His echelon sets six policy priorities IMF after the completion of his visit to Cyprus. He met with the Cypriot authorities on 19–29 March 2024 to discuss recent economic developments, prospects and risks and policy priorities, stressing that temporary tax exemptions should be phased out. At the end of the visit, Alex Pienkowski, head of the IMF mission for Cyprus, made the following statement:
“Supported by strong policies, Cyprus has recovered quickly from the pandemic and has proven broadly resilient to multiple adverse shocks. Growth is above most countries and inflation is close to 2%. Fiscal performance continues to be strong, significantly reducing the public debt.
The key policy priorities are:
• Fiscal surpluses should persist until debt falls comfortably below 60 percent of GDP.
• The authorities should resist the additional indexation of wages of the public sector and avoid further expansion of ill-targeted reductions in excise duties and VAT.
• The financial sector appears resilient but requires continued vigilance, including the non-banking financial sector.
•After the recent modifications, the blocking framework should be left working without further changes.
• Further improvements in the judicial system and education are needed to enhance long-term development prospects.
• Additional climate mitigation and adaptation policies are needed to meet emissions targets and reduce climate risks.
The authorities notes the IMF should also resist any further extensions or extensions to poorly targeted VAT exemptions. Similarly, the electricity subsidy and fuel excise tax suspension should be allowed to expire as planned. The banks he notes are well capitalized and remain resistant to stress tests. Despite higher interest rates, asset quality does not appear to have deteriorated, supported by strong economic growth, falling unemployment and rising property prices. However, continued vigilance is required, including close monitoring of the recent increase in loan renegotiations.
The large stock of legacy non-performing loans continues to weigh on private sector balance sheets and the efficient allocation of credit. Uncertainty about the recovery of collateral prevents new loans. Therefore, resolving non-performing loans — supported by measures such as the mortgage-to-rent scheme — remains a key priority.