Technocrats from the European Commission, the European Central Bank and the International Monetary Fund (IMF) are back on the island for their sixth post-programme surveillance (PPS) mission.
Cyprus has made scant progress in terms of adopting the recommendations put forth by its international lenders in their last PPS concluded in September 2018.
High public and private indebtedness still pose the key danger to the economy, while the island remains under monitoring by the EU’s Macroeconomic Imbalance Procedure.
In a staff statement following the fifth PPS mission in September of last year, the European Commission noted that, on the plus side, “the Cypriot economy continues its strong cyclical upswing, creating favourable conditions for tackling the key vulnerabilities of the country, thus ensuring sustainable growth.”
It said also that the sale of the Cyprus Cooperative Bank to Hellenic Bank reduced uncertainty in the financial sector, improved depositor confidence and helped consolidate the banking system.
“But significant challenges remain, including the reduced but still very high NPL ratio.”
The Commission had said “buoyant tax revenues, combined with prudent expenditure management, resulted yet again in an impressive fiscal performance, but the CCB sale comes with very high costs for the government.”
However, Cyprus still needed to implement structural reforms to sustain strong economic growth.
It added that “strengthened legal framework for NPL resolution needs to be complemented with the comprehensive reform of the judicial system, including more efficient court procedures, stronger legal enforcement of commercial claims, and resolution of the high backlog of court cases.”
Other urgent reforms highlighted included the need to accelerate the issuance and transfer of title deeds, “especially with regards to the resolution of the legacy cases.
“It is also important to enhance the business environment and attract productivity-enhancing investment by, inter alia, swiftly adopting the strategic investment law, opening up the electricity market, and proceeding with foreseen privatisations. Other pending reforms that should be given priority include local government reform and the integration of pension and insurance supervision.”
The economic adjustment programme (EAP) for Cyprus was formally agreed in May 2013. In March 2016, Cyprus exited its three-year EAP, which included an ambitious reform agenda.
Cyprus is now subject to post-programme surveillance until at least 75 per cent of the financial assistance received has been repaid. If no early repayments are made, PPS may last at least until 2029.
The objective of PPS is to measure Cyprus’ capacity to repay its outstanding loans to the European Stability Mechanism.