articles | 14 January 2016

Cyprus presses for one last IMF disbursement

Cyprus is trying to secure one last disbursement of bailout funds from the International Monetary Fund, before its financial assistance programme expires at the end of March 2016, Finance Minister Harris Georgiades told the press recently.

Georgiades also said that as the prior actions are not yet in place, the Finance Ministry lobbies for one evaluation and one last disbursement amounting to €125 mn from the IMF executive board, in that it is not certain that the Cypriot parliament will approve the last prior action in time to secure the green light from the Eurozone Finance Ministers by March 2016.

Nicosia has complied with the three out of the four prior actions, namely the approval of the unbundling of the Electricity Authority of Cyprus, the approval of the law regulating loan sales and the approval of the law for the future employment conditions in Cyprus’ Telecommunications Authority (Cyta) in the context of a privatisation process. However the Parliament has not approved the bill for the creation of a new Telecoms company that would pave the way for the privatisation of Cyta.

In March 2013 Cyprus concluded with the EU and the IMF on a €10 bn financial assistance programme. So far Cyprus received aid amounting to €7.12 bn in eight disbursements.

“I can state that we exert every effort for the disbursement by the IMF to proceed at least,” he said, noting that without the green light from the Eurogroup the review would be considered half-finished.

Georgiades explained that the conclusion of the last review is not a matter of money collection but a matter of credibility. “This is matter of credibility and a positive sign forthe conclusion of our efforts as well as a sign for our intention to press on with the necessary reforms,” he pointed out.

As Cyprus is gearing up for a “clean exit,” that is, without requesting a precautionary credit line, Georgiades said this necessitates the continuation of the prudent policy followed so far “without continuing those policies that derailed the economy and the public finances in the first place.”

“This is what we need to do, and if we do that, that is what the government clearly intents to do, there will be no problem for the post-programme period concerning public finances, public debt management or our access to the international markets,” he told the Cyprus News Agency (CNA).

Georgiades said he did not believe the parliamentary elections scheduled for May should obstruct the promotion of reforms, noting that “the citizens will reward the political parties which will bear the burden and promote these changes which our country and the economy needs.”

“This is the great bet for 2016. We have overcome the most extreme aspects of the crisis. The issue on which we will all be judged is our focus on promoting reforms,” he added.

Moreover Georgiades said he has sent a letter to the House of Representatives President requesting that the bills concerning reforms be promoted before the dissolution of Parliament, ahead of May’s elections.

The Finance Minister said Cyprus is scheduled to tap the capital markets once in 2016 as there are no significant debt amortisations this year. According to the Public Debt Management Office figures, the Finance Ministry will have to repay a total of €730 mn of which includes an EMTN bond amounting to €170 mn.

“Therefore two issuances (as in 2015) will not be necessary. We are planning to have only one issuance, perhaps by the end of the year, with the prospect of exchanging bonds that mature around 2020, as we did last year,” he said.

Furthermore, Georgiades said there will be no impact on Cyprus’ bond yields when the island exits its bailout programme which will exclude Cyprus from the ECB public assets purchasing programme. Under the ECB rules only public bonds with investment grade rating can be included in the QE, whereas bond’s considered as junk, as in the case of Cyprus, can only participate if they successfully implement an economic adjustment programme. Cyprus will exit its programme in March but its rating is below investment grade.

“There will be no immediate impact on Cyprus,” he said pointing out that the benefit for Cyprus comes indirectly mainly from the broader benefits to the Eurozone, that boosts the larger European member-states which essentially are the markets for the Cypriot economy.

“Consequently we will not remain in a programme for the sake of one or two purchasing rounds from the ECB,” he said, pointing out that “what is at stake is to continue our course and secure the investment grade for our ratings, not to have access to capital markets, which we already obtained but to achieve even lower yields.”

Economic parametres of a settlement are pivotal

Responding to a question on the economics of a reunited Cyprus, Georgiades noted that President Anastasiades and the government will do their utmost to secure a proper settlement to the Cyprus problem within 2016 or as soon as possible.

President Anastasiades and Turkish Cypriot leader have been engaged in a UN-sponsored dialogue aiming at reuniting the island, divided since the 1974 Turkish invasions, under a federal roof.

“In any case,” he said, “the economic parametres of the reunification are of paramount importance.”

Noting that a settlement would yield huge positive prospects for the economy through the reunification and the opening of economic and trade ties with the vast Turkish market, Georgiades however pointed out that “certain necessary preconditions should apply so that these prospects are not endangered.”

“These preconditions concern nothing more and nothing less than the rules relating to the participation of a member-state and the functioning of an economy within the Eurozone,” he said, adding that the rules such as those prohibiting fiscal deficits should apply not only to the federal state but also to the constituent states.

Noting that the banks in the island’s northern Turkish-occupied areas “operate in an unknown and not sufficiently regulated environment,” Georgiades said “therefore, as a precondition, the banking system throughout Cyprus should operate under the rules and the supervision of the Eurosystem and should be subjected to the rules of the EU-wide banking union.”

Source: InCyprus

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