Structural reforms, as provided in the MoU, in conjunction with promising prospects in tourism as well as in the energy sector are expected to contribute to gradual rebound of growth over the medium term.
In April 2013, the agreement of the Eurogroup on the Memorundum of Understanding (MoU) for Cyprus, supported by the IMF, provided financing of the order of €10 billion for liquidity support and restructuring of the economy.
The first and second Troika review missions were positive: growth and fiscal targets were achieved, all policies implemented as planned. However there are still challenges looking forward, in particular due to a weak growth outlook. The government remains committed to implement fiscal, structural and banking sector reforms in order to restore confidence in the banking sector which is key for gradual recovery over the medium-term horizon.
Cyprus is in a position to address its challenges, supported by its strong commitment to implement the MoU and growth package to stimulate investment and employment. The growth environment is predominantly low, but investment in infrastructure (related to natural gas), lower energy prices and improvement in export figures are expected to dampen the downward impact on growth.
Unemployment is expected to remain elevated, a stabilisation is, however, expected after 2014. Wage moderation has had positive effects on competitiveness. Core inflation is showing a declining trend.
A return to sovereign debt markets appears feasible over the medium term.
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© Republic of Cyprus Ministry of Finance
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