‘The Finance Minister is taking a gamble’
THE FINANCE ministry, in the first four and a half months of this year, borrowed more money than it originally planned for the entire year on fears that Cyprus too may run into trouble borrowing money, Finance Minister Charilaos Stavrakis said.
Amid difficulties many euro zone countries face in their attempt to secure necessary lending “the government has pre-emptively borrowed from the domestic and international markets at very competitive rates,” the finance minister said on Friday. “We have raised a €780 million reserve in cash and deposits to shield the Cypriot economy in the theoretical eventuality more euro zone countries run in to problems.
“The external environment continues to remain fragile,” Stavrakis said.
The finance ministry revised its gross borrowing needs upwards to €2 billion last week when it published the latest version of its stability programme, which outlines the government’s medium-term fiscal planning. Cyprus’ gross financing requirements stood previously at €1.3 billion, Stavrakis said on December 22.
The government has issued almost €1.5 billion in securities this year, with the bulk maturing before September, according to the website of the finance ministry.
This tactic is a risky one, a bank’s senior fund manager commented. “It would be wiser to take more measures to reduce spending. This would allow the government to take a longer term loan at a lower rate,” he told the Sunday Mail.
Issuing a five or 10-year international bond this year remains for the finance ministry a “dominating option” according to the stability programme. Whether and when such a bond will after all be issued is “subject to market conditions”.
“The finance minister is now taking a gamble when he takes short term loans. He is hoping that markets will calm down at a later stage. But there is no guarantee of how conditions will be later this year or next year. This is not a rational way to do things,” the fund manager added.
A possible restructuring of Greece’s debt may make it even harder for “minor euro zone countries” to borrow money from international markets, according to a ministry of finance source. This may apply also for Cyprus, the third smallest economy of the euro zone, which is also the country with the fourth worst credit rating after that of Greece, Ireland and Portugal, which has already asked for a bailout.
