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articles | 19 July 2017

Cyprus’ debt at €19.3 bn in May 2017

Cyprus’ debt stood at €19.3 bn in May 2017, unchanged from the beginning of the year, the Public Debt Management Office (PDMO) has said.

In a Tuesday newsletter, it said that the general government budget balance was in surplus of €114m in the first five months of the year, with the primary surplus reaching €289m.

According to a Cyprus News Agency (CNA) report, the PMDO said that in the 1st quarter of 2017, GDP (in seasonally adjusted terms) recorded a positive rate of growth of 3.3% compared with 2.9% in the 4th quarter of 2016 on an annual basis. 

The increased activity was broad based and is mainly attributed to sectors: hotels and restaurants, professional, scientific and technical activities, retail and wholesale trade, manufacturing and construction. Negative growth rate was recorded in the financial services sector.

It noted that developments are currently driven by increases in private consumption and gross fixed capital formation.

The economic sentiment indicator deteriorated slightly by 0.8 points in June 2017 compared to the preceding month, as a result of a relatively weaker confidence in the prospects of the construction sector and among consumers.

Imports of goods increased by 8.1% in January-May 2017 compared to January-May 2016. Exports of goods decreased by 14.4% in January-May 2017 compared to January-May 2016.

During January-June 2017 tourist arrivals increased at a rate of 16.6% compared to the corresponding period of 2016.

The current account balance in the 1st quarter of 2017 recorded a deficit of €721m (-3.9% of GDP) compared with a surplus of €73m (0.4% of GDP) in the 1st quarter of 2016.

This deterioration is mainly due to the trade balance of goods attributed to imports of transport equipment (airplanes and vessels). 

The remaining categories of the CA (services, primary income and secondary income) recorded small improvements which mitigated, to a small extent, the deterioration recorded in goods.

Inflation (HICP) in June 2017 stood at 0.9% while for January-June 2017 it averaged at 1.2%. Core HICP inflation between January-June 2017 was 0%.

Labour Force Survey (LFS) unemployment, in monthly seasonally adjusted terms, decreased to 11.0% in May 2017 compared to 12.8% in May 2016. 

The most affected segment of the population is youth unemployment, although it has been on a downward trend since the 3rd quarter of 2013 falling to 24.8% in the 1st quarter of 2017 from the peak of 39.9% in the 2nd quarter of 2013. Particularly challenging is also the relatively high long-term unemployed.

Upward trend in deposits and new loans continues, while NPLs decline

The capital position of the banking sector has been strengthened. CET1 capital ratio of the Cypriot banking sector reached 16.0% on March 31.

Non-performing exposures (NPEs) continued their downward trend in absolute terms reaching €23.7b on March 31, down from €24.3b in December 2016 and €27.3b in December 2015.

Restructurings were €13.05b on the 31st of March (€13.45bn in December 2016 and €14.15b in December 2015). Data show that over 72% of undertaken fixed-term loan restructurings abide by the new repayment schedule agreed as part of the restructuring.

Deposits in the banking system have been on a rising trend since the second half of 2015 with deposits increasing from €44.5b in June 2015 to €49.1b in May 2017.

Total loans continued their decreasing trend, being €54.1b in May 2017, downfrom €62.7b in December 2015, mainly due to write offs in the context of debt restructurings.

Despite the overall decline of loans and strict criteria in supplying new credit, new lending is on an upward trend. New loans towards Non-Financial Corporations during the first five months of 2017 reached €1036m (total 2016: €2334m), while towards Households reached €472m (total 2016: €1281m).

Budget surplus of €114m

During the first five months of 2017 general government budget balance was in surplus of the order of €114m (0.6% of GDP) compared to a surplus of €25m (0.1% of GDP) during the same period of the year before.

General government primary balance was in surplus during the January-May 2017 of the order of €289m (1.5% of GDP) compared to a surplus of 194m (1.1% of GDP) during the same period of the year before.

Total revenue exhibited a positive rate of growth of about 6% reaching €2,746m during the first five months of 2017 compared to €2,592m during the same period of 2016.

Total expenditure exhibited an increase of about 2.5% reaching €2,632m during the first five months of 2017 compared to €2,567m during the same period of the year before.

Debt at €19.3b

The General Government Debt reached €19.3b in May 2017 exhibiting no change since the beginning of the year,  the PMDO said, noting that available cash covers the financing needs up to end 2018.

In June Cyprus issued a new 7-year 2.75% benchmark bond of €0.85b with a simultaneous offer for switch or sale of outstanding international bonds due in 2019 and 2020. A nominal amount of €515m or 37% of the outstanding bonds was switched.

In July Cyprus proceeded with partial early repayment of the loan by the IMF which had been granted in the period of the economic adjustment programme (2013-2016). The prepayment of the order of €0.3b reduced the outstanding balance of the loan to €0.7 bn. The prepayment related to tranches carrying a higher interest rate than the current market rates.

The yield at the monthly 13-week Treasury Bill auctions continue to be negative. In the latest auction in July the average yield was -0.05% and the bid-to-cover ratio was 2.0.

The next sovereign rating reviews are scheduled for July 28 by Moody’s and September 15 by Standard & Poor’s, CNA reported.

Source: InCyprus

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