IMF warns of risks to Cyprus' capacity to repay debt

NICOSIA, March 28 (Xinhua) -- Cyprus is expected to maintain its capacity to repay its sovereign debt, currently just above 100 percent of the country's gross domestic product (GDP), but international developments may impair this capacity, the International Monetary Fund (IMF) warned on Thursday.

In a report published at the conclusion of a visit to Cyprus as part of its post-bailout monitoring mission, the IMF listed court cases, an unregulated Brexit and a weaker growth in the European Union as possible developments that could make it difficult for Cyprus to retain its repaying capacity.

It said that court cases brought by civil servants against cuts to their salaries and benefits by about 25 percent as a means of reforming the economy may result in additional spending if the court actions are successful.

The IMF participated with 1 billion euros in 10-billion-euro bailout of Cyprus along with the Eurogroup to help the eastern Mediterranean island face its worst economic crisis in 2013.

Both the Eurogroup and the IMF sent missions to Cyprus following its exit from the financial assistance package in 2016.

The IMF concurred with the Eurogroup report that the Cypriot economy has shown strong growth, supported mainly by construction, tourism and professional services.

It also said that the banks' balance sheets were being strengthened and non-performing loans (NPLs) had declined sharply after loan portfolio transfers out of the banks.

"While this progress is welcome, continued efforts are needed to address challenges that remain from elevated public and private indebtedness, still high level of bank NPLs, large fiscal risks and increasing headwinds to sustained growth," the IMF report said.

It added that Cyprus must strengthen structural reforms and ongoing judicial reforms to increase court efficiency and accelerate the enforcement of commercial claims.

"Reforms of the civil procedure code and introduction of the e-justice system should be completed and the issuance and transfer of property titles should be accelerated," the IMF report said.

A similar post-program report by the Eurogroup earlier this week said Cyprus achieved a 3.9 percent GDP growth in 2018, but added that growth in the coming years is expected to ease.