Cyprus Cabinet approved $3.33 billion Russian loan deal

Cyprus' Cabinet approved a €2.5 billion ($3.33 billion) loan agreement with Russia.

Πηγή: Kyivpost
By AP
Oct 5 2011


NICOSIA, Cyprus (AP) — Cyprus' Cabinet approved a €2.5 billion ($3.33 billion) loan agreement with Russia to help the country service its debt, stimulate growth and restore confidence in the economy, a government official said Wednesday.

The deal sets an annual interest at 4.5 percent, Government spokesman Stefanos Stefanou said. The loan must be paid back in 4 1/2 years after the deal comes into force in January 2012, but could be paid back earlier without Cyprus incurring any penalties.

"Implementation of the loan agreement in combination with measures ensuring fiscal stability over the medium term is expected to create significant benefits for the island," Stefanou told reporters.

Cypriot banks' large exposure to debt-laden Greece has prompted a series of credit rating downgrades for the island, inflating interest rates on Cypriot bonds and making it difficult for the government to borrow from the markets. That, in turn, had raised fears that the eurozone member would be forced to seek a bailout.

Stefanou said the loan would help tamp down interest rates on Cypriot bonds and improve the country's credit rating while encouraging foreign investment.

Cyprus and Russia enjoy close diplomatic ties while billions in Russian cash lies in Cypriot banks.

The deal comes amid a government austerity drive to bring down a burgeoning deficit following finance minister Kikis Kazamias' projection of zero growth for the year.

Kazamias last week unveiled €840 million ($1.12 billion) worth of spending cuts and tax increases incorporated in the draft 2012 budget aimed at cutting the fiscal deficit to 2.3 percent or gross domestic product.

The deficit for 2011 is projected to hover between 6 to 6.5 percent of GDP.

A key target is tackling the island's bloated public sector that takes up almost a third of all yearly government spending of around €17 billion ($22.67 billion). The new measures include scrapping 1,100 public sector positions and cutting new government workers' salaries by a tenth.

But a proposed sales tax hike from 15 to 17 percent for at least three years has come under strong criticism from opposition parties.

Kazamias forecast the debt for 2012 to remain static at 65 percent of GDP, dropping slightly to 64.2 percent in 2013 and to 62.8 percent in 2014.