Description:
The report assesses compliance with the terms and conditions set out in the updated MoU, which was updated following the second review mission and agreed upon between the Cypriot authorities and the programme partners, i.e. the European Commission (EC), the European Central Bank (ECB) and the International Monetary Fund (IMF). On 24 April 2013, the European Stability Mechanism (ESM) Board of Governors approved the MoU. Vice President of the European Commission, responsible for economic and monetary affairs and the euro Olli Rehn signed the first MoU on 26 April 2013 and the updated MoU following the second review mission on 18 December 2013. The 3-year programme entails external financing by the ESM and the IMF of some EUR 10bn, for possible fiscal financing needs and support to the banking system. Around 90% of the programme envelope will be financed by the ESM, while the remainder will be financed by the IMF under an Extended Fund Facility. A joint EC/ECB/IMF staff mission visited Nicosia from 29 January to 11 February 2014 for the third quarterly mission and concluded that the economic adjustment programme remains on track. By the time of publication, the two prior actions in the updated MoU for the granting of the fourth disbursement had been met. The two prior actions concerned the adoption of the Fiscal Responsibility and Budget System Law (FRBSL) and the Privatisation Law. The FRBSL is an umbrella law encompassing macro-fiscal policymaking, as well as budget formulation, approval and execution. It transposes the EU directives, notably the Two-Packs, and foresees the creation of a Fiscal Council. The Privatisation Law sets up the institutional framework for privatisation. A successful completion of the third review should pave the way for the disbursement of EUR 150m by the ESM, and about EUR 86m by the IMF. This will bring the total amount authorised for disbursement under the programme to just above 50% of the overall international assistance of EUR 10bn.