Cyprus : 2009 Article IV consultation : staff report : public information notice on the Executive Board discussion : and statement by the Executive Director for Cyprus
1. Cyprus appears to be weathering the global crisis reasonably well (Figure 1). It recorded positive growth in the first quarter of 2009, well above the euro area average, and is among those that have not required public capital injections into its financial sector. The relatively benign impact of the crisis is due, in part, to the elimination of exchange rate risk following euro adoption and to conservative financial sector practices, limited exposure to toxic assets and strict supervision. The latter has preserved confidence in the financial system which has not only prevented capital outflows, but also attracted capital from distressed economies in the region. A domestic demand-based growth-supported by recent large real wage increases-and a relatively small contribution of manufacturing exports has also insulated the economy from a deterioration in partner country growth. Past budget surpluses, low public debt, and the long-awaited enactment of pension reforms have sustained investor confidence, as evidenced by a successful sovereign bond issue in June 2009.2
