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Cyprus News Agency: News in English, 11-10-27

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From: The Cyprus News Agency at <>




    Standard & Poors Rating Services lowered on Thursday its long-term sovereign credit rating on the Republic of Cyprus to BBB from BBB+, prompting the Finance Ministry of Cyprus to call on political parties to vote the 2012 budget.

    The Ministry of Finance also urges the parties to approve all measures aimed at reducing the countrys fiscal deficit.

    The S& P further lowered the short-term sovereign credit rating on Cyprus to A-3 from A-2 while the long-term rating remains on CreditWatch with negative implications, where it was initially placed on August 12 2011

    According to S&P, the contingent liabilities posed to the Cypriot government by the Cypriot banking systems exposure to Greece continue to weigh heavily on the ratings of Cyprus. It also said that the Greek default scenario with private sector involvement or haircuts higher than previously agreed by commercial creditors would necessitate the recapitalization of some domestic banking institutions, either through a public offering or a government capital injection.

    Furthermore, it said we further believe the effect of a Greek government default could reverberate through Cyprus economy in the form of private-sector funding costs increasing beyond our previous expectations, thereby reducing investment and overall domestic demand.

    S&P further said weaker economic growth could worsen the Cypriot governments debt dynamics and reduce the willingness of its political leaders to press forward with fiscal and labor market reforms.

    We estimate the exposure of Cypriot banks to Greek debt at about 165% of Cyprus GDP. Depending on the PSI levels, in any forthcoming Greek sovereign debt exchange, this could result in bank recapitalization needs of up to 10% of GDP, S&P added.

    Reacting to the S&P decision, in a statement, the government of the Republic of Cyprus acknowledges the challenges which the Cypriot economy is facing due to the negative developments from Europes debt crisis.

    For this reason, it adds, the Government intends to act promptly and decisively to take all necessary measures to achieve fiscal consolidation and to handle the challenges of the banking system in cooperation with the Central Bank.

    It urges the political parties to vote in favour of the 2012 Budget as well as all measures for fiscal consolidation to give the message to markets that the Republic of Cyprus is determined to handle the challenges in an effective and decisive manner.

    On August 26th the House of Representatives approved the first of two packages of austerity measures aiming at fiscal consolidation. Presenting the 2012 state budget, Finance Minister Kazamias said it contains structural measures aiming to avert negative developments to the Cypriot economy.

    It provides for total revenues of 6.22 billion euro, compared with 5.64 billion of 2011 and total expenditures, excluding loan payments, of 7.54 billion euro compared with 8.01 billion of the 2011 state budget.

    The budget also includes provisions for a 10% reduction in entry-level salaries for civil servants, abolition of 1100 vacant positions in the civil service, continuation of the freezing of procedures to fill up vacancies and for reducing by 200 million euro social benefits both by lowering the level of benefits and by introducing income criteria for certain benefits.


    The cost of lending to the public sector in Cyprus is recording a significant drop after the historically high levels it had risen to at the end of August, with the interest rate of the five-year Cypriot state bond shrinking from 19% to 15%, and the ten-year bond dropping from 12.5% to 9.4%, head of the Public Debt Management Office (PDMO) of the Ministry of Finance Phedon Kalozois told CNA.

    Kalozois said this signified a ``steady recovery of investors` confidence`` towards the Cypriot economy, adding that the improvement in the cost of lending to Cyprus ``began with the announcement regarding Russian loan`` to Cyprus, which positively affected the investors.

    He expressed optimism that the cost of lending would further improve early next year, ``when we are able to use the Russian loan and seek loans from the domestic market and then from abroad.``

    Kalozois also said that the financing needs of the Cypriot public sector for 2011 have been fully covered and almost all needs for 2012 will be covered by the Russian loan, adding that the PDMO is examining various scenarios, including trimming the value of Greek bonds.


    Cypriot Foreign Minister Erato Kozakou Markoullis has called on Commonwealth member states to express their support towards the Republic of Cyprus as regards the Turkish threats over hydrocarbon drilling in Cyprus Exclusive Economic Zone (EEZ). She also said that the law of the fittest should not be allowed to prevail.

    Foreign Minister who is visiting Australia, representing President of the Republic at the Commonwealth Summit taking place in Perth, on Wednesday participated at the Commonwealth Foreign Ministers meeting.

    In her intervention, Markoullis condemned the Turkish threats, noting that we do not tolerate such actions and we will not abandon principles in order to accommodate other interests.

    Turkey, whose troops occupy Cyprus northern part since they invaded in 1974, does not recognise the Republic of Cyprus. Following a decision by Nicosia to begin natural gas and oil exploration in its exclusive economic zone, Ankara has deployed warships in the Eastern Mediterranean and has signed an illegal agreement with the Turkish Cypriot regime in occupied Cyprus to delineate what it calls continental shelf

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