Cyprus 'on track' to meet aid programme terms

Wednesday 31 July 2013 15.27
Troika gives upbeat assessment of progress being made by Cyprus
Troika gives upbeat assessment of progress being made by Cyprus

International lenders gave an upbeat assessment today over progress made by Cyprus in meeting the conditions of a financial aid programme.

But they said the assessment was tempered by an uncertain economic outlook.

"This review found the programme to be on track, with authorities having made good progress towards meeting their objectives," IMF Mission chief Delia Velculescu said during a conference call closing a mission to Cyprus.

Cyprus was teetering on the brink of a financial meltdown earlier this year, hammering large depositors at the island's two largest banks with losses.

Lenders from the EU, the ECB and the IMF, known as the troika, wrapped up their first assessment visit to the Mediterranean island since it agreed to a €10 billion bailout package in March.

"The assessment is a positive one. Important steps have been taken and those have been acknowledged but I want to stress big challenges still lie ahead of us," said Finance Minister Harris Georgiades.

"We are committed to adopting the programme and will intensify efforts,'' he added.

The lenders' report is key to euro zone finance ministers unlocking a further tranche of aid of about €1.5 billion to Cyprus in mid-September.

Velculescu said fiscal measures introduced by Cypriot authorities in December 2012 and in April 2013 led to a 'better fiscal performance measured up against programme targets'.

But high uncertainty remained for the macro economic outlook which called for continuous fiscal prudence, she said.

Under the adjustment programme, lenders anticipate Cyprus's €17 billion economy will contract 8.7% this year and 3.9% in 2014. It expects a primary deficit of 2.4% in the current year and 4.25% in 2014.

Cyprus enforced capital controls on March 29 to prevent a flight of cash from its banks. Although restrictions have been eased, there are still limits on cash withdrawals, cheque transactions and on large cash movements.

Under the bailout terms, Cyprus shut down one insolvent bank, Laiki, and forced big depositors to contribute towards recapitalising a second, Bank of Cyprus.

Recapitalisation of that bank was concluded earlier this week, when authorities said depositors would take a 47.5% hit on their savings exceeding €100,000 in return for an equity stake in the lender.