International creditors begin 3rd assessment of Cyprus’ financial rescue program

NICOSIA, Cyprus – International creditors were back in Cyprus on Wednesday to gauge whether the country is living up to the terms of its financial rescue program.

Cyprus’ third bailout review comes after earlier assessments concluded that the country was on track, but warned that there was no room to slacken efforts.

EU and International Monetary Fund officials will focus on Cyprus’ banking sector, which was hit hard under the terms of the country’s 10 billion-euro ($13.6 billion) rescue agreed in March. The deal saw authorities seize large portions of uninsured savings in the two largest banks and impose capital controls. The second-largest lender was shut down.

Banks are struggling to cope with bad loans in an economy. Some 46 per cent of all loans, or 19 billion euros ($26 billion), are considered soured. That’s the equivalent of 120 per cent of the gross domestic product.

Capital controls, such as daily cash withdrawal limits of 300 euros, have been significantly eased since March, but many remain in place. Government officials say they expect to lift most controls in the coming months. The last step will be allowing unlimited money transfers abroad.

EU and IMF officials will also examine government spending cuts, tax revenue, and efforts to expedite bailout-mandated privatizations of state-owned enterprises in order to raise 1.4 billion euros ($1.9 billion).

Cyprus Central Bank spokesperson Aliki Stylianou said the review will continue through February 12 when the inspectors will depart.