Cyprus's deal with the EU and IMF provoked anger among Cypriots
Cyprus's deal with the EU and IMF provoked anger among Cypriots
Cyprus's deal with the EU and IMF provoked anger among Cypriots
Cyprus’s deal with the EU and IMF provoked anger among Cypriots

Cyprus’s economy is adjusting following the 2013 recession, which was “not as severe as anticipated”, the International Monetary Fund (IMF) has said.

“Signs of stabilisation are emerging in the banking sector,” said the IMF in a report.

Cyprus agreed to a 10bn-euro ($13.8bn; ?8.3bn) bailout with the European Union and the IMF last year.

Cyprus’s second-largest lender – Laiki Bank – was closed down.

Although the recession was not as severe as expected, there may be more pain to come, warned the IMF.

“The outlook remains challenging, with rising unemployment, falling credit, and increasing non-performing loans,” it said.

Cyprus has yet to show many physical signs of economic rehabilitation.

Hoteliers have put out all their sun-loungers and are hoping for a better season, but vast numbers of abandoned stores, office blocks and showrooms still line all the main roads into the capital Nicosia.

With little manufacturing and almost no natural resources apart from the sunshine, the main activities on the island remain tourism, shipping and business services.

Patrolling Turkish gunboats have so far complicated plans to exploit promising gas fields.

But politicians on both sides now hope the discoveries may provide a new impetus for a renewed round of re-unification talks with the Turkish Cypriots occupying Northern Cyprus.

Cyprus is working hard to rebuild its reputation as a strategic base for enterprises wanting an English-speaking bolthole in the Eastern Mediterranean which is also close to the Middle East.

Anecdotal evidence is that in spite of the “haircuts” of their bank balances, rich Russians are returning. Ironically, post-bailout changes have left Russian investors as the largest single block of shareholders in the restructured Bank of Cyprus.

At Cyprus’s banks, non-performing loans – ones where payments have been missed – reached 50% of all loans, worth 22bn euros.

Ukraine crisis

Cyprus had to seize money from big savers, many of them Russian, as a condition of its bailout and capital controls are still in force.

The current crisis in Ukraine may also add to the country’s woes, the IMF said.

“The Ukraine crisis may lead to capital flight from non-resident depositors of foreign banks in Cyprus, which may affect the business service sector.”

Cyprus was nearly bankrupted after Greece’s financial crisis in 2010.

The country’s banks were hit heavily but its government did not have the funds to issue a bailout.

Slow economic growth and the stance of international lenders, who stopped offering loans, added to the pressure on the country’s finances.

The head of the Cypriot central bank, Panicos Demetriades, resigned last month.

He reportedly experienced difficulties with Cyprus’ government and had been criticised for his handling of the country’s rescue package.

The IMF report is the first since the collapse of a coalition government in February. Political support for the rescue plan, or lack thereof, is a risk, the IMF noted.

The IMF maintained its forecast of a 4.8% contraction in Cyprus’s economy this year, before picking up to growth of 0.9% in 2015, helped by rising exports.

Exploiting offshore gas reserves, and the reunification of the island could raise the economy’s long-term growth potential, the IMF said.

Source BBC

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