articles | 02 March 2016

Cyprus bailout verdict March 18, 2016

Monday March 7, 2016 will mark the beginning of the end of the three-year bailout programme for Cyprus, when Minister of Finance Minister Harris Georgiades presents a progress report to the Eurogroup meeting in Brussels.

The Finance Minister is expected to give details on legislative and other reforms implemented since the 2013 crisis, fiscal and macroeconomic performance, the state of the banking system, as well as what remains to be done. The IMF part of the programme officially runs until May 2016.

One key reform left hanging is the transformation of the state telecoms operator, Cyta, into a state-owned company, which is being resisted by parliament. A recent report by the European Commission showed that Cyprus has the highest broadband prices in the EU.

The real verdict on Cyprus will come on March 18, when the rating agencies Moody’s Investors Service and Standard & Poor’s (S&P) are due to issue reports, according to Phileleftheros newspaper.

Cyprus is currently junk-rated. Moody’s rates it four notches below investment grade while S&P rates it three notches below. The government expects Cyprus gradually to achieve investment grade, which should reduce the country’s borrowing costs.

Even with the bailout programme behind it, the government will still be obliged to follow strict eurozone rules. These include the following.

• The maintenance of a balanced budget rule (the ‘golden rule’)
• The use of medium-term objectives in planning public finances (Medium Term Fiscal Strategy)
• Pursuing policies that lead to sustainable results (reforms)
• Provisions for automatic correction when budgets deviate from targets
• Prudential supervision of the national budget (‘European semester’ process), which includes analysis and recommendations by the European Commission
• Monitoring of budget and macroeconomic projections by independent national authorities (Fiscal Council)

From Thursday to Saturday, the European Commission Vice-President responsible for euro and social dialogue, Valdis Dombrovskis, will be in Cyprus to discuss issues relating to the economic and social situation, as well as opportunities for development and investment in the country.

Source: InCyprus

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