Russia negotiating loan to cash-strapped Cyprus

10th September 2011, Comments 0 comments

Russia is negotiating a loan asked for by cash-strapped Cyprus, Interfax news agency quoted Russian Finance Minister Alexei Kudrin as saying Saturday.

"We are negotiating the granting of a loan to Cyprus," he said, stressing that it was at the Cypriot government's request but without specifying the amount sought.

RIA-Novosti agency referred to unconfirmed reports of a five-year loan of between two billion and 2.5 billion euros (2.8 and 3.5 billion dollars), with annual interest of 4.5 percent.

Cyprus's government borrowing costs have soared after repeated downgrades by the ratings agencies over its inability to reduce the fiscal deficit and local banks' exposure to Greek debt.

A munitions explosion at a naval base on July 11 destroyed the island's biggest power station, undoing growth forecasts and raising fears the island may need an EU bailout.

The government has gone on an austerity drive by cutting the salaries of civil servants and increasing the income tax bracket to 35 percent from 30 percent for those earning over 60,000 euros a year.

A key measure to raise value-added tax from 15 percent to 17 percent was not approved by MPs at a vote last month.

Cyprus is hoping its cost-cutting measures will get the deficit below the EU-mandated three percent in 2012 and avert any further downgrades.

© 2011 AFP

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