IMF says Cyprus will need more spending cuts

NICOSIA – Bailed-out Cyprus is likely to return to growth next year, the International Monetary Fund said on Wednesday, but cautioned the outlook was tempered by tensions over Ukraine and banks’ rising bad loans.

The IMF, one of the lenders that stepped in with a 10-billion-euro bailout for the Mediterranean island nation last year, also said it expected Cyprus would require additional fiscal efforts to achieve a sustainable primary surplus target of 4 percent by 2018.

It said a “growth-friendly consolidation” should focus on fully unwinding spending increases introduced before Cyprus plunged into crisis in 2013, while protecting capital expenditures.

It added there was further scope to cut the public payroll.

Pay in the public sector has already been scaled back under the bailout agreement, and a freeze on pay rises is in place until 2016.

“While significant progress has been achieved, overcoming the legacy of the crisis will be challenging,” the IMF said in a staff report, part of a regular annual consultation by the Fund.

“Risks remain significant, related to the uncertainty about the magnitude and pace of private sector deleveraging and the ability of banks to address NPLs (non-performing loans), as well as to geopolitical tensions of Ukraine-Russia,” the IMF said. [Reuters]