Despite data showing the country’s state bank is seeing deposits flee even with capital controls in place, Cypriot President Nicos Anastasiades said the economy is showing some good signs in the wake of a 10 billion euro ($13.67 billion) bailout from international lenders.
But he acknowledged that it still faces “huge challenges” ahead to boost foreign investment and youth employment and trying to restore integrity to a banking sector after the government confiscated nearly half the deposits of accounts over 100,000 euros ($137,000).
Cyprus earlier this month passed its second evaluation from the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) needed to unlock the next installment.
Despite that positive assessment, the Troika said the country’s battered economy will shrink 7.7 percent this year and 4.8 percent next year and will take some time to recover after its banks were brought to the edge of ruin by bad loans to Greek businesses and big holdings in devalued Greek bonds.
“To date we had two positive evaluations from the troika,something which demonstrates our full commitment to the timely implementation of the MOU (accord with the EU) in order to stabilize and restore trust in our economy,”Anastasiades told an economic conference in Nicosia.
“We are taking bold decisions to implement prudent fiscal policy, we are changing what must be changed and proceeding with large and bold structural changes. We are turning the crisis into an opportunity, we are trying at least.” he said.
“We still have huge challenges before us, and that is why we have to be daring, we have to be consistent, in order to restore as soon as possible the full confidence and trust in the Cypriot banking system.”
In return for the bailout, Cyprus agreed to a raft of painful reforms, including a massive downsizing of its banking sector.
Anastasiades said the next steps would be aimed at boosting foreign investment and addressing the island’s soaring youth unemployment but didn’t offer any details other than promises.
Delegates at the conference organized by Britain’s The Economist magazine also paid tribute to the tough measures adopted by Cypriot officials, the Financial Times said.
“Cypriot authorities have demonstrated strong resolve to take very difficult but necessary decisions,” said Delia Velculescu, an official in the IMF’s European department. “The economy has been more resilient than expected, with private consumption declining by less than expected and tourism and exports holding up.”