IMF Urges Cyprus to Decouple Real Estate From CIP Requirements, Warns of “Sizeable Downside Risks”

While praising Cyprus for having achieved three straight years of economic expansion, a positive fiscal balance, and generally for emerging structurally more robust from the crisis of 2013, the IMF has expressed concern with extremely high rates of private debt and non-performing loans, as well as a potentially unsustainable tilting of economic activity toward the real estate sector due to the Citizenship by Investment Programme.

“The Cypriot economy has achieved an impressive turnaround since the 2012-13 banking crisis […] and GDP growth has accelerated for three consecutive years,” said an IMF report, according to Xinhua, and praised Cyprus for “prudent macroeconomic and financial policies and progress on structural reforms that enabled the sovereign to access capital markets on increasingly favorable terms.”

But the report also pointed to structural risks in urgent need of addressing. Private debt stands at nearly three times GDP and, astonishingly, nearly half of loans are non-performing, the highest such rate in the world.

The Citizenship by Investment Programme, furthermore, while having played a crucial role in helping the property market recover from severe losses following the banking crisis, is now driving what the IMF considers an overexpansion of the real estate and construction sectors. The IMF advises a “decoupling” of real estate from CIP eligibility requirements so as to avoid an unsustainable skewing of the economy in the direction of luxury property development.

Investment Migration Insider has previously reported on the Cypriot economy’s disconcerting reliance on CIP-related investment. The numbers clearly reveal that, were it not for the island’s economic citizenship program, the country would be undergoing a severe recession. 

The Cyprus Ministry of Finance has also recently indicated they will be tightening regulations on how agents and property developers market the CIP abroad, even going so far as to claiming they will ban promotion of the program in countries that don’t allow dual citizenship.

Image via: By Nicosiaphotos919

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