Cyprus 'very close' to signing bailout dealThursday 22 November 2012 17.09
Cyprus is "very close" to signing an agreement with potential creditors for a bailout to support its troubled banks and pay its bills, the crisis-hit country's president said today.
His comments ease concerns over how the talks were faring that sapped confidence in the economy.
President Dimitris Christofias said that the "very limited" number of differences that remain could be bridged "very soon."
The statement comes a day after Cypriot officials wrapped up a third round of negotiations with officials from the European Commission, the ECB and the IMF, collectively known as the troika.
"Following tough negotiations with the troika and always bearing in mind the difficult situation that our country now finds itself in, we are very close to signing a memorandum with the troika," Christofias, who is in Brussels for a European Union budget summit, said.
Christofias did not specify which issues remain unresolved, but Cypriot officials, speaking anonymously because of the sensitivity of the negotiations, said they include how proceeds from offshore natural gas finds are managed, the privatisation of profitable, state-owned companies and the state's contribution to workers' pension fund.
The statement was greeted with guarded relief in the country which was hit yesterday by another two-notch credit rating cut. Finch sank Cyprus deeper into junk status amid worries over a weakening economy that the Cypriot finance ministry projected will shrink by 3.5% next year.
Cyprus asked for international aid in June to prop up its banking sector - which has total assets with an estimated value of eight times the size of the country's €17.5 billion economy - that took huge losses on bad Greek debt and loans.
The overall size of the bailout is estimated to hover between €13-17.5 billion depending on the exact amount that the banks will need to recover. Finance Minister Vassos Shiarly said that amount will not be known before consultancy firm PIMCO and auditors Deloitte which are currently pouring through the banks' books, come up with a preliminary figure early next month.
Shiarly said apart from the banks' needs, the bailout will include €6 billion to refinance the country's debt and another €1.5 billion to cover fiscal deficits over the bailout's four-year implementation period up to and including 2016.
He said if a bailout agreement is signed in the next few days, it could be discussed by ministers from countries that use the euro when they meet on December 3. A first bailout installment could be paid out six weeks after that once the deal clinches parliamentary approval from Cyprus' euro zone partners, Shiarly added.
Cyprus has been unable to borrow from international markets for over a year and faces a year-end cash crunch, but Shiarly said the government is working to ensure that all salaries will be paid.
Shiarly submitted the country's 2013 budget to parliament today, which he said incorporated provisions that have already been negotiated with the troika.
"Negotiations with the troika are continuing and it's possible that there could be additional amendments so that the final picture of the budget for 2013 may be slightly different than what we now have in front of us," Shiarly said.
The Cyprus finance ministry said those provisions include steep cuts to public sector salaries, downsizing the government workforce through a hiring freeze, raising the retirement age to 65 and a raft of tax hikes. Shiarly said the 2013 budget projects a fiscal deficit of around 4.4% of GDP.
According to the finance ministry, the country's debt will jump from 85.8% of GDP this year to 92% in 2013, peaking a year later at 95.6% before starting to recede. Unemployment is forecast to rise from 12% this year to 13.8% next year. It will increase to 14.2% in 2014 and retreat to 13% the following year.