Eurozone member Cyprus is making good progress on structural reforms under the terms of a 2013 bailout, the IMF said on Friday, and any effects on the island from Greece’s crisis should be manageable.
In a staff report issued Friday, the International Monetary Fund said that the island would issue another euro bond in the second half of 2015, market conditions permitting. The island last tapped international markets in April.
“The capacity to repay the fund remains comfortable,” the IMF said in a report.
Cyprus signed up to a 10 billion-euro bailout accord with the European Union and the IMF in early 2013. Its banks had significant exposure to an EU-sanctioned debt writedown for neighboring Greece, saddling domestic lenders with losses the equivalent of about 25 percent of Cyprus’s 18 billion-euro GDP.
Now, the IMF said, financial links between Greece and Cyprus were significantly reduced, and the island was showing increasing resilience in the face of developments in Greece.
“Nonetheless, the ongoing uncertainty in Greece could still
affect Cyprus, including through lower external demand and higher funding costs,” the IMF said.
Cyprus was the first euro zone member state to introduce capital controls — since completely ended — to prevent a deposit flight. It was also first to enforce the ‘bail-in’ rule, now an EU directive, requiring that under certain circumstances bank depositors would shoulder the cost of recapitalizing banks.
In Cyprus’s case, about 47.5 percent of deposits exceeding 100,000 euros in Bank of Cyprus were converted into equity to recapitalize the bank. Another major lender, Laiki, was wound down.