Cyprus 'on track' for bailout money
03.09.13 @ 09:33
hBRUSSELS - Cyprus is on the right path to receive the next €1.5 billion tranche of its €10 billion bailout, according to a report by the European Commission.
Three months after a hastily agreed bailout package, the EU executive described the government's programme of economic reforms and spending cuts economic reform programme as beiig "on track".
"The authorities have taken decisive steps to stabilise the financial sector and have been gradually relaxing deposit restrictions and capital controls. The fiscal targets have been met as a result of significant fiscal consolidation measures underway and prudent budget execution," it added.
However, the Cypriot economy will fall by nearly 13 percent by the end of 2014, according to the report.
It is expected to contract by 8.7 percent in 2013 followed by a further 3.9 percent in 2014. Added together, economic output will have declined 15 percent from the end of 2011.
However, the projections, which are unchanged from the commission's spring forecasts in April, are better than some analysts had feared.
"Although Cyprus is facing a significant restructuring of its economy, the business-friendly environment and the well- educated labour force still remain supportive to growth in the medium-to-long term," the report states.
Cypriot President Nikos Anastasiades agreed the €10 billion rescue package with negotiators from the European Central Bank, European Commission and International Monetary Fund - the so-called Troika - in June.
But the clumsily agreed deal, which initially threatened to impose losses of 6 percent on personal savings worth between €20,000 and €100,000, led his government to became the first to introduce capital controls in a bid to prevent panicked savers from moving their money out of Cyprus.
For its part, the commission report indicates that consumer confidence in the banking sector is gradually returning.
As part of the rescue package the Cyprus Popular Bank (CPB will be wound down, while its functioning transferred to a restructured Bank of Cyprus (BoC).
Meanwhile, the report projects that Cyprus' budget deficit will rise to 8.3 percent in 2014 before falling to 2.9 percent, below the EU's 3 percent threshold in 2016.
Its debt-to-GDP ratio is expected to reach 115 percent at the end of 2013 and will peak at around 127 percent of GDP in 2015, compared with 86 percent in 2012.
The report, which must be approved by EU finance ministers, means the next tranche of €1.5 billion from the eurozone's bailout fund can be granted to Nicosia in the coming weeks. The IMF, which is providing 10 percent of the aid, is to disburse €86 million.