IMF: Cyprus on track with adjustment

Cyprus is making a comeback from near bankruptcy although its banks are still struggling with bad loans and political support may be waning for tough measures, an International Monetary Fund report said on Tuesday.

The IMF, which together with the European Union bailed the Mediterranean island out a year ago, also flagged risks to Cyprus from its close business ties with both Moscow and Kiev.

“The Ukraine crisis may lead to capital flight from non-resident depositors of foreign banks in Cyprus, which may affect the business service sector,” the Fund said in an appraisal accompanying its third tranche of aid under the three-year bailout program.

Some 40,000 Russians live in Cyprus out of a total population of 800,000.

Cypriot officials acknowledge risks if East-West tensions rise but say deposits have stabilized after a rout on its banking system last year.