Cyprus transition to a more diversified growth model will be challenging for the economy in the coming years, the European Commission has said.
In a conclusion of staff working document titled "Assessment of the 2013 national reform programme for Cyprus" released Wednesday in Brussels, the Commission said that Cyprus has already made important progress in implementing the policies laid down in the MoU with the Troika and that the authorities adopted sizeable fiscal consolidation measures prior to the Programme`s signature and policies set as prior actions have been met.
However, the EC notes that key challenges and risks in the period ahead, relate to developments in domestic credit conditions and to the complexity of the reorganisation of the financial sector with possible spillovers onto related professional and financial services, as well as the rapidly deteriorating labour market conditions. It also said that upside risks relate to potential investment activity in the energy sector.
"More generally, the transition to a more diversified growth model will be challenging for the economy in the coming years and will imply a re-allocation of economic resources across sectors, which will take time and will require flexible factor and product markets" ,, the EC stresses.
In the staff document it is also underlined that maintaining proper implementation of Structural and other EU Funds, as well as increasing job opportunities for young people and preserving their employability prospects, "will contribute to laying the foundations for a sustainable long-term growth for Cyprus".
"It is essential that the policy measures under the MoU continue to be consistently implemented", the EC says.
Excluded from capital markets since May 2011 Cyprus applied for a bailout in June 2012, after its two largest banks requested state aid following massive losses amounting to €4.5 billion as a result of the Greek sovereign debt haircut and to cover is growing fiscal needs.
Cyprus and the Troika of the European Commission, the European Central Bank and the International Monetary Fund agreed on March 25 on a €10 billion bailout which included imposing losses on bank uninsured deposits as well as fiscal consolidation measures amounting to 7.2% of GDP by 2016.
