The European Bank for Reconstruction and Development (EBRD) will start investing in Cyprus, most likely for a limited period, to help the country overcome transition challenges that have emerged during its severe economic crisis.
The EBRD’s Board of Governors, which represents the Bank’s 66 shareholders, took this decision at the EBRD Annual Meeting in Warsaw.
The Bank was responding to a request from the Cypriot authorities who said that a temporary engagement by the EBRD would “represent a positive contribution to efforts to reform and restructure the Cyprus economy”.
The agreement on the temporary change in Cyprus’ status to “recipient country”, which applies to the whole of the island, assumes that the Bank will not engage in new operations in Cyprus after the end of 2020.
The EBRD’s activities in Cyprus, a founding EBRD shareholder, will be conducted in the context of an action plan being implemented by the European Commission, the European Central Bank and International Monetary Fund (the “Troika”).
The EBRD and Cyprus
Sir Suma Chakrabarti, the EBRD President, on the agreement of the Board of Governors to Cyprus becoming a recipient country until 2020.
EBRD projects will aim to strengthen the financial sector, making it more robust to future shocks and improving its governance.
The Bank will also support the authorities’ privatisation programme and it will assist in corporate restructuring while also providing finance to small and medium-sized enterprises, in support of the objectives of the Troika programme.
The Bank’s operations will complement those of other international organisations and international financial institutions active on the island.
The EBRD intends to establish a local office in Cyprus with resident staff.
The Cypriot economy remains mired in a deep recession that emerged after a boom period between 2004, when Cyprus joined the EU, and 2008, when it adopted the euro.
Despite making important progress towards European integration, significant transition challenges and a number of key structural issues have not been addressed.
In particular, privatisation and modernisation of public utilities and infrastructure have largely stalled. Standards of governance and supervision in the banking sector need significant improvement.
Although performing well under the Troika programme, the short-term macroeconomic outlook for Cyprus remains challenging. The economy is expected to contract again in 2014. Modest growth is expected to return in 2015, but downside risks are significant. Unemployment is likely to continue rising for some time.
