Two prior actions will release next tranche of Troika bailout funds
Concluding their week-long visit to Cyprus on Friday, having met Central Bank Governor Chrystalla Georghadji and Finance Ministry technocrats, the heads of the Troika of lenders’ mission to Cyprus are finalising their sixth review of the island’s economic adjustment programme, aka the EUR 10 bln bailout package that includes reforms and ways to keep public spending in check.
Two ‘prior actions’ that need to be implemented by the Cyprus government, in order to release the next tranche of the bailout money, are laws regulating the sale of loan and mortgage portfolios to investment funds, and the ‘Hasikos plan’ that will absolve borrowers who have repaid their loans, but have not secured title deeds as these may have been remortgaged by developers.
The issue of sale of loan securitisation and mortgages to non-financial institutions caused a furore among political parties that feared that mortgaged Cyprus property could end up in foreign hands, in particular Turkey. To that end, the government said this week that the Troika mission chiefs seemed positive to a proviso that any portfolio sold to foreign institutions be cleared by the Central Bank first.
The meeting with Georghadji on Friday, who missed a Thursday meeting as she was in Frankfurt for the ECB Council, was to agree to the revised Memorandum of Understanding concerning the financial sector.
On Thursday, the Troika heads had held a lengthy meeting with Finance Minister Harris Georgiades and Undersecretary to the President for Public Reform Constantinos Petrides, covering all issues concerning the fiscal sector and the structural reforms, after which it was reported that the loan securitisation issue had been postponed by three months to the end of July to allow time for dialogue.
The revised MoU includes further public sector reforms and government proposals for the promotion and mobility of civil servants, which will be put to the Cabinet for approval by the end of June. Government proposals for reform of the civil service include energy, tourism, privatisation of semigovernmental organisations and implementation of the National Health Scheme.
Moreover, the budgetary and macroeconomic commitments of Cyprus for 2015 were also agreed during the discussions and the assessment of the European Commission for 0.5% recession in 2015 was adopted, despite the fact that the Finance Ministry expects marginal growth. At the same time the aim for primary surplus was brought forward a year, to 2015, from 2016.
The target for the budget deficit in 2015 was set at 1.5% of GDP, while the target for the primary surplus was set at 1.5% of GDP.