Cyprus faces a decade of near slump conditions and debt deleveraging with no guarantee of success at the end as it tries to claw back competitiveness within Europe's monetary union, the International Monetary Fund has warned. The unemployment rate will jump to 19.8pc next year amid a mounting risk to the country’s bail-out deal with the EU-IMF Troika, agreed under traumatic cicumstances in March after a collapse of the Cypriot banking system - a crisis caused by contagion from Greece's default. The IMF said political support for the Troika progamme was “sputtering” as trade unions mobilise against the austerity measures and key parties balk at sales of state assets. A continuing dispute between the government and the central bank is sapping confidence, it said.
Wages for public sector workers were cut 8.2pc in the first half of the year. Pay cuts have deepened over the past few months, the spearhead of a drastic "internal devaluation" within the eurozone. Some salaries have been cut by 15pc at banks, while the building industry has just agreed to 25pc cuts with the unions.
The IMF praised Cyprus for delivering on demands in its quarterly review of the Troika's €10bn loan package and said the economy would contract by just 7.7pc this year, less than feared.
IMF says Cyprus likely to experience decade long slump