NICOSIA, Cyprus – With Cyprus poised to conclude a three-year rescue program this month, a top European Commission official on Thursday praised the country's commitment to pushing through key reforms and quickly turning its economy around despite dour economic projections.
EU Commissioner Valdis Dombrovskis put it down to the eurozone country's "consistent implementation of structural reforms" for getting its economy growing again after nearly going bankrupt.
"I would say this is really this determined reform effort by the government," Dombrovskis said after talks with Cypriot Finance Minister Harris Georgiades.
Cyprus received a 10 billion euro lifeline in March 2013 that forced a seizure of uninsured deposits in its two largest banks and shuttered the smaller lender. The so-called haircut crushed confidence in the banking sector and forced authorities to impose capital controls that were fully lifted two years later.
Dombrovskis said the Cypriot economy is projected to grow by 1.5 percent in 2016 for the second year running and by 2 percent next year.
He said thanks to Cyprus "systematically over-performing" on its fiscal targets, the country is forecast to see a modest general government surplus of 0.1 percent this year, while the public debt is expected to fall just below 100 percent of gross domestic product.
Dombrovskis said "it takes some time" to see the benefits from tough reforms, but Cyprus has joined the ranks of other countries that successfully saw through their rescue program like Ireland which he said now has the fastest growing economy in Europe.
The EU official urged Cypriot authorities to stay the course on reforms, despite wrapping up its rescue program.
"It's not the end of the road, it's actually very important to stay on course and continue with structural reform efforts and continue with responsible fiscal policies," Dombrovskis said.
Georgiades called the end of the program "a new beginning" to further reform the Cypriot economy and stay "clear of the mistakes of the past."
Georgiades said he's confident that Cyprus' credit rating will be upgraded to investment-grade status, although he stressed that the country has already established access to markets.
Cyprus still faces major hurdles in fixing its economy. Although dropping, unemployment still hovers at around 15 percent — huge for a country that for years enjoyed near-perfect employment conditions.
Another challenge is that nearly half of all bank loans are sour, giving Cyprus world-leader status in bad loans, according to some officials.
Cyprus Banks Association Director Michael Kammas said an overhaul of the banking system with new supervision and control rules, downsizing and loan restructurings, have helped to recover lost confidence.
Another factor that has substantially raised the demand for banking services is a significant increase in the number of foreign companies setting up regional headquarters in Cyprus, Kammas said.