Significant number of reforms pending as the Cypriot bailout nears to completion

Significant number of reforms pending as the Cypriot bailout nears to completion

A significant number of reforms are pending in the Cyprus` €10 billion economic adjustment progamme two reviews before the programme ends in March 2016.

“We see a slowing down of the pace of reforms,” a European Commission senior official told CNA ahead of the eighth review mission by Cyprus’ lenders, the EU Commission, the ECB and the IMF, to begin on Tuesday. According to the Commission`s compliance table drafted following the seventh review (end of June 2015), a significant number of reforms are pending just two reviews before the programme`s expiry.

In the banking sector, the most significant reform relates to the parliamentary approval of the bill allowing the sale of loans. This bill is considered as indispensable by the lenders as it is believed that it will help address the high stock of non-performing loans in the banking system. Under the seventh updated memorandum of understanding containing the conditions for the financial assistance, the bill should have been approved by the end of September. The Parliamentary Committee on financial and budgetary affairs is expected to give its final approval on Monday and set the date for discussion in the House`s Plenary for approval.

Non-compliance is recorded on the issue of transposing the EU directive on Bank Recovery and Resolution as well as the Deposit Guarantee scheme. The bills have been finalised and are being discussed in the Parliamentary Committee on finance and budgetary affairs.

Another issue pending is the bill on loan securitasation. According to the Commission, the Council of Ministers should have approved a bill removing all impediments to assets sucuritisation in line with the international best practices and EU law by end-October 2015 with a view to be adopted by the House of Representatives in 2015.

Among the pending issues is the resolution the ex Laiki bank. The bank has entered a resolution process, and part of its assets were absorbed by the Bank of Cyprus, as part of the conditions of the bailout concluded in 2013. The Resolution Authority (the Central Bank of Cyprus) should have prepared and implemented by end-June a timebound plan for completing the resolution of Laiki.

On the structural side, the implementation of the National Health Scheme has been postponed for the post-progamme period namely in 2017. However the Cypriot authorities should have have adopted a bill on hospitals autonomisation, by end-June, taking into account the related World Health Organisation`s studies, whereas a road map for public hospitals autonomisations has not yet been approved by the Coucil of Ministers.

Furthermore, the law on the functioning of the State-Owned Enterprises has been approved by the Council of Ministers but is still pending before the House of Representatives for approval. Under the programme, the law should have been approved by June 2015.

On tax issues, the implementation of the new immovable property tax (IPT) with updated housing prices has been postponed for 2016, due to the delay of the discussion in the parliament. “This points to high risks for the implementation of the IPT reform,” the Commission notes.

Moreover, according to the Commission`s compliance table, the authorities has not yet adopted a bill specifying the frequency of the mandatory update of the values, in line with international best practice. The issue was left pending following the seventh review in early July.

Due to tax reform, featuring tax incentives, the Cypriot authorities have not implemented recommendations of a study for consolidating the collection and administration of the municipal and communal recurrent property tax. Instead, the Finance Ministry announced that the municipal and communal immovable levy will be covered by public expenditure until the implementation of the reform Local Authorities reform.

In welfare and employment issues, the authorities have not complied with a structural benchmark on the preparation of a plan to consolidate disability benefits, in line with the adopted welfare reform. Additionally, the Cypriot Ministry of Labour has not yet launched a tender for the recruitment of additional staff to improve the administrative capacity of the Public Employment Services. The report notes, however, that a limited number of measures have been undertaken to enhance the capacity of the services, “but these fall short of what is needed.”

In the energy sector, the authorities have not completed the institutional framework for the management of hydrocarbon resources which would receive and manage various types of public revenues from offshore gas exploitation and sales. According to the Commission, the law was by end-July in the process of legal vetting, whereas the drafting of the legislation defining the resources inflow and outflows rules has not yet been completed.