A STATEMENT issued by the European Commission on Saturday reports that although the Cyprus economic programme remains on track, three key challenges remain; namely: to reduce non-performing loans, to maintain sustainable public finances, and to strengthen institutions.
The full text of the statement from the Troika.
Statement by the European Commission, ECB and IMF on the Fourth Review Mission to Cyprus
Staff teams from the European Commission (EC), European Central Bank (ECB), and the International Monetary Fund (IMF) visited Nicosia 6-17 May 2014 for the fourth review of Cyprus’s economic programme, which is supported by financial assistance from the European Stability Mechanism (ESM) and the IMF. Cyprus’s programme seeks to ensure the recovery of economic activity to preserve the welfare of the population by restoring financial sector stability, strengthening public finance sustainability, and adopting structural reforms to support long-run growth.
Cyprus’s programme remains on track. Fiscal targets for the first quarter of 2014 were met with a considerable margin, reflecting better-than-projected revenue performance and prudent budget execution. Progress has been made with the recapitalisation and consolidation of the cooperative credit sector, and banks are advancing with their restructuring plans. This has allowed for a significant liberalisation of domestic payment restrictions, in line with the government’s roadmap. The authorities have also taken steps toward implementing their ambitious structural reform agenda.
While the recession this year is expected to be somewhat less severe than anticipated, the outlook remains challenging. The contraction of output for 2014 has been revised down to 4.2 percent from 4.8 percent, given the better-than-expected outturn for 2013 and other recent indicators pointing to gains in confidence.
Unemployment remains very high, and large non-performing loans are constraining the ability of banks to supply credit to the economy. As a result, the recovery is now expected to be more subdued than previously forecast, with growth projected at 0.4 percent in 2015 and gradually improving thereafter, as domestic demand is weighed down by the need to reduce very high levels of indebtedness.
The first key challenge is to effectively reduce non-performing loans. This is essential to allow for a resumption of credit to the private sector to support growth and job creation. Reforming the legal framework for foreclosure and insolvency is paramount in order to provide balanced incentives to borrowers and lenders to negotiate and reach agreement on restructuring of non-performing loans, while avoiding undue hardship. At the same time, the supervisory authorities need to intensify their monitoring of banks’ effective action to collect and restructure debt in compliance with the existing Code of Conduct and arrears management framework. The authorities are also strengthening supervision and regulation and the implementation of the Anti Money-Laundering framework.
A second challenge is to maintain public finances on a sustainable path. The authorities are making progress in this area, having consistently exceeded programme fiscal targets. Still, prudent budget execution should be maintained, given still high macroeconomic uncertainty and downside risks which may weigh on fiscal outcomes. Over the medium term, the authorities will need to steadily reduce the fiscal deficit and gradually achieve a primary fiscal surplus of 4 percent of GDP in order to put public debt on a sustained downward path.
The third challenge is to strengthen institutions. The authorities are preparing to launch the reform of the welfare system, introducing a guaranteed minimum income scheme to protect vulnerable groups during the current downturn. They are also making progress with reforming the revenue administration to increase its effectiveness and efficiency; they need as well to strengthen collection powers to resolutely address tax evasion and non-compliance. Along with efforts to improve public financial management, they will need to take steps to address the management of fiscal risks. Firm implementation of the government’s privatisation plan remains essential to increase economic efficiency, attract investment, and reduce public debt.
Continued full and timely policy implementation remains essential for the success of the programme, given still high risks.
Conclusion of this review is subject to the approval process of both the EU and the IMF. The matter is expected to be considered by the Eurogroup, the ESM Board of Directors, and the Executive Board of the IMF by early July. Their approval would pave the way for the disbursement of €600 million by the ESM, and about €86 million by the IMF.
Further reading
Statement/14/161 – Statement by the European Commission, ECB and IMF on the Fourth Review Mission to Cyprus
Maybe we should look at this another way: on track for what?
To return the Cypriot economy to the halcyon days of being in the black with a positive balance of payments? Nope.
To restructure so that it can clear all the NPLs? Not a chance.
To enable ALL bought property to be transferred to those who’ve paid for it? Not even mentioned.
Could the EU afford to clear ALL the NPLs, force the bankrupt banks to close, chase debtors, restructure government institutions and chase taxes? Well, yes (Cyprus NPLS approx 0.2% of EU GDP and 32.5% of ESM cash deposited), but it’d be a load of hassle.
No, the Cypriot economy is on track to secure the next €686m of borrowing, that’s what. Cyprus will still be in the brown stuff but at least it will have secured the money to limp along and not default, while having to at least pretend to be following economic guidelines dictated from somewhere else.
Question (and no conferring): Why then are the EU seemingly so smug about what they’ve achieved and congratulating themselves on a job being well done?
Answer: Cos they’ve achieved exactly what they always wanted to.
It’s not complicity with the Cyprus establishment’s “Planâ€Â, just a fulfilment of their own.
Would those wishing to comment on this and other articles please review the Mission Statement on the Welcome Page.
The troika reports regarding Cyprus just make them look they are part of the cover-up/scam/dodgy practices we’ve all come to know and love and expect from the Cypriot governing ‘elite’. What will the reports say years from now when Cyprus is still bankrupt? Maybe they will just stop reporting. Will the EU taxpayer be willing to pay to prop up Cyprus’ corrupt practices indefinitely?
“negotiate and reach agreement on restructuring of non-performing loans, while avoiding undue hardship”
The way to avoid a large amount of undue hardship is simple. Issue full unencumbered title deeds to all who have either paid in full for, or who continue to make mortgage repayments on their homes. Then let the banks sort out THEIR problems with the developers.
Apparently this Troika whitewash does not seem to care about innocent home buyers.
There are many nails in the Cyprus coffin and Stuart just hit one of them on the head. The reform of the welfare system will cost the net contributors to EU funds some more money, but Cyprus will also have to find some contribution to the National Health Service and Guaranteed Minimum Income schemes, otherwise the other have-nots/beneficiaries of the EU policies will start complaining; who knows, some might otherwise become net contributors!
Where will the Cyprus contribution come from? We are told it will be found from taxes through the promised beefing up of revenue practices to collect more taxes and reduce tax fraud. This is the least funny joke since Christofias turned down the EU’s original bale-out offer. Every month in Cyprus more business is done in cash – no income tax, no VAT. Very often it is a choice of Euro notes or no deal for bills in the hundreds or thousands of Euros. Nowhere else do the card machines break down so often and EFT is refused by non-release of banking details for “security reasons.”
The easiest targets for tax hikes are Expats and holiday makers, so we have to expect some or all of the tax advantages to disappear or be much reduced. Not good news for the property industry in terms of the attractiveness of Cyprus, I think.
Are we sure that the Troika staff team were on the correct island because it certainly doesn’t sound like Cyprus. In any other country if a business is no longer able to service its debts it would be made bankrupt or put into administration but like most things on this island they seem to be able to cherry pick and refuse to enforce any rules that would upset their associates. I seem to recall that CYTA, the Electricity Authority and The Port Authority were to be privatised, is that still “on track” or is that going to upset the Unions !!
The Troika will continue to report that the Cyprus economy is ‘on track’ to ultimate recovery even though there is no solution to the unique NPL problem while those responsible for it remain defiant and nobody has the ability or willingness to take any action against them.
The Troika consistently behaves in this way because it is driven by political pressure from the EU which just cannot countenance any member state being allowed to go bust and exit the club because of the embarrassment this would cause to Ms Reding and her master plan.
The UK is already waking up to the fact that at £55 million per day, the EU is a very expensive club of which to be a net contributor yet in return get accounts riddled with fraud, no control over our own borders and a super-government that makes 70% of our laws.
This is Capitalism, the big fish eat the small with government laws and blessings, Wake up before The sale of Cyprus to a military camp, this will be the only option to the Cypriots.
If I has so much debt I could never repay it and was technically bankrupt would my lender say I was on track? In addition to this if I refused to make difficult decisions, provide accurate information on time and refused to sell of assets to cover my debts would my lender say I was still on track? Certainly not! I think my lender would have recovered any assets I had a long time ago. Who’s going to take the hit and how will it play out? Any takers?