IMF chief: No room for slippages as regards Cyprus’ financial program

"Cyprus’ macroeconomic outlook is subject to high uncertainty and risks to the program are substantial. There is no room for implementation slippages. Full and timely implementation of the program is critical to maintain credibility and achieve the program’s objectives,” Lagarde stressed.

She was speaking after the IMF announced its approval of a three-year arrangement for Cyprus in support of the authorities’ economic adjustment program of around one billion euro.

The approval allows for the immediate disbursement of €86 million. The IMF’s arrangement is part of a combined financing package with the European Stability Mechanism (ESM) amounting to €10 billion.

According to a press release by the IMF, the package “is intended to stabilize the country’s financial system, achieve fiscal sustainability, and support the recovery of economic activity to preserve the welfare of the population”.

Lagarde noted that the Cypriot authorities took “bold steps to address the crisis, including the upfront resolution and restructuring of the two largest and insolvent banks at no fiscal cost, while protecting insured depositors”.

“They also implemented ambitious fiscal consolidation measures. Nevertheless, challenges ahead are significant, including restoring credibility in the banking sector and reducing fiscal deficits and debt to sustainable levels” she pointed out.

According to Lagarde, the immediate priority is to stabilize the banking sector, adding that “the authorities need to complete the bank recapitalization process, including by using public funds for solvent institutions where necessary. In parallel, decisive steps will be taken to restructure weak banks”.