the economic adjustment programme for cyprus - 1st review

7/29/2019 The Economic Adjustment programme for Cyprus - 1st review

1/21

h t t p : / / e c . e u r o p a . e u / d g s / e c o n o m y _ f i n a n c e / i n d e x _ e n . h t m

The Economic Adjustmentprogramme for Cyprus

Conclusion of the 1 s t review Summer 2013

Brussels, September 18th, 2013


2/21


The compliance report (1 of 2)

It is a technical report by the Commission Services, in liaison with

the ECB

It provides input (the Commission Services assessment of

compliance) for the Eurogroup to decide on the disbursement of

each tranche of the financial assistance

The IMF (Board of Directors) decides based on its own 'staff report'


3/21


The compliance report (2 of 2)

The report includes,

Our assessment of progress made by Cyprus: macroeconomic,

fiscal, financial developments, structural reforms, debt

sustainability etc

The compliance table, which is a detailed assessment of compliancewith policy conditionality

The detailed economic projections through 2016, shared between

the programme partners

The updated Memorandum of Economic and Financial

Policies/Memorandum of Understanding (MoU)


4/21


The programme

1. Introduction 1st review conclusion

2. Economic developments - outlook

3. Programme implementation

4. Programme financing

5. What next?


5/21


Introduction 1st review conclusion

1 . E C / E C B / I M F s t a f f c o n c l u d e d t h e f i r s t r e v i e w m i s s i o n o n J u l y 3 1

s t

- t h e e c o n o m i c

a d j u s t m e n t p r o g r a m m e i s o n t r a c k

2 . C y p r u s h a s m a d e d e t e r m i n e d s t a r t w i t h t h e i m p l e m e n t a t i o n o f t h e p r o g r a m m e

3 . F i n a n c i a l s e c t o r s t a b i l i s a t i o n a n d c o n f i d e n c e b u i l d i n g u n d e r w a y . G r a d u a l r e l a x a t i o n

o f d e p o s i t r e s t r i c t i o n s a n d c a p i t a l c o n t r o l s .

4 . 2 0 1 3 b u d g e t e x e c u t i o n r e m a i n s o n t r a c k , b u t e x t r a o r d i n a r y c o m p e n s a t i o n o f

p e n s i o n f u n d s i n L a i k i w i l l c o s t 1 . 8 % o f G D P t h i s y e a r . S u b s e q u e n t a n n u a l f i s c a l

t a r g e t s a r e w i t h i n r e a c h

5 . I m p l e m e n t a t i o n o f p r o g r a m m e c o m m i t m e n t s h a v e s t a r t e d i n a l l k e y a r e a s . F i s c a l -

s t r u c t u r a l a n d s t r u c t u r a l r e f o r m s h a v e b e e n t a k e n f o r w a r d , a l t h o u g h d e l a y s h a v e

b e e n m o r e p r o m i n e n t i n t h e s e a r e a s .

6 . O n S e p t e m b e r 1 3

t h

, t h e E u r o g r o u p d e c i d e d t o u n l o c k t h e d i s b u r s e m e n t o f E U R

1 . 5 b n b y t h e E S M ; t h e I M F B o D s i m i l a r l y d e c i d e d f o r a n a m o u n t o f E U R 8 6 m n


6/21


Economic developments outlook (1 of 4)

T h e r e c e s s i o n i s i n t e n s i f y i n g w i t h i n e x p e c t a t i o n s ,

R e a l G D P d e c l i n e d 4 . 9 % y - o - y i n t h e f i r s t q u a r t e r , a c c e l e r a t i n g f r o m - 3 . 5 % y - o - y i n t h e

f o u r t h q u a r t e r o f 2 0 1 2 s e c o n d q u a r t e r p r e l i m i n a r y d a t a i m p l y a f u r t h e r a c c e l e r a t i o n ,

t o 5 . 7 % y - o - y

E m p l o y m e n t c o n t i n u e d t o a d j u s t a n d d e c l i n e d i n a l l m a j o r s e c t o r s , i . e . m a n u f a c t u r i n g ,

c o n s t r u c t i o n , s e r v i c e s a n d p u b l i c a d m i n i s t r a t i o n - u n e m p l o y m e n t e x c e e d e d 1 5 % o f

t h e l a b o u r f o r c e

1 . R e a l G D P c h a n g e - c o n t r i b u t i o n s 2 . U n e m p l o y m e n t / G D P c h a n g e


7/21



L o w d o m e s t i c c o s t p r e s s u r e s a n d s i z a b l e s p a r e c a p a c i t y h a v e c o n t a i n e d i n f l a t i o n a n d

H I C P h a s c o n t i n u e d d e c l i n i n g - r e d u c t i o n s i n t h e p r i c e s o f t h e h o u s i n g c o m p o n e n t a n d

o f c l o t h i n g / f o o t w e a r o f f s e t t h e V A T h i k e s a n d t h e h i g h e r t a x e s o n a l c o h o l i c b e v e r a g e s

a n d t o b a c c o

T h e g r a d u a l n a r r o w i n g o f t h e p o s i t i v e H I C P i n f l a t i o n d i f f e r e n t i a l v i s - - v i s t h e e u r o a r e a

t u r n e d n e g a t i v e i n l a s t p a r t o f 2 0 1 2 , p a r t l y e x p l a i n e d b y t h e w e a k u n d e r l y i n g i n f l a t i o n

-3

-2

-1

0

1

2

3

4

5

6

7

2006 2007 2008 2009 2010 2011 2012 2013

y-o-y%

Headline diff. vis-a-vis euro area

Headline

Headline excl. energy, food, alcohol and tobacco

40

50

60

70

80

90

100

110

-12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20

index, peak

= 100

Quarters

Cyprus Spain Ireland Portugal

3 . H I C P i n f l a t i o n 4 . N o m i n a l h o u s e p r i c e s


8/21



R e a l G D P i s e x p e c t e d t o d e c l i n e b y 8 . 7 % i n 2 0 1 3 , u n c h a n g e d c o m p a r e d t o t h e A p r i l

2 0 1 3 p r o g r a m m e f o r e c a s t : ( i )

i m m e d i a t e r e s t r u c t u r i n g o f t h e b a n k i n g s e c t o r , ( i i )

l o n g e r - l a s t i n g d e l e v e r a g i n g o f b a l a n c e s h e e t s , ( i i i )

f i s c a l c o n s o l i d a t i o n , ( i v )

e c o n o m i c

u n c e r t a i n t y , ( v )

t e m p o r a r y i m p o s i t i o n o f c a p i t a l c o n t r o l s , ( v i )

b a i l - i n o f u n i n s u r e d

d e p o s i t o r s c a u s i n g a l o s s o f w e a l t h .

E c o n o m i c a c t i v i t y w i l l s h r i n k f u r t h e r i n 2 0 1 4 , a l t h o u g h t o a m i l d e r e x t e n t t h a n i n 2 0 1 3

- t h e e c o n o m y i s e x p e c t e d t o c o n t r a c t b y a r o u n d 1 5 %

c u m u l a t i v e l y i n 2 0 1 2 - 2 0 1 4

2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 3 2 0 1 4

C u r r . p r i c e s

( E U R m )

% o f G D P

G D P 1 7 , 8 8 7 1 0 0 1 . 3 0 . 5 - 2 . 4 - 8 . 7 - 3 . 9 - 8 . 7 - 3 . 9

P r i v a t e c o n s u m p t i o n 1 1 , 9 4 8 6 6 . 8 1 . 5 0 . 5 - 3 . 0 - 1 2 . 4 - 5 . 7 - 1 2 . 3 - 5 . 5

P u b l i c c o n s u m p t i o n 3 , 5 8 8 2 0 . 1 1 . 0 - 0 . 2 - 1 . 7 - 8 . 9 - 3 . 7 - 8 . 9 - 3 . 6

G r o s s f i x e d c a p i t a l f o r m a t i o n 2 , 2 9 5 1 2 . 8 - 4 . 9 - 1 3 . 1 - 2 3 . 0 - 2 9 . 5 - 1 2 . 0 - 2 9 . 5 - 1 2 . 0

E x p o r t s ( g o o d s a n d s e r v i c e s ) 8 , 1 3 7 4 5 . 5 3 . 8 4 . 4 2 . 3 - 5 . 5 - 2 . 5 - 5 . 0 - 2 . 5

I m p o r t s ( g o o d s a n d s e r v i c e s ) 8 , 1 2 7 4 5 . 4 4 . 8 - 0 . 7 - 7 . 2 - 1 6 . 5 - 6 . 8 - 1 6 . 0 - 6 . 5

G N I ( G D P d e f l a t o r ) 1 7 , 1 8 5 9 6 . 1 2 . 4 4 . 3 - 6 . 6 - 5 . 5 - 4 . 4 - 5 . 5 - 4 . 4

C o n t r i b u t i o n t o g r o w t h : D o m e s t i c d e m a n d 0 . 2 - 2 . 2 - 6 . 1 - 1 3 . 8 - 5 . 5 - 1 3 . 7 - 5 . 5

I n v e n t o r i e s 1 . 8 0 . 5 - 0 . 9 0 . 0 0 . 0 0 . 0 0 . 0

N e t e x p o r t s - 0 . 7 2 . 2 4 . 4 5 . 0 1 . 6 5 . 0 1 . 6

E m p l o y m e n t - 0 . 2 0 . 5 - 4 . 1 - 7 . 8 - 3 . 7 - 6 . 6 - 3 . 1

U n e m p l o y m e n t ( 1 ) 6 . 3 7 . 9 1 1 . 9 1 7 . 0 1 9 . 5 1 5 . 5 1 6 . 9

U p d a t e d f o r e c a s t A p r i l f o r e c a s t

A n n u a l p e r c e n t a g e c h a n g e

2 0 1 2


9/21



T h e J a n - J u n 2 0 1 3 b u d g e t e x e c u t i o n d a t a s u g g e s t s t h a t b u d g e t a r y e x e c u t i o n r e m a i n s

o n t r a c k - p r i m a r y b a l a n c e f o r t h e c e n t r a l g o v e r n m e n t m a i n t a i n e d a s u r p l u s i n c a s h

t e r m s , c o m p a r e d t o a s i z e a b l e d e f i c i t e x p e c t e d

G e n e r a l g o v e r n m e n t H 1 d a t a c o n f i r m s t h e s e t r e n d s - p r i m a r y b a l a n c e a n d h e a d l i n e

b u d g e t b a l a n c e s o v e r - p e r f o r m e d , b y 1 . 6 % o f G D P a n d 2 . 3 % o f G D P , r e s p e c t i v e l y ;

h o w e v e r , w e a k m a c r o e c o n o m i c o u t l o o k a n d d o w n w a r d t r e n d s i n b o t h d i r e c t a n d

i n d i r e c t t a x c o l l e c t i o n a r e e x p e c t e d t o a d v e s e l y a f f e c t b u d g e t a r y o u t c o m e

-400

-300

-200

-100

0

100

200

300

400

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

EUR m

Data Authorities' target

5 . B u d g e t p r i m a r y b a l a n c e

2

2.1

2.2

2.3

2.4

2.5

39

40

41

42

43

44

PF April PF July Robustness

analysis

% of GDP% of GDP

Total revenue Total expenditure

Primary deficit (rhs)

6 . R o b u s t n e s s a n a l y s i s , 2 0 1 3


10/21


Financial developments outlook (1 of 2)

S i n c e m i d - M a r c h , f i n a n c i a l s e c t o r d e v e l o p m e n t s h a v e b e e n d r i v e n b y l i q u i d i t y c o n s t r a i n t s

a n d d e t e r i o r a t i n g a s s e t q u a l i t y - d e p o s i t o u t f l o w s h a v e s l o w e d d o w n r e c e n t l y

S q u e e z e d l i q u i d i t y , t o g e t h e r w i t h t h e e r o s i o n o f t h e c a p i t a l p o s i t i o n d u e t o N P L s , h a s

c o n s t r a i n e d l o a n g r o w t h a n d c o n t r i b u t e d t o q u i c k e r - t h a n - e x p e c t e d d e l e v e r a g i n g

I n a n e f f o r t t o c o n t a i n c o s t o f c r e d i t , a c a p i t a l s u r c h a r g e w a s i m p o s e d o n t o o h i g h d e p o s i t

i n t e r e s t r a t e s , w h i c h d r o p p e d d r a s t i c a l l y , h o p i n g t h i s w o u l d b e p a s s e d o n t o l e n d i n g r a t e s

7 . L o a n s a n d d e p o s i t s 8 . I n t e r e s t r a t e s o n l o a n s / d e p o s i t s

70

80

90

100

110

120

130

140

150

-30

-20

-10

0

10

20

30

40

50

Jan-08 Feb-09 Mar-10 Apr-11 May-12 Jun-13

Loans to non-MFIs Deposits from non-MFIs

Loan to deposit ratio (rhs)

y-o-y % %

0

1

2

3

4

5

6

7

8

Jan-08

May-08

Sep-08

Jan-09

May-09

Sep-09

Jan-10

May-10

Sep-10

Jan-11

May-11

Sep-11

Jan-12

May-12

Sep-12

Jan-13

May-13

%

HH deposits NFC deposits HH Loans

NFC Loans Euribor 1-month


11/21


Financial developments outlook (2 of 2)

B a n k o f C y p r u s a n d C y p r u s P o p u l a r B a n k ( C P B ) h a v e b e e n r e s t r u c t u r e d a n d t h e f o r m e r h a s

b e e n t a k e n o u t o f r e s o l u t i o n o n 3 1 J u l y , w h i l e t h e " b a d b a n k " o f t h e l a t e r r e m a i n s u n d e r

s p e c i a l a d m i n i s t r a t i o n

U p o n e x i t i n g r e s o l u t i o n , B a n k o f C y p r u s r e g a i n e d E C B c o u n t e r p a r t y s t a t u s

T h e " g o o d b a n k " o f C P B w a s m e r g e d i n t o B a n k o f C y p r u s w i t h s u f f i c i e n t a s s e t s a t f a i r v a l u e

t o e n s u r e a n e n d - o f - p r o g r a m m e c o r e t i e r I r a t i o o f 9 %

T o e n s u r e a s u f f i c i e n t l y r o b u s t c o r e t i e r I r a t i o o f a b o u t 1 2 % n o w a n d 9 % a t t h e e n d o f

t h e p r o g r a m m e , e v e n t u a l l y 4 7 . 5 % o f t h e u n i n s u r e d d e p o s i t s o f B a n k o f C y p r u s w e r e

c o n v e r t e d i n t o e q u i t y ( v i s - - v i s t h e i n i t i a l e s t i m a t e o f 3 7 . 5 % )

U p o n e x i t i n g r e s o l u t i o n , 5 % o f t h e u n i n s u r e d d e p o s i t s w e r e r e l e a s e d b u t s u b j e c t t o t h e

c a p i t a l c o n t r o l s a n d t h e r e m a i n i n g u n i n s u r e d d e p o s i t s ( 3 7 , 5 % ) w a s f r o z e n i n t i m e d e p o s i t s

i n e q u a l t r a n c h e s f o r 6 , 9 a n d 1 2 m o n t h s w i t h a p o s s i b i l i t y t o r o l l - o v e r o n c e

A G e n e r a l M e e t i n g t o o k p l a c e o n 1 0 S e p t e m b e r t o a p p o i n t a n e w B o a r d o f D i r e c t o r s f o r

B a n k o f C y p r u s , t o p r e p a r e t h e r e s t r u c t u r i n g p l a n d e f i n i n g t h e b a n k ' s b u s i n e s s o b j e c t i v e s

b y m i d - O c t o b e r


12/21


Programme implementation (1 of 5)

1 . F i n a n c i a l s e c t o r r e f o r m s ( c o m p l i a n t w i t h d e l a y )

R e s t r u c t u r i n g t h e f i n a n c i a l s e c t o r , i n s p i t e o f s o m e d e l a y s , h a s c o n s i d e r a b l y

p r o g r e s s e d :

( i ) a s t r a t e g y t o r e s t r u c t u r e t h e c o o p e r a t i v e c r e d i t i n s t i t u t i o n s h a s b e e n d e s i g n e d a n d

a g r e e d ; a c a p i t a l n e e d o f E U R 1 . 5 b n w a s c o n f i r m e d t o b e p r o v i d e d b y t h e

p r o g r a m m e ( n o d e p o s i t b a i l - i n ) ; t h e m o r e t h a n 9 0 c o o p e r a t i v e c r e d i t i n s t i t u t i o n s

w i l l b e m e r g e d i n t o 1 8 e n t i t i e s b y M a r c h 2 0 1 4

( i i ) H e l l e n i c b a n k h a s l a u n c h e d a c a p i t a l r a i s i n g p l a n a i m i n g a t f i n a l i s a t i o n b y e n d -

D e c e m b e r w i t h o u t s t a t e a i d

A d m i n i s t r a t i v e r e s t r i c t i o n s a n d c a p i t a l c o n t r o l s ,

( i ) h a v e g r a d u a l l y b e e n r e l a x e d ( c a r d p a y m e n t s , i n c r e a s i n g t h e c e i l i n g f o r f r e e m o n e y

t r a n s f e r s , r e d u c i n g d o c u m e n t a t i o n f o r i n t e r n a t i o n a l t r a d e p a y m e n t s ) , a n d

( i i ) a m i l e s t o n e s a p p r o a c h f o r t h e f u r t h e r p r o g r e s s i n f o u r s t e p s h a s b e e n a d o p t e d

l i n k i n g g r a d u a l c a p i t a l l i b e r a l i s a t i o n t o s u c c e s s f u l i m p l e m e n t a t i o n o f p o l i c y

m e a s u r e s ; f i r s t r e s t r i c t i o n s i n s i d e C y p r u s w i l l b e e l i m i n a t e d a n d t h e n o u t s i d e


13/21



O n s u p e r v i s i o n a n d r e g u l a t i o n , t h e m a j o r i t y o f e n v i s a g e d r e f o r m s h a v e b e e n o b s e r v e d

o n t i m e :

( i ) a n e w c l a s s i f i c a t i o n o n n o n - p e r f o r m i n g l o a n s i s i n e f f e c t ,

( i i ) a u n i f i e d d a t a r e p o r t i n g s y s t e m f o r b o t h c o m m e r c i a l a n d c o o p e r a t i v e b a n k s h a s

b e e n i m p l e m e n t e d ,

( i i i ) t h e i n t e g r a t i o n o f t h e s u p e r v i s i o n o f t h e c o o p e r a t i v e c r e d i t i n s t i t u t i o n s i s o n g o i n g .

P r e p a r a t o r y w o r k f o r p r o m p t l y m e e t i n g f u t u r e d e a d l i n e s i s o n g o i n g , r e l a t e d t o t h e

e s t a b l i s h m e n t o f a s i n g l e c r e d i t r e g i s t e r , m a n d a t o r y s u p e r v i s o r y a c t i o n , t h e r e g u l a t o r y

f r a m e w o r k o n l o a n o r i g i n a t i o n , a s s e t i m p a i r m e n t a n d p r o v i s i o n i n g p r a c t i c e s , a n d t h e

r e v i s i o n o f t h e i n t e r n a l g o v e r n a n c e d i r e c t i v e

M o n i t o r i n g o f p r i v a t e s e c t o r i n d e b t e d n e s s i s s t e p p e d u p a n d l e g i s l a t i o n r e g a r d i n g

t r o u b l e d b o r r o w e r s i s i n p l a c e ; r e g u l a t i o n f o r b e t t e r m a n a g i n g a r r e a r s i s n o w a d o p t e d

a n d s e t t i n g u p a m e d i a t i o n s e r v i c e i s i n p r e p a r a t i o n

A n A n t i - M o n e y L a u n d e r i n g a c t i o n p l a n a d d r e s s i n g t h e r e m a i n i n g l e g a l f r a m e w o r k

s h o r t c o m i n g s i s a g r e e d a n d t h e C y p r i o t a u t h o r i t i e s h a v e c o m m i t t e d t o e n s u r e i t s

i m p l e m e n t a t i o n r e l e v a n t l e g i s l a t i o n i s p r e p a r e d


14/21



2 . F i s c a l p o l i c y ( c o m p l i a n t )

C y p r u s h a s i m p l e m e n t e d 2 0 1 3 B u d g e t L a w a n d f i s c a l c o n s o l i d a t i o n m e a s u r e s w i t h

d e t e r m i n a t i o n - p a r t o f t h e f i s c a l a d j u s t m e n t m e a s u r e s w e r e e n a c t e d i n e n d - 2 0 1 2 ,

w h i l e f u r t h e r m e a s u r e s w e r e e n a c t e d v i a t h e 2 0 1 3 B u d g e t L a w

A d d i t i o n a l f i s c a l c o n s o l i d a t i o n m e a s u r e s o f m o r e t h a n 2 % o f G D P w e r e e n a c t e d i n

A p r i l 2 0 1 3 , r a i s i n g t h e t o t a l a m o u n t o f f i s c a l m e a s u r e s f o r 2 0 1 3 t o a r o u n d 4 . 5 % o f

G D P , b a l a n c e d b e t w e e n e x p e n d i t u r e a n d r e v e n u e s i d e

A l t h o u g h s o m e m e a s u r e s o n t h e r e v e n u e s i d e m a y u n d e r p e r f o r m c o m p a r e d t o

t a r g e t e d y i e l d s , C y p r u s i m p l e m e n t s m o r e - t h a n - a g r e e d e x p e n d i t u r e c u t s

E x c e p t i o n a l ( o n e - o f f ) c o m p e n s a t i o n o f p e n s i o n f u n d s w h o s u f f e r e d l o s s e s i n L a i k i i s

l i k e l y t o l e a d t o a 1 . 8 % o f G D P h i g h e r - t h a n - b u d g e t e d 2 0 1 3 d e f i c i t , a l r e a d y f o r e s e e n i n

t h e M o U

2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6

R e a l G D P ( 1 ) 0 . 5 - 2 . 4 - 8 . 7 - 3 . 9 1 . 1 1 . 9

O u t p u t g a p ( 2 ) 1 . 1 0 . 1 - 5 . 8 - 6 . 6 - 3 . 0 0 . 8

G e n e r a l g o v e r n m e n t b a l a n c e ( 3 ) - 6 . 3 - 6 . 3 - 6 . 5 - 8 . 3 - 6 . 3 - 2 . 9

P r i m a r y b a l a n c e ( 3 ) - 3 . 9 - 3 . 1 - 2 . 4 - 4 . 3 - 2 . 1 1 . 2

C y c l i c a l - a d j u s t e d b a l a n c e ( 4 ) - 6 . 9 - 6 . 3 - 5 . 8 - 5 . 4 - 4 . 9 - 3 . 3

S t r u c t u r a l b a l a n c e ( 4 ) - 6 . 7 - 6 . 7 - 5 . 6 - 5 . 4 - 4 . 9 - 3 . 3


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3 . F i s c a l s t r u c t u r a l r e f o r m s ( p a r t i a l l y c o m p l i a n t )

I m p o r t a n t f i s c a l - s t r u c t u r a l r e f o r m s t e p s h a v e b e e n l a u n c h e d , a l t h o u g h w i t h s o m e

d e l a y

P u b l i c a d m i n i s t r a t i o n r e f o r m s a r e a p r i o r i t y f o r C y p r u s a n d a s a g r e e d i n A p r i l , a n

i n d e p e n d e n t e x t e r n a l r e v i e w h a s b e e n c o m m i s s i o n e d a n d a l r e a d y i n i t i a t e d , l e d i n a

f i r s t p h a s e b y t h e W o r l d B a n k a n d t h e U K p u b l i c a d m i n i s t r a t i o n

C y p r u s a n n o u n c e d o n 2 6 J u l y 2 0 1 3 a m a j o r r e f o r m f o r i t s w e l f a r e s y s t e m , t o b e

p r e p a r e d i n s t a g e s a n d e n t e r i n t o f o r c e o n 1 J u l y 2 0 1 4 i t a i m s t o b e t t e r p r o t e c t t h e

m o s t v u l n e r a b l e h o u s e h o l d s w h i l e e n s u r i n g a m o r e e f f i c i e n t u s e o f p u b l i c f u n d s

T h e m a i n c o r n e r s t o n e s o f t h e r e v e n u e a d m i n i s t r a t i o n r e f o r m , a l s o b y i m p r o v i n g t h e

g o v e r n a n c e s t r u c t u r e , i n s p i t e o f s o m e d e l a y , a r e n o w a g r e e d

T h e a u t h o r i t i e s w i l l n e e d f o l l o w - u p o n : ( i ) t h e a c t u a r i a l s t u d y f o r t h e G S I S ; ( i i ) t h e

a p p r o v a l o f a n u m b r e l l a l a w t o i m p r o v e b u d g e t a r y p r o c e s s e s ; ( i i i ) u p - d o - d a t e

v a l u a t i o n o f t h e i n v e n t o r y o f S O E s a n d s u b s e q u e n t s t e p s i n t h e p r i v a t i s a t i o n p r o c e s s ;

( i v ) f u r t h e r s p e c i f i c a t i o n o f t h e r e f o r m p l a n s f o r t h e r e v e n u e a d m i n i s t r a t i o n a n d t h e

w e l f a r e s y s t e m


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4 . S t r u c t u r a l r e f o r m s ( l a b o u r , p r o d u c t a n d s e r v i c e s m a r k e t s )

C y p r u s h a s s u c c e s s f u l l y t r a n s p o s e d t h e T h i r d E n e r g y P a c k a g e a n d h a s m a d e s o m e

p r o g r e s s i n f o r m u l a t i n g a c o m p r e h e n s i v e s t r a t e g y f o r r e a r r a n g i n g t h e e n e r g y s e c t o r

L a b o u r m a r k e t - r e l a t e d r e f o r m s t e p s h a v e b e e n i n i t i a t e d ; h o w e v e r , t h e a s s e s s m e n t o f

c u r r e n t a c t i v a t i o n p o l i c i e s n e e d s t o b e f o l l o w e d b y d e t a i l e d p r o p o s a l s

M o s t a m e n d m e n t s a l i g n i n g t h e l e g i s l a t i o n w i t h t h e p r i n c i p l e s o f t h e S e r v i c e s D i r e c t i v e

h a v e b e e n a d o p t e d

T h e r e f o r m o f t h e h o u s i n g m a r k e t a n d i m m o v a b l e p r o p e r t y r e g u l a t i o n , a l t h o u g h

a d v a n c i n g , i s t a k i n g l o n g e r t h a n f o r e s e e n

A s t u d y o n a n e w t o u r i s m s e c t o r b u s i n e s s m o d e l a n d a n u p d a t e o f t h e T o u r i s m

S t r a t e g y 2 0 1 1 2 0 1 5 w e r e p r e p a r e d , t o c o n s t i t u t e t h e b a s i s f o r a c o n c r e t e a c t i o n p l a n

t o b e p r e s e n t e d l a t e r i n 2 0 1 3

F o l l o w - u p i s n e e d e d r e g a r d i n g : ( i ) a m o r e c o m p r e h e n s i v e o u t l i n e o n t h e r e g u l a t o r y

r e g i m e a n d m a r k e t o r g a n i s a t i o n f o r t h e e n e r g y s e c t o r a n d g a s e x p o r t s ; ( i i ) s o m e

r e g u l a t e d p r o f e s s i o n s s t i l l n e e d f u l l e l i m i n a t i o n o f b a n s o n a d v e r t i s i n g .


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Programme financing and debt (1 of 2)

T h e f i r s t d i s b u r s e m e n t o f E U R 3 . 1 b n , p r o v i d e d t h e C y p r i o t a u t h o r i t i e s w i t h s u f f i c i e n t

f u n d s t o c o v e r d e b t s e r v i c i n g a n d d e f i c i t f i n a n c i n g n e e d s , u n t i l t h e n e x t c a s h

d i s b u r s e m e n t f o r e s e e n b y e n d - 2 0 1 3

T h e s u c c e s s f u l e x c h a n g e o f d o m e s t i c - l a w b o n d s h e l d b y r e s i d e n t s a n d t h e

i m p r o v e m e n t o f t h e t e r m s o f t h e l o a n g r a n t e d b y t h e R u s s i a n F e d e r a t i o n , i n c r e a s e d

C y p r u s ' o u t s t a n d i n g m a r k e t a b l e p u b l i c d e b t a v e r a g e m a t u r i t y a n d n o r m a l i s e d i t s

r e p a y m e n t s c h e d u l e / p r o f i l e

F o l l o w i n g t h e f i r s t c a s h d i s b u r s e m e n t ( E U R 3 b n ) a n d t h e c a s h - l e s s s e c o n d t r a n c h e f o r

t h e r e c a p i t a l i s a t i o n o f t h e f i n a n c i a l s e c t o r ( E U R 1 . 5 b n ) , t h e E S M w i l l h a v e d i s b u r s e d

h a l f o f i t s c o m m i t m e n t o f E U R 9 b n

T h e I M F , w h i c h d o e s n o t p a r t i c i p a t e i n t h e r e c a p i t a l i s a t i o n o f t h e f i n a n c i a l s e c t o r , w i l l

h a v e d i s b u r s e d a t o t a l o f E U R 0 . 1 7 b n .


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Programme financing and debt (2 of 2)

T h e r e a r e n o c r i t i c a l c h a n g e s t o t h e d e b t s u s t a i n a b i l i t y a s s e s s m e n t ( D S A )

K e y p a r a m e t e r s o f t h e m a c r o - a n d f i s c a l f o r e c a s t s w h i c h w o u l d i m p a c t o n t h e d e b t

t r a j e c t o r y h a v e n o t b e e n r e v i s e d

E s t i m a t e d f i n a n c i n g n e e d s o v e r t h e p r o g r a m m e h o r i z o n s t i l l s e e m a p p r o p r i a t e a n d

h a v e n o t b e e n r e v i s e d

G e n e r a l g o v e r n m e n t ( g r o s s ) d e b t i s e x p e c t e d t o p e a k a t a r o u n d 1 2 7 % o f G D P i n 2 0 1 5

a n d s t a r t d e c l i n i n g f r o m 2 0 1 6 o n

2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6

G r o s s d e b t s t o c k ( % o f G D P ) 8 5 . 8 1 1 5 . 0 1 2 3 . 2 1 2 6 . 9 1 2 2 . 5

d e b t s t o c k 1 4 . 7 2 9 . 2 8 . 2 3 . 6 - 4 . 4

P r i m a r y b a l a n c e ( n e g = P B i n s u r p l u s ) ( 1 ) 3 . 1 4 . 2 4 . 3 2 . 1 - 1 . 2

I n t e r e s t p a y m e n t s 3 . 2 4 . 1 4 . 3 4 . 1 4 . 2

D e f i c i t / d e b t a d j u s t m e n t 8 . 1 1 3 . 3 - 3 . 6 0 . 6 - 2 . 7

G r o w t h i m p a c t 1 . 8 8 . 2 4 . 6 - 1 . 3 - 2 . 4

I n f l a t i o n e f f e c t - 1 . 4 - 0 . 6 - 1 . 3 - 1 . 8 - 2 . 2


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Risks to the programme

1. potentially stronger contraction of the economy, further worsening of the

labour market outlook and steeper drop in real estate prices;

2. protracted period of low confidence in the banking sector; relatively large

amount of NPLs could further tighten credit supply conditions;

3. worsening of the economic situation in trade-partner economies;

4. insufficient implementation of fiscal-structural measures; inability toreach the agreed primary surplus targets established in the programme;

5. lower-than-expected privatisation proceeds;

6. insufficient implementation of structural reforms, constrained by adverse

macro and financial developments, but also by vested interests


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What next

1 . I n c o o r d i n a t i o n w i t h t h e C Y a u t h o r i t i e s , t h e C o m m i s s i o n a n d t h e f e l l o w p r o g r a m m e

p a r t n e r s , k e e p m o n i t o r i n g t h e p r o g r a m m e c o n d i t i o n a l i t y i m p l e m e n t a t i o n , a s

a g r e e d i n t h e r e v i s e d M o U

2 . T h e r e i s a n u m b e r o f Q 3 - 2 0 1 3 d e a d l i n e s , r e l a t e d t o i m p o r t a n t p o l i c i e s a n d r e f o r m s ,

t h a t t h e C Y a u t h o r i t i e s a r e w e l l p l a c e d t o r e s p e c t

3 . T h e n e x t r e v i e w m i s s i o n , i s e x p e c t e d t o t a k e p l a c e i n l a t e O c t o b e r - e a r l y N o v e m b e r

a n d w i l l c e r t a i n l y f o c u s o n t h e f i n a n c i a l s e c t o r r e f o r m s , t h e 2 0 1 4 b u d g e t

p r e p a r a t i o n a n d t h e o n - g o i n g s t r u c t u r a l r e f o r m s , e . g . p r i v a t i s a t i o n p r o c e s s a n d

e n e r g y s e c t o r d e v e l o p m e n t p l a n .


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Your questions, comments please Thank you!

http://ec.europa.eu/economy_finance/publications/occasional_paper/2013/op161_en.htm

(European Economy. Occasional Papers. 161. September 2013. Brussels. Paper and internet.)

"The Economic Adjustment Programme for Cyprus first review"

the economic adjustment programme for cyprus - 1st review

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