NICOSIA, Cyprus (AP) — Key differences still need to be resolved in Cyprus' bailout talks with its potential creditors, a government spokesman said Wednesday, as another round of negotiations wound down and the country's credit rating sank deeper into junk territory.
Stefanos Stefanou said the government was focused on achieving a "bearable" agreement with the troika of the European Commission, the European Central Bank and the International Monetary Fund to recapitalize its banks which have taken massive losses because of their exposure to Greek debt.
"A few, very important issues remain where there is disagreement and that's why negotiations continue with the troika," said Stefanou. "What we must do is to remain focused on our goal, and we won't deviate from that."
Stefanou said some progress had been made, but that any agreement would contain tough provisions for Cypriots. He said troika officials, who arrived two weeks ago for a third round of negotiations, are scheduled to leave Cyprus on Wednesday, but that talks on specifics would continue through teleconferencing and other means.
Stefanou said a return date for the troika hasn't been set yet. Meanwhile, credit ratings agency Fitch on Wednesday downgraded Cyprus by two notches to BB- and warned of further slides because of a weakening economy and ongoing uncertainty over how much money it would take to prop up its banks.
Fitch said in a statement that Cyprus' three main banks will need at least another €4 billion ($5.12 billion) on top of the €1.8 billion ($2.3 billion) that the government has already pumped into the country's second largest lender, Cyprus Popular Bank, which suffered the heaviest losses from its exposure to Greece.
The agency said that a delay in bailout negotiations has contributed to the country's worsening problems. It said Cyprus' economy will shrink by more than 2 percent of gross domestic product this year and remain in recession into 2014. Fitch said the country's deficit will be over 5 percent of GDP this year, with the debt peaking around 120 percent of GDP in 2014.
Cyprus, one of the smallest economies in Europe, sought international financial aid in June. A deal is pressing for the country of 900,000 people which has been unable to tap international markets for over a year and starts running out of money to pay its bills next month. A Cyprus bailout is estimated to hover at around €11-17 billion ($14-21.7 billion).
Cyprus Central Bank chief Panicos Demetriades said it's important for a bailout deal to be signed by December to eliminate the uncertainty that's harming the economy. Cyprus' Soviet-educated President Dimitris Christofias has said "he would fight until the end" to protect workers' rights in any bailout deal, even as his government has agreed to steep public sector salary cuts and a raft of new tax hikes.
But the main sticking points include a troika demand to sell off profitable, state-owned companies. Cypriot officials argue such a move would deny the country a steady revenue stream and possibly result in job losses as the unemployment rate continues to climb to 13 percent.
The government also wants guarantees from the troika that revenues from newly discovered offshore natural gas deposits don't all go to paying off a loan, but part of the money is channeled toward growth-oriented projects and placed in a "future generations" fund.