The European Stability Mechanism (ESM) has approved the disbursement of €100 mln to Cyprus as part of the €9 bln financial assistance of which €5.8 bln has been paid so far.
The ESM board in Luxembourg said that the payment “follows the positive assessment of the sixth quarterly review of Cyprus’s macroeconomic adjustment programme and approval of the supplemental Memorandum of Understanding with Cyprus by the ESM Board of Governors.”
ESM Managing Director Klaus Regling said that he was pleased that Cyprus’s adjustment programme is back on track.
“The legal framework for a new foreclosure procedure has entered into force, and there has also been a substantial reform of corporate and personal insolvency laws. These new regulations enable the country to effectively deal with the problem of non-performing loans (NPL). I trust that the government will continue its reform efforts so that Cyprus can sustain economic recovery.”
Regling added that “progress in Cyprus confirms that with strong ownership by a government our approach to grant a loan in exchange for economic policy conditions works. This has also been demonstrated by the successful programme conclusions in Ireland, Portugal and Spain.”
Cyprus applied for the “bailout” financial assistance on 25 June 2012 and the key elements for a macroeconomic adjustment programme were agreed by the Eurogroup on 25 March 2013 aiming to address the financial sector imbalances including an appropriate downsizing of the country’s financial sector, fiscal consolidation, structural reforms and privatisation.
The agreement paved the way for a €10 bln package, of which the ESM undertook €8.968 bln and the International Monetary Fund (IMF) around €1 bln.
The first tranche of financial assistance was provided in two separate disbursements of €2 bln on 13 May 2013, and €1 bln on 26 June 2013. The second tranche, in the form of €1.5 bln of ESM floating rate notes, was disbursed on 27 September 2013 for the recapitalisation of the cooperative banking sector, which has since been restructured and is presently government-owned.
The facility was designed to cover Cyprus’s financing needs including budgetary financing, the redemption of medium and long-term debt, and the recapitalisation of financial institutions except the country’s two largest banks (Bank of Cyprus and Cyprus Popular Bank, which were subject to restructuring and resolution).
The remaining ESM transfers were €100 mln on 19/12/2013, €150 mln on 04/04/2014, €600 mln on 09/07/2014 and €350 mln on 15/12/2014. The weighted average maturity of loans is 14.88 years.
