IMF Reports on Cyprus – Cause for Concern?
The Cyprus Informer has published two recent articles about certain aspects of the Cyprus Economy;
Cyprus Government will have to write off Cyprus Bank Debts
Cyprus Banks and Cyprus Property
Like most financial writers we are always looking for attributable facts and there is no better source than the IMF.
Do please read the articles linked to above and then read the following extracts from the IMF Report on Cyprus published on its own web site just a few days ago on 29 June 2009.
These are just extracts please do read the whole report from the above link.
The global crisis has started to affect Cyprus. After some years of credit-financed overheating, the economy is headed for a sharp slowdown which will put pressure on the private sector, banks and the public sector to adjust balance sheets.
However, the evaporation of growth in 2009–10 will worsen credit risk in the banking sector which will bear monitoring and make current fiscal policies unsustainable without a policy correction. Structural reforms will be needed to assist the recovery and boost growth potential.
Nevertheless, the economy is headed for a sharp slowdown in 2009-10.
The downturn has begun to expose underlying vulnerabilities that have built up during the credit-financed overheating of the economy in 2007-08. The private sector is highly leveraged, and banks and households have large exposures to the property market which is beginning to correct itself. Balance sheets will therefore need to adjust to the new economic realities.
A key priority should be to preserve the strength of the financial sector through continued strong supervision and early detection of risks. Given the large size of the sector relative to the economy and high concentration ratios, problems in this sector can quickly escalate to systemic proportions with serious repercussions for the economy.
A legal framework for covered bonds should ease banks’ access to ECB liquidity facilities and should be implemented rapidly. The draft law on crisis management should strengthen the authorities’ hand in preemptively addressing liquidity or insolvency problems.
The Central Bank of Cyprus (CBC) could consider preemptively requiring higher regulatory capital on account of an expected deterioration in asset quality and liquidity risk—this may delay planned dividend pay-outs. Loan-to-value ratios on second homes may need to be reviewed in line with property price developments. Shortening the foreclosure procedure will facilitate a more rapid property price correction and bank balance sheet adjustment.
There is room to further improve supervision and the safety net.
Fiscal adjustment should rely on reducing public consumption, especially the wage bill which accounts for a third of total spending.
However, manufacturing and tourism face competitiveness problems, and wage growth has outstripped productivity increases.
Cyprus will also need to replace jobs lost in construction.
Wage increases must align with productivity. The automatic wage indexation mechanism (COLA) hampers competitiveness. Alternative measures could be considered to limit the damaging impact, for instance, by targeting COLA more effectively. Until such time as the COLA mechanism can be amended, it would be important to keep inflation under control by raising productivity though competitiveness-enhancing structural reforms.
The Black Art of Buying Property in Cyprus™ ®
The Cyprus Informer™ ® ©
http://cyprusinformer.eu
Related posts:
- What is going on in the Cyprus Banks?The Cyprus Informer has published a series of editorials on the subject of the Cyprus Economy, the position of the Cyprus Banks and its exposure to the Cyprus Property Sector raising concerns that there is a hidden economic crisis looming in Cyprus with loan risks which match those dire circumstances which have affected the UK and other EU countries. The...
- Shock Cyprus Property Taxes May Hit Holiday HomesThe front page of the Cyprus Weekly On Line for 31 December 2009 carries the headline "Tax Assault" referring to the Cyprus Budget announcement of a range of fiscal measures to deal with a deficit of euro 500 million. Initially property analysts had interpreted the Minister's original descriptive announcement where he said " this package will introduce higher tax on property property other than a home...
- International Rescue Needed for Cyprus? – ProposalsThe Cyprus Property Action Group (CPAG) has written an open letter to the Cyprus Mail. Remember the Informer Editorial on "Cyprus Government will have to write off Cyprus Bank Debts"? Well following the many articles that we have published since about the failing Cyprus Economy and the shenanigans in the Cyprus Banks (What is going on in the Cyprus Banks?),...
- Cyprus Property Bubble on Verge of Bursting A new Cyprus Law is proposed making any mortgage rank behind a registered contract for sale will mean that banks will want their money back. Once the mortgage is out of the way then Title Deeds can be issued doing away with waits for legal ownership of 10 years or more becoming a thing of the past. Also Contracts with...
- Mobile Home Sites in Cyprus – An New Attractive Proposition for UK InvestorsPeople will always wish to live in a climate as Cyprus is lucky to have. Image courtesy of http://www.cyprus-lodgehomes.com/ So what do UK Investors know most about that the others do not? Mobile and Lodge Homes is the answer. There are many, many holiday and semi residential sites across the UK. Spain and France have been "invaded" by the mobile...
- Cyprus Property Mortgages & Interest RatesSome people with Cyprus mortgages have recently been notified by Cypriot Banks that due to market conditions they have had to increase the interest rate to 6.75%. Typically Cyprus banks are increasing their margin on existing home loans from 2.25% to 3.5% or 1.5% to 3%. That means 3.5% + EURIBOR……or the variable rate for mortgages or home loans that...
- Cyprus Government will have to write off Cyprus Bank DebtsAs the Informer anticipated the Cyprus Government will not be undertaking a major reform of title deeds or the law which allows developers to re-mortgage land on which houses have been sold without the issue of title. This was announced in the Cyprus Press. The writing is on the wall for all to see. Property sales in Cyprus had already...
- Cyprus Banks and Cyprus PropertyOn 13 June the Informer published an article entitled "Cyprus Government will have to write off Cyprus Bank Debts". On 10 June Bank of Cyprus announced that its fund raising of up to 645.327.822 Euro Convertible Capital Securities had been oversubscribed with total subscriptions amounting to almost 659 million Euro. The Bank said that the capital raised from the issue...
- The Cyprus Title Deeds Problem, Cyprus Mortgage Interest Rates and Cyprus TaxesThe Cyprus Government has hired more people and is also equipping the Land Registry Department with better technology to allow 10,000 title deeds to be issued before 30th June 2010. But the Informer Editor has heard from some hopeful Cyprus property owners of new problems which are stopping the release of Title Deeds by developers. The Cyprus Revenue have to...
- Cyprus Property Prices ForecastThe Cyprus Central Bank, has announced that property prices have decreased during the year 2009 by 8%, whereas his predictions for 2010 is that prices will keep steady. According to its six-month bulletin, the price of the housing properties will record an annual decrease of 8% in 2009 compared to 13% in 2008. “The anticipated drop in the housing property prices...
[...] on with our earlier articles Cyprus Banks and Cyprus Property and IMF Reports on Cyprus and make up your own mind bearing in mind what the Cyprus developers are also now both saying and [...]
[...] Cyprus Informer has published a series of editorials on the subject of the Cyprus Economy, the position of the Cyprus Banks and its exposure to the Cyprus Property Sector raising concerns [...]