Board of Directors in place, a CEO has been appointed and a new restructuring plan is now in place.
On the cooperative sector, the IMF mission chief said that funds for its recapitalization have been disbursed already. The main challenge is to repair banks’ balance sheets and restore depositors’ confidence, she said and added that this will be critical for the resumption of credit to the private sector, which is necessary for growth to resume.
Velculescu noted that this will require diligent implementation of banks’ restructuring plans, including efforts to restructure non performing loans. “In this regard, an adequate legal implementation framework for debt restructuring will be key” she said.
Morover, the IMF mission chief said efforts must continue on strengthening bank regulation and supervision.
On fiscal policy, Velculescu said that Cyprus’ draft 2014 budget remains conservative and in line with program targets. She added that structural reforms will need to continue and steps need to be taken to advance the privatization agenda.
Moreover, she noted that revenue administration reforms have started and will need to be carefully implemented to maximize efficiency of revenue collection.
Efforts need to continue to finalize the design and implementation next year of the welfare reform, aimed at providing adequate public assistance to all in need, especially given the difficult economic conditions, she went on.
Asked about the privatization agenda, Velculescu said that Cyprus authorities committed to present a plan “as soon as it is ready”. She added that the plan’s objectives are to raise 1.4 bln euros through 2018 as well as increase efficiency from transferring resources from public to private sector.
“This will be done through careful implementation and an adequate legal framework that will need to be put in place over the next several months” she said.
On the disbursement of the next trance, Velculescu said that the conclusion of the review of the mission is a preliminary one and it will be assessed by the respective boards of the IMF and the Eurogroup, on the basis of progress achieved, including in the privatizations’ area. Decisions will be made by respective boards, she said.
The assessment is expected to take place around early-mid December and disbursement will take place thereafter, based on the respective decisions of these boards, Velculescu said.
She added that the IMF expects a disbursement of 86 mln euros, while for the ESM the disbursement is expected to be around 100 mln.
Asked finally about contraction in the labor market, the IMF mission chief said that projections have not been dramatically changed but referred for more details in the Troika’s report, to be published in December.
