IMF MANAGING Director Christine Lagarde has praised the Cyprus authorities for keeping implementation of its adjustment programme on track and pointed out that the ongoing fiscal adjustment should be complemented by structural reforms.
On Friday the IMF completed its third review of Cyprus’ performance under last year’s bailout programme, approving the disbursement of about €83.3 million.
The IMF head said that the Cypriot authorities are to be commended for keeping the implementation programme on track, meeting their fiscal targets with significant margins, advancing fiscal structural reforms and completing the recapitalisation of the financial system.
“While the macroeconomic outturn in 2013 was better than expected, the outlook is challenging. Full and timely policy implementation, broad public acceptance, and continued support from Cyprus’s European partners remain critical to the program’s success”, she said.
Lagarde also noted that the successful resumption of credit and output growth depends on progress with reducing non-performing loans. “Prompt implementation of a strong insolvency framework is necessary to provide adequate incentives for voluntary debt restructuring negotiations,” she said.
According to Lagarde, continued efforts are needed to strengthen banking supervision and regulation and implement the anti-money laundering framework.
She also said that prudent fiscal policies have contributed to permanent budgetary savings and reduced the budget deficit, adding however that “in light of persistent macroeconomic uncertainty, cautious budget execution will need to be maintained this year”.
“The ongoing fiscal adjustment should be complemented by structural reforms to enhance the welfare system and protect vulnerable groups, modernise the revenue administration, further strengthen public financial management, and prepare state-owned assets for privatization,” the IMF chief said.
On Saturday, deputy government spokesman Victoras Papadopoulos said that the only way to return to the markets and to exit the memorandum Cyprus has signed with its international lenders is to carry on with the hard work achieved so far.
“Faithful implementation of the memorandum and a policy of prudence followed by the government have decidedly removed the risk of default, stabilised the economy and the banking system in less than 11 months, and have refuted the ominous predictions made from within and outside of Cyprus on the level of economic contraction,” he said.