BRUSSELS/NICOSIA International lenders and Cyprus have made progress on agreeing a bailout package for the Mediterranean island but there is no deal yet and talks will go on, the lenders said on Friday.
"Discussions are expected to continue from respective headquarters with a view to making further progress toward a potential program," the European Commission, European Central Bank and International Monetary Fund said in a statement.
"The preliminary results of a bank due-diligence exercise, expected in the next few weeks, will inform discussions between official lenders and Cyprus on financing solutions consistent with debt sustainability," they said.
Cyprus said earlier on Friday that it had agreed a bailout package with the European Union and IMF and that it expected the lenders to confirm the deal later on Friday.
"There is convergence on the appropriate policy conditionality, but a final agreement including financing needs cannot be reached until there is more clarity on banks' capital needs, following the due-diligence exercise," one euro zone official with insight into the talks said.
An analysis on the state of Cypriot banks is expected by December 3, when euro zone finance ministers meet again in Brussels and aim to decide on a programme for the government in Nicosia.
Once agreed, the bailout will make Cyprus the fourth euro zone country to get a sovereign rescue after Greece, Ireland and Portugal. Spain has been granted financial aid to recapitalise its banking sector, but Madrid has not so far asked for money to cover the government's needs.
Cyprus sought financial aid - which could be up to 17.5 billion euros ($22.6 billion), equal to its entire annual economic output - in June, after its banks were battered by their exposure to the Greek crisis.
A Cypriot government spokesman did not put a price tag on the bailout sum, saying it would depend on a report early in December that will establish how much money the island nation will need to recapitalise its banks.
"The deadline that was set by the European Central Bank for the recapitalisation of the banks expired, so we had to enter the (EU/IMF) rescue mechanism," spokesman Stefanos Stefanou told reporters.
The government has already briefed trade unions on the terms of the deal and will brief political leaders soon after, Stefanou said. "The bailout deal includes unpleasant measures," he said without elaborating.
The island's public sector workers have already voiced their opposition to the deal. "These measures are unjust, they will be a massacre," said Glafkos Hatzipetrou, a senior official with public sector union PASIDY, after the briefing.
Cyprus and the troika of EU, IMF and ECB lenders have been at odds over a host of issues, including privatisations and pension cuts, as well as the amount needed to recapitalise the banks.