Cyprus ‘highly vulnerable’ to economic fallout from Ukraine war: IMF

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Despite a reduction in exposures to Russia, Cyprus is “highly vulnerable” to the economic fallout from the war in Ukraine, the International Monetary Fund said.

Growth is projected to slow to around 2 percent in 2022 from 5.5 percent in 2021 reflecting mainly the impact of the war and sanctions on export of services and the negative terms-of-trade shock from higher energy and food prices, the IMF said Thursday in its report on the eastern Mediterranean country after the completion of a post-memorandum audit.

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“The key near-term challenge is to calibrate a policy response to the economic fallout from the war in Ukraine,” Wojciech Maliszewski, IMF mission chief for Cyprus said in the report.

“The 2022 budget provides sufficient fiscal support in the baseline. But additional discretionary support may be needed if the impact of the shock is larger than expected,” he said.

Output and employment returned to pre-Covid levels in 2021, but tourism has not fully recovered, and the sector is highly dependent on arrivals from Russia who account for around 20 percent of the total, the IMF said.

The direct impact on the financial sector from sanctions will likely be limited given that exposures to Russia have diminished since the financial crisis and even more so after winding down operations of RCB Bank, according to the report.

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