News Column

IMF Uncertain on Cyprus, May Need More Money

May 17, 2013
euro notes

The situation in debt-laden Cyprus remains critical even after the approval earlier this week of a three-year loan, and the country may need more international support, the International Monetary Fund said Friday.

In its full report on Cyprus, the IMF outlined the "unusually high" risks that remain, especially the uncertainty over economic growth following the banking crisis.

On Wednesday, the IMF announced it had approved a three-year, 1.3-billion-dollar loan to support Cyprus' attempts to stabilize its financial sector, bring the government's deficit under control and restore economic growth.

But it did not release the details of its findings until Friday, when it said that "political resolve" to implement the reforms Cyprus has agreed to "could falter, adding to risks."

"Materialization of these risks could lead to a higher debt trajectory and the need for additional financing measures to ensure debt sustainability," the IMF said.

The IMF projected that the Cyprus economy will shrink by 8.7 per cent his year, and another 3.9 per cent in 2014. Mild recovery could follow in 2015.

Cyprus saw its economy shrink by 1.3 per cent in the first quarter this year.

The loan to Cyprus from the Washington-based crisis lender is part of a rescue package of 10 billion euros (12.9 billion dollars) forged in March with the eurozone's bailout fund.

The IMF's executive board approved the Cyprus loan, including an immediate disbursement of 110.7 million dollars. With the IMF disbursement, Cyprus has received about 2.7 billion dollars this week from its international lenders.

The eurozone bailout fund, the Luxembourg-based European Stability Mechanism, announced Monday that it had approved its first bailout tranche for Cyprus and transferred an initial 2 billion euros (2.6 billion dollars). The rest of the tranche - up to 1 billion euros - will be transferred by June 30.

In the eurozone's long-running fiscal crisis, Cyprus followed Greece, Ireland and Portugal to became the fourth eurozone country since 2010 to agree to a full bailout.

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Source: Copyright 2013 dpa Deutsche Presse-Agentur GmbH

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