The International Monetary Fund on Wednesday approved a three-year loan worth EUR 1 billion to Cyprus as part of the EUR 10 billion international bailout package aimed at stabilizing the country's ailing banking sector.
The approval of the latest loan tranche allows immediate disbursement of EUR 86 million to the euro member.
While applauding Cyprus' efforts to address the crisis, IMF Managing Director Christine Lagarde said that the country faced "significant" challenges, including restoring credibility in the banking sector and reducing fiscal deficits and debt to sustainable levels.
The IMF decision comes a couple of days after the Eurogroup approved EUR 3 billion in bailout loan to Cyprus. The European Stability Mechanism, the euro area's permanent bailout fund, disbursed EUR 2 billion from this amount on Monday.
Lagarde said that the immediate priority for Cyprus is to stabilize its banking sector. "The authorities need to complete the bank recapitalization process, including by using public funds for solvent institutions where necessary. In parallel, decisive steps will be taken to restructure weak banks."
She stressed on the importance to strengthen supervision and regulation of banks and credit cooperatives, and to enhance the framework for anti-money laundering.
Cyprus needs additional fiscal measures of close to 5 percent of GDP in outer years to put debt on a sustained downward path, Lagarde said, while warning that the macroeconomic outlook is subject to high uncertainty and risks to the program remained substantial.
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