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Cypriot economy faces substantial risks

The International Monetary Fund has warned Cyprus that it must take swift action to shore up its economy, saying it faces strong head winds and substantial downside risks that are likely to persist.

risksTHE International Monetary Fund (IMF) has warned Cyprus that its economy faces “substantial downside risks” and is likely to contract next year.

The warning came in the IMF’s annual review of the of the Island’s economy in which the IMF urged the government to implement measures to balance its budget by 2014 and to implement spending cuts to reverse large increases in public sector pay and social benefits over the last three years.

According to the review, an overhaul of the pension system is vital as the Island faces one of the largest increases in retirement costs in the Euro area, with the system becoming unsustainable as the population ages and that reversing the large deterioration in public finances is an urgent priority..

The IMF expects that the government budget deficit will reach 7% of gross domestic product in 2011, more than twice the European Union’s upper limit.

A member of the IMF mission visiting Cyprus said that the IMF considers that the current situation is very serious in light of the fact that the government cannot access the capital markets. He said that Cyprus must do all it can to avoid problems getting out of hand.

Further reading

Cyprus – 2011 Article IV Consultation Concluding Statement of the Mission

Readers' comments

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  • out of the frying pan into the fire says:

    Good it’s about time some organisation picked up on the wrongs in Cyprus.

    Now if only they could put pressure on the government to reform their Lawyers, Developers, Banks, etc etc. Followed by reform of the property market and the corruption / fraud within the property market.

    Then they may have a way out.

    In the mean time be prepared for more fraud and corruption.

    With YOU as the loser.

  • Richard says:

    Personally – I think it’s good it’s been called out by the IMF.

    Both Greece & Cyprus have been asleep at the wheel – and it’s time to get the coffee on.

    Joining the EU means you own the responsibilities as well as the benefits. I think the Cypriots have tended to only drive one-way up that particular street.

  • dimitris says:

    Sad and bad side of this is that I am sure that those in power now are sitting comfortably thinking that the hydrocarbons finds €€€€€€€€ will get the economy out of the pickle it is in eventually…..but they are presuming this without knowing if the finds are substantial or not….I guess though that there must be something down there in the depths as why would Turkey be kicking up such a fuss?

  • U Boat says:

    Here we go………

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