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May 2013
ESM disburses first loan tranche
Jun 2014
Cyprus returns to bond market
Economic growth returns (1.4%)
Apr 2015
Capital controls imposed in April 2013 are fully lifted
Mar 2016
Conclusion of ESM programme

How Cyprus modernised its economy

Cyprus staged a solid economic recovery in 2015, supported by a three-year ESM assistance programme.

The loan package was roughly half the size of the Cypriot economy. The ESM made €9 billion available, the IMF another €1 billion. Programme execution kicked off strongly. Despite seemingly unsurmountable problems in the banking sector at the start of the programme, the country successfully exited the programme in March 2016.

In the 2000s, the Cypriot economy had been booming, with a growth rate twice that of the euro area. The economy was supported by a large off-shore banking sector, and by the prospect that the country would join the euro. Wages rose rapidly, making Cypriot products expensive, and pushing down exports. But money kept flowing into the country through the banks.

Once Cyprus joined the euro in 2008, it was able to borrow money more cheaply. This supported the economy, which had started to weaken after the global crisis. The first signs of distress in the banking sector appeared in 2010. The banks had grown too rapidly. Markets started to take a negative view. By mid-2011, Cyprus was no longer able to borrow money from investors.

Finally, in June 2012, Cyprus requested assistance from the euro area and the IMF. An ESM assistance programme of €9 billion was agreed in March 2013. In return, Cyprus promised to cut down the size of its banks, tighten its budget and push through a wide range of measures to become more competitive. In addition, the country agreed a programme of around €1 billion with the IMF.

Cyprus has since modernised its economy. It has restructured and recapitalised its banks, which are now about half the size they were before the crisis. Cyprus has also improved financial regulation and supervision. Its fiscal deficit has shrunk, and the public debt is sustainable. And it has pushed through a long list of reforms in areas such as wage policies, the public administration, services, and has modernised its legal framework.

Cyprus won back the confidence of investors as a result, and was gradually able to return to the bond market. The ESM disbursed €6.3 billion in loans. Cyprus successfully exited its programme in March of 2016. Bringing down the level of bad loans on banks’ books is the single biggest challenge for Cyprus. Reunification of the country would offer new opportunities for growth and investment.

Disbursements of ESM financial assistance to Cyprus

Date of disbursement Amount disbursed Type of disbursement Final maturity Cumulative amount disbursed
13/05/2013 €1 billion Cash 13/05/2026 €2 billion
€1 billion Cash 13/05/2027
26/06/2013 €1 billion Cash 26/06/2028 €3 billion
27/09/2013 €750 million Cashless 27/09/2029 €4.5 billion
€750 million Cashless 27/09/2030
19/12/2013 €100 million Cash 19/12/2029 €4.6 billion
04/04/2014 €150 million Cash 04/04/2030 €4.75 billion
09/07/2014 €600 million Cash 09/07/2031 €5.35 billion
15/12/2014 €350 million Cash 15/12/2025 €5.7 billion
15/07/2015 €100 million Cash 15/07/2031 €5.8 billion
08/10/2015 €200 million Cash 08/10/2029 €6.3 billion
€300 million Cash 08/10/2031

Weighted average maturity of loans: 14.9 years

Details of the ESM floating rate notes provided to Cyprus*

ISIN  Issuance date Maturity  Type    Amount  
EU000A1U98Y4 27/09/2013 27/03/2015 18-month FRN €1.5 billion

*Notes provided by the ESM are redeemed at maturity and rolled over into cash loans


Related documents

Legal documents

Review documents published by the European Commission


  • 3.6%
    Cyprus's estimated GDP growth in 2018
  • 6 p.p.
    reduction in Cyprus’s public deficit from 2012 to 2016
  • 10%
    percentage of IMF participation in the financing of the €10 billion committed amount in the Cyprus programme
  • €1.5 billion
    Amount ESM disbursed to Cyprus for bank recapitalisation
  • 0.91%
    Average interest rate on ESM loans to Cyprus (as of 31/03/2018)
  • 2025
    Date when Cyprus starts to repay its ESM loans. All payments due by 2031
  • June 2014
    Cyprus issued 5-year bond, first after ESM programme started
  • 14.9 years
    Weighted average maturity of ESM loans to Cyprus
  • 70%
    of committed loan amount (€9 bn) was disbursed
  • €6.3 billion
    amount disbursed to Cyprus in the context of ESM programme


Cyprus will repay the principal on ESM loans from 2025 to 2031.

The key conditions of the programme were:

  • to restore the soundness of the Cypriot banking sector and rebuild depositors' and market confidence by thoroughly restructuring and downsizing financial institutions;
  • to continue the process of fiscal consolidation to correct the excessive general government deficit,  in particular through measures to reduce current primary expenditure and to increase the efficiency of public spending; and
  • to implement structural reforms to support competitiveness and sustainable and balanced growth, allowing for the unwinding of macroeconomic imbalances.

The total amount of financial assistance agreed in 2013, in support of Cyprus’s macroeconomic adjustment programme, was up to €10 billion. However, thanks to the rapid economic recovery made by Cyprus, the full amount was not needed. The ESM disbursed €6.3 billion, and the IMF disbursed a further €1 billion.

Cyprus’s accession to the EU in 2004 and its adoption of the euro in 2008 contributed to a rapid growth of the financial sector and expansion of bank lending. At its height in 2009, the Cypriot banking sector was equivalent to nine times the country’s GDP, compared to the current ratio of 3.5 times GDP (close to the EU average). In addition, high current account deficits were recorded, and exports dropped due to Cyprus’s falling competitiveness.

The banking sector was increasingly cut off from international market funding and Cyprus’s largest banks recorded substantial capital shortfalls against the backdrop of the exposure to the Greek economy and deteriorating loan quality. Bank credit policy, poor risk management practices and insufficient supervision contributed to the problems. The excessive budget deficit limited Cyprus’s ability to help when the banks were on the verge of collapse.

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