Risks over Cyprus' economic stabilisation

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cyprus economy stabilisationThe fifth tranche of the Cyprus bailout package will be disbursed by the European Stability Mechanism
The fifth tranche of the Cyprus bailout package – €600m has been confirmed by Eurogroup, and it is to be disbursed by the European Stability Mechanism in July. Another €100m is expected to be paid out by the International Monetary Fund (IMF), which follows its own procedures. ‘Under the Financial Assistance Facility Agreement signed between the ESM and Cyprus, an amount of up to €9 billion is available to the country in order to finance debt redemption, fiscal deficits and the recapitalisation of the financial sector. In addition, the IMF contributes up to €1 billion to cover the country’s financing gap’, the European Stability Mechanism said in its report for 2013. Currently Cyprus is implementing a three-year adjustment program. Lenders were satisfied with the latest review of the adjustment program of Cyprus economy, so the approval of the tranche was just a routine procedure. Finance minister Harris Georgiades welcomed the news, calling it another positive sign following Cyprus’ return to international capital markets.
Risks over Cyprus’ economic stabilisation remain
Despite the robust program implemented in Cyprus, risks remain and the greatest challenge lying ahead is improving the health of the financial sector, the European Stability Mechanism said in its report for 2013. The report said the program’s objectives were to restore financial sector stability, strengthen public finance sustainability, and implement structural reforms in order to support sustainable and long-term growth. ‘Effective management of non-performing loans is critical to restore banks’ ability to finance domestic economy,’ the report said.
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