Cyprus remains fully committed to the implementation of the adjustment programme with international lenders Central Bank Governor Chrystalla Georghadji said on Tuesday.
She was speaking at the Cyprus Investors’ Summit in Limassol. Georghadji said Cyprus would slowly but steadily emerge stronger from the downturn.
“The Cypriot economy and society in general have exhibited considerable flexibility and endurance, keeping the country resilient even after the recent dramatic developments,” she said.
She said that while the Troika, in its fifth assessment of the Cyprus economic adjustment programme last July, predicted a real GDP decline of approximately 4.2 per cent for 2014, the most recent revised forecasts by the IMF and the European Commission project a real GDP decline of 3.2 per cent and 2.8 per cent respectively.
“Even better, according to the latest available data, the Central Bank of Cyprus expects a decline of around 2.5 per cent. For 2015 the economy is expected to do better and rebound with a marginal positive growth,”W she said.
Public finances, she said, were significantly better than expected compared to past estimates by international lenders. “In its fifth assessment the Troika forecasts a budget deficit of 4.7 per cent of GDP for 2014.
However, most recent estimates suggest that the budget deficit will be substantially smaller, she said. “This revision enables a relatively more optimistic fiscal outlook for 2015, provided of course that the consistent and prudent implementation of the state budget continues,” she added.
Georghadji said it was important for the wider economy and public finances that the €1 billion buffer provided within the €10 billion Troika programme would not be needed to cover any capital shortfalls in the banking system.
The improving capital position of the banks, she said, provided the opportunity to either reduce the lending required from the programme and the national debt by €1 billion, or consider whether this may be allocated to other areas.
“A further positive development is the high level of foreign investment injected across our banking sector by renowned international investors and institutions,” the Governor said.
“In the past 18 months, experienced foreign investors have participated with significant funds and have taken substantial positions in several banks incorporated in Cyprus,” she added.
These capital injections, she said, constituted some of the largest foreign investments seen in the history of the Cypriot economy.
“This provides encouragement and affirm indication that the confidence of the international community is returning to the Cyprus banking sector. It is pleasing to see that the recent restructuring work and reforms made in the sector and the wider economy are already delivering promising results, and the sector is coming out of this difficult juncture in a strong and healthier condition.”
The CB Governor said that restructuring and cleaning up a bank’s balance sheet was not easy, and market conditions remained challenging.
However, she noted, this also provided opportunities. `We remain fully committed to the implementation of the programme agreed with the international lenders and in re-establishing a thriving banking sector that can effectively meet the needs of businesses and households,” she said. (CNA)