Cyprus needs more discussions with its potential rescue creditors to iron out differences on the terms of a bailout for its troubled banks, the country's government spokesman said Friday.
Stefanos Stefanou said "differences in approach" remain after a second round of talks with officials from the European Union and the International Monetary Fund wrapped up Friday.
"There's common understanding on some issues, but there may be differences in approach on exactly how you'll reach that goal," Stefanou told reporters.
Cyprus last month became the fifth country to seek financial support from its eurozone partners. It needs at least €2.8 billion ($3.46 billion) to recapitalise its banking sector, which took heavy losses on Greek debt.
The country's €18 billion ($22.13 billion) economy is projected to shrink by 1.5 per cent of gross domestic product this year before returning to marginal growth in 2013.
Credit ratings agency Standard & Poor's estimates Cyprus' bailout needs to amount to as much as €15 billion ($18.4 billion) over three years.
Cyprus can't raise the money on international debt markets because of its junk credit rating status and is depending on a low-interest, €2.5 billion ($3 billion) loan from ally Russia to meet its financing needs for the year.
It has already asked for another €5 billion ($6.15 billion) Russian loan that President Dimitris Christofias has defended as perfectly compatible with an EU-IMF bailout.
Stefanou said the left-wing government's objective remains to "enact the mildest terms possible," and added that austerity-only policies don't work.
"Austerity isn't the way out of the crisis, support for growth and social cohesion is a must," said Stefanou.
Cypriot officials acknowledge the need for reforms, especially in the country's bloated public sector that swallows up almost a third of government spending.
Stefanou said the government plans remain on track to shave 5,000 government jobs by 2016.
But officials are weary of the kind of harsh pay cuts and tax hikes that debt-engulfed Greece had to enact in exchange for its own bailout and want to safeguard key benefits such as automatic pay raises calculated according to inflation.
"We underscored in the meetings the need for balanced and mild measures that won't provoke social unrest and will maintain labour peace which has proven very beneficial for our country's economic growth," said Stefanou.
He said the EU and IMF officials - collectively known as the troika - will return to the island in September and that bailout talks would conclude "as soon as possible."