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Debt mounts

05/06/2012 07:19
Government has to borrow nearly €3 billion in the next eighteen months to cover its finance needs even if Cyprus Popular Bank needs no state support.

Certain Finance Ministry data bring to the surface the large finance needs that Cyprus faces, indicating that the appeal to the bailout mechanism is not only due to banks.

Based on same data, Cyprus needs €2.6 billion in 2012, mostly covered by the Russian loan of €2.5 billion. However, the fiscal deficit creates additional needs of €0.5 billion.

For 2013, the finance needs reach €2.2 billion plus deficit.

According to Deputy Professor at the University of Cyprus, Sofronis Clerides, the largest risks for the Cyprus economy stem from the exposure of the Cypriot banks to Greece.

“It is wrong to believe that everything would be fine if it wasn’t for the exposure”, he said.

“Even if banking problems disappear, the fiscal deficit and the finance problem will continue to exist”, Mr. Clerides stated.

Cyprus’s public debt climbed for the first time in the first quarter of 2012 to €13.2 billion against €8.4 billion in late 2008, reaching 75% of GDP from 48% few years ago.

This increase is mostly attributable to the deficits in the path three years, which have added €3 billion or 18 percentage points to the public debt.

Professor at the University of Cyprus, Stavros Zenios, referred to a debt trap. “Cyprus could escape only via bold reform measures towards growth. Otherwise, we talk about a lost decade of the economy”, he said.

“We have to take structural measures of fiscal consolidation the soonest possible so as to give the message to the creditors, rating firms and the European and international organizations that we do not hide our problems but we deal with them seriously and decisively”, he noted.

The fiscal consolidation efforts stumble at the trade unions’ reactions, as “measures must not hit salaries and pensions”.

The package of measures prepared by the Finance Minister few days ago was rejected by the President of the Republic in a period that Cyprus tries to regain its credibility.

Talks on COLA restructuring were interrupted unexpectedly due to disagreements.

Cyprus has been excluded from the global markets since May 2011 and since them it borrows from the domestic market (pension funds, banks etc).

The sharp increase in public debt makes the fiscal deficit cut more difficult because of the cost of debt servicing.

Based on latest figures, however, Cyprus is close to a primary surplus.