Cyprus meets targets, economy better than expected, say lenders

(MENAFN- AFP) International lenders said Wednesday that Cyprus remains on target to meet the terms of its bailout agreement, opening the way for a second tranche of funds, and the economy is doing better than expected.

"Cyprus's programme is on track," said a statement from the European Commission, European Central Bank and International Monetary Fund (IMF).

"All fiscal targets have been met with considerable margins, reflecting the ambitious fiscal consolidation under way, prudent budget execution and a less severe deterioration of economic activity than originally projected."

The so-called troika began its second review of the island's shell-shocked economy last month, and approval was needed for the country to receive the next tranche of a desperately needed 10 billion euro ($13.5 billion) bailout agreed in March.

The troika said "structural reforms are also advancing" and that, since the last review, "there has been significant progress toward the recapitalisation and restructuring of the financial sector. This has allowed further relaxation of payment restrictions since July, in line with the government's milestone-based roadmap."

In return for the bailout, Cyprus agreed to a raft of painful reforms, including a massive downsizing of its banking sector.

The island undertook to wind down its second largest bank -- Laiki -- and impose losses of 47.5 percent on bigger deposits in its under-capitalised largest lender, Bank of Cyprus.

Looking to the economy, the troika's statement said the "situation remains difficult, although the recession has been less pronounced than expected."

Consequently, it forecast that gross domestic product would contract by about 7.7 per cent in 2013, or 1 percentage point less than originally envisaged.

"Tourism and professional services have proven relatively resilient, and confidence has continued to improve gradually. New foreign direct investment in the banking sector has been a positive sign," the statement said.