The IMF said on Tuesday that economic growth in Cyprus is gradually decelerating but remains strong, buoyed by the services and construction sectors which are partly financed with foreign direct investment.
Following the third post-program monitoring discussions with Cyprus the International Monetary Fund indicated that while employment is picking up, wage pressures and inflation remain low.
According to a press release, a large fiscal surplus is helping Cyprus lower public debt after a sizable one-off increase related to the sale of Cyprus Cooperative Bank (CCB) last year.
“The removal of CCB’s non-performing loans (NPLs) and securitization of a large NPL portfolio has led to a sharp reduction in NPLs, earning Cyprus a sovereign rating upgrade back to investment grade status.”
Nevertheless, the IMF notes, NPLs are still among the highest in the EU, public and private debt levels remain elevated and efforts to clean up bank balance sheets and build capital buffers are ongoing.
The Executive Board in its assessment said that strict fiscal discipline should be maintained while identifying that “a window of opportunity for structural reforms is opening and should be vigorously pursued.”
While the IMF recognizes that Cypriot authorities are pursuing long-delayed structural reforms, including judiciary, local government reforms, and the introduction of a national health insurance system, the recommendations show that there has been little progress on some important reforms, such as the state owned enterprises law, privatizations, and broader civil service reforms.
There is also reference to the need for reforms of civil procedures and the process to issue title deeds as well as the introduction of the e-justice system that would help resolve crisis legacies and improve access to financing and investment.