THE "troika" of international lenders began their second review of the shell-shocked Cyprus economy to decide whether Nicosia is meeting its obligations under the bailout memorandum.
In return for 10 billion euros ($A14.52 billion) in aid from international lenders, the island in March agreed to wind down its second largest bank - Laiki - and impose losses on depositors in under-capitalised largest lender, Bank of Cyprus.
Depositors in Bank of Cyprus were hit with a 47.5 per cent bail-in as part of the rescue package.
The second review is expected to be much tougher than the first one - which the island passed with flying colours in July.
Cyprus needs to pass this assessment to receive its next tranche of bailout cash in the deal negotiated with the troika - the European Commission, European Central Bank and International Monetary Fund.
Troika officials began their evaluation at the finance ministry on Tuesday, holding talks with Finance Minister Haris Georgiades and central bank governor Panicos Demetriades.
The focus of the troika's review - scheduled to last until November 8 - is the restructuring of the country's battered banks, public sector reform and how far the government has moved on privatising key state-run telecoms and electricity authorities.
Probing questions are expected over how the government intends to reform the civil service and the unwieldy public sector which is a drain on state finances.
So far the government has tip-toed around these prickly issues as it focused on restructuring the beleaguered banking system.
The government says it is optimistic of a favourable review as it has achieved its fiscal targets beyond that expected by the troika, with deeper spending cuts of 10 per cent in the 2014 budget.
Cypriot officials will also update the troika on the banking sector including the rise in bad loans during an unprecedented recession and the capital adequacy of banks and co-operatives.
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