“We have made progress and I do not think there will be criticism; on the contrary, Cyprus has already implemented some very tough but necessary decisions,” Georgiades said just before a Eurogroup meeting in Brussels. Cyprus’ progress will be assessed by international lenders later this month.

However, the island was still facing practical difficulties in implementing the terms of the programme that concerned the banking sector. To receive much-needed financial assistance, Cyprus agreed in March to wind down its second-biggest bank, Laiki, and seize a percentage of uninsured deposits in Bank of Cyprus (BoC), which were used to recapitalise it. Capital controls, in place since then to prevent a bank run, were impeding the economy. “We think capital controls are the biggest problem, even bigger than the bail-in as such,” Georgiades said, referring to the losses imposed on uninsured depositors in BoC and Laiki. “Capital controls are prolonging a situation that hinders economic activity and, if prolonged, will drive Cyprus’ economy in an unbearable situation,” he said in an interview with the Wall Street Journal.

Georgiades could not say when the restrictions might be lifted, at least not without other steps. “Parallel steps to reinforce confidence in the Cypriot banking sector” are desperately needed in order to fully free up transactions, he told the WSJ, but would not explain what those would be. Officials expect the Cypriot economy to contract more that the 8.7 per cent forecasted by the bailout programme, leading to bigger budget gaps.

However, the finance minister told the WSJ the government was conducting budget planning based on “very-conservative” scenarios for future growth. He also said he hadno intention to use the country’s natural gas finds to plug fiscal holes at this stage, although he did say the government may “monetise” the finds. Georgiades said that would only be “over and above” existing budgetary planning.

Source: Cyprus Mail