Cyprus was successful in meeting specific targets that were set out in the adjustment programme according to the European Commission. However this might lead Cyprus to face a number of internal and external risks.
One of the risks is a likely delay in the restructuring of non-performing loans (NPLs) in the banking system. Such delay could lead to a slower return of confidence in the banking sector, and as a result questioning of the stabilisation of the banking system.
‘A prolonged period of the tight credit supply conditions, which could weigh on the economic recovery.’
– The Commission stated as an additional risk.
The expected revenue from the privatisation of state assets might also be at risk, if Cyprus fails to implement structural reforms sufficiently, including the privatisation agenda. The government aims at generating a total of €1.4 billion from selling government-owned enterprises and other assets, according to the terms of the bailout.
An external risk is the possible spillovers from Russia and Greece, both major trading partners of Cyprus, may also affect the economic activity.
Cyprus Finance Minister Harris Georgiades stated that Cyprus was able to withstand Greece’s recent turbulence. The failure of the Russian airline Transaero, which carried more than half of the incoming visitor flow from Russia this year, was a great shock, however there are hopes this will not affect the road to recovery significantly.