Cyprus aid amount may reach 17.5 bln euros, FM says

Cyprus may need as much as 17.5 billion euros ($22.5 billion) in aid, almost the size of the country’s economy, to pay its bills and recapitalize Cypriot banks, Finance Minister Vassos Shiarly said.

Talks between Cyprus and its potential troika of lenders comprising the European Central Bank, the European Commission and the International Monetary Fund “are continuing, and we hope outstanding issues are settled soon,” Shiarly told reporters in Nicosia on Thursday after presenting the 2013 budget to Parliament Speaker Yiannakis Omirou. The budget contains cuts already approved by the troika.

Cyprus on June 25 became the fifth euro-area member to request an international rescue, which will encompass the public sector as well as banks, after Cypriot lenders such as Bank of Cyprus Plc and Cyprus Popular Bank Pcl lost more than 4 billion euros in Greece’s debt restructuring.

The Cypriot bailout will amount to about 6 billion euros to refinance state debt from 2013 to 2016 and 1.5 billion euros to cover fiscal deficits, Shiarly said, while as much as 10 billion euros may be required for the bank recapitalization.

The final amount of aid will be known after a review of the country’s banking system by Pacific Investment Management Co. that is due in late January, he said. The exercise includes an asset-quality review and a stress test to determine the capital needs of each institution, the Central Bank of Cyprus said on Sept. 28.

Few differences with the troika remain and these are likely to be bridged “very soon,” Cypriot President Demetris Christofias said in an e-mailed statement Thursday. A possible agreement with the troika may be discussed at a Dec. 3 meeting of euro-area finance ministers, Shiarly said.

Fitch Ratings Wednesday cut its below-investment grade credit rating for Cyprus by two levels to BB- from BB+, citing a fiscal budget that has “significantly underperformed expectations.” Fitch also cited a continued high level of uncertainty over costs associated with the recapitalization of Cypriot lenders.

Cyprus’s budget gap will be 4.4 percent of its economy in 2013, Shiarly said. The fiscal deficit widened to 3.3 percent of gross domestic product in the first nine months of 2012 from 3.1 percent a year earlier, the Finance Ministry said on Oct. 26. The government forecasts a gap of 4.5 percent for all of 2012 after a shortfall of 6.3 percent in 2011.

The Cypriot economy was estimated to be worth almost 18 billion euros in 2011, according to the Nicosia-based Cyprus Statistical Service. [Bloomberg]