At a time when Cyprus is seeking a new balance between fiscal discipline and sustainable growth, the International Monetary Fund (IMF) comes with its new report on the Cypriot economy to highlight an issue that is systematically downplayed in the public debate. It is none other than the inability of the institutional and judicial framework to effectively support investments and accelerate the resolution of chronic problems such as Non-Performing Loans (NPLs).
The IMF clearly states that without an efficient and modern justice system, Cyprus will not be able to attract serious investments or fully exploit the potential of its economy.
The report describes a system that suffers from chronic problems, highlighting issues such as insufficient human resources, outdated procedures, low levels of expertise of judges in economic and commercial matters, and very slow progress in digitalisation. The result is that there are long delays in adjudicating cases, especially those related to insolvency and credit rights — areas that are crucial for the proper functioning of the financial system.
Indicatively, the operation of the Commercial Court, although it has been institutionalized, has not yet progressed substantially. The need for specialised judiciary, faster procedures and digitalised protocols is now becoming imperative. The IMF proposes targeted measures such as recruitment, training of judges, technological investments and acceleration of the operation of new institutions.
At the heart of the problem remains the high stock of so-called "legacy" NPLs — loans created before and during the crisis and moved out of the banking system. Despite the progress, this reserve remains high, at 60 percent of GDP, according to IMF data. Although they no longer burden banks' balance sheets, these loans continue to burden the real economy and freeze significant productive resources.
The slow resolution of these loans by the Credit Acquisition Companies (SPCs), to which their management has been transferred, is directly linked to the weaknesses of the judiciary. As the IMF points out, the existence of a faster and more efficient judicial mechanism would strengthen the bargaining power of creditors, strengthen the credibility of out-of-court settlements and speed up the liquidation of collateral.
Moreover, the transfer of capital from frozen receivables to new investments and loans remains limited, precisely because delay procedures act as a brake on the repositioning of private capital in productive sectors.
