IMF Managing Director Christine Lagarde has praised the Cyprus authorities for keeping rescue program implementation on track, pointing out that the ongoing fiscal adjustment should be complemented by structural reforms.
Lagarde was speaking to the press on Friday, following the Executive Board discussion during which the members completed the third review of Cyprus’s performance under an economic program approving the disbursement of about €83.3 mln. This disbursement brings total disbursements under the arrangement to €333.2 mln of the IMF arrangement`s total €1bln.
IMF Managing Director said that the Cypriot authorities are to be commended for keeping program implementation on track, meeting their fiscal targets with significant margins, advancing fiscal structural reforms and completing the recapitalization of the financial system.
"While the macroeconomic outturn in 2013 was better than expected, the outlook is challenging. Full and timely policy implementation, broad public acceptance, and continued support from Cyprus’s European partners remain critical to the program’s success", she pointed out.
In her statements Lagarde said that significant progress has been made in the financial sector, notably the completion of the recapitalization and consolidation of the cooperative credit sector, adding that going forward, full implementation of banks’ and coops’ restructuring plans and strong governance "are essential to further bolster confidence".
"In turn, this can help facilitate further steps to relax payment restrictions gradually in line with the authorities’ roadmap, while safeguarding financial stability", IMF Chief added.
Lagarde also noted that the successful resumption of credit and output growth depends critically on progress with reducing non-performing loans, adding that "prompt implementation of a strong insolvency framework is necessary to provide adequate incentives for voluntary debt restructuring negotiations".
According to Lagarde, continued efforts are needed to strengthen banking supervision and regulation and implement the anti-money laundering framework.
She also said that prudent fiscal policies have contributed to permanent budgetary savings and reduced the budget deficit, adding however that "in light of persistent macroeconomic uncertainty, cautious budget execution will need to be maintained this year".
"The ongoing fiscal adjustment should be complemented by structural reforms to enhance the welfare system and protect vulnerable groups, modernize the revenue administration, further strengthen public financial management, and prepare state-owned assets for privatization", IMF Chief said.
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