ΔΑΝΕΙΑΚΗ ΣΥΜΒΑΣΗ ΚΥΠΡΟΥ. ΓΕΝΙΚΟΙ ΚΑΙ ΕΙΔΙΚΟΙ ΟΡΟΙ & ΜΝΗΜΟΝΙΟ. ΔΕΙΤΕ ΤΑ ΠΡΩΤΟΙ

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Memorandum of Understanding on Specific
Economic Policy Conditionality

The economic adjustment programme will address short- and medium-term financial, fiscal
and structural challenges facing Cyprus. The key programme objectives are:


to restore the soundness of the Cypriot banking sector and rebuild depositors’ and
market confidence by thoroughly restructuring and downsizing financial institutions,
strengthening supervision and addressing expected capital shortfalls, in line with the
political agreement of the Eurogroup of 25 March 2013;

to continue the on-going process of fiscal consolidation in order to correct the
excessive general government deficit as soon as possible, in particular through
measures to reduce current primary expenditure, and maintain fiscal consolidation in
the medium-term, in particular through measures to increase the efficiency of public
spending within a medium-term budgetary framework, enhance revenue collection
and improve the functioning of the public sector; and

to implement structural reforms to support competitiveness and sustainable and
balanced growth, allowing for the unwinding of macroeconomic imbalances, in
particular by reforming the wage indexation system and removing obstacles to the
smooth functioning of services markets.
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1. Financial sector reform
Key Objectives

The banking sector has been severely affected by the broader European economic and
sovereign crisis, in particular through its exposure to Greece. However, many of the sector’s
problems are home-grown and relate to overexpansion in the property market as a
consequence of the poor risk management practices of banks. Furthermore, the financial
sector is vulnerable because of its size relative to that of the domestic economy. The handling
of problems in the sector has been complicated by the sensitivity of collateral valuations to
property prices, and banks have used certain gaps in the supervisory framework to delay the
recognition of loan losses, thus leading to significant under-provisioning. The banking sector
would benefit from a considerable downsizing and restructuring in order to restore its
solvency and viability, reinforce its resilience and regain public confidence.

Progress to date

The domestic banking sector, including the cooperative credit institutions, represented until
recently 550% of GDP. The necessary downsizing and restructuring of the banking sector is
already under way. The House of Representatives adopted legislation on 22 March 2013
establishing a comprehensive framework for the recovery and resolution of credit institutions,
drawing, inter alia, on the relevant proposal of the European Commission1 (EC). Under the
terms of that legislation, the Central Bank of Cyprus (CBC) is the single resolution authority
for banks and cooperative credit institutions alike. Using this new framework, the Cypriot
authorities have proceeded with (i) the carve-out of the Greek operations of the largest
Cypriot banks, (ii) the resolution of Cyprus Popular Bank and the absorption of selected
assets and liabilities by the Bank of Cyprus and (iii) the recapitalisation of the Bank of
Cyprus through a debt to equity conversion, without the use of public money. As a result of
these actions, the Cypriot banking sector was downsized immediately and significantly to
350% of GDP and the Bank of Cyprus has been fully recapitalised in order to regain its
eligible counterparty status for the purpose of its participation in regular Eurosystem
monetary policy operations. Further downsizing will be achieved through the restructuring of
the cooperative credit institutions. To preserve the liquidity of the Cypriot banking sector,
administrative measures have also been imposed.

A. Regulation and supervision
Maintaining liquidity in the banking sector

1.1. As bank liquidity was under pressure, exceptional measures were necessary with a
view to preventing large deposit outflows and preserving the solvency and liquidity of the
credit institutions. Cash withdrawals, electronic payments and transfers abroad were
temporarily restricted. The implementation of these measures was designed to minimise
disruptions in the payment systems, and to ensure the execution of transactions essential for
the functioning of the economy. The Government committed to managing the introduction
and implementation of restrictions in line with the rules on the free movement of capital set
out in the Treaty on the Functioning of the European Union. The impact of the restrictions
1 http://ec.europa.eu/internal_market/bank/crisis_management/index_en.htm#framework2012

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will be monitored on a daily basis with full information sharing with the European
Commission (EC), the European Central Bank (ECB) and the International Monetary Fund
(IMF). The restrictions on capital movements will be gradually relaxed, after consultation
with the EC, the ECB and the IMF and will remain in place no longer than is strictly
necessary to mitigate serious risks for the stability of the domestic financial system. A
Monitoring Board comprising the EC, the EBA and the Cypriot authorities is being
established to ensure the monitoring and assessment of the implementation of the temporary
capital controls.

1.2. Furthermore, the Cypriot authorities will encourage banks to strengthen their
collateral and liquidity buffers. The CBC, in consultation with the ECB, will continue to
closely monitor the liquidity situation of the banking sector and will stand ready to take
appropriate measures to maintain sufficient liquidity in the system in line with Eurosystem
rules.
1.3. The authorities will request domestic banks relying on central bank funding or
receiving state aid to establish and submit, quarterly, medium-term funding and capital plans,
to be communicated at the end of each quarter, starting from June 2013, to the CBC, which
will be transmitted to the ECB, the EC, the European Stability Mechanism (ESM) and the
IMF. The plans should realistically reflect the anticipated deleveraging in the banking sector
and reduce dependency on borrowing from the central banks, while avoiding asset fire sales
and a credit crunch. The reporting template and the macroeconomic scenario will be provided
by the CBC, in coordination with the ECB.
1.4. The lack of concentration limits in the liquidity framework for euro-denominated
assets allowed a concentrated exposure of Cypriot banks to Greek sovereign debt. To avoid
similar outcomes in the future, the CBC will update the liquidity regulations by December
2014, after consultation with the ECB, the EC and the IMF.
Regulation and supervision for banks and cooperative credit institutions

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1.5. Strong efforts should be made to maximise bank recovery rates for non-performing
loans, while minimising the incentives for strategic defaults by borrowers. The administrative
hurdles and the legislative framework currently constraining the seizure and sale of loan
collateral will be amended such that the property pledged as collateral can be seized within a
maximum time-span of 1.5 years from the initiation of legal or administrative proceedings. In
the case of primary residences, this time-span could be extended to 2.5 years. Based on a
report commissioned to an independent expert, the necessary legislative changes will be
submitted to the House of Representatives by mid-2014 and implemented by end-2014,
macroeconomic conditions permitting.
1.6. Non-performing loans are threatening bank profitability and need to be properly
monitored and managed in order to safeguard the banks’ capital buffers. The CBC’s guidance
on the classification of loans as non-performing will be amended to include all loans past due
by more than 90 days. This amendment will be introduced by 30 May 2013. The time series
for non-performing loans will be published including historical observations reaching as far
back as possible.
1.7. The CBC will also create a central credit register listing all borrowers and beneficial
owners, from both commercial banks and cooperative credit institutions, to enable these
institutions to check new loan applications against the register. The credit register will
identify the borrowers who are or were in arrears and will help monitor credit risk and large
exposures. The legal framework for the credit register will be set up by 30 September 2013
and the central credit register will be operational by 30 September 2014.
1.8. After analysis of the results from the due diligence exercise and taking into account
best practices in the implementation of the International Financial Reporting Standards, the
CBC will review, by end-September 2013, its current regulatory framework with respect to
loan origination processes, asset impairment and provisioning, and the treatment of collateral
in provisioning. Without prejudice to the conclusions of this review and to the existing
regulatory and accounting framework in the EU, regulatory amendments will be introduced,
drawing on technical assistance, with a view to mitigating the impact of changes in collateral
values on the value of impaired assets. The new prudential regulations will enter into force
by end-March 2014.
1.9. Legislation will be passed by end-September 2013 to strengthen banks’ governance
by prohibiting commercial banks and cooperative credit institutions from lending to
independent board members, including their connected parties, and removing any board
members in arrears on existing debts to their banks, while lending to other board members
will be prohibited above a certain threshold, which will be calibrated by the CBC. Loans and
other credit facilities to each board member will be disclosed to the public. A majority of
directors in banks’ boards will be independent.
1.10. The CBC will introduce mandatory supervisory action based on capitalisation levels,
drawing upon technical assistance and international best practices by end-March 2014.
1.11. The CBC will implement a unified data reporting system for the banks and the
cooperative credit institutions by end-June 2013. The publication of the statistical data will
be extended to the cooperative credit institutions, for which the CBC will disclose aggregate
data covering the same elements as for banks, including balance sheet items, income
statements and prudential indicators.
1.12. Stress-testing will be integrated into regular off-site bank supervision and will serve
as an input into Pillar 2 assessments. Supervisory stress-tests will be carried out at an annual
frequency, with the first exercise completed before end-June 2014.
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1.13. Cooperative credit institutions play a significant role in the domestic economy and
an important objective of the programme is to strengthen the cooperative credit sector. Due to
its economic relevance and legal specificities, as well as deficiencies in risk assessment, this
segment of the financial sector requires stronger regulation and supervision. The Cypriot
authorities will align the regulation and supervision of cooperative credit institutions to that
of commercial banks. Since December 2012, the supervision of cooperative credit institutions
is being conducted independently of considerations for the development of this sector. The
supervision of cooperative credit institutions will be detached from the Ministry of
Commerce, Trade and Tourism and integrated into the CBC by end-July 2013, for which
legislation will be passed by end-June 2013. The Cypriot authorities will present, for
assessment by the EC, the IMF and the ECB, a time-bound, actionable plan to achieve this by
end-June 2013. By end-May 2013 legislation will be introduced to authorise the CBC to
instruct the current cooperative credit sector supervisor to intervene also at the level of
individual cooperative credit institutions.
1.14. The accounts of cooperative credit institutions, above a size to be decided by the
CBC after consultation with the EC, the ECB and the IMF, will be subject to an independent
annual audit by an external, recognised and independent auditing firm. The CBC will have
the right to overturn the selection of an auditor by any cooperative credit institution.
Monitoring of corporate and household indebtedness

1.15. The Cypriot authorities will step up the monitoring of the indebtedness of the
corporate and household sectors and prepare quarterly reports, including information on the
distribution of assets and liabilities across households, and an assessment of debt-servicing
capacity and refinancing activities. Data from surveys will be used until the credit register
becomes fully operational. The Financial Stability Report, to be published on a yearly basis
as of December 2013, will include an extended analysis on corporate and household
indebtedness. These enhanced monitoring actions will be put in place by end-June 2013.
1.16. Measures will be taken to deal with troubled borrowers following the
implementation of the resolution and recapitalisation of weak banks. A framework for
targeted private-sector-debt restructuring will be established to facilitate new lending, and
diminish credit constraints. Ways will be explored to improve the funding constraints of
SMEs. First, by end-April 2013 a directive will be circulated by the CBC to recommend
banks to provide a grace period of 60 days without penalties to pay interest only on loans
coming due. This legislation aims to prevent disruptive effects in related payments
throughout the whole economy. Second, legislation will be passed, if needed, to eliminate
any tax deterrents to credit institutions and customers that may currently be in place with
respect to loan restructurings. This will include elimination of any tax deterrents with respect
to any losses of income associated with voluntary early loan repayments or discounts given
for such repayments to problematic but viable borrowers. Third, by end-June 2013 the
Cypriot authorities will develop a framework and issue legislation as needed to address legal,
administrative or other impediments affecting the restructuring of viable borrowers, while
preserving credit discipline. The approach will be based on market-based voluntary
workouts, underpinned by measures to strengthen the legal framework to support debt
restructuring. In this regard, in addition to the central credit registry, a framework for seizure
and sale of loan collateral will be implemented. Moreover, amendments will be introduced to
ensure the reduction of built-in costs (fees, requisites) for credit institutions and clients during
restructuring. Finally, a mediation service between banks and their clients to achieve fair debt
restructuring will be established by end-June 2013.
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Increasing financial transparency

1.17. The anti-money laundering (AML) framework will be further strengthened in line
with best practice. While Cyprus’ AML regime received an overall positive evaluation in the
2011 MONEYVAL report, the Cypriot authorities are committed to further enhancing their
standing by taking a number of measures, in line with recommendations made by IMF staff.

The legal framework will be further revised2 to enable the provision of the widest
possible range of cooperation to foreign counterparts (including with regard to the
laundering of the proceeds of tax crimes involving fraudulent activity), and by giving
precision to the scope of cooperation by the financial intelligence unit.

Following the completion of the April 2013 audit, the findings and recommendations
contained in the final reports of MONEYVAL and the auditor will be taken into
account in the action plan envisaged in the programme, and the customer due-
diligence and suspicious-transaction reporting procedures will be enhanced following
the audit report recommendations by Q2-2013.

Furthermore, to address concerns that Cypriot corporations and trusts might be
misused, the Cypriot authorities have committed to an action plan on entity
transparency to revise the legal framework and ensure its dutiful implementation, so
that adequate, accurate and timely information on the beneficial ownership of Cypriot
legal persons and arrangements can be provided to foreign counterparts in response to
requests related to money laundering and tax matters. To this end, the action plan will
envisage that the Cypriot authorities will promptly revise relevant pieces of
legislation, including, inter alia, the Trust and Company Services Provider law and
the Anti-Money Laundering law by Q2-2013. In addition, directives and circulars
issued by supervisory authorities (CBC, Cyprus Bar Association, and Institute of
Certified Public Accountants of Cyprus) will be revised to lay down clear
implementing procedures that are in line with relevant legislation and international
standards by Q2-2013.

As part of the action plan, the Cypriot authorities intend to establish trust registers
with the supervisory authorities and launch a third-party assessment of the
functioning of the Registrar of companies. The trust registers will be for all trusts
established under Cyprus law, will be kept by the relevant supervisory authorities in
order to enable them to carry out their duties, and will contain the name of the trust
and the name and address of the trustee.

Finally, the supervision department of the CBC will review its off-site and on-site
supervisory procedures to further implement a risk-based approach to AML
supervision by Q4-2013. In particular, the off-site supervisory tool will include
monthly reporting by credit institutions on the breakdown by country of origin of the
main depositors and the main beneficiaries of loans (and of their beneficial owners).
B. Recapitalisation, due diligence, resolution and restructuring
2 The legal framework was substantially revised in December 2012.

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1.18. A Coordination Committee with representatives from the CBC and the Ministry of
Finance will be set up to oversee the implementation of the financial sector reform
programme and to monitor developments in the banking sector.
Due diligence and restoring adequate capital buffers

1.19. The CBC will increase the minimum Core Tier 1 capital ratio from the present level
of 8% to 9% by 31 December 2013.
1.20. An international consultant has conducted an accounting and economic value
assessment (due diligence review) of the credit portfolios of Bank of Cyprus, Cyprus Popular
Bank, Hellenic Bank and a sample representing about 63% of the cooperative credit
institutions’ assets, as well as Alpha Bank Cyprus and Eurobank Cyprus. The assessment,
which was overseen by a Steering Committee including representatives of the Cypriot
authorities, the EC, the ECB, the EBA and the ESM (as members) and the IMF (as observer),
started formally on 4 October 2012, with the selection of the external consultant. This due
diligence review included both an accounting review and an assessment of the economic
value of banks’ assets. Its results formed the basis for the bank-by-bank stress tests.
1.21. The bank-by-bank stress tests conducted by the CBC resulted in an overall capital
shortfall of EUR 6 billion under a baseline scenario with a Core Tier 1 target ratio of 9% and
a shortfall of EUR 8.9 billion under the adverse macroeconomic scenario with a Core Tier 1
target ratio of 6%. These numbers include one foreign bank, but do not include the EUR 1.8
billion of capital already injected by the Cypriot State in Cyprus Popular Bank in June 2012,
which will be rolled over, nor do they include the capital needs of those credit cooperative
institutions that were not covered by the due diligence exercise. The specific capital needs
were communicated to each participating bank on 18 March 2013.
1.22. In response to the results of the due diligence exercise, Bank of Cyprus and Cyprus
Popular Bank have been intervened and restructured using the recently-adopted resolution
law. The other commercial banks will be instructed by the CBC to take the necessary steps to
ensure that they meet regulatory requirements in a stress scenario by end-September 2013.
Cooperative credit institutions will be instructed to meet capital regulatory requirements by
July 2013. If necessary, public programme funds will be used to recapitalize these institutions
in accordance with EU state-aid rules.
Restructuring and resolution of Cyprus Popular Bank and Bank of Cyprus

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1.23. The accounting and economic value assessment already mentioned revealed that the
two largest banks of Cyprus were insolvent. To address this situation the government has
implemented a far-reaching resolution and restructuring plan. In order to prevent the build-up
of future imbalances and to restore the viability of the sector, while preserving competition, a
fourfold strategy was adopted, which does not involve the use of taxpayer money. The
Cypriot authorities will closely monitor the implementation of this strategy.
1.24. First, all Greek-related assets (including shipping loans) and liabilities were carved-
out, estimated in the adverse scenario at EUR 16.4 billion and EUR 15.0 billion, respectively.
The Greek assets and liabilities were acquired by Piraeus Bank, the restructuring of which
will be dealt with by the Greek authorities. The carve-out was based on an agreement signed
on 26 March 2013. With the book value of the assets at EUR 19.2 billion, the carve-out has
substantially reduced the cross exposures between Greece and Cyprus.
1.25. With respect to the UK branch of Cyprus Popular Bank, all the deposits were
transferred to the UK subsidiary of the Bank of Cyprus. The associated assets were folded
into the Bank of Cyprus.
1.26. Second, Bank of Cyprus is taking over -via a purchase and assumption procedure-
almost the entire Cypriot assets of Cyprus Popular Bank at fair value, as well as the latter’s
insured deposits and Emergency Liquidity Assistance exposure at nominal value. The
uninsured deposits of Cyprus Popular Bank will remain in the legacy entity. The aim is for
the value of the transferred assets to be higher than the transferred liabilities with the
difference corresponding to the recapitalisation of Bank of Cyprus by Cyprus Popular Bank
amounting to 9% of the risk-weighted assets transferred. Bank of Cyprus is being
recapitalised to reach a core tier one ratio of 9% under the adverse scenario of the stress test
by the end of the programme, which should help to restore confidence and normalise funding
conditions. The conversion of 37.5% of the uninsured deposits in Bank of Cyprus into class
A shares with full voting and dividend rights provides the largest part of the capital needs
with additional equity contributions from the legacy entity of Cyprus Popular Bank. Part of
the remaining uninsured deposits of Bank of Cyprus will be frozen temporarily until the
completion of the independent valuation referred to in the paragraph below.
1.27. Third, to ensure that the capitalisation targets are met, a more detailed and updated
independent valuation of the assets of Bank of Cyprus and Cyprus Popular Bank will be
completed, as required by the bank resolution framework, by end June 2013. To this end, no
later than mid-April 2013, the terms of reference of the independent valuation exercise will
be agreed in consultation with the EC, the ECB, and the IMF. Following that valuation, and if
required, an additional conversion of uninsured deposits into class A shares will be
undertaken to ensure that the core tier one capital target of 9 % under stress by end-
programme can be met. Should Bank of Cyprus be found to be overcapitalised relative to the
target, a share-reversal process will be undertaken to refund depositors by the amount of
over-capitalisation.
1.28. Finally given the systemic importance of Bank of Cyprus, it is important that the
operations of Cyprus Popular Bank are quickly integrated, operational efficiency is
improved, the recovery of non-performing loans is optimised with the work-out implemented
by the going concern entity and the funding conditions are progressively normalised. In order
to achieve these goals and to ensure that Bank of Cyprus can operate with maximum
safeguards to preserve stability and continued viability during a transition period, the CBC,
following consultation with the Ministry of Finance, will appoint a new Board of Directors
and an acting Chief Executive Officer until Bank of Cyprus’ new shareholders are organised
in a general meeting. The CBC will require the Board of Directors to prepare a restructuring
plan defining the bank’s business objectives and credit policies by end- September 2013. To
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ensure that normal business activities are not affected, institutional arrangements will be
designed by end-June 2013 in accordance with Cypriot law to insulate Bank of Cyprus from
reputational and governance risks.

Restructuring and recapitalisation of other commercial banks

1.29. Commercial banks with a capital shortfall, which are deemed viable, can, if other
measures do not suffice, ask for recapitalisation aid from the State. In order to ensure timely
recapitalisation, the Cypriot authorities should submit by 30 November 2013 restructuring
plans for these banks to the EC, which are drawn up in compliance with EU state-aid rules,
while also informing the ECB and the IMF.
1.30. Capital should, to the largest extent possible, be raised from private sources
including internal measures, asset disposals and liability management exercises. Banks in
need of aid from the State will not be recapitalised before their restructuring plans have been
formally approved under state-aid rules. The terms and remuneration of the state aid will
comply with the EU state-aid rules, with due consideration for financial stability. The credit
institutions benefiting from capital injections will be subject to specific management rules
and restrictions, including on pay levels of executive and supervisory board members, and to
a restructuring process in line with EU competition and state-aid requirements, which will be
scrutinised by an external monitoring trustee. If the recapitalisation takes the form of state
aid, funds for the recapitalisation of these banks will be made available in the context of the
programme.
Restructuring and recapitalisation of cooperative credit institutions

1.31. With a view to minimising state aid, cooperative credit institutions requiring
recapitalisation should seek private sector participation no later than 31 July 2013.
1.32. As regards the cooperative credit institutions, the CBC, assisted by the current
supervisor and in consultation with the EC, the ECB and the IMF, will ascertain the viability
of individual cooperative credit institutions and design a strategy for restructuring and
recapitalising the sector.
1.33. This strategy, including the possibility of the application of mergers and
restructuring, will be submitted to the EC, also informing the ECB and the IMF by end-July
2013 based on an assessment of capital needs and viability to be finalised by June 2013. The
terms of reference for this assessment will be finalised in consultation with the EC, the ECB
and the IMF by April 2013. The restructuring plans for the cooperatives will be submitted to
the EC by September 2013. Cooperative credit institutions in need of aid from the State will
not be recapitalised before their restructuring plans have been formally approved under state-
aid rules. The terms and remuneration of the state aid will comply with the EU state-aid rules,
with due consideration for financial stability. The cooperative credit institutions benefiting
from capital injections will be subject to specific management rules and restrictions, and to a
restructuring process in line with EU competition and state-aid requirements, which will be
scrutinised by an external monitoring trustee. Implementation of the strategy should be
completed by 30 June 2015. Until the overall strategy has been agreed, there will be no
change in the structure of the sector, without prior consultation with the EC, the ECB and the
IMF.
1.34. Sufficient funds for the recapitalisation of the cooperative credit institutions will be
made available from the programme following the first programme review and will be
deposited in a dedicated account with the Central Bank to boost confidence in the system.
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The amounts will be injected following the identification of the capital needs and in
accordance with the agreed strategy, after approval of the restructuring plans. A new
governance structure will be established, which allocates clear levels of continued
accountability and provides for proper incentives to avoid moral hazard, having regard to a
two-tier supervisory system applied in other EU Member States.

1.35. Information pertaining to articles 1.4, 1.13, 1.14, 1.32 and 1.33, will also be shared
with the ESM.
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Time span for conditionality in the financial sector

Mar Apr May Jun Jul Aug Sept Oct Nov Dec Mar Jun Sep Dec Jan Dec
2015
Stress tests
MAINTAINING
LIQUIDITY
Funding and
capital plans
Liquidity ratio
REGULATION
AND
SUPERVISION
OF BANKS AND
COOPERATIVE
CREDIT
INSTITUTIONS
2013
COOPERATIVE
CREDIT
INSTITUTIONS
Supervisory
framework
Mergers,
restructuring and
resolution
Seizure of loan
collateral
Non performing
loans and credit
register
Governance
Supervision
RESTORING
ADEQUATE
CAPITAL
BUFFERS
Other commercial
banks
Cooperative credit
institutions
2014
Rrestrictions
BoC and CPB
Troubled
borrowers
Core Tier 1 ratio end-Dec 2013: increase minimum of Core Tier 1 capital ratio from 8 % to 9 % (1.19)
end-Nov 13: authorities submit
restructuring plans (1.29)
restructuring of BoC and CPB (1.26)
until 30/6/15 : implementation
of the strategy (1.33)
end-Jul 13: submission
of strategy (1.33)
mid-2014: legislation for seizure of
loan collatral (1.5)
end-May 13: legislation that coop supervisor is integrated in CBC and
legislation that CBC can instruct coop supervisor (1.13)
end-Jul 13: coop supervisor integrated into CBC ( 1.13)
31 May 13: legislation
for NPL > 90 days (1.6)
end-Sep 13: legislation for
credit register (1.7)
end-Sep 14: credit register operational (1.7)
end Sept 13: review of loan origination, asset
impairment, priovisioning (1.8)
end-Mar 14: implementation (1.8)
end-Sep 13: legislation on lending to board members (1.9)
Submission of quaterly funding and
capital plans (1.3)
end-Dec 14: Central Bank update s liquidity regulations. (1.4)
end-Mar 14: mandatory structured intervention (1.10)
end-June 13: unified data
reporting system (1.11)
end-Sep 13: raise private capital (1.22 and 1.30 )
end-2014: implementation of
legislation (1.5)
26/3/13:signature of
Greek carve-out (1.24)
end-Sep 13: authorities submit
restructuring plans (1.33)
end-Jun 13: institutional arrangement (1.28)
end-Sep 13: Board defines business activities
and credit policies (1.28)
end-Apr 13: ToR
assessment (1.33)
end-Jun 13: assessment
finished (1.33)
end-Jun 14: annual stress test integrated in off-site
supervision for pillar 2 (1.12)
end-June 13: legislation for personal finance and
financial mediation servvice (1.16)
end-April 13: directive for grace period for
borrowers (1.16)
end-April 13: ToR valuation (1.27)
end-Jun 13: independent valuation exercise (1.27)
end-July 13: raise private capital (1.22 and 1.31 ) end-Sep 13: authorities submit restructuring
plans (1.33)
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2. Fiscal policy
Key objectives

Putting public finances on a sustainable path is of overriding importance in order to stabilise
the economy and to restore the confidence of companies, citizens and foreign investors in the
longer-term economic prospects of Cyprus.

In this context, the objectives are: (1) to continue the on-going process of fiscal consolidation
in order to achieve a 3% of GDP primary surplus in 2017, 4% of GDP in 2018 and maintain
at least such a level thereafter; (2) to correct the excessive general government deficit as soon
as possible; (3) to this end, to fully implement the fiscal consolidation measures listed in
Annex 1 and the fiscal consolidation measures for 2013 listed in paragraphs 2.2 – 2.11
below; (4) to achieve the annual budgetary targets as set out in this Memorandum of
Understanding (MoU) through high-quality permanent measures, and additional measures in
the outer years, in particular to reduce the growth in expenditure on the public sector wage
bill, social benefits and discretionary spending, while minimising the impact of consolidation
on vulnerable groups; and (5) to maintain fiscal consolidation over the medium term,
converging towards Cyprus’ medium-term budgetary objective of a balanced budget in
structural terms, by containing expenditure growth, improving the structure of taxation and
undertaking fiscal-structural measures (see Section 3), including the implementation of a
Medium-Term Budgetary Framework designed in accordance with EU specifications.

The Cypriot authorities adopted a number of fiscal measures for 2012-2014 as well as initial
steps in relation to fiscal-structural reforms.3 The authorities commit to the full
implementation of these measures (see Annex I) and to monitoring the budgetary effect of the
measures taken on a monthly basis. Any deviation from the projected budgetary effect of the
measures will be evaluated and addressed accordingly in the quarterly programme reviews,
taking into account macroeconomic developments. The fiscal measures taking effect in 2012
were included in the amended 2012 Budget Law, which was submitted to the House of
Representatives after consultation with the programme partners (i.e. EC/ECB/IMF).
Likewise, the budgetary measures with effect in 2013 were embedded in the 2013 Budget
Law after consultation with the programme partners. The impact of the additional permanent
measures for 2014 has been embedded in the multi-annual expenditure targets accompanying
the 2013 Budget Law.

In the event of underperformance of revenues or higher social spending needs, the
government should stand ready to take additional measures to preserve the programme
objectives, including by reducing discretionary spending, taking into account adverse
macroeconomic effects. Over the programme period, cash revenues above programme
projections, including any windfall gains,4 will be saved or used to reduce debt. If instead
over-performance materialises, to the extent that it is deemed permanent, this can reduce the
need for additional measures in the outer years.

3 The adopted bills amounted to consolidation measures of about 5.0% of GDP for 2012-2016, in particular
0.3% of GDP in 2012, 2.3% of GDP in 2013, and 1.9% of GDP in 2014, and ½% of GDP in 2015-2016 based
on the macro-economic projections of 23 November 2012.4 Windfall gains associated with hydrocarbons shall mean only the blocks’ licencing fees or related signature
bonuses for exploration thereof. It is noted that any streams of revenues associated with hydrocarbon
exploitation are dealt with under section 5.6, second bullet-point, indent 3.

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Fiscal policy in 2013

2.1. The Cypriot authorities will achieve a general government primary deficit of no
more than EUR 395 million (2.4% of GDP) in 2013. The 2013 deficit target may be revised
to incorporate compensation for provident and retirement funds in Cyprus Popular Bank to
ensure equal treatment with such funds in Bank of Cyprus following the conversion of
deposits into equity. Given the social welfare nature of provident and retirement funds, the
Cypriot authorities will use the necessary amount out of programme financing for such
compensation.
Over 2013, the Cypriot authorities will rigorously implement the 2013 Budget Law with
additional permanent measures of at least EUR 351 million (2.1% of GDP).

After consultation with the programme partners, the 2013 Budget Law was adopted in
December 2012. The budgetary target for 2013 was also adopted, accompanied by elements
for a medium-term budgetary framework, in particular expenditure ceilings for the budget
years 2013-2015 for each government entity.

Additional permanent measures for 2013 will be adopted after review by and consultation
with the programme partners and prior to the granting of the first disbursement of financial
assistance (applicable to the measures outlined in 2.2, 2.3, 2.4, 2.5, 2.7, 2.8, 2.9, 2.10 and
2.11).

To this end, the Cypriot authorities will amend the 2013 Budget Law, which will contain the
additional consolidation measures, and, accordingly, the revised general government primary
deficit. In addition, the authorities will update the expenditure ceilings for the budget years of
2013-2015.

The additional consolidation measures will include the following and will, where legally
possible, be applicable retroactively from 1 January 2013:

Revenue measures

2.2. Ensure additional revenues from property taxation of at least EUR 75 million by: (i)
updating the 1980 prices through application of the CPI index for the period 1980 to 2012;
and/or (ii) amending tax rates and/or (iii) amending value bands.
2.3. Increase the statutory corporate income tax rate to 12.5%.
2.4. Increase the tax rate on interest income to 30%.
2.5. Increase the bank levy on deposits raised by banks and credit institutions in Cyprus
from 0.11% to 0.15% with 25/60 of the revenue earmarked for a special account for a
Financial Stability Fund.
2.6. Undertake by June 2013 a reform of the tax system for motor vehicles, based on
environmentally-friendly principles, with a view to raising additional revenues, through the
annual road tax, the registration fee and excise duties, including motor fuel duties. The
reform will take into account the related study of the University of Cyprus.
2.7. Complete the increase in fees for public services by at least 17% of the current
values.
Expenditure measures

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2.8. Introduce measures to control healthcare expenditure (see 3.2, measures a), b), c), d)
and e).
2.9. Reduce the expenditure on various housing schemes by at least EUR 36 million by
consolidating and streamlining the schemes for the displaced and the Comprehensive
Housing Scheme, discontinuing the special grant for acquiring a first residence and ceasing
the provision of loans and loan guarantees related to house construction and acquisition under
all government-administered housing schemes.
2.10. Further streamline the Easter allowance to pensioners by limiting the benefit to
pensioners with a monthly per household income of at most EUR 500.
2.11. Implement a scaled reduction in emoluments of public and broader public sector
pensioners and employees as follows: EUR 0-2.000: 0.8%; EUR 2.001-3.000: 1%; EUR
3.001-4.000: 1.5%; above EUR 4001: 2.0 %.
2.12. Introduce as of the budget year 2014 structural reform measures in the educational
system, notably, a reduction of the number of teachers seconded to the Ministry of Education
and Culture, the removal of 1:1.5 teaching time ratio from evening schools of general and
technical and vocational education, the elimination of teaching time concession to teachers
for being placed in two or more educational districts, the elimination of mentoring
components for pre-service and in-service training for newly appointed teachers and the
reduction of the cost of afternoon and evening programmes.
Fiscal policy in 2014

The Cypriot authorities will achieve a deficit of the general government primary balance of
no more than EUR 678 million (4.% of GDP) in 2014.

The budgetary target and the permanent measures for 2014 already adopted by the Cypriot
authorities (see Annex I) were considered in the adopted Medium-Term Budgetary
Framework, accompanying the 2013 Budget Law. After review by and consultation with the
programme partners by mid-September 2013, the 2014 Budget Law will be adopted by
mid-December 2013. The 2013-2015 expenditure ceilings will be updated for the period
2014-2016 and will accompany the 2014 Budget Law document. The presentation of these
ceilings will evolve into a full-fledged Fiscal Strategy Statement in line with the MTBF
requirements contained in Directive 2011/85/EU. Any deviation from the budgetary
objectives contained in the 2013-2015 framework will be properly documented and reasons
for such deviations will be provided.

Fiscal policy in 2015-16

The Cypriot authorities will achieve a deficit in the 2015 general government primary
balance of no more than EUR 344 million (2.1% of GDP) and a surplus in the 2016 general
government primary balance of at least EUR 204 million (1.2% of GDP).

After review by and consultation with the programme partners the 2015 and 2016 Budget
Laws will be adopted, respectively, by mid-December 2014 and mid-December 2015.

The 2014-2016 expenditure ceilings will be updated for the period 2015-2017 and will
accompany the 2015 Budget Law document. Any deviation from the budgetary objectives
contained in the 2014-2016 framework will be properly documented and reasons for such
deviations will be provided. In Q2-2016, the Cypriot authorities will present the programme
partners with a provisional list of measures to attain a primary surplus of 3% of GDP in 2017

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and 4% of GDP in 2018. The measures required will be included in the draft 2017 Budget
Law.

3. Fiscal-structural measures
Key objectives

Cyprus enjoyed above euro-area average growth rates for more than a decade and in parallel
expanded its public sector employment, support and services considerably. Looking ahead, if
the public sector is to provide appropriate support for the sustainable and balanced growth of
the Cypriot economy, fiscal-structural reform steps are needed to ensure the long-term
sustainability of public finances, to provide the fiscal space necessary to support the
diversification of the economy, and to alleviate the adverse impact on jobs and growth arising
from Cyprus’ exposure to external shocks. In this context, the objectives are: (1) to improve
the efficiency of public spending and the budgetary process by means of an effective
Medium-Term Budgetary Framework (MTBF) that is fully compliant with the Directive on
requirements for budgetary frameworks and the Treaty on Stability, Coordination and
Governance (TSCG); (2) implement further reforms of the pension system to address the
high projected increase in pension spending; (3) take further steps to control the growth of
health expenditure; (4) enhance tax revenues by improving tax compliance and collection; (5)
undertake reforms of the public administration to improve its functioning and cost-
effectiveness, notably by reviewing the size, employment conditions and functional
organisation of public services; (6) undertake reforms of the overall benefit structure with the
aim of producing an efficient use of resources and ensuring an appropriate balance between
welfare assistance and incentives to take up work; and (7) elaborate a programme for
improving the efficiency of state-owned and semi-public enterprises and initiate a
privatisation programme.

Pension reform

3.1. While taking note that the Cypriot authorities have recently introduced significant
reforms (as noted below), the implementation of further reforms of the pension system to
address the high projected increase in pension spending may be necessary in order to put the
pension system on a sustainable path. The overarching objectives of the reforms are: i) to
reduce the increase in pension spending, ii) to ensure the long-term financial viability of the
pension system through 2060, and iii) to limit the fiscal subsidy to the General Social
Insurance Scheme for credited contributions for current and future pensioners and for the
non-contributory pension.
In view of this, the Cypriot authorities have implemented/agreed to implement the following
measures:


separate in accounting terms the non-contributory pension benefit from the
insurance-based (contributory) pension scheme by 30 June 2013. The non-
contributory part will be tax financed;

for the General Social Insurance System (GSIS): (i) increase the minimum age for
entitlement to an unreduced pension by 6 months per year to be brought in line
with the statutory retirement age; (ii) introduce an early retirement penalty of
0.5% per month of early retirement so as to make early retirement actuarially
neutral; (iii) introduce an automatic adjustment of the statutory retirement age
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every 5 years in line with changes in life expectancy at the statutory retirement
age, to be applied for the first time in 2018; and (iv) gradually (1 year per year)
extend the minimum contributory period in the system from the current 10 years
to at least 15 years over the period 2013-17 (in place since December 2012) ;


for the Government Employee Pension Scheme (GEPS): (i) increase the statutory
retirement age by 2 years for the various categories of employees; (ii) increase the
minimum age for entitlement to an unreduced pension (by 6 months per year) to
be in line with the statutory retirement age; (iii) while preserving acquired rights,
introduce an early retirement penalty of 0.5% per month of early retirement so as
to make early retirement actuarially neutral; (iv) introduce an automatic
adjustment of the statutory retirement age every 5 years in line with changes in
life expectancy at the statutory retirement age, to be applied for the first time in
2018; (v) introduce a change of indexation of all benefits from wages to prices;
and (vi) pension benefits will be calculated on a pro-rata basis taking into account
life-time service as of January 2013 (in place since January 2013);

ensure that total annual public pension benefits for public sector employees and
state officials do not exceed 50% of the annual pensionable salary earned at the
time of retirement from the post with the highest pensionable salary of the
official’s career in the public sector and broader public sector (in place since
January 2013);

ensure that pension entitlements that will accrue after 1 January 2013 are
considered as personal income, thus becoming fully taxable also in the case in
which they are received as a lump-sum payment. At the same time, employees
will be granted the option of converting all or part of the lump-sum into an
actuarially neutral annuity (in place since January 2013); and

ensure that all of the above measures aimed at the GEPS will apply also to
pension schemes in the broader public sector and to pension schemes for hourly-
paid public employees.
An actuarial study for the GSIS will be carried out and submitted for peer review in the
Ageing Working Group of the Economic Policy Committee by end-July 2013. The objective
of the actuarial study is to provide additional reform options to ensure the long-run viability
of the national pension system.

The actuarial study should project the scheme’s finances on a cash basis. Given the financial
sustainability focus, on the revenues side, the study should not take into account any
government subsidy (i.e. contribution that is currently at 4.3% of the payroll and the return on
the accumulated notional reserves as at the start of the projection period) with the exception
of credited contributions and the contributions made by the government as an employer on
behalf of its employees. On the expenditures side, the study should only take into account
benefits related to contributions paid and credited contributions, i.e. excluding the costs
related to the top-up for the minimum pension (which is considered to be tax financed). The
study should analyse the impact of additional reform options such as benefit reductions
(while considering adequacy), an increase in the statutory retirement age and increases in
contribution rates or combinations thereof taking into account the impact on labour costs.

After review by and consultation with the programme partners, if needed, a comprehensive
reform with the aim of establishing the long-run viability of the system, will be carried out;
and, this reform will be adopted by end-December 2013 and enter into force in Q1-2014.

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Health care expenditure

3.2. To strengthen the sustainability of the funding structure and the efficiency of public
healthcare provision, the following measures will be adopted prior to the granting of the first
disbursement of financial assistance:
a)
abolish the category of beneficiaries class «B» and all exemptions for access to free
public health care based on all non-income related categories except for persons
suffering from certain chronic diseases depending on illness severity. Introduce as a
first step towards a system of universal coverage a compulsory health care
contribution for public servants and public servant pensioners of 1.5% of gross
salaries and pensions. The measure will be reviewed by Q2-2014 with the programme
partners. For families with three or more dependent children, the participation in this
health care scheme will be voluntary;

b)
increase fees for medical services for non-beneficiaries by 30% to reflect the
associated costs of medical services and create a co-payment formula with zero or
low admission fees for visiting general practitioners, and increase fees for using
higher levels of care for all patients irrespective of age;

c)
introduce effective financial disincentives for using emergency care services in non-
urgent situations;

d)
introduce financial disincentives (co-payment) to minimise the provision of medically
unnecessary laboratory test and pharmaceuticals; and

e) adopt a new decision by the Council of Ministers concerning a restructuring plan for
public hospitals, improving quality and optimising costs and redesigning the
organisational structure of the hospital management, by putting into practice
recommendations from the 2009 «Public Hospital Roadmap».

In addition, the programme partners will review and be consulted on the following measures
before their implementation:

f)
assess and publish, before parliamentary discussion, the potential risks and benefits of
the planned introduction of the National Health System (NHS) in an updated actuarial
study, taking into account possible proposals for implementing NHS in stages by Q22013;

g)
make the award of the tender for the IT-infrastructure conditional upon the results of
the study and the decision for implementing the NHS;

h)
review income thresholds for free public health care in comparison to the eligibility
criteria for social assistance while ensuring that co-payments to public health care are
set so as to protect individuals/households effectively from catastrophic health
expenditures by Q4-2013;

i)
create protocols for laboratory tests and the prescription of pharmaceuticals based on
thorough scientific evidence;

j)
introduce a coherent regulatory framework for pricing and reimbursement of goods
and services based on the actual level of costs incurred in accordance with Article 7
of Directive 2011/24/EU of the European Parliament and of the Council of 9 March
2011. An interim report will be ready by Q3-2013;

k)
conduct an assessment of the basket of the top 4 publicly reimbursable healthcare
products in terms of annual spending and prepare a report to establish an integrated
system for health-technology assessment to increase the cost-effectiveness of the
basket of publicly reimbursed products; and prepare the implementation of 10 new

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clinical guidelines focusing on high annual volume and high cost diseases by Q22013;

l)
start coding inpatient cases by the system of diagnosis-related groups (DRGs) with
the aim of replacing the current hospital payment system by payments based on
DRGs by Q3-2013;

m) in a first step, establish working time in the Health Service, in conjunction with
moving the starting time by half an hour (from 7.30 to 8.00) and extending the
flexibility period from a half to one hour. With this modification, the weekly working
hours of public officers remain unchanged, but are distributed throughout the year as
follows: 37 ½ hours per week, 7 ½ hours per day, daily (Monday to Friday): 8.00/9.00
to 15.30/16.30. The same applies for the transitional period of 1.1.2013-31.8.2013 but
the starting time remains the same (7:30) and thus the ending time is moved back by
half an hour (15:00/16:00). Following a review, in a second step, revise the regular
working hours and stand-by shifts of healthcare staff, including rules to increase the
mobility of staff; revise current regulations on overtime pay and fully implement
existing laws on recording/monitoring overtime payments (see 3.11) by Q1-2014; and

n) define a basket of publicly-reimbursable medical services based on objective,
verifiable, criteria, including cost-effectiveness criteria by Q2-2013.

Furthermore, the Cypriot authorities will consider establishing a system of family doctors
acting as gate-keepers for access to further levels of care.

Budgetary framework

3.3. The Cypriot authorities will:

provide for the establishment of a Fiscal Council with a statutory regime, functions,
nomination procedures for its governing body and funding arrangements grounded in
law by Q2-2013;

complete the adoption of the law transposing Council Directive 2011/85/EU on
requirements for budgetary frameworks, and provisions pertaining to the fiscal
compact of the Treaty on Stability, Coordination and Governance (TSCG) on the
basis of the Common Principles for national fiscal correction mechanisms laid down
in Commission Communication COM(2012)342, with implementing texts ensuring
that adopted measures are fully effective by Q2-2013. In particular, integrate the
presentation of the existing multi-annual budgetary objectives (MoU fiscal targets and
the rolling three-year expenditure ceilings) into a comprehensive Fiscal Strategy
Statement in compliance with MTBF requirements in the sense of Directive
2011/85/EU to guide the preparation of the 2014 budget by Q2-2013; and

submit to the House of Representatives a draft high-level Fiscal Responsibility and
Budget System Law applicable to the entire general government sector. The draft law
will encompass, inter alia, macro-fiscal policy-making, and budget formulation and
approval. It will address remaining gaps and inconsistencies and codify existing good
budget practices by Q4-2013.
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Public private partnerships (PPPs)

3.4. The Cypriot authorities will:

create an inventory of PPPs including information on the objectives of current and
planned PPPs and more detailed information on signed contracts, including their
nature, the private partner, capital value, future service payments, size and nature of
contingent liabilities, amount and terms of financing. In addition, an inventory of
contingent liabilities including information on the nature, intended purpose,
beneficiaries, expected duration, payments made, reimbursements, recoveries,
financial claims established against beneficiaries, waivers of such claims, guarantee
fees or other revenues received, indication of amount and form of allowance made in
the budget for expected calls, and forecast and explanation of new contingent
liabilities entered into in the budget year will be compiled. The inventories will be
shared by Q3-2013 with the programme partners. As of 2014, the inventories will be
updated annually and included as “Statement of PPPs” and “Statement of Contingent
Liabilities” in appendices to the annual budget law and to the annual financial report;

put in place an adequate legal and institutional framework for PPPs designed
according to best practices, including ex-ante assessment and monitoring of the fiscal
risks of engaging in PPPs and concessions as compared to other public investments. A
proposal for such a strengthened legal and institutional framework for PPPs should be
drafted by Q3-2013 and implemented by Q4-2013; and

commit not to enter into any new tendering process and not to sign any new PPP
contract before the implementation of the legal and institutional PPP framework,
excluding any project having reached commercial close by end-October 2012.
State-owned enterprises and privatisation

3.5. As regards extra-budgetary funds and entities, in particular the State-Owned
Enterprises (SOEs) and other state-owned assets, the Cypriot authorities will:

establish an inventory of assets, owned by central government, municipalities and
regional administrations, including real estate and land. As a first step, priority will be
given to assets with the highest commercial value, including at least one third of
SOEs by Q2-2013 and the remaining SOEs by Q3-2013. This inventory will indicate
which SOEs could be subject to divestment or restructuring or liquidation. The
inventory of the largest and most valuable real estate and land assets will be ready by
Q3-2013. The full inventory of all assets (SOEs, real estate and land) will be
completed by Q4-2013. The inventory will be gradually submitted to the programme
partners;

prepare a plan to strengthen the governance of SOEs in accordance with international
best practices and draft a report reviewing the operations and finances of SOEs (see
3.11) by Q3-2013. The report will assess these companies’ business prospects, the
potential exposure of the government to the SOEs and the scope for orderly
privatisation. The Cypriot authorities will adopt the necessary legal changes to fulfil
this requirement by Q4-2013. No additional SOEs will be created throughout the
duration of the Programme; and

submit to the House of Representatives a draft law to regulate the creation and the
functioning of SOEs at the central and local levels and enhance the monitoring
powers of the central administration, including reporting on SOEs in the context of
the annual budgetary procedure by Q4-2013.
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3.6. The Cypriot authorities will initiate a privatisation plan to help improving economic
efficiency through enhanced competition and encouragement of capital inflows, and to help
restoring debt sustainability:

This plan should consider the privatisation prospects of state-owned enterprises
(SOEs) and semi-governmental organisations (SGOs), including, inter alia, CyTA
(telecom), EAC (electricity), CPA (ports), as well as real estate/land assets. For the
privatisation of natural monopolies, an appropriate regulatory framework is a
prerequisite. The provision of basic public goods and services by privatised industries
will be fully safeguarded, in line with the national policy goals and in compliance
with the EU Treaty and appropriate secondary legislation rules;

The privatisation plan will be based on the report reviewing the operations and
finances of SOEs, as well as the inventory of assets. The privatisation plan will be
created after consultation with the programme partners, including asset-specific
timelines and intermediate steps by Q3-2013;

In parallel, the specific legal and institutional framework for the privatisation process
will be drafted by Q3-2013 and implemented by Q4-2013, after consultation with the
programme partners; and

The privatisation plan identified by the Government after consultation with the
programme partners will raise at least EUR 1 billion by the end of the programme
period and an additional EUR 400 million by 2018 at the latest.
Revenue administration, tax compliance, and international tax cooperation

3.7. The Cypriot authorities will propose a comprehensive reform plan to improve the
effectiveness and efficiency of tax collection and administration by Q4-2013, for
implementation as of the budget year 2014. The reform shall encompass the following
elements:

attribute personal responsibility for payment of company taxes to those, who -in the
case of non-listed companies- truly and effectively control a company;

attribute personal responsibility to the responsible manager for fraudulent filing of
company taxes;

strengthen powers by the tax authorities to ensure payment of outstanding tax
obligations, e.g. by having authority to seize corporate assets, prohibiting alienation
or use of assets, including property and bank accounts, by the taxpayer;

harmonise the legislation among tax types so that not paying taxes is a criminal
offense regardless of the type of tax and that there is an administrative appeals
process for all of these taxes before going to the courts;

increase staff mobility between different tax administration entities in order to ensure
appropriate staffing of entities with high revenue collection capacities;

where not in place, establish clear performance objectives, including on revenue
collection results, for each revenue administration entity, and improved transparency
regarding the performance of revenue administration entities, e.g. via publication of
the tax gap for main revenue categories (the difference between the tax owed and the
amount actually collected);

optimise use of IT systems in the tax administration based on: (i) facilitating
information exchange between tax administration entities; (ii) enhancing the use of e

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filling of tax returns and e-payment (e.g. by allowing payment through bank
transfers); (iii) improving the exchange of information, including data on natural and
legal persons, between relevant authorities for tax collection purposes, taking into
account legal provisions for data protection; (iv) enhancing reporting capabilities in
relation to obligations under Council Directive 2003/48;


enhance the efforts to reduce administrative burden on businesses, with a view to
reducing informal activities and achieving voluntary compliance to the widest
possible extent. In this respect, systematically measure the time and cost for taxpayers
to complete revenue administration procedures such as registration or filing;

step up administrative tax fraud investigations and enhance cooperation between the
tax and judicial systems, while addressing potential bottlenecks in the tax appeal
system;

improve capacity of the Inland Revenue Department to follow-up on tax information
received from other countries, e.g. by permitting the department to access databases
of other public entities in order to facilitate and expedite the identification of the
taxpayer; and

remove from the income tax law the Director’s prerogative to act as deemed
necessary in relation to the application of the Law’s provisions, including the decision
on the withdrawal of lawsuit for unpaid taxes.
3.8. The Cypriot authorities will implement reforms, which build on the main
recommendations derived from the diagnostic technical assistance mission conducted in
February 2013. To this end, the authorities will elaborate a comprehensive reform agenda and
consult with the programme partners on this agenda by Q2-2013.
3.9. The Cypriot authorities will safeguard the timely and effective exchange of
information in regard to tax matters, fully ensuring the applicability of laws and standards
governing international exchange of tax information. In this respect, the Cypriot authorities
will enhance the practice of timely delivery of relevant and accessible tax information to
other EU Member States. The authorities will:

fully transpose and implement Council Directive 2011/16/EU on administrative
cooperation in the field of taxation5 and abide by Art 7 of the Directive and Art 10, 19
and 21 of Council Regulation 904/2010 on administrative cooperation and combating
fraud in the field of value-added tax, which prescribe specific timeframes within
which Member States shall provide information to each other;

ensure timely access to information on beneficial ownership of trusts and to an audit
trail of financial transactions of trustees. To this end, the programme partners take
note of the Cypriot authorities’ intention to establish registers of trusts held by the
respective competent supervisory authority and of the recently-introduced obligation
to have, at any given time, for trusts under Cyprus law at least one trustee who is a
resident in Cyprus. Professional trustees should be authorised or otherwise regulated
(i.e. as lawyers, accountants or Trust and Company Service Providers) and all
trustees, whether regulated or not, should be registered (see paragraph 1.17). Trustees
should report information to their respective supervisors on their relation to a trust. In
5 The Cypriot authorities have submitted Law N. 205(I)/2012 (enacted on 28 December 2012), transposing the
Directive, to the European Commission.

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addition, the Cypriot authorities will require trustees of trusts under Cyprus law to
declare their status to credit institutions6 when using the financial system in Cyprus,
and require credit institutions established in Cyprus to obtain a corresponding
declaration of status from trustees of trusts created under and governed by foreign law
as a mandatory condition for using the financial system in Cyprus by Q3-2013;


ensure that they have timely access to information on who truly and effectively
controls a company established in Cyprus. To this end, they will either a) require
nominee directors7 and nominee shareholders to disclose the identity of their
nominator to the company and to the company register; or b) require that all nominee
directors and nominee shareholders be authorised or otherwise regulated (i.e. as
lawyers, accountants or TCSPs) and maintain information on the identity of their
nominator, which is to be made available to the competent authorities upon request. A
record of director’s or shareholder’s nominee status will be accessible through the
registers under the TCSP Law, which list all regulated persons (i.e. lawyers,
accountant and TCSPs). In the case of the trustee service being provided by a TCSP,
the information that the TCSP is a professional service provider will be accessible
through the registers under the TCSP Law by Q3-2013;

ensure the systematic follow-up and use of information received from other countries
about savings income payments received by Cyprus resident individuals and savings
income payments received by entities and legal arrangements such as trusts under
Cyprus law, notably entities and legal arrangements the beneficial owners of which
are resident in other EU Member States; and

implement the recommendations put forward in the in-depth review of Cyprus’ legal
and regulatory framework under the OECD Global Forum on Transparency and
Exchange of Information for Tax Purposes and commit to address any shortcomings
to be identified in the forthcoming evaluation of implementation issues.
In the context of an effective implementation of Council Directive 2003/48/EC on taxation of
savings income in the form of interest payments (the EUSD), the Cypriot authorities will
continue to provide to the EC all necessary and available information/statistics extracted from
the data exchanged under the FISC153. In addition, on an annual basis and starting from the
tax year ending on 31 December 2013, the Cypriot authorities will provide to the EC a
breakdown of the information provided under the EUSD by sector of activity of the paying
agents, including possible sanctions actually claimed of paying agents for their application of
the EUSD. In 2015, the Cypriot authorities will provide to the European Commission a
report on the results of audits conducted in 2014. The Cypriot authorities (CBC) will provide
on an annual basis detailed sectoral deposit statistics with a breakdown of non-resident
deposits by country.

Immovable Property Tax Reform

The following measures will be taken to increase revenue and to improve the fairness of the
tax burden by levying the recurrent property tax on current market values. An additional
objective is to reduce overhead cost in tax base administration.

6 As defined bin Art. 2.1(1) of the Third Anti-Money Laundering Directive, 2005/60/EC
7 Under Cyprus law, there is no legal concept of ‘nominee director’, but it is used with reference to professionals
who provide director services.

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3.10. In view of this, the Cypriot authorities have agreed to implement the following
measures:

implement a property price index that establishes the average property market
valuation in 2013 by square meter of habitable surface and land plot. This index shall
be operational to provide imputed market valuations for each non-agricultural
cadastral plot by Q2-2014, in time for its application in the calculation of the
immovable property tax in 2014. The index shall vary according to location and
zoning as well as other building- and plot-related characteristics. Moreover, propose
and implement a methodology for annual updates of such imputed market valuations;

implement the recurrent immovable property tax based on imputed market valuations
of land plots according to a unit tax base established by this property index by Q32014.
The tax rates shall reflect the progressivity and revenue of the preceding
property tax. For co-owned land plots, individual owners shall be taxed according to
ownership proportions as provided in the cadastre;

establish the legal basis for a mandatory annual adjustment of the property unit tax
base by a competent executive authority by Q3-2014; and

in order to retain a stimulus to property demand and reduce distortions in property
prices, provide for an extension of the reduction in property transaction fees until
2016 by Q2-2013.
In addition, the following studies should be initiated by mid-2013, and their
recommendations implemented at the latest from 1 January 2015 onwards:


a study on refining the parameters of the imputed property market value index within
the bounds of administrative and legal simplicity. In particular, the study shall assess
the feasibility of a unit tax base for individual dwellings. Moreover, the study shall
report on a mechanism to dampen cyclical variations in the index; and

a further study on the scope of consolidating the collection and administration of the
municipal recurrent property tax and sewage tax. The study will also review existing
exemptions and derogations from property taxation. It will also report on the scope of
shifting revenue from transaction fees and taxes to recurrent taxation by early 2015.
Public administration reform

3.11. The public sector represents a large share of public expenditures in Cyprus. To ensure
an efficient use of government resources, while delivering a quality service to the population;
the Cypriot authorities will undertake the following reform measures:

reduce impediments to staff mobility within the public and broader public sector, inter
alia, by removing restrictions arising from the Public/Broader Public Service Laws as
to the duration and placement of secondments, as well as the need for employee
consent by Q2-2013; and

in a first step, as of 1.9.2013, establish working time in the Public Service, in
conjunction with moving the starting time by half an hour (from 7:30 to 8:00) and
extending the flexibility period from a half to one hour. With this modification, the
weekly working hours of public officers remain unchanged, but are distributed
throughout the year as follows: 37 ½ hours per week, 7 ½ hours per day, daily
(Monday to Friday): 8.00/9.00 to 15.30/16.30. The same applies for the transitional
period of 1.1.2013-31.8.2013 but the starting time remains the same (7:30) and thus
the ending time is moved back by half an hour (15:00/16:00). Following part 1 of the
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below review, in a second step, further reduce overtime and related costs to the public
sector wage bill by making working time more flexible so as to cover – as a minimum

– service hours from 7:00 until 17:00 in the entire public sector and service hours
from 7:00 to 19:00 for public sector services with extended operating hours
(including, but not limited to, healthcare and security), under regular working time.
Working hours outside regular working time shall be limited by enforcing strict
controls, including requiring pre-approval of any non-emergency work outside regular
working time (see 3.2) by Q1-2014.
In addition, the Cypriot authorities will commission an independent external review of
possible further reforms of the public administration based on the terms of reference already
agreed with the programme partners.

The review will comprise two parts, covering the following areas:

Part 1:


examination of the role, the competences, the organisational structure and the size/
staffing of relevant ministries, services and independent authorities;

examination of the possibility of abolishing or merging/consolidating Non-profit
Organisations/Companies and publicly owned enterprises; and

re-organisation/re-structuring of local government.
Part 2:


appropriate system of remuneration and working conditions/conditions of
employment in the public sector (e.g. annual vacation leave, sick leave, maternity
leave, working time), in relation to the private sector and to other EU countries and
based on best practices; and

introduction of a new performance based appraisal system in the public sector, for
development and promotion purposes, linking performance with the remuneration
system/ increments.
The first part of the review will be published by Q1-2014. The second part of the review will
be published by Q3-2014. Based on the findings of the review, the Cypriot authorities will
agree upon a reform after consultation with the programme partners, submit it to the House of
Representatives for approval and implement a reform of the public administration (part 1 by
Q2-2014 and part 2 by Q4-2014).

Welfare system

3.12. The welfare system in Cyprus encompasses a broad range of individual benefits
provided by different Ministries and Departments. To ensure efficient use of public funds
within the welfare system, while at the same time ensuring an appropriate balance between
welfare benefits and incentives to take up work (as further specified in section 4.3 below), the
Cypriot authorities will carry out a reform of the welfare system to be implemented and
applied as of 1 January 2014 after review by and consultation with the programme partners
(draft reform plan to be submitted by Q2-2013). The reform will cover the following
elements:

streamlining the number of benefits available through merging and phasing out;
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better targeting of various social transfers, so as to reduce the total number of
beneficiaries while protecting the most vulnerable by:

the introduction of a common definition of income sources, financial assets
and movable and immovable property to be taken into account for means-
testing, so as to ensure consistency across different benefit schemes;

the introduction or tightening of means-testing criteria, on the basis of the
above definition, for benefit provision and continued access to benefits by
lowering income thresholds, accounting for wealth such as financial assets,
movable and immovable property, and broadening the sources of income to be
taken into consideration. With respect to the latter, as a general principle
benefits provided should be fully accounted for in the computation of personal
income;

a review of the appropriate levels of individual benefits and the index for adjustment
of benefit levels; and

transferring of all the relevant competences and responsibilities related to the
administration and provision of all social benefits to the Ministry of Labour and
Social Security, which should be appropriately equipped in terms of financial and
human resources, reassigned from other departments of the public administration by
Q1-2014 (see 3.11).
The reforms must be consistent with the fiscal targets defined in this MoU.

4. Labour market
Key objectives

While the Cypriot labour market was characterised by high employment rates and low
unemployment in the years leading up to the crisis, the unwinding of unsustainable
imbalances and worsening of macroeconomic conditions and prospects have resulted in
rapidly rising unemployment and important labour market challenges over the medium-term.
Labour market reforms can mitigate the impact of the crisis on employment, limit the
occurrence of long-term and youth unemployment, facilitate occupational mobility and
contribute to improving the future resilience of the Cypriot economy in the face of adverse
economic shocks. In this context, the objectives are: (1) to implement a reform of the system
of wage indexation commensurate with ensuring a sustainable improvement in the
competitiveness of the economy and allowing wage formation to better reflect productivity
developments; (2) to prepare and implement a comprehensive reform of public assistance in
order to achieve an appropriate balance between public assistance and incentives to take up
work, target income support to the most vulnerable, strengthen activation policies and contain
the public finance impact of rising unemployment; and (3) to help attenuate adverse
competitiveness and employment effects by linking any change in the minimum wage to
economic conditions.

Cost of living adjustment (COLA) of wages and salaries

4.1. To ensure that wage growth better reflects developments in labour productivity and
competitiveness, in both expansions and recessions, the Cypriot authorities will reform the
wage-setting framework for the public and private sector in such a way as to improve real
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wage adjustment. To this end, the effective application of the reform of the wage indexation
system (COLA) applicable to the broader public sector, as determined in the budget of 2013
and embedded in the Medium-Term Budget, must be ensured. This reform acts on relevant
elements of the indexation system, as follows:


a lower frequency of adjustment, with the base period for calculating the indexation
(COLA) being lengthened from the current period of six months to twelve months.
Indexation would take place on 1st January each year;

a mechanism for automatic suspension of application and derogation procedures
during adverse economic conditions, such that if in the second and third quarters of a
given year negative rates of growth of seasonally adjusted real GDP are registered, no
indexation would be effected for the following year; and

a move from full to partial indexation, with the rate of wage indexation being set at
50% of the rate of increase of the underlying price index over the previous year.
As foreseen in section I.2 of this agreement, the suspension of wage indexation in the wider
public sector will remain in place until the end of the programme.

A tripartite agreement will be pursued with social partners for the application of the reformed
system in the private sector by end-2013. Furthermore, based on the current economic
outlook, wage and salary indexation is foreseen not to be applied in the private sector until
2014.

Minimum wage

4.2. With a view to preventing possible adverse competitiveness and employment
effects, the Cypriot authorities commit that, over the programme period, any change in the
minimum wage covering specific professions and categories of workers should be in line
with economic and labour market developments and will take place only after consultation
with the programme partners.
Public assistance and activation of the unemployed

4.3. The increase in unemployment underlines the need for an overall assessment of
activation policies and available instruments for income support after the expiration of
unemployment insurance benefits. The planned reform of public assistance should ensure that
social assistance serves as a safety net to ensure a minimum income for those unable to
support a basic standard of living, while safeguarding incentives to take up work, ensuring
consistency with the reform of the welfare system as described in section 3.12. Therefore, the
Cypriot authorities will:

ensure that the planned reform of public assistance includes measures aimed at
activating benefit recipients by facilitating their reinsertion in the labour market,
reducing disincentives to work and imposing job-search requirements for continued
benefit receipt. To this end, the draft reform plan on public assistance will be
submitted to the programme partners by Q2-2013 for review and consultation;

provide an assessment of current activation policies by Q2-2013; and

review and enhance the cooperation between the public employment service and the
benefit-paying institutions in the activation of the unemployed.
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5. Goods and services markets
Key objectives

Addressing issues of a structural nature is critical for rebalancing the Cypriot economy,
restoring its growth potential and improving competitiveness. Removing unjustified obstacles
in services markets can have a significant impact on growth, in particular for the services-
intensive Cypriot economy. In addition, improving the quality and reducing the cost of
regulated professional services can play an important role for the business environment and
for Cyprus’ competitive position. Since tourism is one of Cyprus’ largest sectors and an
important potential driver of future growth, a reinvigoration of the competitiveness of this
sector is warranted. Improving the regulation of administration related to the real estate sector
will contribute to the overall functioning of the housing market and help to foster foreign
demand at a time when the prospects of this sector are affected by downside risks. Finally,
the exploitation of the domestic offshore natural gas potential offers the medium- to long
term prospect for reducing Cyprus’ energy import dependency and the security and
sustainability of energy supply. This would help to address Cyprus’ sustained current account
deficit and high public debt. However, these positive effects will accrue only after
overcoming the challenges of financing and planning the infrastructure investments,
designing effective energy markets and an adequate regulatory regime.

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Services Directive: Sector-specific legislation

5.1. The Cypriot authorities will adopt the remaining necessary amendments to the
sector-specific legislation in order to fully implement the Services Directive, easing the
requirements related to entry and establishment. In addition, requirements concerning
minimum tariffs should be eliminated unless they are justified according to article 15(3) of
the Services Directive. Amendments will be presented to the House of Representatives by
Q2-2013 and minimum tariff requirements without justification will be abolished by Q22013.
Reform of regulated professions

5.2. The Cypriot authorities will:

eliminate any existing total bans on the use of a form of commercial communication
(advertising) in regulated professions, as required by the Services Directive by Q22013;
and

further improve the functioning of the regulated professions sector (such as lawyers,
engineers, architects) by carrying out a comprehensive review of requirements
affecting the exercise of activity by Q3-2013 and eliminating those that are not
justified or proportional by Q1-2014; and

requirements affecting the access to the activity shall be assessed in order to repeal
those which are not justified or proportionate after the adoption of the Directive
amending Directive 2005/36/EC on the recognition of professional qualifications and
Regulation on administrative cooperation through the Internal Market Information
System, and in accordance with the evaluation, methodology and timeframe to be
defined in the said amending Directive.
Competition and sectoral regulatory authorities

5.3. The Cypriot authorities will:

ensure the independence and enhance the effective functioning of the Commission for
the Protection of Competition and its ability to enforce effectively the competition
rules by Q4-2013; and

ensure the necessary independence and power of the national regulatory authorities
(NRA) and enhance their ability to exercise their responsibilities and to carry out
effectively their tasks, including monitoring the competitive situation in their
respective sector by Q4-2013.
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Housing market and immovable property regulation

5.4. The Cypriot authorities will take the following measures to ensure market clearing
of the property market, allow for efficient seizure of property collateral, and for market-based
assessment of property prices, as well as alleviating the factors deterring both domestic and
foreign demand. A particular risk arises from legal disputes, which may be due to incomplete
documentation of ownership and property rights and the slow pace of judicial procedures.
The Cypriot authorities will:


provide for mandatory registration of sales contracts for immovable property by Q22013.
By Q4-2014, eliminate the title deed issuance backlog to less than 2,000 cases
of immovable property sales contracts with title deed issuance pending for more than
one year. The Cypriot authorities will enhance cooperation with the financial sector to
ensure the swift clearing of encumbrances on title deeds to be transferred to
purchasers of immovable property, and implement guaranteed timeframes for the
issuance of building certificates and title deeds;

publish quarterly progress reviews of the issuance of building and planning permits,
certificates, and title deeds, as well as title deed transfers and related mortgage
operations throughout the duration of the programme;

implement electronic access to the registries of title deeds, mortgages, sales contracts
and cadastre for the financial sector and government services by Q4-2014. Personal
data privacy legislation shall be reviewed and amended to alleviate legal impediments
to such electronic access, in particular concerning the procedures for proof of legal
interest by Q2-2013;

introduce legislation on amending the procedure on the forced sale of mortgaged
property to allow for private auctions as under the rules for immovable property
recovery under bankruptcy regulations. The Cypriot authorities shall enact regulations
to provide for the conclusion of such private auctions within shortest feasible
timespans (see 1.5) by end-2013; and

better target the rules of court to improve the pace of court case handling. The Cypriot
authorities shall assess the need for additional measures – including if necessary
legislative reforms – to eliminate court backlogs by end of the programme. Moreover
the authorities shall provide for specialized judges akin to the rules for criminal case
handling in order to expedite the handling of cases under commercial and immovable
property laws by Q4-2013.
Tourism

5.5. Tourism is an important export sector and is of great importance to domestic value
added and employment. Since 2011, tourism has experienced a significant increase in tourism
arrivals and incomes, while the prospects for the continuation of that upward trend in 2013
are excellent. In particular, in 2011, there was an increase of 10.1% in tourism arrivals and
12.9% in revenue growth compared to 2010, while in 2012 (latest data August) there was a
further increase of 5% and 8.5% respectively compared to 2011. To strengthen the
competitiveness of the tourism sector, the Cypriot authorities will:

carry out a study on how to improve the tourism sector business model, in particular,
with a view to lengthening the tourist season, increasing occupancy rates of hotels and
promoting resident tourism during winter time, developing a multi-dimensional and
high quality tourism, inter alia, by defining thematic niches such as sport, cultural and
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medical tourism, developing individual tourism, promoting professionalism of tourist
service providers and ensuring the dissemination of best-practices on upgrading the
quality of the services provided, improving the role of tourism-related infrastructure
investment. The Tourism Strategy for 2011-2015 will be reviewed and, if necessary,
revised based on the study’s findings by Q2-2013;


facilitate condo hotel projects with the aim of enhancing access to financing
investment in hotel development, including the removal of any legal impediments by
Q2-2013; and

in order to enhance attractiveness of the country as a destination, engage in a
thorough analysis of the best means of achieving sufficient air connectivity for
Cyprus, including by negotiating new or amending existing air services agreements.
Energy

5.6. The Cypriot authorities will:

ensure, without delay, that the Third Energy Package has been completely transposed
and fully implemented and notify the European Commission that the necessary
legislation has been transposed; indicate the date of delivery of the first commercial
supply of natural gas under a long-term supply contract, thereby ending Cyprus’
derogation of an isolated energy network and initiating the application of the
emergent market derogation; and indicate the intended duration of the latter
derogation;

formulate a comprehensive strategy for the rearrangement of the Cypriot energy
sector. This strategy, to be developed under the full authority of the Cypriot
Government, should include at least the following three key elements, which should
be presented to the programme partners for consultation according to the timeline
specified below:
1.
a roll-out plan for the infrastructure required for the exploitation of natural gas,
taking into account possible commercial uncertainties and risks. The plan should
cover: the required investments, associated costs, financing sources and methods,
related major planning risks and bottlenecks; and a projection of the revenue
streams over time; first version by Q3-2013;
2.
an outline of the regulatory regime (CERA) and market organisation for the
energy sector and gas exports, which would be conducive to the introduction and
proper functioning of open, transparent, competitive energy markets, taking into
account the size of the Cypriot economy, the integration of Cyprus’ energy system
into regional markets, the principle of independent regulatory oversight, and the
EU targets for energy efficiency, renewable energy and carbon emissions.
Specifically, the outline should include the following elements: the potential for
setting-up wholesale markets for gas and electricity, of which the latter should be
open to non-producing traders; the freedom for customers to make an effective
choice of supplier; full unbundling of gas suppliers and customers, in particular
electricity companies; and an appropriate sales framework for the off-shore gas
supply (for both exports and domestic markets), aimed at maximising revenues by
Q2 2013; and
3.
a plan to establish the institutional framework for the management of hydrocarbon
resources, including a resource fund, which should receive and manage the public
revenues from offshore gas exploitation. The preparatory phase should include the
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required legal steps and their adoption. In order to ensure transparency,
accountability and effectiveness, the resource fund should benefit from a solid
legal base and governance structure, drawing on internationally-recognized best
practices. In particular, clear rules governing inflows and outflows should be
established as part of Cyprus’ budgetary framework, giving due respect to the
need to develop the hydrocarbon industry, including the necessary infrastructure,
the importance of bringing Cyprus’ public debt on a steady downward path and
the need to invest and generate value for all strata of society, including future
generations by Q3-2013.

Since these three key elements are strongly interdependent, they need to be developed in
parallel over time. In addition, the plan should take account of the current uncertainty over
the actual size of domestic, offshore, commercially-viable, natural gas fields and possible
changes in international gas prices and demand, and appropriate data should be firmly based
on alternative world energy scenarios from an internationally-reputed organisation. The plan
will be based on an appropriate level of technical assistance on technical aspects in this
context.

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Annex I
Budgetary measures adopted by Cyprus in or after December 2012

Fiscal measures with effect in 2012

Expenditure measures

I.1 Implement a scaled reduction in emoluments of public and broader public sector
pensioners and employees as follows: EUR 0-1000: 0%; EUR 1001-1500: 6.5%; EUR 15012000:
8.5%; EUR 2001-3000: 9.5%; EUR 3001-4000: 11.5%; above EUR 4001: 12.5%.
I.2 Extend the suspension of the practice of COLA for the public and broader public
sector until the end of the programme (Q1-2016) (see section 4.1).
I.3 Extend the freeze of increments and general wage increases in the public and broader
public sector and temporary contribution in the public, broader public and private sectors on
gross earnings and pensions by three additional years until 31 December 2016.
I.4 Reduce the number of public sector employees by at least four thousand five hundred
over the period of 2012-16 by: i) freezing the hiring of new personnel on first entry posts in
the broader public sector for three additional years until 31 December 2016; ii) implementing
a policy of recruiting one person for every four retirees (horizontal); iii) introducing measures
to increase the mobility of civil servants within and across line ministries (see 3.11); and iv)
implementing a four-year plan aimed at the abolition of at least 1880 permanent posts (see
I.16).
I.5 Freeze the hiring of new hourly paid employees and enforce immediate application of
mobility within and across ministries and other government entities. In the case of health and
security posts, recruitment of one person for every five retirees will be possible to meet
urgent needs.
Revenue measures

I.6 Appropriate a one-off additional dividend income collected from semi-governmental
organisations.
I.7 Increase the bank levy on deposits raised by banks and credit institutions in Cyprus
from 0.095% to 0.11% with 25/60 of the revenue earmarked for a special account for a
Financial Stability Fund.
I.8 Introduce a mechanism for a regular review of excise taxes to secure the real value of
excise tax revenue. Such a mechanism should be non-recurring and should, by no means lead
to an automatic indexation mechanism of excise taxes to price developments.
Fiscal measures with effect in 2013

Expenditure measures

I.9 Ensure a reduction in total outlays for social transfers by at least EUR 113 million
through: (a) the abolition of a number of redundant and overlapping schemes such as the
mothers allowance, other family allowances and educational allowances; and (b) the abolition
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of supplementary allowances under public assistance, the abolition of the special grant and
the streamlining of the Easter allowance for pensioners.

I.10 Ensure a reduction of at least EUR 29 million in the total outlays of allowances for
employees in the public and broader public sector by:
i. taxing pensionable allowances provided to senior government officials and
employees (secretarial services, representation, and hospitality allowances) in the
public and broader public sector;
ii. reducing the allowances provided to broader public sector employees and reducing
all other allowances of broader public sector employees, government officials and
hourly paid employees by 15%; and
iii. reducing the daily overseas subsistence allowance for business trips by 15%.
Ensure a further reduction the subsistence allowance of the current allowance when
lunch/dinner is offered by 50% (20% – 45% of overseas subsistence allowance instead
of 40% – 90% currently paid).
I.11 Reduce certain benefits and privileges for state officials and senior government
officials, in particular by:
i. suspending the right to travel first/business class by state officials, senior
government officials and employees with the exception of transatlantic travel. The
right to business class travel shall be maintained for the President of the Republic of
Cyprus and the President of the House of Representatives;
ii) abolishing the right to duty free vehicles for employed and retired senior public
sector officials; and

iii) extending the wage freeze and temporary contribution on gross earnings to cover
all state officials and permanent secretaries (129 individuals) for 2013-2016,
including members of the House of Representatives. Include pensionable and tax-free
allowances of these individuals in the calculation of their taxable income. Introduce a
contribution of 6.8% on the pensionable earnings of these individuals.

I.12 Implement the following measures regarding the Government Pension Scheme
(GEPS):
i. freeze public sector pensions;
ii. increase the statutory retirement age by 2 years for the various categories of
employees; increase the minimum age for entitlement to an unreduced pension (by 6
months per year) to be in line with the statutory retirement age; while preserving
acquired rights, introduce an early retirement penalty of 0.5% per month of early
retirement so as to make early retirement actuarially neutral;
iii. reduce preferential treatment of specific groups of employees, like members of the
army and police force, in the occupational pension plans, in particular concerning the
contribution to the lump-sum benefits;
iv. introduce a permanent contribution of 3% on pensionable earnings to Widows and
Orphans Fund by state officials who are entitled to a pension and gratuity. Introduce a
contribution of 6.8% on pensionable earnings by officials, who are entitled to a
pension and gratuity but are not covered by the government’s pension scheme or any
other similar plan;
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v. amend Article 37 of the Pensions Law to abolish the provision according to which,
in the case of death of an employee, if the deceased had a wife/husband at the time of
his/her retirement and thereafter he/she remarried, his/her last wife/husband is
considered a widow/widower. With the abolition of this provision, the second
wife/husband will not be considered a widow/widower and thus she/he will not be
entitled to pension;
vi. increase the contribution rate on the pensionable earnings of the members of the
Tax Tribunal Council and the Tender Review Authority from 3.4% to 6.8%; and
vii. the contributions to the Widows and Orphans Fund will no longer be
reimbursable.
I.13 Implement further reform steps under the General Social Insurance Scheme by:
i. actuarially reducing pension entitlements from the General Social Insurance
Scheme by 0.5% per month for retirements earlier than the statutory retirement age at
the latest from January 2013, in line with the planned increase in the minimum age for
entitlement to an unreduced pension to reach 65 (by 6 months per year), between
2013 and 2016;
ii. freezing pensions under the Social Security Fund for the period 2013-2016;
iii. abolishing the increase of pensions for a working dependent spouse under the
General Social Insurance Scheme at the latest from January 2013 onwards.
I.14 Reduce transfers by EUR 25 million from central government to state-owned
enterprises and semi-public institutions.
I.15 Ensure a targeted reduction of budgetary appropriations for a series of semi-
governmental organisations in the 2013 Budget Law, supported by well-defined activity-
reducing measures.
I.16 Implement a four-year plan as prepared by the Public Administration and Personnel
Department aimed at the abolition of at least 1880 permanent posts over the period 20132016.
Revenue measures

I.17 Increase excise duties on tobacco products, in particular on fine-cut smoking tobacco,
from EUR 60/kg to EUR 150/kg. Increase excise duties on cigarettes by EUR 0.20/per packet
of 20 cigarettes.
I.18 Increase excise duties on beer by 25% from EUR 4.78 per hl to EUR 6.00 per hl per
degree of pure alcohol of final product. Increase excise duties on ethyl alcohol from EUR
598.01 to EUR 956.82 per hl of pure alcohol.
I.19 Increase excise duties on energy, i.e., on oil products, by increasing tax rate on motor
fuels (petrol and gasoil) by EUR 0.07.
I.20 Increase the standard VAT rate from 17% to 18%.
I.21 Introduce a tax of 20% on gains distributed to winners of betting by the Greek
Organisation of Football Prognostics S.A. (OPAP) and the National Lottery for winnings of
EUR 5,000 or more.
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I.22 Abolish all exceptions currently in place for paying the annual company levy of EUR
350.
Fiscal measures with effect in 2014

Expenditure measures

I.23 Ensure a reduction in total outlays for social transfers by a at least EUR 28.5 million
to be achieved through streamlining and better targeting of child benefits and educational
grants, and abolition of social cohesion benefits provided by the welfare services.
I.24 Implement a further reduction in emoluments of public and broader public sector
employees and pensioners by a flat rate reduction of 3% on all wages.
I.25 Introduce a fee on monthly transportation cards for the use of public transportation
services by students and pensioners.
Revenue measures

I.26 Extend the application of the temporary contribution on gross earnings and pensions
of public and private sector employees up to 31 December 2016 as follows: EUR 0 – 1,500:
0%; EUR 1,501 – 2,500: 2.5%; EUR 2,501 – 3,500: 3.0%; and > EUR 3,501 – : 3.5%.
I.27 Increase the standard VAT rate from 18% in 2013 to 19% in 2014.
I.28 Increase the reduced VAT rate from 8% to 9%.
I.29 Increase excise duties on energy, i.e., on oil products, by increasing the tax rate on
motor fuels (petrol and gasoil) by EUR 0.05.
I.30 Increase the contributions, as of 1.1.2014, of salaried employees and employers to the
GSIS by an additional 1 percentage point on pensionable earnings, i.e. 0.5 of a percentage
point from employees and 0.5 of a percentage point from employers and 1 percentage point
in the case of self-employed persons.
35

19 σκέψεις σχετικά με το “ΔΑΝΕΙΑΚΗ ΣΥΜΒΑΣΗ ΚΥΠΡΟΥ. ΓΕΝΙΚΟΙ ΚΑΙ ΕΙΔΙΚΟΙ ΟΡΟΙ & ΜΝΗΜΟΝΙΟ. ΔΕΙΤΕ ΤΑ ΠΡΩΤΟΙ

  1. “Άσε με να εκδίδω και να ελέγχω τα χρήματα ενός έθνους, και δεν με ενδιαφέρει ποιος φτιάχνει τους νόμους του.”
    Mayer Amschel Rothschild

    Μου αρέσει!

  2. Δεν θελει μελέτη το μνημονιο υποδούλωσης της Κύπρου δια μέσου της συντριβής της Κυπριακής Οικονομίας. Είμαι σίγουρος ότι οι Βουλή θα το καταψηφίσει για να επιδιώξει λύση εκτός Τρόικα και ΔΝΤ. Εναλλακτικές λύσεις υπάρχουν, τα ψευτοδειλήμματα είναι γιά άλλους λαούς, ΟΧΙ ΓΙΑ ΤΟΥΣ ΕΛΛΗΝΕΣ ΤΗΣ ΚΥΠΡΟΥ. Ο ΤΆΣΣΟΣ ΠΑΠΑΔΟΠΟΥΛΟΣ ΕΞ’ΑΛΛΟΥ ΤΟ ΔΙΔΑΞΕ ΣΤΟ ΛΑΟ ΤΟΥ ΟΤΑΝ ΕΙΠΕ «ΔΕΝΗ ΥΠΑΡΧΟΥΝ ΤΕΛΕΥΤΑΙΕΣ ΚΑΙ ΜΟΝΑΔΙΚΕΣ ΛΥΣΕΙΣ».

    Είναι δυνατόν οι βουλευτές νας να δεκτούν την εκμηδένιση της Λαικής και την δήθεν αναδιάρθρωση της Τ.Κ. χάνοντας τόσα πολλά δις με επιπλέον εφαρμογή σκληρών μέτρων που θα εκτινάξουν το χρέος σε θεόρατα αφού το ΑΕΠ θα πάθει πανωλεθρία?

    Είναι δυνατόν να δεκτούν τέτοια λύση όταν τόσοι Κύπριοι και ξένοι επιστήμονες τους υποδυκνείουν εναλλακτικές βιώσιμες λύσεις με μικρότερο κόστος τόσο σε χρήμα όσο και σε ανθρώπινο πόνο. Και επιπλέον ΠΑΡΑΧΩΡΗΣΗ ΚΥΡΙΑΡΧΙΑΣ. ΣΕ ΚΑΘΕ ΗΜΙΚΑΤΕΧΟΜΕΝΗ ΠΑΤΡΙΔΑ ΑΥΤΟ ΕΙΝΑΙ ΠΡΟΔΟΤΙΚΟ ΚΑΙ ΑΠΑΡΑΔΕΚΤΟ.

    Είναι δυνατόν μια ημικατεχόμενη πατρίδα να δεκτεί την κλοπή περιουσίας με το καπέλο του κουρέματος όταν πρέπει λόγω κατεχομένων να παραμένη προσυλομένη στους περι ιδιοκτησίας νόμους.

    Είναι δυνατόν να δεκτεί να χάσει 2 Τρα΄πεζες και τόσα δις σε αναζήτηση μερικών δις? Τελικα΄μερικα΄χρειάζονται γιατι τα παραφούσκωσαν το ποσό εσκεμμένα. Ακούστηκε τένα μέρος των 10 δις που τάχατες χρειάζονται είναι για μαξιλαράκι άν χρειαστούν και για τις υπόλοιπες τράπεζες. Δηλαδή τι, διαλύουν τις μεγαλύτερες τράπεζες για να διασώσουν (αν χρεαστεί) τις 2 μικρότερες?

    Είναι δυνατόν να ψηφίσουν το μνημόνιο που θα κάνει την Κύπρο μακροχρόνιο επαίτη και μάλιστα, κατα δήλωση πολλών βουλευτών, γνωρίζοντας ότι ο σκοπός της Τρόικα όχι μόνον καλός αλλά ξεκάθαρα αποικιοκρατικός.

    Οι Βουλευτές μας πρέπει να φανούν αντάξιοι του λαού που εκπροσωπούν και να καταψηφίσουν το μνημόνιο της εξόντωσης και υποδούλωσης της Κύπρου και του λαού της. ο λαός απέδειξε ότι μπορεί να αντέξει θυσίες αλλά μόνο αναπνέοντας τον αέρα της ελευθερίας.

    ΑΓΑΠΗΤΟΙ ΒΟΥΛΕΥΤΑΙ, ΨΗΦΙΣΤΕ ΟΧΙ ΣΤΟ ΜΝΗΜΟΝΙΟ!
    ΟΧΙ ΓΙΑ ΝΑ ΠΕΙΤΕ ΑΠΛΑ ΑΚΟΜΑ ΕΝΑ ΟΧΙ, ΑΛΛΑ ΓΙΑ ΝΑ ΣΩΣΕΤΑΙ ΤΟΝ ΛΑΟ ΚΑΙ ΤΗΝ ΠΑΤΡΙΔΑ ΜΑΣ.
    ΟΥ ΠΕΡΙ ΧΡΗΜΑΤΩΝ Ο ΑΓΩΝ ΑΛΛΑ ΑΓΩΝ ΕΠΙΒΙΩΣΗΣ . ΑΝ ΔΕΝ ΤΟΛΜΑΤΕ ΝΑ ΤΟ ΠΡΑΞΕΤΕ, ΔΩΣΤΕ ΣΤΟ ΛΑΟ ΤΟ ΔΙΑΚΙΩΜΑ ΝΑ ΤΟ ΠΡΑΞΗ ΜΕ ΔΗΜΟΦΗΦΙΣΜΑ..

    ΠΙΣΤΕΥΩ ΟΤΙ ΕΣΤΩ ΚΑΙ ΤΗΝ ΥΣΤΑΤΗ, ΤΟ ΑΙΣΘΗΜΑ ΑΥΤΟΣΥΝΤΗΡΗΣΗΣ ΤΟΥ ΚΥΠΡΙΑΚΟΥ ΛΑΟΥ
    ΘΑ ΑΠΟΔΕΙΧΘΕΙ ΙΚΑΝΟ ΝΑ ΣΑΣ ΦΩΤΙΣΕΙ ΓΙΑ ΝΑ ΑΠΟΡΕΙΨΕΤΕ ΤΗΝ «ΤΑΧΑΤΕΣ ΔΑΝΕΙΑΚ ΣΥΜΒΑΣΗ».

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    1. Γιά τίς Θεομπαίχτικες ΜΕΓΑΛΟ-απατεωνιές τών ΓΚυμπρίων Αντελφών μας, μέ τά μπ@ύστικα παροχο-θαλασσοδάνεια, θά μάς πήτε κάτιτίς, Κύριε ?

      Τόόόόόόννοι ΑΠΑΤΕΩΝΙΑΣ. ελληνοπρεπούς, τω οντι.

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    2. Το αίσθημα αυτοσυντήρησης χρειάζεται *πραγματικές* εναλλακτικές λύσεις. Φτάνει συνθήματα!

      Δώσε μια ορθολογιστική μετρήσιμη λύση, και να στείλουμε το μνημόνιο στο διάολο!

      Και τον Τάσσο τι τον αναφέρεις ρε κουμπάρε; Για να θυμηθούμε όλοι τις συνέπειες της εγκληματικής του πολιτικής;

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