Cyprus 'close' to troika bailout deal: minister

(NICOSIA) - Cyprus is close to striking a deal over the terms of a bailout with a troika of lenders to save its Greece-exposed economy, Finance Minister Vassos Shiarly said in an interview published on Sunday.

"We are very close (to agreeing bailout conditions). The differences which remain with the troika we consider to be bridgeable," Shiarly was quoted as saying by Kathimerini newspaper.

The minister also expressed confidence that Nicosia would be able to sign a memorandum for EU financial aid before the Eurogroup of finance ministers on November 12.

"Even on the so-called open issues I'm optimistic agreement is possible," said Shiarly.

Cyprus has drawn up its own a package of countermeasures of milder cuts to the troika's harsher terms for financial aid.

Opposition parties back the government's stance against abolishing the index-linked cost of living allowance, privatising utilities and scrapping a 13th month of public sector salaries, but want to see less tax hikes and more spending cuts.

A document leaked to the media shows the government apparently proposing to raise revenue through more taxation and fewer cutbacks over a longer period than proposed by the troika.

It hopes to cut the debt gap by slightly more than one billion euros ($1.28 billion) by the end of 2016 rather than the one billion euros in mostly public finance cuts the troika seeks by 2015.

But proposal of the troika -- the European Commission, European Central Bank and the International Monetary Fund -- is 80 percent through savings in expenditure cuts and 20 percent via increased taxes.

The government's proposed ratio is 60:40 including a two percent hike in VAT to 19 percent by 2014, a five euro cent rise in excise duty on petrol and 150 million euros slashed off state benefits.

Final negotiations with international lenders have stalled while Brussels discusses these proposals with Nicosia.

Without giving a firm date, Shiarly said a troika delegation would "arrive soon" on the island to sign a memorandum. They are expected to arrive next week.

"It will be a high level delegation to close the final pending political issues which remain."

Troika representatives have visited Cyprus twice since June, when it called for help after both the Bank of Cyprus and Cyprus Popular Bank said they could not raise funds to meet recapitalisation requirements.

Moody's credit rating agency said in its latest junk downgrade of Cyprus's sovereign status the government would need in excess of eight billion euros to recapitalise the banks.

It said such sums could see the public debt ratio spiral to 140 percent of gross domestic product, making any economic recovery unlikely before 2015.

The troika reportedly wants to slash the state payroll by 15 percent, shave 10 percent off welfare benefits, scrap the inflation-linked cost-of-living allowance and roll back government-subsidised housing finance.

But the government has resisted such austerity moves it says would undermine an economy already in recession and expected to shrink by 1.5 percent this year.