NICOSIA, May 20 (Xinhua): Cyprus's economic adjustment programme following last year's chaotic bailout is well on track and a shallower than originally projected contraction of the economy is expected this year, the International Monetary Fund said Monday.
Delia Velculescu, who heads the IMF team in the troika Cyprus mission said in a video press conference from Washington that confidence in the economy of the island is improving and fiscal targets have been outperformed.
"As a result of this, macroeconomic projections can be now revised. We expect that economic contraction to be only 4.2 per cent instead of a 4.8 per cent recession projected during our previous review," Velculescu said.
Teams of troika technocrats representing the European Commission, the European Central Bank and the IMF concluded their fourth review of the economy since Cyprus was yanked from the brink of bankruptcy just over a year ago.
Cyprus's economy contracted by 5.4 per cent in 2013, more than 2.0 percentage points better than initial expectations.
Velculescu said, however, that an original projection of a 0.9 per cent growth in 2015 was brought down to 0.4 per cent as a result of a higher deleveraging which continues to burden local consumption.
The banking system is still week following its unprecedented recapitalisation of the biggest lender with depositors' money and the winding down of the second biggest lender.
Despite a successful restructuring, banks are faced with a high proportion of non- performing loans amounting to 26 billion euros (US$35 billion), or about 45 per cent of their loan portfolio.
The troika has said in a joint statement that recovery was likely to be more subdued, given the high levels of unemployment, the liquidity crunch resulting from the high per centage of non-performing loans and indebtedness which could dampen consumption.
It called on the Cypriot government to lay out the legal framework to enable banks to recoup loans from debtors who have the ability to pay but drag their feet in expectation of improving their repayment terms.
International lenders gave the go-ahead for the disbursement of the next tranche of 186 million euros for deficit refinancing and a further amount of about 690 million euros for refinancing maturing debt.
