Cyprus Bailout Swells to 23 Billion Euros, Larger Than Cypriot Economy
Cyprus' financial sector bailout has swollen in size, according to draft documents from the international creditors including the International Monetary Fund, the European Central Bank and the European Union.
Cyprus' bailout has swollen some 35 percent in just a few weeks, from an initial estimate of 17 billion euros to 23 billion euros Thursday.
According to the documents, the Troika of creditors will now provide up to 10 billion euros of funding for the troubled island nation, the same as previously estimated. However, Cyprus' commitment will now swell to 13 billion euros instead of the previously forecast 7 billion euros.
As part of the increase in Cyprus' commitment to the bailout, depositors will be even harder hit. Some reports have the deposit levies increasing as much as 100 percent of the previous estimate, thus doubling the burden of this bailout on depositors. Specifically, the financial center of Nicosia will have to contribute 10.6 billion euros including the deposit levies.
Cyprus central bank spokeswoman Aliki Stylianou said that other funds will come in the form of higher taxes, privatization, and selling of gold reserves. New taxes should add about 600 million euros in funds while privatizations should add 1.4 billion euros and the potential sale of gold reserves should contribute an additional 400 billion euros.
In the draft reports, the Troika expects GDP to contract 8.7 percent in 2013 and 3.9 percent in 2014 with growth expected to return in 2015. The Troika also expects the Cypriot current account balance to swell drop from the 2012 level of 4.7 percent of GDP to a deficit of -0.1 percent of GDP by 2016.
Cyprus' debt-to-GDP ratio is expected to swell to 109 percent in 2013 and 123 percent in 2014 before peaking in 2015 at 126.3 percent.
With the recent increase in the size of the bailout, Cyprus will now be receiving a bailout that is larger than the size of its GDP. In 2012, Cyprus' GDP was just shy of 18 billion euros, meaning the bailout is approximately 128 percent of GDP.
The fact that the bailout is larger than the size of the economy in Cyprus emphasizes how grossly levered the financial sector was heading into the financial crisis.
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