Cyprus aims to recover market confidence by 2016 after receiving the first tranche of a 10 billion euro rescue package to save its recession-hit economy, Finance Minister Haris Georgiades said Tuesday.
The EU on Monday handed over the first two billion euros of loans agreed under the controversial Cyprus aid deal, the bloc’s European Stability Mechanism said in a statement.
“The granting of the first tranche of 3 billion euros (by the end of June) does not mean that state coffers are filled to the extent that it would allow us to relax our fiscal policy,” Georgiades told state radio.
“As we all know Cyprus can not borrow freely from the markets as do all other states. This amount will help us get by until 2016 when we should have once again earned the confidence of the markets to be able to finance our needs,” he added
Nicosia has been unable to borrow from international markets since 2011 when its sovereign credit rating was consigned to junk status.
The euro rescue fund said the first tranche in a 10-billion-euro ($13 billion) loan package in exchange for breaking up the Cypriot banking sector was “transferred Monday,” with a second release of “up to one billion to be transferred before 30 June 2013.”
An unprecedented “haircut” on deposits forced the Cypriot government to close all the island’s banks for nearly two weeks in March and impose draconian controls when they reopened to prevent a run on accounts.
A bail-in from depositors was a key element of a deal which Nicosia struck with its EU partners and the International Monetary Fund in March to help fund a 23 billion euro ($30 billion) rescue package.
To secure the 10-billion-euro EU-IMF rescue package Cyprus has virtually dismantled its banking system, while businesses struggle to survive without working capital as the eurozone’s first capital controls remain in place.
Cyprus has also pushed through a tough austerity package consisting of over 1.1 billion euros in tax hikes and public sector spending cuts and job losses.
“We have already decided on the difficult part, difficulties associated with the implementation of the programme and greater difficulties linked to kick-starting our economy, based on the quickest exit from recession,” said Georgiades
The Cypriot parliament narrowly approved the controversial IMF-EU bailout deal on April 30 paving the way for the rescue aid.
According to the troika’s projections, the Cypriot economy is expected to contract 8.7 per cent this year and 3.9 per cent in 2014
Economic Times