Withdrawal of pandemic support measures should be gradual and conditioned on the durability of the recovery of Cyprus, the International Monetary Fund has warned.
“As the recovery takes hold, policies should aim to avoid unnecessary bankruptcies and efficiently reallocate resources, in order to minimize economic scarring and ensure more inclusive and sustained growth,” IMF said in a statement released late on Tuesday.
“Furthermore, it is crucial that the progress made in addressing pre-pandemic macro-financial vulnerabilities is not reversed. Sustained reform efforts are critical to mitigate risks and support the economic recovery,” it added.
An IMF mission met virtually with Cypriot authorities from March 8–29 to discuss recent economic developments and policy priorities.
Based on the preliminary findings of this mission, staff will prepare a report to be presented to the IMF Executive Board for discussion and decision.
The report also said the Covid-19 pandemic has halted Cyprus’ strong economic growth momentum of recent years.
But despite the economy’s dependence on tourism and the high private and public debt levels, wide-spread defaults and high unemployment have largely been avoided so far, thanks in part to timely policy support and balance sheet buffers.
Growth is projected to recover to 3 percent in 2021 from -5.1 percent last year.
However, high uncertainties overshadow the near-term economic outlook, including the pace of vaccine rollout and the potential for new waves of infection, and risks are tilted toward the downside.
Policy priorities will thus depend crucially on the evolution of the health and economic crises, the report concluded.