Cyprus cash crisis: Bank calls for action
Mon, Aug 01, 2011
Cyprus may soon have to seek an international bailout if it does not take urgent action to repair its finances, the Bank of Cyprus said today.
The island could soon follow Greece, Ireland and Portugal to become the fourth state in the euro zone to request a financial rescue package.
"With our inaction we are risking the ability of refinancing the state and the consequences will be immediate and serious," reads a Bank of Cyprus statement issued this morning.
Last week Standard and Poor's ratings services lowered the long-term sovereign credit rating on the Republic of Cyprus to 'BBB+' from 'A-'. They also affirmed the short-term sovereign credit rating at 'A-2'.
The rating agency believes that the Cypriot government's struggle to reduce current expenditures has slowed the pace of external rebalancing as the fiscal impulse explains a significant component of Cyprus' narrowing-but-still-substantial current account deficit.
Cyprus received more bad news today when data showed the central government deficit widened sharply in the first half of this year to 3.47 percent of gross domestic product on a cash basis, from 1.87 percent a year ago. Revenue fell 1.42 percent while expenditure was 9.15 percent higher.
Authorities have said they are aiming for a general government public deficit, which also includes accounts for local governments and some semi-governmental corporations, of 4.0 percent of GDP or less for 2011, after a 2010 shortfall of 5.3 percent.
But that forecast was made before the July 11 blast at Cyprus' main power plant in Vassilikos, near Limassol, which caused energy shortages and landed the state with a bill which, according to opposition parties, could reach three billion euros.
Preliminary finance ministry assessments have slashed the island's growth outlook this year to zero from expansion of 1.5 percent.
Government spokesman Stefanos Stefanou said last week that the island had already satisfied its financing needs until the end of this year, at lower rates than current secondary market yields, and insisted a bailout was not inevitable.
Authorities are looking at options for extra financing after that, the finance ministry said this morning.
(Reuters)