Cyprus needs to make reforms to cut the number of bad loans in the island’s troubled economy, the IMF has said.
A post-bailout monitoring team from the IMF was in Cyprus for the second half of March and recently filed a report. Cyprus experienced a serious financial crisis in 2012-2013, leading to a €10 billion ($12.3 billion) international bailout and continued IMF supervision.
The IMF said in a statement that although the island’s economy had recovered to some extent — thanks to the construction, tourism, and professional-services sectors — private-sector indebtedness “remains extremely high and continued weak payment discipline has kept nonperforming loans at very high levels”.
It identified three key points for the Cypriot authorities to follow: “Strengthening payment discipline, avoiding pro-cyclical policies and adopting macro-critical structural reforms would help preserve financial stability, protect the downward trajectory of public debt, and support balanced and durable growth.”
Cyprus’ economic woes partly dominated the island’s recent presidential election, eventually won by the incumbent, Nicos Anastasiades.
Although Cyprus’ economy has improved since 2013 — the IMF predicts GDP growth of 4-4.5 percent for 2018-19 — failed UN-backed peace talks over reuniting the island in July last year collapsed.
The involvement of Turkish warships in Cyprus’ Exclusive Economic zone has also cast a shadow over the island’s stability.