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Cyprus Talks

IMF and World Banks on economic challenges of a solution

The first findings by the International Monetary Fund (IMF) and the World Bank on the economics of a Cyprus settlement say single and coordinated management, as well as incentives to attract investments were essential to avoid adverse consequences on both the economy as a whole and the constituent states.

President Nicos Anastasiades and Turkish Cypriot leader Mustafa Akinci are to discuss the economics of a Cyprus settlement at their next scheduled meeting on Tuesday, the Cyprus News Agency said.

The agency said it had spoken with government officials on the IMF and World Bank reports, which are due by the end of September or early October.
One of the findings was that a gap on the VAT rates between the government-controlled areas and the north should be narrowed as soon as possible as it constituted market distortions and would erode state revenue and robustness.

The same sources said the two international bodies forecast GDP growth on a long term outlook provided the economy would function on the correct basis.

They believe a reunited Cyprus could exploit its comparative advantage in sectors such as shipping, energy, tourism and education services could constitute the areas where.

Following the first data collections from the north, both institutions believe that economic challenges will arise following a settlement but said these could be overcome with a functional federal government.

Financial management structures should be in place and operational from day one, they said.

Both institutions say that the euro should be adopted as soon as possible as the island`s legal tender. The European Central Bank said this would be feasible within six months.
However, the same officials said the settlement needed to be clear-cut with no ambiguities.
“There is interest by investors but investors would assess the settlement`s functionality before investing in the Cypriot economy,” the sources said.

The first checks by the two institutions, according to the sources, revealed that the Turkish Cypriot side lacks that necessary structures to support financial management, as its apparatus has been set up to manage economic aid from Turkey.

The banking sector in the north is also considered a challenge, as it needs to immediately harmonise with the euro-system and may even need recapitalisation.
The same officials told CNA that the IMF and World Bank would not provide figures regarding the final settlement`s cost but they aimed to provide recommendations on the best policies to be implemented post-settlement.


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