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Cypriot economy "on track" one year after bailout

17 March 2014 18:50 (UTC +04:00)

Baku-APA. One year after receiving bailout assistance which pulled it back from an uncontrolled default, Cyprus was able to proclaim its economy back on track -- but still plagued with problems, APA reports quoting Xinhua.

"The economy is on its way to a stage where it can be supported without relying on outside assistance," Finance Minister Haris Georgiades told the state radio on Monday.

"We can achieve this by diligently applying the adjustment program," Georgiades said on the event marking the one year anniversary of bailout memorandum signed with the Euro group and the International Monetary Fund (IMF).

Georgiades said the spreads of government bonds have declined to the level of June 2012.

"This means we can look forward to returning soon to the markets for financing," he said.

However, the Cypriot economy is shackled by several problems.

"The economy is still weak as the recession is there and unemployment is on the rise," said Georgiades.

The recession is fueled by lack of cash to finance new investment and restart the economy.

Georgiades said that by the end of May at the latest, all restrictions on internal bank transactions will be lifted, leaving in place only a ban on transfer of capital abroad.

International restrictions are expected to be lifted by the end of the year.

The economy was at its worst at the start of 2013 but recession has been much less than projected by the troika of the European Commission, the European Central Bank and the IMF.

Most recent data put the recession in 2013 at 5.4 percent compared with the troika projection of 8.7 percent. The economy is expected to contract by a further 5.3 percent this year but is projected to return to a modest 0.9 percent growth in 2015.

The outcome of the crisis in Ukraine is a factor to be reckoned with as the vital tourism sector depends to a large extent on the expanding Russian tourism market -- and to a lesser extent on the Ukrainian market.

The Gross Domestic Product (GDP), which peaked at 17.5 billion euros (23.6 billion U.S. dollars) before the crisis, has been held back to just over 16 billion euros in 2013 as a result of a general reduction of private income.

Public sector salaries and pensions were cut by 3 to 4 percent and are expected to stay stable this and next year.

Conditions in the private sector are much worse. Salaries were reduced to a bigger extent as unemployment has reached 17 percent and is expected to peak at 19.2 percent at the end of this year.

Unemployment is projected to start declining next year and end at about 18.4 percent at the end of 2015, still a high level.

The public debt will reach 121.5 percent of GDP this year and will peak at 125.8 percent of GDP in 2015.

However, economists concur that overall Cyprus is on the right track given the upheaval of last year.

Marios Zachariades, a professor of economics at the state University of Cyprus told Xinhua that his assessment of the situation is that the economy is in good shape, especially as regards public finances.

"It will depend on the GDP this year and in 2015 whether Cyprus will need additional economic assistance," he said.