‘Debt is manageable and sustainable’

CYPRUS’ public debt will peak in 2014 to less than 150 per cent of GDP and follow a downward trend after that so that by 2020 it would be close to 100 per cent, the finance ministry said yesterday.
“The analysis we do shows that the debt, despite being at very high levels, is manageable and under the conditions we describe it can be sustainable,” Finance Minister Vassos Shiarly said after a presentation to EU ambassadors.
According to Shiarly, the scenario applied by the ministry assumed banks would need €10 billion to recapitalise since the final figure has not been calculated yet.
Cyprus fears its debt may be deemed unsustainable after a bailout, prompting fresh austerity that will include privatisations.
In a presentation, the ministry’s director of economic research and EU affairs Andreas Charalambous, said Cyprus has officially requested the extension of the repayment of a €2.5 billion loan received from Russia from 2016 to 2021.
“We presume that the request … will receive a favourable response,” Charalambous told diplomats. He added that the extension would contribute further to the sustainability of Cyprus’ debt.
Charalambous said Cyprus would effectively go bankrupt if it was not granted the requested assistance and warned that this would also have unpredictable repercussions for the eurozone that could not be fully appreciated at this point, but should not be underestimated.
The ministry official said the biggest problem currently faced by Cyprus is the lack of confidence in the banking sector, which posed risks to financial stability.
“An early political agreement on MoU (bailout) would facilitate financing sovereign debt, as well as help minimising risks for the banking sector,” he said.
Charalambous argued against a write-down of Cypriot debt, saying it would hurt the banks that needed assistance in the first place.
It would also be particularly harmful to pension funds and insurance companies, he said.
Meanwhile the members of an Independent Commission on the future of the Cypriot banking sector will be in Cyprus next week to continue their contacts with various stakeholders and regulatory authorities who have or had a role in the activities of the banking sector.
The objective is to assess the data in relation to how the banking system found itself in the current situation.
The Independent Commission on the Future of the Cyprus Banking Sector was set up by the Central Bank to explore the issues currently facing the Cyprus banking system, and make recommendations on ways to enhance growth, stability and competitiveness of the system to benefit the local economy in the longer term.
The Commission is composed of independent experts on banking and financial regulations. The Commission consults widely for its report and is seeking submissions from interested parties.
The Commission, which was established in November 2012, expects to produce an interim report in mid-2013, and a final report in November 2013. Both the interim and the final report will be published, while the final report will be handed over to the Governor of the Central Bank.

The Cyprus Mail is the only English-language daily newspaper published in Cyprus. It was established in 1945 and today, with its popular and widely-read website, the Cyprus Mail is among the most trusted news sites in Cyprus. The newspaper is not affiliated with any political parties and has always striven to maintain its independence. Over the past 70-plus years, the Cyprus Mail, with a small dedicated team, has covered momentous events in Cyprus’ modern history, chronicling the last gasps of British colonial rule, Cyprus’ truncated independence, the coup and Turkish invasion, and the decades of negotiations to stitch the divided island back together, plus a myriad of scandals, murders, and human interests stories that capture the island and its -people. Observers describe it as politically conservative.