Cyprus approves budget as bailout talks continue

Cyprus cabinet approves budget, withholds figures until bailout talks with troika complete

Associated Press

NICOSIA, Cyprus (AP) -- Cyprus approved next year's budget Saturday without releasing any figures because of the country's ongoing bailout talks with potential creditors.

The "tight" budget incorporates additional spending cuts, slashes an additional 1,000 positions from the bloated public sector by hiring to fill only a quarter of jobs vacated by retiring workers, while channeling funds for growth-boosting infrastructure projects, government spokesman Stefanos Stefanou said.

Budget figures were being withheld because they will change once bailout terms and conditions agreed with the European Commission, the European Central Bank and the International Monetary Fund — collectively known as the troika — are adopted, Stefanou said.

Cyprus, whose €18 billion ($23.38 billion) economy is one of the smallest in Europe, has been unable to borrow from international markets since last year after its credit rating was cut to junk mainly because of its banks' large exposure to debt-ridden Greece. In June, the country joined fellow eurozone members Ireland, Portugal and Greece in seeking international aid to support its banks.

The government held two rounds of talks with troika officials in the capital in July. The officials are expected back early next month.

Although acknowledging that such cuts are "inevitable," Finance Minister Vassos Shiarly said this week the government wants to avoid steep, across-the-board cuts to public sector salaries, benefits and pensions that the troika is recommending, so as not to trigger a "chill" in the domestic market, prolong the recession and put added strain on low-income earners. Instead, the government would prefer to enact cuts according to an income-based sliding scale.

Shiarly said the government's assessment of how much the country's banks need to recapitalize varies significantly from the troika's own estimate. The government also wants to extend the three-year implementation timeframe of troika-negotiated austerity measures by at least another year to help ease the economy out of recession. Cyprus' economy is projected to contract 1.5 percent of gross domestic product this year.

Stefanou said the government will consult with powerful trade unions and opposition parties on its own austerity proposals before troika officials return.

The budget's approval came in the wake of controversial remarks by the leader of communist party AKEL — from which President Dimitris Christofias hails — that Cyprus' exit from the eurozone in case troika officials insist on "extremely painful" austerity measures should be looked at by experts. The government promptly issued a written statement that there is "no such issue."

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