WASHINGTON: Cyprus should return to growth in 2015 after three years of deep recession, the International Monetary Fund said yesterday, but will need to ensure that its sweeping austerity programme does not slip off the tracks.
The IMF agreed in March to provide Cyprus with some ¤1bn in aid, along with another ¤9bn from the European Union, to stave off a meltdown of the cash-strapped economy.
A staff report issued yesterday backed that decision, praising the government for the steps it has taken to restructure the economy but warning that it must go even further to achieve long-term stability.
The report said real GDP should grow by a modest 1.1 percent in 2015, after plunging 8.7 percent this year and a further 3.9 percent in 2014.
At the same time, it forecast that already high unemployment should reach 15.5 percent in 2013 and peak at 16.9 percent next year before easing to 14.6 percent in 2015.
The IMF’s forecasts for 2013 and 2014 are virtually the same as those in the European Commission’s recently published spring outlook, which did not give estimates for 2015.
On April 30, the parliament in Nicosia narrowly approved the 10-billion-euro ($12.9-billion) bailout, in the form of a low-interest loan, agreed with the IMF, European Commission and European Central Bank.
Cyprus will have to raise another ¤13bn through a wide range of measures, most already adopted, that include a restructuring of the bloated banking sector, tax increases, spending cuts and the part privatisation of state companies.
The IMF report praised the government of President Nicos Anastasiades for having showed “exceptional resolve in addressing the crisis”, which it said “averted a potential accident with unknown consequences for the euro-zone”.
But it said “time will be needed for the economy to adjust to the deep structural changes to its financial sector and adapt its business model”. And it said the “macroeconomic risks remain unusually high, given the uncertain impact of the banking crisis and fiscal consolidation on economic activity and the adaptation of the business model.
“Financial sector risks to the programme are particularly acute, including lingering concerns about the high reliance of the largest bank (Bank of Cyprus) on central bank support, the system’s rising non-performing loans and the future impact of administrative restrictions, but also the potential consequences of their premature lifting.”
AFP
