The fourth review of the Cyprus adjustment programme has concluded. The review indicates that the programme remains on track, although the challenges facing the Cypriot authorities persist.
The objective of the programme is to restore economic stability, fiscal sustainability, and structural reforms, and steady progress has been made toward these goals.
The Troika has revised its 2013 projections, now expecting an economic contraction of 4.2% rather than the initially projected 4.8%, as the current economic situation is more resilient than it was at the start of the programme.
Lenders also expect a reduction in the 2014 deficit. The primary deficit for this year is expected to reach 1.7%, compared to the 1.8% projected during the previous mission, while the overall 2014 deficit is expected to reach 5.3% instead of the previously projected 5.8%.
However, Cyprus's lenders believe that challenges remain regarding non-performing loans, fiscal targets, and structural reforms. Although the restructuring of the financial sector is proceeding steadily, addressing non-performing loans is urgent, as they have reached 50% of the loan portfolio and are linked to liquid assets.
It is reported that the Cypriot authorities have achieved good results in addressing budget issues, but there is still a long way to go to meet fiscal targets and achieve the necessary surpluses.
The third challenge is the need to maintain the current reform momentum, specifically regarding the introduction of a guaranteed minimum income, tax administration reform, privatization, healthcare reform, and in-depth reforms to real estate taxation and its management.
The government has provided the Troika with the cornerstones for healthcare reform, taking the lead in implementing a unified payment system within the national health insurance system. The feasibility of this will be studied and analyzed; if deemed viable, the timeline for its application to other insurance areas will be determined.
