The Cypriot economy is expected to return to growth in 2015 after a two-year recession, the International Monetary Fund said Friday.

Macroeconomic risks remain unusually high in Cyprus, given the uncertain impact of the banking crisis and fiscal consolidation on economic activity, the IMF said in a staff report.

Financial sector risks are particularly acute, including lingering concerns about the high reliance of the country's largest bank on central bank support and the system's rising non-performing loans, the report said.

It said the country's real gross domestic product (GDP) was predicted to contract by 8.7 percent in 2013 and 3.9 percent in 2014, respectively.

"Time will be needed for the economy to adjust to the deep structural changes to its financial sector and adapt its business model," the IMF said, adding that the Cypriot economy was forecast to grow 1.1 percent in 2015.

The prolonged fiscal consolidation will remain a drag on economic activity, and external demand is expected to stay weak, said the report.

The Washington-based global lender on Wednesday approved the first batch of its share of the global bailout loan in the amount of 1.33 billion U.S. dollars to cash-strapped Cyprus in support of its economic reform, after Cyprus received 2 billion euros (2.56 billion dollars) of the 10-billion-euro global bailout loan from the European Stability Mechanism (ESM) earlier this week.

Cyprus has built significant internal and external imbalances in the run-up to the global crisis. The imblances were exacerbated by an oversized and weak banking sector, with assets of more than 800 percent of its GDP, which is heavily exposed to Greece, the report said.