The general government deficit rose to €1.050bn in the third quarter of 2018 as a result of the state’s divestment of the ‘good part’ of the Cyprus Cooperative Bank, the statistical office has reported.
The €1.050bn deficit compared to a surplus of €366.7m posted in the third quarter of 2017.
According to CyStat, the sale of part of the assets and liabilities of the Cyprus Cooperative Bank Ltd (CCB) to Hellenic Bank resulted in the establishment of two new entities, the Cooperative Asset Management Company Ltd (Sedipes) and the Cyprus Asset Management Company Ltd (Kedipes), which received assets with a book value of €8.34bn in return for a liability of €3.54bn.
The fiscal burden of €1.5bn in the revised fiscal accounts of the third quarter that resulted from the above transaction is analysed as follows:
Non-performing loans (NPLs) of nominal value amounting to €6.97bn are an asset of the new entities. The real economic value of these NPLs has been estimated by CyStat to be 20.94 per cent of the nominal value.
Therefore, the estimated real economic value of the NPLs received by the new entities is valued at €1.46 bn. According to this valuation, a negative investment of €710m is observed and recorded in fiscal accounts, which is the result of the acquisition value (€2.17bn) minus the real economic value of NPLs (€2.17bn – €1.46bn = €710m).
In addition to this negative investment, an expenditure of €625m, corresponding to the share of the collateral received from the former CCB and concerns its fixed assets, is recorded as investment. This investment increases the capital assets and hence the net worth of the general government by the same amount, CyStat said.
CyStat also recorded as expenditure the guarantee of €155m (contingent liability) received by Hellenic Bank.
Meanwhile according to data released Monday by the EU statistical office Eurostat, Cyprus’ government debt to GDP ratio at the end of the third quarter of 2018 was at 110.9 per cent, among the highest in the European Union.
By comparison, in the second quarter of 2018 Cyprus’ debt to GDP ratio had been 104 per cent, or €20.932bn.
In the EU, the highest government debt to GDP ratios at the end of Q3 2018 were recorded in Greece (182.2 per cent), Italy (133.0 per cent), Portugal (125.0 per cent), Cyprus (110.9 per cent) and Belgium (105.4 per cent).
“At the end of the third quarter of 2018, the government debt to GDP ratio in the euro area (EA19) stood at 86.1 per cent, compared with 86.3 per cent at the end of the second quarter of 2018,” Eurostat said.