01 April 2014

Eurogroup/IMF: Cyprus on track with implementation of economic adjustment programme

Eurogroup President Dijsselbloem had meetings with Cypriot Finance Minister Charis Georgiades and President Nicos Anastasiades. Mr Dijsselbloem showed his support for both the Cypriot government and the Cypriot people. He said he was fully aware that the Cypriot population was going through difficult times, but added that he was convinced that the country would emerge stronger. Reforming and restructuring the Cypriot economy is inevitable to get the country back in good shape and provide a sustainable future for the next generations. Cyprus will be able to overcome its problems due to its open, strong and flexible economy.

Press release   © European Union

Further reporting by European Voice (subscription)

The Support Group for Cyprus published its first report on technical assistance for Cyprus. The Support Group was launched by European Commission President José Manuel Barroso in March 2013 to coordinate the technical assistance requested by Cyprus in order to help implement specific reforms set out in its economic adjustment programme, alleviate the social consequences of the economic downturn and revive and diversify the economy.

Vice-President Olli Rehn, responsible for Economic and Monetary Affairs and the Euro, said: "The Cypriot authorities are carrying out the reforms set out in the programme with commitment and determination. These reforms are helping Cyprus to repair its financial sector, restore healthy public finances and carry out important economic reforms, while protecting the most vulnerable in society. The Commission will continue to stand by the Cypriot people, not least through the Support Group for Cyprus, which is a concrete expression of European solidarity."

The experts of the Support Group assess technical assistance needs on the ground, help design the projects to be implemented and mobilise sources of funding. The initial technical assistance activities have been financed through the EU budget, notably through the European Social Fund and the European Regional Development Fund. The Support Group's focus is now to move projects into the implementation phase and complete the recruitment of three experts, who will be based in the Cypriot administration and will work in the areas of health systems and services, public financial management, and energy markets.

The Support Group's first activity report, which covers the period September-December 2013, presents the state-of-play of its work in six key policy areas: the budgetary framework and public financial management, revenue administration, immovable property tax reform, the welfare system, healthcare and renewable energy. The Support Group is helping to shape important reforms in Cyprus, particularly in the areas of revenue administration, the welfare system and healthcare.

Press release

Full report

The IMF has published a package of documents on Cyprus:

• The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on March 28, 2014, following discussions that ended on February 11, 2014, with the officials of Cyprus on economic developments and policies underpinning the IMF Extended Arrangement under the Extended Fund Facility. Based on information available at the time of these discussions, the staff report was completed on March 13, 2014.
• A Staff Supplement of March 24 updating information on recent developments.
• A Press Release including a statement by the Chair of the Executive Board.
• A Statement by the Executive Director for Cyprus.

The executive summary of the report states:

Extended Arrangement: On May 15, 2013, the Executive Board approved a three-year Extended Arrangement under the Extended Fund Facility in the amount of SDR 891 million (563 percent of quota; about €1 billion). Three purchases of amounts equivalent to SDR 74.25 million (about €86 million) each have been made so far, and another purchase of the same amount is proposed to be released upon completion of the third review. The European Stability Mechanism has released €4.6 billion of €9 billion committed, with a disbursement of €150 million expected in early April.

Recent Economic Developments: While deep, the 2013 recession was not as severe as anticipated. The adjustment is occurring through both quantities and prices, and signs of stabilisation are emerging in the banking sector. However, the outlook remains challenging, with rising unemployment, falling credit, and increasing non-performing loans. In this context, growth projections remain unchanged, with a deep contraction expected in 2014 and a modest and credit-less recovery taking hold in mid-2015.

Policy Implementation: The programme remains on track. Fiscal targets were met with considerable margins, the coop sector was recapitalised, and additional relaxations of payment restrictions are being implemented. Delays in the implementation of structural reforms have recently been overcome. Looking forward, policies will need to focus on dealing with the high level of non-performing loans, further normalising payment flows, maintaining fiscal prudence, and stepping up the implementation of the ambitious fiscal structural reform agenda. Risks to program implementation remain significant, including due to remaining financial sector vulnerabilities and diminished.

Full document package

On 2 April the Board of Directors of the European Stability Mechanism (ESM) approved today the disbursement of €150 million to Cyprus. This follows the positive assessment of the third quarterly review of Cyprus’s macroeconomic adjustment programme and approval of the supplemental Memorandum of Understanding (MoU) with Cyprus by the ESM Board of Governors.

ESM Managing Director Klaus Regling said: “This disbursement marks another successful completion of the review and the authorities’ commitment to the programme. It is important to maintain the reform momentum as many challenges still lie ahead.”

Press release  

© European Commission