Staff-level agreement was reached on policies that could serve as a basis for completion of the fifth review of the implementation of Cyprus` adjustment programme, the Troika, comprising the European Commission, the ECB and the IMF, said on Friday in a statement.
According to the statement, “staff teams from the European Commission (EC), European Central Bank (ECB), and the International Monetary Fund (IMF) visited Nicosia during July14-25, 2014 for the fifth review of Cyprus`s economic programme, which is supported by financial assistance from the European Stability Mechanism (ESM) and the IMF”.
It says that “Cyprus’s programme seeks to ensure the recovery of economic activity to preserve the welfare of the population by restoring financial sector stability, strengthening public finance sustainability, and adopting structural reforms to support long-run growth”.
“Staff-level agreement was reached on policies that could serve as a basis for completion of the fifth review. The authorities have continued to meet the fiscal targets with significant margin in the first half of the year, as a result of prudent budget execution”, the statement adds.
In the financial sector, Troika notes in its statement that “banks are advancing with their restructuring plans and capital raising while supervisory monitoring of their actions and operational capacity to address non-performing loans has been enhanced”.
Moreover, it says that “structural reforms are proceeding: the authorities have implemented a welfare reform providing a guaranteed minimum income for all those in need, have commenced the integration of the revenue administration, and have strengthened the administration’s powers to fight tax evasion”.
It also says that “the macroeconomic outlook remains broadly unchanged compared to the fourth review,” adding that “the authorities have pursued a cautious fiscal policy, which helped allow them to over-achieve fiscal targets consistently. Such prudence should continue, in light of lingering risks”.
In particular, the statement continues, “next year’s budget needs to be based on conservative assumptions, ensure the fiscal neutrality of the new welfare reform, and help achieve a smooth path towards the medium-term primary fiscal surplus target of 4 percent of GDP in 2018 that will put public debt on a sustained downward path”.
The Troika underlines that “the authorities should maintain the structural reform momentum. With the welfare reform adopted, the authorities must focus on its implementation to ensure that vulnerable groups are protected during the downturn.”
“They also need to advance the implementation of the revenue administration reform by taking further steps toward the integration of the two tax departments under a unified and more effective administration. This should be complemented by continued efforts to combat tax evasion and non-compliance and strengthen the management of public debt and of fiscal risks”, it notes.
Timely implementation of the privatization plan, it points out, “is necessary to increase economic efficiency, attract investment, and reduce public debt”.
“Given still high risks, continued full and timely policy implementation remains essential for the success of the programme” Troika`s statement concludes.
The Cypriot authorities concluded in March 2013 an agreement with the Troika on a €10 billion bailout. So far Cyprus received four disbursements from the ESM/IMF totaling €5.77 billion.
