Cyprus Should Be Eligible for QE After Program, Georgiades Says

  • Reform agenda following support program remains ambitious
  • Reunification would boost Cyprus, regional growth propsects

Countries such as Cyprus that successfully complete support programs should be allowed to be included in the European Central Bank’s quantitative easing program, Cypriot Finance Minister Harris Georgiades said.

Cyprus’s international loan program with euro-area partners and the International Monetary Fund expires at the end of March. Because the country’s sovereign bonds aren’t currently investment grade, they won’t qualify after that point for the ECB’s 1.1 trillion-euro ($1.2 trillion) asset-purchase program aimed at reviving inflation. That program is scheduled to last until Sept. 2016.

The benefit for the Cyprus economy is primarily the broader effect from the ECB’s QE program for the European economy, Georgiades said in an interview in Nicosia. “That said, it should have been possible for an economy which successfully completes a support program to continue benefiting, so maybe they should reconsider. ”

Cyprus will continue to implement reforms, to maintain fiscal discipline and to further improve the banking sector, to create the conditions for rating upgrades “that will bring us to the official investment grade the soonest possible and eliminate this temporary interruption,” Georgiades said. Cyprus is determined to do “whatever is necessary” to achieve investment grade, he said.

Moody’s raised the country’s government bond rating to B1 from B3 on Nov. 13 citing faster-than-expected economic recovery and consistent outperformance of fiscal targets. Fitch lifted its rating Oct. 23 to B+ from B-. Standard & Poors raised Cyprus to BB- from B+ on Sept. 25.

Yield Curve

Cyprus is on the way “to creating a good yield curve” following the sale of 1 billion euros in 10-year bonds in October, 7-year bonds in April and 5-year bonds last year, showing a return of confidence in the economy which has exited recession and is growing again, Georgiades said.

The Mediterranean island has activated all debt management instruments including regular issuance of treasury bills, domestic bonds and especially the EMTN issuances allowing the country to smooth out its debt maturities for the next three years, he said.

The last main reform before completion of the support program is legislation to set the ground for privatization of the Cyprus Telecommunications Authority, Georgiades said. The post-program reform agenda "remains very ambitious" and goes “above and beyond MOU requirements.”

Reunification of the Cypriot economy would offer a huge boost to the growth prospects of both Cyprus and the region, Georgiades said. Reunification is “primarily a benefit not a cost” and is a manageable task so long as the basic parameters of European economic governance are “strictly applied” to a future united federal republic of Cyprus, he said.

The International Monetary Fund has been invited to provide technical assistance for Cypriot reunification, Georgiades said.

— With assistance by Alessandro Speciale

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