Cyprus: Fifth, Sixth, and Seventh Reviews Under the Extended Arrangement Under the Extended Fund Facility; Request for Waiver of Nonobservance of a Performance Criterion; and Rephasing of Access-Press Release; Staff Report; and Statement by the Executive Director for Cyprus

EXECUTIVE SUMMARY Economic developments have been encouraging. The recession in 2014 was milder than expected and GDP growth was positive in the first quarter of 2015 for the first time in almost four years. The fiscal outturns have exceeded program projections by a large margin. Liquidity and solvency in the banking system have improved, allowing the removal of all external payment restrictions. Program performance has been generally strong. Compliance with quantitative conditionality has been good and the authorities have advanced structural reforms. The reviews were held up by delays in establishing a private sector debt restructuring framework, but the new insolvency and foreclosure frameworks are now in place. Further efforts are needed to put Cyprus’s economy on a sound footing. Effective implementation of the new private debt restructuring framework will be essential to address the high level of non-performing loans and, hence, to consolidate financial stability and boost growth. The authorities should maintain prudent public finances given the still-high public debt, and continue their structural reforms, which are critical to support the sustainability of public finances and growth. Maintaining the reform momentum will be challenging. A difficult political environment could continue to complicate passage of important pending reforms. Completion of the reviews would make available SDR 222.75 million (about €280 million). Total access under the arrangement is SDR 891 million (563 percent of quota, about €1 billion). The European Stability Mechanism has released €5.7 billion (of €9 billion committed); an additional €100 million will be disbursed upon completion of this review cycle