The Cypriot parliament has thrown out a vital privatisation bill the country needs to secure the next batch of international bailout money to avoid bankruptcy.
The country's opposition-dominated parliament will vote again next week on a proposed road map for the sale of state assets following concerns that workers' rights will not be safeguarded.
Government spokesman Christos Stylianides said on Friday that the legislation would be amended to accommodate concerns over rights and submitted to the House of Representatives again.
Prodromos Prodromou, the spokesman for the ruling right-wing Democratic Rally party, told The Associated Press news agency that politicians would re-convene on Tuesday, a day before the deadline set by creditors in order to release a 236 million-euro ($326 million) instalment.
The privatisation of state-owned companies is a critical element of a 10 billion-euro ($13.81 billion) rescue package for Cyprus, which agreed to the measures a year ago in a deal with other eurozone countries and the International Monetary Fund.
However, opposition to the privatisation plans has become strong, especially from left-wing parties that fear mass layoffs and the sale of national wealth. Workers at the state electricity, telecommunications and ports authorities have staged strikes to protest the bill.
The setback was particularly galling for the Cypriot government, which has repeatedly earned praise from lenders for exceeding its reform targets.
"Privatisations are a clear obligation,'' Finance Minister Harris Georgiades recently said. “We have to understand that that if we sink, then we'll all go down together.'"
Cypriot President Nicos Anastasiades, who brokered the initial accord with lenders a year ago, said reforms would continue. "I am determined that the country continue its path towards stabilisation and recovery," he said on his official Twitter account.
Reform efforts were almost derailed in September when parliament again vetoed a bill recapitalising cooperative banks, before another hastily-convened session later approved it.
The terms of the rescue package took a huge toll on Cypriot banks after authorities seized large chunks of uninsured deposits, shut down the second largest lender and imposed capital controls.