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EBRD to invest in banking sector, privatisations and SMEs in Cyprus

16 May, 2014

The projects of the European Bank for Reconstruction and Development (EBRD) in Cyprus will aim to strengthen the financial sector, support the Government`s privatisation programme and provide financing to small and medium-sized enterprises, according to an EBRD announcement, after Wednesday`s decision to start investing in Cyprus.

EBRD will start investing in Cyprus, most likely for a limited period, to help the country overcome transition challenges that have emerged during its severe economic crisis. The EBRD’s Board of Governors, which represents the Bank’s 66 shareholders, took this decision at the EBRD Annual Meeting in Warsaw.

The Bank was responding to a request from the Cypriot authorities, who said that a temporary engagement by the EBRD would “represent a positive contribution to efforts to reform and restructure the Cyprus economy”.

The agreement on the temporary change in Cyprus’ status to “recipient country”, which applies to the whole of the island, assumes that the Bank will not engage in new operations in Cyprus after the end of 2020.

The EBRD’s activities in Cyprus, a founding EBRD shareholder, will be conducted in the context of an action plan being implemented by the European Commission, the European Central Bank and International Monetary Fund (the “Troika”).

According to the announcement, EBRD projects will aim to strengthen the financial sector, making it more robust to future shocks and improving its governance.

The Bank will also support the authorities’ privatisation programme and assist in corporate restructuring while also providing finance to small and medium-sized enterprises, in support of the objectives of the Troika programme.

The Bank’s operations will complement those of other international organisations and international financial institutions active on the island. The EBRD intends to establish a local office in Cyprus with resident staff.

According to EBRD, in Cyprus privatisation and modernisation of public utilities and infrastructure have largely stalled. Also standards of governance and supervision in the banking sector need significant improvement.

“Although performing well under the Troika programme, the short-term macroeconomic outlook for Cyprus remains challenging. The economy is expected to contract again in 2014. Modest growth is expected to return in 2015, but downside risks are significant. Unemployment is likely to continue rising for some time” says the Bank.

At the same time the Cypriot Ministry of Finance described EBRD`s decision “particularly important”, that opens the door for funding programs to the private sector and investment in key sectors of the economy and the banking system.

In a written statement, the Ministry of Finance states that EBRD is expected to open an office in Cyprus and to start the planning and implementation of activities as soon as possible.

The agreement to operate the office in Cyprus was expected to be signed later on Wednesday by the Minister of Finance Harris Georgiadis and the President of EBRD Suma Chakrabarti.

The official application of Cyprus to become a recipient country of EBRD was submitted in a letter of the Minister of Finance, on 6 February 2014.