Cyprus seeks more time to meet targets in talks with troika

Cyprus government officials will seek easier bailout terms in talks with representatives of the European Union and International Monetary Fund today, before a meeting of euro-area finance officials later this week.

“Final outstanding issues in talks with the troika primarily relate to the wider financial sector and fiscal policy and adjustment,” Christos Stylianides, the government’s spokesman, said in Nicosia on Monday. The government has been granted an extension to 2017 from 2016 to secure a primary budget surplus, which excludes interest payments, and it hopes to negotiate an additional year to 2018, he said.

Cyprus’s government is seeking more time to reach targets required in return for 10 billion euros ($12.8 billion) in international funds after agreeing to impose losses on uninsured depositors at the country’s two biggest banks. Economists including Gabriel Sterne at Exotix Ltd. in London have said the government’s measures to secure the bailout will hurt the nation’s economy.

The government can’t provide an estimate on the depth of the economic contraction right now, Stylianides said. The European Commission predicted before the bailout that the economy would shrink 3.5 percent this year.

The latest version of Cyprus’s bailout agreement with the so-called troika of representatives from the EU, European Central Bank and IMF targets a primary deficit of 2.4 percent of gross domestic product this year and a primary surplus of 4 percent of GDP in 2017, Phileleftheros reported, citing a draft of the document. The draft accord includes 351 million euros, or 2.1 percent of GDP, of expenditure cuts and revenue increases, the newspaper said.

Under the agreement reached for the country’s banks, 40 percent of deposits above 100,000 euros held at Bank of Cyprus Pcl will be temporarily frozen to ensure the lender’s liquidity, the Nicosia-based central bank said March 30. This money, which won’t be used to recapitalize the lender, will receive interest 10 basis points above current levels and be released “within a short time-frame,” the central bank said.

Cyprus’s central bank and troika officials met yesterday to discuss unfreezing the 40 percent of deposits above 100,000 euros held by businesses at Bank of Cyprus, said Spyros Stavrinakis, deputy governor of the Central Bank of Cyprus.