Arab Today, arab today fitch expects cyprus will need eu bailout
Last Updated : GMT 07:20:32
Arab Today, arab today
Arab Today, arab today

Fitch expects Cyprus will need EU bailout

Arab Today, arab today

Arab Today, arab today Fitch expects Cyprus will need EU bailout

Nicosia - AFP

Fitch Ratings said on Wednesday Cyprus will probably be unable to meet its financing requirements during the rest of this year and early 2012 and will likely need an EU bailout. Fitch made the forecast in an announcement that it had downgraded Republic of Cyprus long-term foreign and local currency issuer default ratings to BBB from A-, with the outlook negative on long-term IDRs. It said financing requirements in the last five months of this year will be close to 1.1 billion euros and another 1.2 billion euros needed in January and February. \"Under current market conditions, Fitch believes that the government will be unable to meet this target without recourse to external official assistance,\" while adding that, \"at this juncture, Fitch anticipates that such assistance is likely to be forthcoming.\" Fitch analyst Chris Pryce confirmed to AFP that what was meant here was assistance from the European Fund for Financial Stability. \"I think it will be a struggle to get through this year,\" Pryce said, adding that help would almost certainly be needed in early 2012. Fitch said the government calculates its financing requirements in the last five months of the year will be close to 1.1 billion euros, of which 650 million will be existing debt falling due for redemption. \"Against this, the government has 570 million euros of cash balances, representing about half of the total financing requirement. The government anticipates that it will be able to refinance the balance by borrowing from domestic financial institutions, although Fitch considers that this may prove challenging at a time when the banks are facing a decline in asset quality.\" Even if funds can be secured through the end of this year, Cyprus \"will enter 2012 with minimal cash balances and refinancing needs of 1.2 billion euros in the first two months,\" Fitch said. Cyprus has already recently been downgraded by the other two major international ratings agencies -- Standard & Poor\'s and Moody\'s. Pryce said the downgrade \"reflects the actual and anticipated fiscal slippage, compounded by Fitch\'s expectation that the sovereign will be unable to access the international debt markets in order to refinance an increasing debt maturity profile\" in the second half of this year and next year\'s first half. He said the 2011 deficit is now expected to be close to seven percent of GDP and that not all of that increase, from four percent forecast in June, \"can be attributed to the naval base explosion, which took out half of Cyprus\'s electricity generating capacity.\" That was a reference to a munitions blast that killed 13 people in July and destroyed a major power plant nearby, sending the already struggling economy into a tailspin. Fitch had already downgraded Cyprus by three notches at the end of May over the severity of the crisis in neighbouring Greece and the risk this poses for the Cypriot banking system -- significantly exposed to Greece -- and consequently possible calls for support from Cyprus\'s public finances \"The loss of generating capacity from the power station will have a significant impact on growth this year and next,\" Fitch said, adding that its forecasts for GDP growth have been revised down by 1.5 percentage points in both 2011 and 2012, \"although the potential for further slippage cannot be discounted.\" Fitch said it anticipates that an austerity package now being hammered out in Cyprus will be approved by parliament, but that it remains concerned about the prospects of it being carried out, given the \"inability of previous administrations to address fiscal consolidation and structural reform measures.\" It said \"triggers for further negative rating action would include further fiscal slippage or revisions to key deficit or debt metrics, an inability or unwillingness to implement the austerity package leading to a failure to establish firm fiscal consolidation, a failure to secure sufficient and timely external financial support if needed, weaker macro-economic performance, or a further deterioration in the banking sector outlook, including capital flight via bank deposit outflows.\"

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Arab Today, arab today fitch expects cyprus will need eu bailout Arab Today, arab today fitch expects cyprus will need eu bailout

 



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