Finance Minister Charis Georgiades stressed Monday the need for proper management of the 10 billion euro loan agreement with the Troika (IMF, EC, ECB) to avert a new Memorandum.
Presenting the 2014 state budget to the House Committee on Financial and Budgetary Affairs, he stressed the need to implement the MoU without needing an additional loan.
The Finance Ministry said that the Republic of Cyprus has so far obtained 47% of the 10 billion euro loan and added that "until 2016 we do not have any other sources of additional funding beyond the 10 billion provided by the loan agreement."
Georgiades pointed out that exiting the Memorandum with the Troika requires a return to the markets, something which needs, as he said, "the timely, effective and full implementation of the program."
The key feature of the budget, as the Minister explained, is the reduction in public spending. The Minister told the MPs that this was not an option but something that was imposed by the economic reality and many of the proposed savings should have been made long ago.
Pointing out that the loan agreement under the Memorandum (€ 10 billion) is the only source of funding, the Minister said that Cyprus has been excluded from the markets since Spring 2011 and cannot afford expenditure increases through lending that would cover deficits while lending from the internal market is no longer possible.
He also said that there is a balance in the state’s coffers from the 4.7 billion that has been pumped so far, which leads to the conclusion that the next tranche will probably be very small.
Georgiades asked the House Finance Committee to examine the proposed budget with the same strict approach as in previous years when he was a member of the Committee.
"I am counting on the strict control by the Committee, in an effort to identify additional savings," he noted.
Excluded from international capital markets since April 2011, Cyprus applied for financial assistance from the EU bailout mechanism, as its two largest banks, Bank of Cyprus (BoCY) and Cyprus Popular Bank (also called Laiki Bank) requested state support following mass losses as a result of the Greek sovereign debt haircut.
The aid package from the Troika featured a sizeable reduction of the island`s banking sector, as well as bail-in of uninsured deposits. Under the package agreed in March, Cyprus closed one bank, the Popular, whereas deposits over 100,000 euros held at the island’s biggest lender, Bank of Cyprus, lost 47.5% of their value, after being converted into bank shares.
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