Cyprus is edging out of recession, Minister of Finance Harris Georgiades stressed on Friday in a message on twitter after Eurogroup`s meeting in Riga, Latvia. “My message at Eurogroup: Cyprus edging out of recession, with pro-reform, pro-market agenda & growth-friendly fiscal consolidation”, he wrote.
In addition, in a written statement to the press, the Minister notes that “we lead the Cypriot economy out of recession by promoting reforms and consolidating public finances”.
Georgiades further noted that “we make any new tax measures unnecessary and we regain market confidence, thus creating prospects for investment and conclusion of the Cypriot program”.
“This is the message that I conveyed today to Eurogroup. We remain committed to this policy”, he concluded.
Eurogoup President Jeroen Dijsselbloem has welcomed the approval of the insolvency framework by the Cyprus House of Representatives and the end of the suspension of the foreclosure framework, calling it an important step which will allow the institutions to return to Nicosia to carry out the next review.
In his remarks after a Eurogroup meeting on Friday, posted on the European Council website, Dijsselbloem said that on Cyprus “I can share good news with you.”
“We were informed that on 17 April the Cypriot parliament legislated to establish an insolvency framework and that will also make an end to the suspension of the foreclosure framework,” he added.
This framework, Dijsselbloem explained, “is needed to restore compliance with the prior actions of the fifth review.”
“We therefore welcomed this important step bringing the programme back on track, which will allow the institutions to return to Nicosia to carry out the next review”, he pointed out.
He also said that “another important development is that Cyprus lifted the last remaining capital controls on April 6th.”
“Free circulation of capital has thus now been restored,” he noted.
The Cyprus Parliament had suspended legislation on foreclosures which it passed in September last year until an insolvency framework which comprised five bills was also voted into law.
Fitch says Cyprus will not use entire EU-IMF bail-out
Fitch Ratings has said it no longer assumes that Cyprus will use the entire €10 billion of its international bail – out package from two years ago.
The credit rating agency said that it has affirmed Cyprus`s long-term foreign and local currency Issuer Default Ratings (IDRs) at `B-` with a positive outlook.
The issue ratings on Cyprus`s senior unsecured foreign and local currency bonds have also been affirmed at `B-`.
The Country Ceiling has been raised to `BB-` from `B` and the short-term foreign currency IDR has been affirmed at `B`.
“The general government debt to GDP ratio is expected to peak at just over 110% in 2015 and 2016 and will ease to around 90.7% by 2022. Fitch no longer assumes the full EUR10bn financial envelope of the EU-IMF programme will be used. The strong budget performance implies the buffers in the programme have grown close to EUR3bn (17% of GDP). The underlying trend for public finances has been positive. The fiscal deficit in 2014 was 0.2% of GDP (8.8% of GDP including the one-off capital injections to the co-operative sector) compared with Fitch`s forecast of 3.3% in October. The over-performance reflects a combination of higher tax revenues and lower than expected expenditure across most items. Fitch expects the fiscal deficits to average 0.8% from 2015 to 2018”.
However it said that the risks to EU-IMF programme implementation remain elevated and that there is a significant risk that privatisation plans required under the programme will not be fully implemented, leading to further delays to programme reviews.
Fitch also noted that non-performing loans (NPLs) in the banking sector reached an “exceptionally high” 50%.
The removal of the remaining capital controls in April has led to the Country Ceiling being raised by three notches to `BB-`.
Fitch said Cyprus is among the most vulnerable eurozone sovereign to a disorderly Greek exit, as a country still in the midst of a post-crisis adjustment. Direct linkages between the two economies have been reduced in recent years and are not large, however, the impact on depositor and investor confidence is harder to gauge, it said.
It added that economic conditions in Cyprus remain challenging and the output is projected to decline by 0.8% in 2015, the fourth consecutive year of contraction.
“The passing of the insolvency law through parliament on 18 April should trigger the activation of the foreclosure law and pave the way for further official funding. […]The law should strengthen the foreclosure framework and address the high banking NPL problem” the rating agency said.
Fitch assumed that there will be no material escalation in developments between Russia and Ukraine that would lead to a significant external shock to the Cypriot economy, noting that tourism from Russia has been rising and Russians account for a sizeable share of foreign deposits in banks.