Cyprus Mail

Lagarde: Cyprus has made ‘commendable progress’ but risks remain substantial

IMF chief Christine Lagarde

Cypriot authorities have made commendable progress in implementing near-term stabiliSation policies and they remain committed to taking further steps to restore financial stability and the sustainability of public finances to support long-run growth, IMF Chief Christine Lagarde said on Monday.

She however added that risks to the rescue programme remained substantial, leaving no room for ‘implementation slippages’.

The Executive Board of IMF on Monday completed the first review of Cyprus’ performance under an economic programme supported by a three-year, Extended Fund Facility (EFF) arrangement.

The completion of this review enables the disbursement of about €84.7 million, which would bring total disbursements under the arrangement about €169.4 million.

Lagarde said that important policy actions were taken to advance the banking sector strategy, including the recapitalisation of the two largest banks without the use of public support, and the exit from resolution of the merged institution.

She added that adequate short-run liquidity support by the Eurosystem remains critical to restoring confidence while a strong business and funding model was being put in place to ensure the bank’s long-run viability.

“Steps are being taken to recapitalise and restructure remaining solvent banks and the cooperative credit sector. The authorities will also strengthen the supervision and regulation of these institutions, and ensure the full implementation of the anti-money laundering framework by banks. Improvements to the private debt restructuring framework aim to facilitate corporate and household deleveraging and maximise asset recoveries”, she underlined.

According to the IMF Chief, “payment restrictions that were earlier introduced to safeguard financial stability will be eased gradually to boost confidence and support economic activity”.

Lagarde noted that the authorities needed to implement carefully the measures included in their recently published roadmap, based on achieving specific milestones in the banking sector strategy, while maintaining sufficient flexibility in the event of unanticipated developments.

She went on to say that Cyprus was on track to meet its 2013 fiscal targets, “thanks to the significant consolidation underway and prudent budget execution”. Lagarde also pointed out that there was a need for continued ‘fiscal prudence’.

According to Lagarde, the Cyprus authorities were embarking on an ambitious structural reform agenda. She said that revenue administration reform aimed to protect revenues and boost the efficiency of collections, while overhauling the welfare system would help mitigate the impact of the crisis on vulnerable groups.

“Risks to the programme remain substantial, leaving no room for implementation slippages. Continued strong ownership, including steadfast policy implementation, is critical for the programme’s success,” she concluded. (CNA)

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