NICOSIA, Cyprus (AP) — Cyprus' finance minister said Monday that more austerity measures will be needed to meet a deficit target of 2.5 percent of gross domestic product this year.
Vassos Shiarly said he'll start talks with trade unions on ways of covering the €150 million-€200 million ($198 million-$264 million) needed to make the target and convince investors that Cyprus can pull through the financial crisis.
Shiarly said the shortfall — which represents less than 1 percent of GDP — is relatively small thanks to better-than-expected revenues and tight spending controls in the first quarter this year.
A member of the 17-country eurozone, Cyprus is relying on a €2.5 billion ($3.3 billion) Russian loan to see it through this year after a string of credit rating downgrades have left it unable to borrow from international markets.
"As result, keeping our promises and sticking to our pledge that we'll in no way move from the 2.5 percent of GDP deficit target is essential," Shiarly told reporters.
The downgrades were mainly due to the large Cypriot banking sector's huge exposure to Greek debt. Shiarly said Cypriot banks would need around €1.5 billion ($1.97 billion) overall to meet their recapitalization targets.
Shiarly said most of that sum would likely go to one the island's top three commercial banks, which he didn't name. Independent analysts say Cyprus Popular Bank is the most exposed to Greek debt and is currently in talks with strategic investors.
Shiarly repeated that the government is ready to step in and support the banking system as a last resort, but didn't specify on how it would do so. He said the ministry is considering an array of options, including tapping the European Financial Stability Facility, the eurozone's bailout fund.