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Borrowing costs drop below 3% for Cyprus

By George Telaveris

As Cyprus’ borrowing costs dropped below 3% (2.94%), the Finance Ministry is looking into ways to replace its expensive debt, including dealing with part of the borrowing obligations the country has to the International Monetary Fund (IMF).

Finance Minister Harris Georgiades said that he discussed the matter of repaying IMF loans early during a meeting of the Cabinet.

“The cost of borrowing for a significant part of our total borrowing from the IMF, at €280 million, actually exceeds the cost of the Republic of Cyprus borrowing from international markets.

A cost which has reduced due to better performance and credit ratings from the Cyprus economy, a difference of about 0.5%,” said Georgiades.

Cyprus’ yield on the 10-year bond has experienced a sharp decrease from a 3.5% interest rate at the beginning of the year.

“Consequently,” said Georgiades,” there is logic in early repayment of part of our IMF borrowing obligations, and the Cabinet has given me the authority to begin consultations with the IMF and the European Stability Mechanism, to ensure their consent so that we may repay part of our IMF loans early.”

The country is expected to tap international bond markets in the summer and, according to what has been agreed with international lenders, Cyprus will issue in 2017 bonds worth at least €500 million.

“The amount is small for a bond market and it could be difficult for Cyprus to find investors willing to exchange their higher return bonds or buy bonds at less than 3%” a person in a position to know told the Cyprus Weekly.

Nevertheless, staffers at the Finance Ministry are hopeful that “there are enough choices of expensive debt that could be interested to swap their lending for a longer-term one.”

Cyprus posted surpluses on both the general government budget and the primary balance in 2016, according to data released earlier this year by the Statistical Service of Cyprus (Cystat).

At the same time, in 2016 Cyprus managed 2.7% GDP growth and, despite forecasts from international lenders for a slower growth rate, the country achieved 3.3% growth during the first quarter of 2017, according to a Cystat release earlier this week.

In March, the country was upgraded by the Standard & Poor’s credit rating agency to BB+ from BB, just a notch below investment grade status.

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