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IMF official tells CNA Cyprus should “push ahead” with structural reforms as economy is doing well

An IMF official has called on Cyprus to exploit the good performance of the economy to push ahead and promote structural reforms that would further unlock growth potential for the Cypriot economy.

In an interview with CNA on the occasion of the completion of an article IV consultation with the Cypriot authorities, Alex Pienkowski, head of mission for Cyprus, praised the resilience shown by the Cypriot authorities following continuous external shocks, stating that this is the time to promote reforms in the sectors of the judiciary, education and green transition.

“I think the economy has shown impressive resilience,” he told CNA via teleconference.

Apart from the strong growth, Pienkowski referred to the decline of inflation which is converging to the 2% target, the rapid reduction of public debt, estimated to achieve the “significant milestone” of dropping to 60% under Maastricht treaty by 2027 and the high primary surplus, which is the highest in the EU, as well as the financial sector which is doing well and the strong labour market.

“This is really an important testament to the strong policymaking over the last few years in Cyprus,” he said.

Replying to a question on what could the authorities do to further promote resilience and diversification thereby boosting growth potential, Pienkowski referred to investment in education, so that Cypriots could benefit from the island’s booming ICT sector and the reforms in the judicial sector.

“You know, when the economy is so healthy, and there are so many buffers, this is the time to be pushing ahead with some of those deeper structural reforms. It’s much harder to do these structural reforms when the economy isn’t doing so well or when it’s in recession. So this is the time to be ambitious on these kind of deeper structural changes in the economy,” he said.

The anchors of resilience and diversification

Asked how the Cypriot authorities could further enhance the resilience and diversification, Pienkowski said the real anchors of resilience is fiscal policy and the financial sector.

“That is making sure that there’s no doubt in the minds of markets, that you are committed to reduce debt. By keeping strong primary balances, there is the policy space if you have another pandemic-type shock or other shocks you could be able to loosen policy and react,” he said.

The IMF mission chief added that the second anchor is the financial sector, noting that the increase in the counter-cyclical capital buffers, strong liquidity and strong capital buffers are “really important.”

On diversification, Pienkowski recalled the big shift of the ICT sector and the reorientation of the tourist sector to offset the loss of the Russian tourist market. Noting that the IMF does not recommend specific policies but rather horizontal ones, the IMF technocrat said the authorities should continue focusing on promoting changes in judicial sector, increase of judges, the civil procedures and electronic justice.

“This is something we want to emphasize. This is really important, it’s important for new lending, its important for a stable business environment,” he went on to say.

On the education sector, Pienkowski said the authorities should focus on making sure that more Cypriots could benefit from the island’s booming ICT sector, pointing out that more should be invested in the so-called STEM education (Science, Technology, Engineering and Mathematics).

“A resilient and well-educated workforce, is what drives the diversification and entrepreneurship from within Cyprus,” he added.

Asked on the green transition, Pienkowski highlighted the need for the completion of the LNG terminal and the electricity interconnection cable that would link the grids of Cyprus with Greece and Israel, pointing out that such projects, coupled with renewable energy, could reduce reliance on oil, while promoting resilience and sustainability at the same time.

“It is really important that Cyprus doesn’t get left behind in terms of the green transition,” he added.

Furthermore, responding to a question, Pienkowski outlined the IMF’s agreement with the Cypriot authorities’ over the establishment of a Single Supervisory Agency that would oversee self-regulating bodies such as the Cyprus Bar Association and the Accountants with regard to compliance with anti-money laundering regulations.

“I think it is important that there is somebody that you know, has some kind of broad oversight over how the Bar Association and an accountants operate. I think that’s, the model in a lot of countries,” he said.