Troika says Greek Cyprus reforms on track, jobless stunt growth

NICOSIA - Reuters

Cleaning ladies, working at the finance ministry, shout slogans against job cuts during a protest outside the parliament November 6, 2013. REUTERS photo

International lenders to debt-shackled Greek Cyprus said late Nov. 7 the island was making good progress in meeting the terms of its 10-billion-euro bailout program, but that output would remain stunted by a rising jobless rate and falling incomes.

They also said a recession this year would be less pronounced than expected at 7.7 percent, but next year’s drop in output would be about 1 percentage point higher at 4.8 percent.

“The conclusion of our mission is that the program remains on track, and good progress has been made in all areas,” IMF mission chief Delia Velculescu said.

Greek Cyprus, one of the euro zone’s smallest economies, verged on default in March on the heavy exposure of its banks to Greece.

Its aid package was conditional on reforms and an unprecedented move to take a portion of deposits, in effect forcing bank savers to foot the bill to recapitalize a major bank and wind down a second.

Velculescu and representatives from the ECB and the EU, known as the troika, wrapped up a 10-day mission to the island on Thursday, their second review since the bailout was agreed.

She said that while fiscal performance had been “strong”, with program targets met with comfortable margins, it was tempered by an uncertain outlook.

“The situation remains very difficult with disposable income falling and unemployment rising,” she said. Unemployment is now at 17.1 percent and is forecast to rise to 19.2 percent in 2014.

Against that backdrop, she said, the cumulative decline in output over the next two to three years - about 12 percent - was unchanged.

“Difficulties and problems still remain and the government will not be celebrating prematurely. Our efforts (at reform) must continue at the same pace,” said Harris Georgiades, the Greek Cypriot finance minister.

Velculescu said steps also needed to be taken to advance the privatization agenda. The authorities had committed to present a privatization plan “as soon as it is ready” to raise 1.4 billion euros until 2018, she said.