The board of the European Stability Mechanism (ESM) approved on Monday the next tranche of €350 mln in aid to Cyprus, raising the total bailout money to €5.7 bln of its €8.97 bln commitment, with the balance of the €10 bln bailout paid in by the IMF.
However, its chief executive warned that the outstanding problems of non-performing loans (NPLs) and loan restructuring must be resolved soon.
“ESM positive on next loan disbursement of €350m,” Finance Minister Harris Georgiades who is in Brussels, wrote on his twitter account.
“Cyprus programme on track”, he added on the sidelines of the Eurogroup meeting of Eurozone finance ministers.
The ESM aid is in the form of 15-year loans, with the exception of €1.5 bln of ESM floating rate notes on 27 September 2013 used to rescue and recapitalise the cooperative banking sector.
The latest tranche follows the positive assessment of the fifth quarterly review of Cyprus’s macroeconomic adjustment programme and approval of the supplemental Memorandum of Understanding (MoU) with Cyprus by the ESM board of governors in Luxembourg. The IMF, the third partner of the Troika of international lenders, is also expected to announce the disbursement of €86 mln in aid, raising the total current tranche to €436 mln.
Finance Minister Georgiades has said that receiving the tranche is important in view of the big payments of public sector salaries by the end of the year. Civil servants will continue to benefit from milder wage cuts and will cash in on the 13th month salary, a bonus that has been widely scuppered in the private sector.
“Cyprus has been making good progress in achieving its fiscal targets and moving towards economic recovery,” said ESM Managing Director Klaus Regling.
“The successful completion of the review shows that the Cypriot authorities are strongly committed to the programme. It is important to keep the momentum and address the remaining challenges, in particular establishing a sound and effective debt restructuring framework that is essential for the reduction of problem loans and to enable banks to support the economy again,” he added.
The rest of the ESM financial assistance for Cyprus is scheduled to be paid, upon meeting programme conditionality, in quarterly disbursements until March 31, 2016.
ESM is an inter-governmental institution which was inaugurated in October 2012 with a mandate to preserve financial stability of Europe’s Economic and Monetary Union by providing financial assistance to euro area member states in difficulty. It is authorised to issue bonds or other debt instruments on the market to raise funds needed to provide loans to countries in financial difficulties, intervene in the debt primary and secondary markets, act on the basis of a precautionary programme and finance recapitalisations of financial institutions through loans to governments.
The shareholders of the ESM are the 18 euro area member states. It has a total subscribed capital of €700 bln which comprises €80 bln in paid-in capital and €620 bln in committed callable capital. The ESM’s maximum lending capacity is €500 bln.
