By George Psyllides
INTERNATIONAL lenders assessing Cyprus’ progress in meeting a three-year adjustment programme said a recession this year would be less pronounced than anticipated, but upped their forecast for a loss in output next year.
Lenders now believe Cyprus will see its economy contract by 7.7 per cent this year from an earlier 8.7 per cent projection on restrained spending and better revenue performance, IMF Cyprus mission chief Delia Velculescu said.
She said however that recession forecasts for 2014 were increased to 4.8 per cent, from earlier calculations of 3.9 per cent, on a smaller disposable income and growing unemployment among the island’s residents.
Tourism and professional services have proven relatively resilient, and confidence has continued to improve gradually, the lenders said.
New foreign direct investment in the banking sector has been a positive sign.
“Looking forward, given the significant need to reduce high levels of private sector debt, output is expected to contract by 4.8 per cent in 2014, and to recover only gradually starting in 2015, driven by non-financial services. However, the risks surrounding the outlook remain substantial.”
The lenders, on their second quarterly review, said Cyprus’ programme was on track and all fiscal targets have been met with considerable margins, “reflecting the ambitious fiscal consolidation underway, prudent budget execution, and a less severe deterioration of economic activity than originally projected.”
Structural reforms were also advancing and there has also been significant progress towards the recapitalisation and restructuring of the financial sector.
“Looking ahead, the main challenge is to repair the banks’ balance sheets and restore depositor confidence. This is key to the resumption of credit to the private sector, which is needed to support the economic recovery,” the lenders said.
Speaking at a news conference earlier yesterday, Finance Minister Harris Georgiades said Cyprus remained on track and there was no need for any additional measures beyond those put in place so far.
The minister also said the decision regarding the privatisation of state companies had been pushed back by a month.
“We have secured some additional time to proceed and finalise our plans and decisions,” Georgiades said, adding that the decision will be made before the release of the next tranche, which will be about €186 million.
The minister stressed that the timeframe for privatisations remained the same, between 2016 and 2018.
The aim is to raise €1.4 billion.
“The objective is to ensure this tool will be used correctly, in a manner that will encourage, and help attract investment and help development,” Georgiades said.