International lenders negotiating a bailout for cash-strapped Cyprus are likely to seek cutbacks in its public payroll and some increases in taxation, the Cypriot finance minister said on Tuesday.
Officials from the International Monetary Fund, European Commission and European Central Bank held inconclusive talks in Cyprus last week. Cypriot officials said discussions would continue with a new visit by the team, known as the “troika”, possibly in September.
“From our side, there are certain issues which are not acceptable from the outset and require further discussion,” said Vassos Shiarly, Cyprus΄s finance minister, Reuters reported.
He did not elaborate on the differences with lenders – the troika΄s insistence on scrapping wage indexation has been widely reported as a point of dispute – but implied that cutbacks in salaries in an inflated public sector could be an option.
Cyprus, one of the smallest of 17 nations sharing the euro, became the fifth member of the currency bloc to seek a bailout last month, in its case from the banking sector burdened by the debt restructuring European leaders agreed for Greece.
“Based on the experience of Portugal and Spain, we believe the troika will expect cutbacks in state spending, which include the payroll and an increase in taxes which will not impact the economy,” Shiarly, a former top banker, told the semi-official Cyprus News Agency.
He said, however, that the decision as to what measures to take would be left up to Cyprus and not its lenders.
“Since we are trying to find a considerable amount, this won’t be achieved by cutting back on electricity or telephone bills,” he said.
Authorities introduced staggered cuts in public sector salaries last year, a two-percentage point rise in value-added tax this year, and increased tax on private-sector earnings.
Glafcos Hadjipetrou, who heads Cyprus΄s main civil servants union Pasydy, said any measures should be balanced. “It is not possible for some people to finger-point and target public sector workers at every opportunity,” he told reporters.
Cyprus΄s two largest banks booked considerable losses on the write down in Greek sovereign debt this year, diluting their regulatory capital and forcing them to seek government aid to recapitalize. In total, the banks seek 2.4 billion euros, the equivalent of more than 10 percent of Cyprus΄s GDP.
Shut out of international financial markets for more than a year in part because of fiscal slippage, Cyprus had little option but to seek aid from its EU partners.
It has also asked Russia, which lent Cyprus 2.5 billion euros last year, for another five billion euro loan.
It is not clear how much Cyprus will require from the troika. Authorities say the bailout will be comprehensive and not limited to recapitalizing banks.
(source: CNA, Reuters, Capital)