Financially stricken Cyprus is on track with reforms to shore up its economy, the IMF said on Wednesday, but said downside risks lurked from the yet-unclear impact of a banking sector overhaul.
Cyprus, one of the smallest countries in the euro zone, teetered on the brink of financial meltdown in March after a chaotic bid to hammer out a bailout with international lenders. It was eventually forced to shut down a major bank and seize savings in a second to qualify for 10 billion euros in aid, shattering confidence and forcing the imposition of capital controls to prevent a bank run.
Cyprus's president was quoted assaying on Wednesday that controls would end in January. In its first review of the bailout program for the island, the International Monetary Fund said Cyprus had shown a better fiscal performance than anticipated, but it did not change any of its forecasts.
It expected the island's economy to contract by "about" 9 percent this year and 4 percent in 2014 before returning to mild growth.
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"Risks remain substantial and tilted to the downside," the IMF said, adding that risk included the banking crisis having a larger-than-anticipated impact on households and corporates - even though the report states elsewhere that fewer Cypriots than initially thought bore the immediate brunt of a deposit-grab in the two banks.
Public hostility to the bailout program was also waning, said the IMF, which is providing $1.3 billion of the bailout money to the Mediterranean nation.