Cyprus' economic growth rate will range between 1.5% and 2.0% GDP in 2011, IMF preliminary figures released today show.
IMF new estimates are slightly higher than the 2010 forecasts projecting a 1.5% to 1.8% growth for 2011. The Cypriot Finance Ministry projects economic growth of 1.5% GDP for 2011, whereas European Commission forecasts project a 1.8% growth rate for 2011.
''We see a gradual economic recovery is underway and expect growth to be in a range of 1.5% to 2.0% this year,'' head of the IMF delegation Wes McGrew said, presenting the IMF's preliminary conclusions, after a series of contacts with Central Bank officials and bankers in Cyprus, pointing out that there are risks to recovery mainly from the sovereign debt crisis in the EU and the uncertainty in the European financial markets.
In terms of economic policy, McGrew said that ''the foremost challenge is to reduce the high fiscal deficits of the past two years and to restore public debt ratios to a declining trend.''
''This is important for various reasons. Sound public finances are necessary to continue to be successful to being a financial centre and an international business sector and these we believe are key areas for growth in Cyprus for the medium term'', he added.
Over the medium term, McGrew said Cyprus faces pressures on expenditures because of rising pensions payments both in the civil service and the social security fund and will need to meet this by reducing expenditures elsewhere as well as by reforms in the pension systems and so this process really should start now.
He also said that ''swift movement is important'' concerning the implementation of Cyprus' fiscal consolidation plan.
''It would be very important the government is forceful on implementing expenditure restraint, moving forward with reducing the public sector payroll, moving forward with wage moderation in the public sector, some of these measures that would gradually contain and reduce the government payroll, targeting of social transfers to make sure they go to those who are most needy,'' he pointed out, adding that sound fiscal policies is important concerning borrowing from international markets.
''Markets are beginning to differentiate and to evaluate countries based on their own specifics. So you really need to get ahead of the markets, you need to reduce your fiscal deficit, you know that investors are focused on this and so the sooner you move the better and there are risks to waiting,'' he went on to say.
Furthermore, McGrew dismissed the justifications given by rating agencies which announced that they have put Cyprus on negative outlook and namely on the grounds of exposure of the Cypriot commercial banks to Greece and the size of the Cypriot banking sector.
Pointing out the rigorous stress tests and strong supervision by the Cyprus Central Bank, the banks conservative loan portfolio in Greece, McGrew said ''there are some strong buffers in place.''
''For sure risk comes from there, we think that basically the system is pretty robust,'' he said, adding that ''broadly we feel that the risks are manageable in the banking sector.''
Concerning the size of the banking sector in Cyprus, McGrew said that ''that is not one of our conclusions.''
''No, we don't have the sense that it is too large and that it should be reduced,'' he concluded.
