The Executive Board of the International Monetary Fund (IMF) today completed the third review of Cyprus’s performance under an economic program supported by a three-year, SDR 891 million (about €1 billion, or US$1.4 billion) extended arrangement under the Extended Fund Facility (EFF). The completion of this review enables the disbursement of SDR 74.25 million (about €83.3 million, or US$114.6 million), which would bring total disbursements under the arrangement to SDR 297 million (about €333.2 million, or US$458.5 million). The Executive Board also approved the modification of end-March fiscal performance criteria.

In addition to the extended arrangement, approved by the Fund on May 15, 2013 (see Press Release No. 13/175), Cyprus’ economic program is also supported by financial assistance from the European Stability Mechanism (ESM) amounting to €10 billion. The program is intended to stabilize the country’s financial system, achieve fiscal sustainability, and support the recovery of economic activity to preserve the welfare of the population.

Following the Executive Board discussion, Ms. Christine Lagarde, Managing Director and Chair, said:

“The Cypriot authorities are to be commended for keeping program implementation on track, meeting their fiscal targets with significant margins, advancing fiscal structural reforms, and completing the recapitalization of the financial system. While the macroeconomic outturn in 2013 was better than expected, the outlook is challenging. Full and timely policy implementation, broad public acceptance, and continued support from Cyprus’s European partners remain critical to the program’s success.

“Significant progress has been made in the financial sector, notably the completion of the recapitalization and consolidation of the cooperative credit sector. Going forward, full implementation of banks’ and coops’ restructuring plans and strong governance are essential to further bolster confidence. In turn, this can help facilitate further steps to relax payment restrictions gradually in line with the authorities’ roadmap, while safeguarding financial stability.

“The successful resumption of credit and output growth depends critically on progress with reducing non-performing loans. Prompt implementation of a strong insolvency framework is necessary to provide adequate incentives for voluntary debt restructuring negotiations. Continued efforts are needed to strengthen banking supervision and regulation and implement the anti-money laundering framework.

“Prudent fiscal policies have contributed to permanent budgetary savings and reduced the budget deficit. In light of persistent macroeconomic uncertainty, cautious budget execution will need to be maintained this year. The ongoing fiscal adjustment should be complemented by structural reforms to enhance the welfare system and protect vulnerable groups, modernize the revenue administration, further strengthen public financial management, and prepare state-owned assets for privatization.”