articles | 11 April 2017 | ServPRO

2.5% growth rate for Cyprus

The IMF’s mission visited Nicosia during March 27–31 for the first post-program monitoring (PPM) discussions since Cyprus exited the bailout scheme last year. The PPM forms part of the IMF’s regular monitoring process of countries with significant outstanding IMF credit, focusing on the ability of the said countries to repay the Fund.

In the press release after the preliminary findings, the IMF pointed out that Cyprus’ capacity to repay the Fund is satisfactory and that the GDP growth is forecast at a rate of 2,5% .

The IMF’s statement mentioned:

“Since exiting the IMF program one year ago, Cyprus’s economic recovery has gathered momentum, banks’ liquidity positions have improved, the restructuring of nonperforming loans (NPLs) has accelerated and the fiscal primary surplus has increased.”

Furthermore, it noted that “growth is expected to remain brisk, although moderating gradually from the rapid pace of last year. For 2017, GDP growth is forecast at around 2.5 percent on continued support from foreign demand and external financing. Thereafter, growth is expected to ease marginally as repayment of private sector debt picks up, stabilizing at just above 2 percent from 2020.”

The IMF also highlighted that Cyprus needs to work on the three main areas that remain problematic, those being the non-performing loans, frontloading public debt reduction and reinvigorating structural reforms.

It noted:

“Nonetheless, continued very high levels of private sector indebtedness, nonperforming loans and general government debt remain vulnerabilities. Decisive progress on repairing private balance sheets, while upholding fiscal prudence and completing pending structural reforms are essential to build resilience, reduce the risk of adverse shocks to balance sheets and raise potential growth.”Consequently, the mission concluded that Cyprus’ “capacity to repay the Fund is expected to be satisfactory, supported by sizable fiscal primary surpluses, the back-loaded maturity profile of official debt and possible further operations to smooth redemptions of market-based debt. However, repayment capacity would be weakened in the event of a new boom-bust growth cycle, if fiscal discipline is eroded or if risks in banks’ balance sheets materialize.”

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