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IMF draft report on Cyprus ready
2002-11-04 16:32:01

Nicosia, Nov 4 (CNA) ? Cyprus is more advanced in the process of real convergence with the European Union (EU) economic criteria "and is actually ahead of other candidate countries and members of the EU", said Gian Maria Milesi-Ferretti, head of the International Monetary Fund (IMF) mission, which today concluded a visit to Cyprus.

At the same time, Ferretti sent a message to the relevant authorities on the island to closely "implement the strategy that is outlined on the pre-accession programme". |

Presenting a draft report, which will be submitted to the Executive Council of the IMF, to be approved at the end of next January, Ferretti said economic growth in 2002 "has been affected by the sharp decline in tourism" but prospects for 2003 "are more favourable, and absent negative external events, growth should rebound above 3 percent".

Presenting the achievements of the Cypriot economy since the IMF delegation's last visit in 2000, Ferretti said, "the Cypriot economy has performed well, and is fast approaching very rapidly average income per capita levels in the EU".

He said "fiscal consolidation reduced the budget deficit to 3 percent in 2001" while a major tax reform was implemented in 2002, aligning indirect taxation more closely with EU standards and lowering direct taxation".

At the same time, "interest rate controls were removed, the Central Bank was made more independent and the capital account was further liberalised without jeopardizing monetary and external stability", Ferretti said.

Furthermore, financial sector legislation is being strengthened, in line with EU directives and structural reform has proceeded to some extent, the IMF official added.

"These achievements have been made without endangering the monetary and external stability", said Ferretti, adding that these achievements have "been recognised by the EU in its latest Progress Report, which judges the Cypriot economy ready for EU membership".

However, Ferretti said "despite these impressive achievements, Cyprus still faces significant policy challenges, complicated by the very unsettled and difficult international environment" such as the increased instability in the Middle East, the concurrent risk of an increase in oil prices, the impact of terrorist acts on people's propensity to travel, and further delays in the recovery of European economy".

"Because of its small size, external openness, and geographical location, Cyprus would be particularly affected by such developments", and stressed that "this is no time for complacency".

He recommended "continued firm commitment to sound economic policy and further structural reform is crucial to successfully cope with these challenges".

Regarding fiscal policy, he said the IMF mission "supports the fiscal consolidation strategy laid out in the Pre-Accession Programme (PEP) and welcomes the authorities' commitment to its implementation.''

However, Ferretti said, "in light of current trends, achieving the fiscal goals set forth in the PEP will require a strong effort".

As regards inflation, Ferretti said "monetary policy has successfully kept inflation under control", pointing out that excluding the impact of Value Added Tax (VAT) and excise tax increases, "the rate of inflation is well in line with the level prevailing in the euro zone".

On structural reform and the labour market, Ferretti said, "Cyprus is well advanced in meeting the requirements of the acquis communautaire", adding that "measures to promote competition in all sectors are beneficial to the economy as a whole".

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