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A joint mission from the Troika of international lenders (EC, ECB, IMF) will be back in Cyprus on Tuesday to conduct its eighth evaluation of economic adjustment programme, aka “bailout plan” that ends in March, three years after the €10 bln rescue was imposed.
During their 10-day stay, the inspectors are expected to focus on the problem of the non-performing loans (NPLs), an issue that was supposed to have been resolved with the passage of new laws on insolvencies and foreclosures. However, the value of NPLs seems to remain doggedly high and near the 50% of all loans in the Cyprus banking system.
The Troika mission, that arrives a week after the last two-notch upgrade of the Cyprus sovereign ratings by Fitch, based on “improving fiscal fundamentals”, will also look into the issues of the sale of loan portfolios, the continued implementation of structural reforms and the current pace of privatisations.
As part of the €10 bln bailout plan, the Troika had called for the privatisation of major public services, such as telco Cyta, the power company EAC and the ports authority, with only the latter seeing progress as about 30 multinational have submitted bids for the management of the primary port of Limassol by next summer.
The privatisations are expected to reduce the payroll cost burden on state funds and even raise some €1.4 bln in revenues by 2018.
Last week, the government also successfully raised €1 bl from a 10-year eurobond (EMTN) with a yield of 4.25%. This was only the third foray into the international markets since 2011, and the Finance Minister said the bulk would be used to redeem higher-interest bonds.
IMF spokesperson Jerry Rice reportedly said last week that as the Cyprus economy recovers and recession recedes, so is the ability of borrowers strengthened to service their debts.
He added that although NPLs is a “serious problem”, unemployment also requires time and systematic effort to circumspect. But he also pointed out that the first signs of decline of NPLs are already showing.
IMF Representative to the island Vincenzo Guzzo, deemed the reduction of high NPLs as a high priority, adding that that attention should not only focus on the banks’ capital but also on the broader economy.
The state-run Cyprus News Agency reported that during the eighth evaluation, the lenders will also focus on the implementation of structural reforms in order to boost growth and employment, but also to secure the sustainability of the public finances.
At the same time, several critical issues are still pending, including the government bills that will be discussed in parliament regarding the public service reform, the autonomy of public hospitals, the implementation of the long-delayed National Health Scheme, the approval by the Parliament of the bills on sale of loans, as well as the privatisation of Cyta and the separation of EAC activities.
