COMMISSION STAFF WORKING DOCUMENT Analysis of the recovery and resilience plan of Cyprus Accompanying the document Proposal for a COUNCIL IMPLEMENTING DECISION on the approval of the assessment of the recovery and resilience plan for Cyprus
Date: 2021-07-08
Institutions: European Commission, Secretariat-General
Subjects: Cyprus, EU aid, EU loan, coronavirus disease, economic and social cohesion, economic recovery, economic reform, epidemic, investment, structural adjustment

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 8.7.2021  SWD(2021) 196 final  COMMISSION STAFF WORKING DOCUMENT Analysis of the recovery and resilience plan of Cyprus Accompanying the document Proposal for a COUNCIL IMPLEMENTING DECISION on the approval of the assessment of the recovery and resilience plan for Cyprus {COM(2021) 398 final}  
 
 
Table of contents 
1.  Executive summary ............................................................................................................................... 2 

2.  Recovery and resilience challenges: scene-setter ................................................................................. 5 

2.1.  Macroeconomic outlook and developments since the 2020 country report .................................. 5 

2.2.  Challenges related to sustainable growth, cohesion, resilience and policies for the next 
generation .................................................................................................................................................. 9 

2.3.  Challenges related to the green and digital transition ................................................................. 14 

Green dimension ................................................................................................................................. 14 

Digital dimension ................................................................................................................................ 17 

3.  Objectives, structure and governance of the plan ............................................................................... 23 

3.1.  Overall strategy of the plan ......................................................................................................... 23 

3.2. 

Implementation aspects of the plan ............................................................................................. 29 

4.  Summary of the assessment of the plan .............................................................................................. 33 

4.1.  Comprehensive and adequately balanced response to the economic and social situation .......... 33 

4.2. 

Link with country-specific recommendations and the European Semester ................................ 41 

4.3.  Growth potential, job creation, economic, institutional and social resilience, European Pillar of 
Social Rights, mitigating the impact of the crisis, and social territorial cohesion and convergence ...... 51 

4.4. 

The principle of ‘do no significant harm’ ................................................................................... 59 

4.5.  Green transition ........................................................................................................................... 62 

4.6.  Digital transition ......................................................................................................................... 67 

4.7. 

Lasting impact of the plan ........................................................................................................... 71 

4.8.  Milestones, targets, monitoring and implementation .................................................................. 73 

4.9.  Costing ........................................................................................................................................ 75 

4.10.  Controls and audit ....................................................................................................................... 76 

4.11.  Coherence ................................................................................................................................... 80 

Annex: Climate tracking and digital tagging table ..................................................................................... 83 

1 

 
 
 
 
 
1.  EXECUTIVE SUMMARY 

The COVID-19 pandemic and the related lockdowns pushed Cyprus’ economy into a deep 
recession  in  2020  and  had  serious  adverse  effects  on  the  social  situation  and  business 
activity, especially on the country’s hospitality sector. Real GDP contracted by 5,1% in 2020, 
reflecting  in  particular  the  restrictions  in  international  travel  and  their  negative  impact  on  the 
tourism sector. The impact  on domestic demand was somewhat  mitigated by the  government’s 
support  measures.  In  2021,  according  to  the  Commission’s  2021  Spring  forecast,  a  modest 
recovery is expected, with GDP to grow by 3,1%, as the renewed lockdown at the beginning of 
the  year  has  clouded  the  short-term  growth  outlook  of  the  Cypriot  economy.  In  2022,  the 
recovery is forecast to accelerate to 3,8%, mainly on the back of rising domestic demand and a 
small positive contribution from net exports. Unemployment increased only moderately in 2020 
to 7,6% from 7,1% in 2019, helped by income support measures to preserve employment, which 
were  partly  financed  under  the  Support  to  mitigate  Unemployment  Risks  in  an  Emergency 
(SURE).  In  2022,  unemployment  is  expected  to  decrease  to  7,2%.  Public  finances  have  been 
heavily  impacted  by  the  COVID-19  pandemic  and,  as  a  result,  the  government  budget  turned 
around from a surplus of 1,5% of GDP in 2019 to a deficit of 5,7% of GDP in 2020. In 2021, the 
deficit is expected to narrow to 5,1%, mainly on the back of the gradual phase-out of supporting 
measures, and to 2,0% in 2022. After reaching a peak of 118,2% in 2020, the debt-to-GDP ratio 
is expected to fall to 112,2% in 2021 and 106,6% in 2022. 

to 
The  Cypriot  recovery  and  resilience  plan 
EUR 1 206 400 000.  This  is  to  be  financed  mainly  through  non-repayable  financial  support  of 
EUR 1 006 080 000 (at current prices, equivalent to 4,5% of GDP). Cyprus’ loan request for an 
amount of EUR 200 320 000 covers the remaining estimated cost of the plan.  

(hereafter  “the  plan”)  amounts 

The  plan  represents  a  comprehensive  and  adequate  response  to  the  challenges  faced  by 
Cyprus’ economy and society  and its implementation is expected to support the correction of 
the  identified  excessive  macroeconomic  imbalances,  while  promoting  a  more  inclusive  and 
sustainable  growth  model.  The  implementation  of  reforms  and  investments  is  expected  to 
gradually have a positive impact on the economy as of the end of 2021  and, ultimately, to boost 
the  growth  potential  of  the  country  over  the  medium  term  and  contribute  to  a  green,  digital, 
inclusive and resilient future.  

The plan contains a balanced set of mutually reinforcing reforms and investments, with a 
total  of 133 measures structured around 13 components  grouped in 5 policy  axes. These are  (i) 
public health, civil protection and lessons learned from the pandemic, (ii) accelerated transition 
to a green economy, (iii) strengthening the resilience  and competitiveness of the economy, (iv) 
towards a digital era, and (v) labour market, social protection, education and human capital. The 
measures are mainly future-oriented with a strong focus on the green and digital transition and 
reflecting a coherent overall strategy.  

The proposed reforms and investments in the plan address to a large extent the structural 
challenges  Cyprus  faces,  as  identified  under  the  European  Semester.  Relevant  country-
specific recommendations (CSRs), in particular the most recent ones in 2019 and 2020, mainly 

2 

 
relate to public finances and health care, labour market and social policy, education and skills, 
public and private investment and green and digital transitions, structural reforms to improve the 
functioning of the public sector, fight corruption and facilitate the reduction of non-performing 
loans  in  the  banking  sector.  The  plan  is  also  consistent  with  the  challenges  and  priorities 
identified in the most recent draft Council Recommendation on the economic policy in the euro 
area1,  which  recommended  to  euro  area  Member  States  to  take  action,  including  through  their 
recovery and resilience plans, to, inter alia, ensure a policy stance which supports the recovery 
and to further improve convergence, resilience and sustainable and inclusive growth.  

The  implementation  of  the  plan  is  expected  to  support  financial  stability,  including  by 
addressing long-standing challenges such as high private indebtedness and non-performing 
loans (NPLs). Crucially, the measures implemented under the plan are expected to improve the 
working  environment  for  NPLs  management  for  credit  acquirers  and  credit  servicers  through 
adoption  of  dedicated  legislation.  The  measures  are  also  expected  to  tackle  high  private 
indebtedness,  through improving monitoring, enhancing insolvency  frameworks and improving 
financial literacy. By addressing the aforementioned challenges, the implementation of the plan 
is also expected to contribute to correcting the excessive macroeconomic imbalances that Cyprus 
is experiencing in this respect. 

The plan contributes to the six pillars referred to in Article 3 of the Regulation establishing 
the Recovery and Resilience Facility (RRF Regulation)2. The plan’s reforms and investments 
are designed around the overarching objective of strengthening the economy’s resilience and the 
country’s potential for economically, socially and environmentally sustainable long-term growth 
and welfare. The plan addresses each of the six policy pillars in a comprehensive and coherent 
manner.  

The  reforms  and  investments  included  in  the  plan  have  the  potential  to  contribute  to 
strengthening  the  growth  potential,  job  creation  and  economic,  social  and  institutional 
resilience.  In  particular,  the  plan  includes  several  measures  aiming  at  diversifying  the  growth 
sources and improving productivity as well as a wide set of investments in physical and human 
capital. Several measures aim at simplifying the procedures for conducting business, improving 
access to finance for SMEs, increasing the efficiency of public administration and contributing to 
safeguarding fiscal and financial stability. The plan contains measures expected to contribute to 
the implementation of the European Pillar of Social Rights, including through strengthening the 
capacity of the social welfare services, the promotion of policies creating equal opportunities for 
all  children  and  increasing  youth  employment.  It  further  contains  reforms  and  investments 
focused  on  enhancing  the  quality  and  effectiveness  of  education  and  training  at  all  levels  and 
ages, thus addressing key skills mismatches in the labour market and promoting employment and 

1  Pending  final  adoption  by  the  Council,  after  endorsement  by  the  European  Council.  The  text  agreed  by  the 
Eurogroup  on  16  December  2020  is  available  at:  https://data.consilium.europa.eu/doc/document/ST-14356-2020-
INIT/en/pdf 
2 Regulation  (EU) 2021/241 of the European Parliament and of the  Council of 12 February 2021 establishing the 
Recovery and Resilience Facility. 

3 

 
                                                           
inclusive  growth.  The  plan  also  contains  measures  aiming  at  strengthening  the  effectiveness, 
accessibility and overall resilience of the healthcare sector. 

The  recovery  and  resilience  plan  is  expected  to  ensure  that  no  measure  for  the 
implementation of reforms and investment projects does significant harm to environmental 
objectives within the meaning of Article 17 of Regulation (EU) 2020/852. The assessment has 
been  carried  out  in  compliance  with  the  methodology  set  out  in  the  Commission’s  Technical 
guidance  on  the  application  of  ‘do  no  significant  harm’  under  the  Recovery  and  Resilience 
Facility Regulation (2021/C 58/01). 

The plan has a strategic focus on the challenges of the green and digital transitions. It has a 
dedicated  policy  axis  tackling  the  accelerated  transition  to  a  green  economy  and  includes 
measures  supporting  the  achievement  of  climate  change  objectives  for  an  amount  which 
represents  41%  of  the  financial  allocation,  above  the  37%  minimum  requirement  of  the 
RRF  Regulation.  The  largest  contribution  stems  from  component  2.1  (Climate  neutrality, 
energy  efficiency  and  renewable  energy  penetration)  followed  by  components  2.2  (Sustainable 
transport)  and  2.3  (Smart  and  sustainable  water  management).  The  measure  with  the  largest 
contribution  to  the  climate  target  is  the  ‘EuroAsia  Interconnector’  project,  which,  when 
completed,  is  expected  to  connect  the  electricity  network  of  Cyprus  to  the  Greek  network  in 
Crete. There are also measures aiming at making a substantial contribution to the achievement of 
the national targets in energy efficiency and renewable energy, at addressing existing challenges 
in  the  transport  sector  and  improving  water  and  waste  management.  The  plan  puts  forward  a 
number of key reforms to underpin the green transition. Regarding biodiversity, Cyprus proposes 
one measure aiming at  protecting the marine ecosystem and improving the level  of efficacy  as 
regards oil spills prevention and response mechanisms.  

As  regards  the  digital  transition,  the  measures  contributing  to  the  achievement  of  digital 
objectives  account  for 23%  of  the financial  allocation,  which  is  above  the  20%  minimum 
requirement of the RRF Regulation. The components of Policy Axis 4 (Towards a Digital Era) 
focus solely on the digital transition but other components also contain measures that contribute 
to it. In particular, the plan presents a series of measures aiming at ensuring coverage with very 
high-capacity broadband for the whole population and addressing the low level of digital skills. 
It  also  contains  digital  projects  expected  to  promote  e-government  and  to  result  in  a  digital 
transformation of courts. 

The  milestones  and  targets  of  the  Cypriot  plan  constitute  an  appropriate  system  for 
monitoring  the  plan’s  implementation.  They  are  clear,  realistic  and  relevant  for  the 
implementation of the plan and they reflect the plan’s overall level of ambition.  

The  governance  arrangements  proposed  by  Cyprus  for  implementation  of  the  overall 
recovery  and  resilience  plan  are  robust  and  the  monitoring  and  reporting  mechanism  is 
adequate.  The  main  actors  have  distinct  roles  and  clear  responsibilities.  The  Monitoring 
Committee,  mandated  by  the  Council  of  Ministers,  is  expected  to  oversee  the  progress  in  the 
implementation  of  the  plan.  The  Coordinating  Authority  has  the  role  of  monitoring  the 
implementation of the plan at an operational level, certifying the achievement of the milestones 

4 

 
and  targets,  drafting  progress  reports,  performing  checks  and  controls  and  liaising  with  the 
European Commission, including submitting payment requests under the Facility.  

The  costs  of  implementing  the  measures  in  the  plan  are  deemed  reasonable,  plausible,  in 
line with the principle of cost-efficiency and commensurate. For the majority of the measures, 
the  costing  information  is  generally  detailed,  the  methodology  is  mostly  well  explained  with 
calculations  that  are  easy  to  follow  and  supported  by  evidence.  The  information  provided 
suggests  that  costs  would  be  in  line  with  the  nature  and  type  of  the  envisaged  reforms  and 
investments,  thus  supporting  their  plausibility.  However,  a  small  amount  of  the  costs  were 
assessed as reasonable and plausible only up to a medium  extent. The amount of the estimated 
total costs of the plan appears commensurate to the expected social and economic impact of the 
funded  measures  and  in  line  with  the  principle  of  cost-efficiency  and  are  expected  to  have  a 
substantial  positive  impact  on  the  Cypriot  economy.  Cyprus  has  also  demonstrated  that  the 
measures  in  the  plan  will  be  subject  to  strong  governance  and  control  systems  and  has  given 
assurances  that  the  measures  funded  under  the  Cyprus  recovery  and  resilience  plan  will  not 
receive funding from other existing or planned European Union financing. 

The  recovery  and  resilience  plan  for  Cyprus  is  a  comprehensive  plan,  which  ensures  its 
coherence towards contributing to smart, inclusive and sustainable economic development. 
Within  components,  there  is  a  holistic  approach  towards  addressing  different  elements  of  each 
sectoral system in a mutually reinforcing way. All components contain strategic reforms, which 
were  frontloaded  to  the  extent  possible  in  order  to  facilitate  the  implementation  of  the 
investments and induce behavioural changes in a sustainable way. Moreover, in all components 
there are elements in the reforms that contribute to the green and the digital transition, as well as 
elements that reinforce the plan’s overall goal of sustainable growth. A lasting impact of the plan 
can also be enhanced through synergies, complementarity and consistency between the plan and 
other programmes, including those financed by the cohesion policy funds, notably by addressing 
in a substantive manner the territorial challenges and promoting a balanced development through 
a balanced territorial allocation of resources.  

(1) 
Balanced 
response 
A 

(2) 
CSRs 

A 

(3) 
Growth, 
jobs… 
A 

(4) 
DNSH 

A 

(5) 
Green 
target 
A 

(6) 
Digital 
target 
A 

(7) 
Lasting 
impact 
A 

(8) 
M & T 

(9) 
Costing 

A 

B 

(10) 
Control 
systems 
A 

(11) 
Coheren
ce 
A 

2.  RECOVERY AND RESILIENCE CHALLENGES: SCENE-SETTER  

2.1. Macroeconomic outlook and developments since the 2020 country report  

The pandemic pushed the economy into a deep recession in 2020 before entering a recovery 
path  in  2021  and  2022.  Real  GDP  contracted  by  5,1%  in  2020,  reflecting  in  particular  the 
restrictions in international travel and their negative impact on the tourism sector. The impact on 
domestic demand was somewhat mitigated by the government’s support measures. According to 
the  plan,  GDP  is  expected  to  grow  by  3,6%  in  2021  and  3,8%  in  2022,  before  decelerating  to 
3,2%  in  2023  and  2,8%  in  2024.  In  2021,  the  recovery  is  expected  to  be  supported  by 
government  spending  and  will  be  reinforced  by  a  normalisation  in  private  spending  and 

5 

 
investments,  driven  by  the  implementation  of  a  several  infrastructure  projects  in  the  area  of 
tourism,  energy  and  education.  Inflation  was  negative  in  2020  (-1,1%)  due  to  the  drop  in  oil 
prices and the value-added tax (VAT) rate reduction for the hospitality sector. However, in 2021, 
according to the plan, it is expected to rebound, to 1,2%, and further pick up in 2022, to 1,5%. 

Cyprus’ labour market and household incomes have been cushioned by the government’s 
support measures financed by EU funds, but challenges remain. The temporary Support  to 
mitigate  Unemployment  Risks  in  an  Emergency  (SURE)  contributed  to  moderate  any  severe 
negative  employment  consequences  by  providing  financial  support  amounting  to  EUR  603,7 
million.  In  addition,  wage  subsidisation  and  support  schemes  for  businesses  have  been 
undertaken by the government in order to support employment.3 Unemployment rose to 7,6% in 
2020,  only  a  0,5  percentage  points  increase  from  2019.  The  hours  worked  decreased 
significantly,  by  6,4%,  exhibiting  a  higher  decrease  than  the  reduction  in  persons  employed, 
indicating  that  employers  selected  to  avoid  massive  laying  offs.  Employment  loss  was  more 
prominent in the sector of hotels and restaurants and other tourism-related sectors. According to 
the plan, unemployment is  expected to  return to a decreasing path  from  the second half of the 
2021 following the recovery of the economy, 7,2% in 2021 and gradually reach 5,5% in 2024. 
Youth unemployment remains high, at 18,2% in 2020 as compared to the average of the EU27, 
16,8%, reflecting persisting skills mismatches as well as the negative effects from the pandemic.  

Cyprus’ public finances have been heavily impacted by the COVID-19 pandemic and the 
related  measures  adopted  to  support  the  economy  in  2020.  According  to  the  Stability 
Programme, the budget balance deteriorated substantially in 2020 and reached a deficit of 5,8% 
of  GDP.  Government  revenue  decreased  by  around  7%  compared  to  2019,  with  revenue  from 
taxes  dropping  the  most.  On  the  other  hand,  public  expenditure  increased  by  9,8%  in  2020, 
compared  to  the  previous  year.  This  expansion  of  public  spending  is  mainly  attributed  to  the 
policy  response  undertaken  by  the  government  in  order  to  tackle  the  effects  of  the  crisis.  The 
fiscal  impact  of  support  measures  targeting  the  consequences  of  the  pandemic  on  health, 
businesses and employment positions reached 3,6% of GDP. For 2021, the Stability Programme 
projects  a  deficit  of  4,7%,  a  decrease  mainly  attributed  to  the  gradual  phase-out  of  supporting 
measures. After reaching a peak of 118,2% in 2020, the Stability Programme foresees a decrease 
of the debt-to-GDP ratio to 111,6% in 2021. 

3 The emergency measures to protect household incomes during the crisis, together with the pre-existing tax-benefit 
system,  cushioned  about  65%  of  the  market  income  losses  in  Cyprus,  42%  of  the  cushioning  effect  due  to  the 
monetary  compensation  schemes.  These  findings  are  based  on  the  Euromod  model:  See  Christl,  M,  De  Poli,  S., 
Figari, F., Hufkens, T., Leventi, C., Papini, A. and Tumino, A. (2021) “The cushioning effect of fiscal policy in the 
EU  during  the  COVID-19  pandemic”,  JRC  Working  Papers  on  Taxation  and  Structural  Reforms,  02/2021 
(forthcoming);  and  Almeida,  V.,  Barrios,  S.,  Christl,  M.,  De  Poli,  S.,  Tumino,  A.,  Van  der  Wielen,  W.  (2020): 
‘Households´ income and the cushioning effect of fiscal policy measures during the Great Lockdown’, JRC Working 
Paper 
at 
Taxation 
https://ec.europa.eu/jrc/sites/jrcsh/files/jrc121598.pdf. 

Structural 

Reforms, 

available 

06/2020, 

and 

on 

6 

 
                                                           
Overall, Cyprus is  expected  to face  medium fiscal sustainability risk in the  medium term 
based on the S1 indicator4 and the country’s debt sustainability analysis. Under the baseline 
scenario, the government debt level is expected to decrease until 2031, supported by the assumed 
fiscal effort and a favourable differential between the implicit interest rate on government debt 
and the growth rate of the economy – it would reach 83% of GDP in 2031. The deterioration in 
the fiscal and macroeconomic situation in the context of the COVID-19 pandemic has increased 
the short-term fiscal sustainability risks in Cyprus. However, the extraordinary monetary policy 
interventions that took place since March 2020, together with decisive EU actions since March 
2020, have contributed to stabilising sovereign financing conditions, lessening significantly the 
risks  of  short-term  fiscal  stress.  Currently,  Cyprus  enjoys  favourable  yields  and  favourable 
financing conditions. Major credit rating agencies continue to assign investment grade rating to 
Cyprus’  sovereign  debt,  except  for  Moody’s  which  maintains  its  sovereign  rating  in  the  sub-
investment category. Gross financing needs are expected to decrease from around 16% of GDP 
in  2020  to  around  14%  of  GDP  in  2021,  and  around  10%  of  GDP  in  2022.5  Moreover, 
throughout  2020,  Cyprus’  government  built  a  significant  cash  buffer  to  secure  the  necessary 
funds to address possible adverse scenarios. 

Main  contingent  liability  risks  relate  to  the  banking  sector.  Contingent  liability  risks  are 
concentrated  in  the  short  term,  mainly  due  to  the  still  high,  albeit  decreasing,  ratio  of  non-
performing loans (NPLs).  

Nonetheless, the Cypriot debt structure and cost have continued to develop favourably. The 
debt maturity profile is well balanced over forthcoming years, not exceeding EUR 2,6 billion of 
debt redemption related financing needs per year until 2030. In terms of structure of debt, at the 
end  of  2020,  50%  of  debt  was  composed  of  foreign  bonds  and  32%  of  official  loans,  the  rest 
consisted of domestic and retail  securities and T-bills.  Concerning the buyers of foreign bonds 
(EMTNs) upon issuance, over the last years there was a positive shift from hedge funds to fund 
managers and insurance and pension funds as major investors. 

Cyprus  is  experiencing  excessive  macroeconomic  imbalances  related  to  high  stocks  of 
external,  government  and  private  debt,  and  still  high  non-performing  loans,  alongside  a 
substantial  current  account  deficit6.  The  current  account  deficit  deteriorated  substantially  in 
2020 to a double-digit reading, 11,7% of GDP, reflecting a marked drop in tourism exports amid 
the COVID-19 crisis  and it is forecast  to  improve only slightly in  the near term.  External  debt 
remains high and the negative net international investment position, even when excluding special 
purpose entities, is  worsening in  part due to  the  large current  account  deficits. The COVID-19 
crisis  interrupted  the  private  sector’s  deleveraging  as  the  high  debt  ratios  increased  in  2020 

4  The  S1  indicator  evaluates  fiscal  sustainability  risks  in  the  medium  term.  European  Commission,  (2021),  Debt 
Sustainability Monitor 2020, European Economy Institutional Paper, No. 143.  
5 Based on Commission’s computations in the context of the Commission 2021 spring forecast. 
6 On 2 June 2021, the Commission published an in-depth review under Article 5 of Regulation (EU) 1176/2011 of 
the European Parliament and of the Council2 for Cyprus. SWD(2021) 408 final. 

7 

 
                                                           
mostly on account of the drop in GDP. NPLs remain among the highest in the EU, despite visible 
reductions in recent years. About 50% of performing loans benefited from the first loan payment 
moratorium  -  representing  the  highest  share  in  the  EU.  While  early  signs  were  encouraging 
following  the  lifting  of  the  2020  moratorium,  the  outlook  is  uncertain  with  respect  to  the  new 
inflows of NPLs.  Prolonged financial problems  for firms  and households could  pose threats  to 
their  debt  repayments,  and  ultimately  weaken  banks’  balance  sheets.  Looking  forward, 
developments  in  the  NPL  stock  would  crucially  depend  on  well-functioning  insolvency  and 
foreclosure frameworks.  

Table 1: Comparison of macroeconomic developments and forecasts 

2020 

2026 
2019 
COM  COM  RRP  COM  RRP  COM  RRP  RRP  RRP  RRP  RRP 
n.a. 
3,8 

2025 

2022 

2023 

2021 

2024 

-5,1 

n.a. 

(% 

(% 

3,1 

2,8 

3,8 

3,6 

3,1 

3,2 

1,1 

3,1 

0,5 

0,6 

2,0 

1,5 

1,5 

1,2 

1,7 

rate 

-5,1 

-0,6 

-0,6 

-1,1 

-1,1 

GDP 

(15-74 

inflation 

Real 
change) 
HICP 
change) 
Employment 
years, % change) 
Unemployment 
(%) 
General  government 
balance (% of GDP) 
General  government 
gross  debt 
(%  of 
GDP) 
Sources: Cyprus’ recovery and resilience plan (“RRP” in the table), Commission 2021 spring forecast (“COM” in 
the table) 

103,9 

112,2 

118,2 

118,2 

111,9 

106,6 

99,5 

92,9 

-0,9 

-4,7 

-5,7 

-5,8 

-5,1 

-2,0 

n.a. 

n.a. 

n.a. 

n.a. 

n.a. 

0,7 

1,5 

2,5 

2,5 

7,6 

7,5 

7,2 

6,7 

6,0 

5,5 

0,1 

1,6 

7,1 

7,6 

1,5 

1,0 

7,2 

n.a. 

n.a. 

n.a. 

n.a. 

n.a. 

94 

Compared  with  the  Commission  2021  spring  forecast,  the  macroeconomic  scenario 
underpinning  the  recovery  and  resilience  plan  is  based  on  slightly  more  cautious 
macroeconomic assumptions. The macroeconomic scenario underpinning the Cyprus recovery 
and resilience plan and the Stability Programme is favourable in both 2021 and 2022. It projects 
GDP  growth  of  3,6%  in  2021  and  3,8%  in  2022,  compared  to  the  Commission  2021  spring 
forecast  projections  of  3,1%  and  3,8%,  respectively.  The  Cyprus  recovery  and  resilience  plan 
and the Stability Programme anticipate a stronger recovery in private consumption. For 2022, the 
Commission  forecast  is  driven  by  a  strong  rebound  in  tourism.  Projections  in  the  Cyprus 
recovery and resilience plan and the Stability Programme foresee a return to the pre-crisis level 
of  output  and  employment  in  the  course  of  2022.  Real  GDP  in  2022  is  expected  to  exceed  its 
level  in  2019  by  1,6%  according  to  the  Commission  forecast  and  by  1,7%  according  to  the 
Cyprus recovery and resilience plan and the Stability Programme.  

Cyprus  faces  a  number  of  challenges  according  to  the  Social  Scoreboard  indicators 
underpinning  the  European  Pillar  of  Social  Rights  and  certain  vulnerable  groups  are  at 
risk  of  poverty.  The  youth  unemployment  (18,2%)  and  the  share  of  young  people  not  in 
employment,  education  or  training  (NEETs  aged  15-29)  (15,3%)  remain  high.  Formal  early 
childhood education and care for children younger than three is well below the EU average and 

8 

 
 
the gender employment gap remains wide, with one of the highest shares in the EU of inactive 
women  due  to  caring  responsibilities.  Furthermore,  growth  of  the  real  gross  disposable 
household  income  (GDHI)  per  capita  was  one  of  the  slowest  in  Cyprus  in  2019.  Before  the 
COVID-19  crisis,  as  a  result  of  the  strong  economic  growth  and  the  social  protection  reforms 
that  have  been  implemented  since  2014,  the  at-risk-of-poverty  or  social  inclusion  (AROPE) 
indicator  was  dropping  but  remained  above  the  EU  average,  especially  its  sub-components 
relating to the severe material deprivation rate. The share of poorest people is increasing, while 
the risk of poverty or social exclusion is  higher for children and people  with  disabilities. On a 
positive  side,  Cyprus  is  one  of  the  best  performers  in  the  EU  in  terms  of  the  net  income  of 
minimum  income recipients  as a share of the income of a low  wage earner and of the poverty 
threshold.  A  new  social  policy  strategy  is  under  preparation  and  expected  to  be  completed  by 
mid-2021. 

2.2. Challenges  related  to  sustainable  growth,  cohesion,  resilience  and  policies  for  the 

next generation  

Access to finance for small and medium-sized enterprises (SMEs) has to some extent been 
improved,  but  the  COVID-19  crisis  is  adding  obstacles.  Despite  the  measures  taken  by  the 
government, the COVID-19 pandemic has severely impacted the liquidity of firms, particularly 
in  the  tourism  sector.  Because  of  late  payments  by  struggling  firms,  cash  flow  problems  can 
spread through the economy. Notwithstanding lending programmes supported by the European 
Investment  Bank  (EIB)  and  other  international  development  banks,  banks  are  reluctant  to  lend 
due to the high debt overhang, which underlines the need to develop alternative funding sources, 
notably equity and risk capital financing. Private investments and local capital markets are highly 
underdeveloped, weighing on access to equity finance for innovative SMEs.  

Cyprus  can  further  improve  its  research  and  innovation  (R&I)  and education  systems  to 
support  productivity  growth.  Reforming  the  higher  education  system  and  enhancing  science, 
technology, engineering and mathematics (STEM) courses in secondary education are essential 
for allowing R&I to play a greater role in the country’s socio-economic development. Increased 
R&I  funding  geared  towards  identified  or  potential  new  smart  specialisation  areas,  combined 
with targeted measures for academia-business cooperation, innovative SMEs and start-ups could 
support the country’s competitiveness and accelerate the green and digital transition. 

Cyprus  experiences  low  levels  of  labour  productivity.  In  2018,  Cyprus’  labour  productivity 
per  person  employed  and  hour  worked  was  around  76%  of  the  EU27  and  it  has  been  largely 
stagnant  over  the  past  decade,  increasing  by  only  1%  over  the  past  four  years.  Total  Factor 
Productivity  (TFP)  growth  has  not  been  the  key  driver  for  Cyprus’  growth.  During  the  period 
2015-2018 more than half of the growth in GDP was driven by employment. Since 2013, TFP 
growth has picked up to some extent but remains relatively low. 

The  COVID-19  crisis  has  highlighted  the  need  to  further  diversify  the  economy  and  to 
strengthen  the  sustainability  of  the  tourism  sector.  The  economy  relies  heavily  on  a  few 
sectors, such as tourism, foreign-funded residential construction and professional services linked 

9 

 
to  foreign  companies.  The  digital  transition  can  help  to  diversify  the  economy  to  sectors  with 
growth  potential.  The  sustainable  management  and  efficient  use  of  the  country’s  natural 
resources  are  essential  for  Cyprus,  in  particular  for  the  tourism  sector,  to  ensure  sustainable 
economic growth in the long term. The sector of tourism, even before the pandemic, was facing 
long-term  structural  challenges  such  as  high  dependence  on  a  limited  number  of  markets,  low 
productivity  and  innovation  absorption.  Moreover,  as  far  as  the  size  and  composition  of 
investments  is  concerned,  since  2011,  gross  fixed  capital  formation  as  a  percentage  of  GDP  is 
below the euro area average, by 3,7 percentage points. From 2015 onwards, the gap narrowed to 
2,8  percentage  points,  however  the  COVID-19  crisis  has  caused  it  to  worsen  further  and  is 
currently projected to rise to 3,8 percentage points by 2022. 

Safeguarding  the  banking  systems’  overall  soundness  and  managing  financial  stability 
risks  are  essential  for  recovering  from  the  COVID-19  crisis  and  for  supporting  the 
economy.  While  the  stability  of  the  banking  sector  improved  significantly  in  recent  years,  the 
pandemic  is  posing  strains  on  banks,  through  an  increase  in  credit  risk  and  pressures  on 
profitability  and  capitalisation.  Vulnerabilities  and  challenges  stem  from  an  over-indebted 
private  sector  and  a  high  stock  of  NPLs,  which  limit  the  scope  of  credit  support.  The  banking 
sector in Cyprus has the second highest NPL ratio in the euro area. Therefore, efforts to reduce 
NPLs remain a priority, in particular addressing ‘legacy NPLs’ that were long overdue before the 
onset of the COVID-19 pandemic. Considerable challenges lie ahead, as support measures such 
as  payment  moratoria  and  associated  regulatory  forbearance  and  relaxation  of  loan  origination 
requirements  expire.  Further  progress  on  the  state-owned  bank  asset  management  company 
(KEDIPES), including on its organisational  model and strategy, remains essential. The take-up 
of  ESTIA  (a  government  support  scheme  meant  to  foster  the  reduction  of  NPLs)  has  been 
disappointing,  which  implies  that  any  future  measures  should  take  into  account  the  social 
dimension and balance better the aim to  protect  vulnerable borrowers and to  improve payment 
culture.  The  amendments  to  the  foreclosure  framework  as  endorsed  by  the  Supreme  Court  in 
June  2020  may  cause  delays  and  undermine  legal  certainty  for  creditors.  In  this  respect, 
strengthening  the  enforcement  of  claims  and  enhancing  the  use  of  the  insolvency  framework 
would help to underpin a sustainable workout of bad loans. Reducing the backlog in the issuance 
of title deeds by implementing a structural solution to address the inadequacies of the property 
transaction system (i.e. the issuance and transfer of title deeds) remains an important task.  

The business environment in Cyprus, although improving, continues to present obstacles to 
boosting  investments  in  the  country.  The  law  aiming  to  simplify  the  procedure  for  strategic 
investors  to  obtain  permits  and  licences  to  invest  in  Cyprus  has  been  amended,  but  it  is  still 
pending  enactment.  The  procedures  for  issuing  building  permits  are  complex  and  lengthy. 
Investment potential is also hindered by slow progress in privatisations. Cyprus performs well in 
entrepreneurship,  but  the  insolvency  framework  does  not  help  honest  entrepreneurs  to  get  a 
second chance. Although the regulatory burden is overall moderate, Cyprus has more restrictive 
regulations  than  the  EU  average  in  some  regulated  professions.  In  retail,  reducing  regulatory 

10 

 
barriers and investment in digitalisation are needed. Cyprus also has limited resources devoted to 
applying  EU  single  market  rules,  which  harms  the  further  integration  of  the  single  market  for 
goods  and  services.  Cyprus  has  made  good  progress  in  public  procurement,  but  weak 
competition (in the form of single-bid procedures or direct awards) persists. 

Addressing the challenges and inefficiencies of Cyprus’ public administration will increase 
the  potential  for  a  speedy  recovery  from  the  COVID-19  crisis.  Firstly,  improving  the 
coordination  between  central  and  local  government  and  tackling  the  fragmentation  in  many 
municipalities is critical for ensuring coherent implementation, investments and service delivery 
in  the  country.  Secondly,  the  public  administration  reform  that  aims  to  move  towards 
performance,  mobility  and  promotion  of  talented  staff  and  move  away  from  a  seniority-based 
system  towards  one  rewarding  performance,  is  still  pending.  In  particular,  important  draft 
legislation  on  a  new  appraisal  and  promotion  system  needs  to  be  adopted  and  implemented. 
and 
Thirdly, 
interconnection  of  IT  systems  and  the  general  government  is  key  in  delivering  better  quality 
services to the public. The appointment of a Deputy Minister of Research, Innovation and Digital 
Policy is a first step in the right direction.  

administration’s 

interoperability 

eGovernment, 

the  public 

improving 

The  justice  system  suffers  from  a  near  complete  lack  of  digitalisation  and  very  limited 
information  about  the  judicial  system  is  available  to  the  public.  There  is  no  electronic 
information  on  case  progress  and  no  electronic  case  management  system.  This  issue  has  also 
been highlighted in the Commission’s 2020 Rule of Law Report Country Chapter on the rule of 
law situation in Cyprus adopted on 30 September 2020. The introduction of an electronic court 
administration  system  is  one  of  the  main  objectives  of  the  ongoing  reforms.  However,  its 
implementation and the relevant public procurement procedures have been delayed since 2017. 
The  introduction  of  modern  civil  procedure  rules  is  also  long  overdue.  On  the  basis  of  the 
findings  of  the  EU  Justice  Scoreboard  2021  (forthcoming),  the  time  needed  to  resolve  civil, 
commercial and administrative cases in first instance courts (882 days in 2019 compared to 737 
days  in  2018)  still  remains  among  the  highest  in  the  EU.  In  administrative  justice  at  first 
instance, the length of proceedings increased (495 days in 2019 compared to 487 days in 2018) 
and clearance rates decreased (around 170% in 2019 compared to around 219% in 2018). 

Perception  of  corruption  in  Cyprus  remains  high  in  the  business  context.  The  Worldwide 
Governance  Indicators and other indexes show a decline in Cyprus’ performance on control of 
corruption (WGI, 2019, TI, 2019). Corruption perception ameliorated in the latest Eurobarometer 
survey, although the scores remain high, with 88% of Cypriot businesses thinking that corruption 
is  widespread in  their  country (as compared to  100% in  2017). 86% of businesses believe that 
bribery  and  networking  is  often  the  easiest  way  to  obtain  certain  public  services,  one  of  the 
highest  scores  in  the  EU  (European  Commission,  2019).  Implementation  of  actions  to  fight 
corruption is  progressing but  coordination capacity  remains insufficient  and key legislation  for 
the prevention of corruption is pending.  

11 

 
Diversifying  the  tax  structure  is  key  to  improving  the  sustainability  of  public  finances, 
while fostering inclusive growth. Cyprus’ tax revenues as a share of GDP remain below the EU 
average and revenue growth is strongly concentrated on a few revenue items (VAT and corporate 
income tax). Reforms to broaden the tax base and diversify revenue sources will not only support 
the sustainability of public finances but carry also great potential to improve the efficiency of the 
tax system and make it more redistributive. To that end, there is scope for measures relating to 
green taxation, while in the same vein facilitating the green transition. 

Cyprus’  tax  rules  are  used  by  companies  and  individuals  that  engage  in  aggressive  tax 
planning. It is crucial to strengthen the fight against tax avoidance and close loopholes that can 
lead to situations of double non-taxation. The high levels of inward and outward foreign direct 
investment,  in  addition to the high levels  of dividend and interest  payments  as a percentage of 
GDP,  suggest  that  Cyprus’  tax  rules  are  used  by  companies  and  individuals  that  engage  in 
aggressive  tax  planning.  Eurostat  data  show  that,  on  average,  90%  of  total  dividend  payments 
from Cyprus were sent to non-EU countries in 2013-2017.  

Cyprus is facing a number of structural social and labour market challenges. The share of 
people at risk of poverty or social exclusion – though decreasing – was still higher than the EU 
average  in  2019  in  general  (CY  22,3%  vs  EU  20,9%)  for  children  (CY  23%  vs  EU  22,2%), 
people  with  disabilities  (CY  38,7%  vs  EU  34,6%)  as  well  as  people  living  outside  the  major 
cities  (CY  24,6%  vs  EU  22,4%).  Labour  market  inefficiencies  and  a  low-skilled  work  force 
particularly in  rural  areas translate into higher unemployment rates  among the rural  population 
than  in  the  urban  areas.  Current  efforts  to  increase  the  quality  and  affordability  of  early 
childhood  education  and  care  (ECEC)  are  steps  in  the  right  direction.  ECEC  provides  high 
returns in  terms  of inclusive education outcomes as well as  female labour market  participation 
and given the challenges and current low capacity it should be further developed, especially for 
children below the age of three. The adoption and promotion of flexible working arrangements in 
the public and private sector could further support the labour market activation of persons with 
care responsibilities and mobility issues. Social services need to be strengthened also taking into 
account  territorial  disparities  within  Cyprus  to  provide  support  to  the  most  vulnerable,  and 
cooperate with the public employment services (PES) to facilitate their activation support. Issues 
remain  regarding  the  coverage  of  benefits,  especially  in  the  COVID-19  crisis  (people  in  low 
work  intensity  or  undeclared  work  and  non-standard  workers  are  less  covered  by  social 
protection). It is important to strengthen outreach and scale-up policies targeting job creation and 
easing job transitions as well as reinforce the public employment services and activation support 
measures, especially for young people not in employment, education or training (NEETs), in line 
with the Recommendation for Effective Active Support to Employment (EASE), as part of the 
new  active  labour  market  policy  strategy  to  be  completed  by  mid-2021.  Reinforcing  the 
initiatives in the Youth Employment Support (YES) package could help young people to develop 
their potential and support the twin transitions. Actions to mitigate the socio-economic impact, 
promote  social  inclusion  and  territorial  cohesion  and  contribute  to  implementing  the  European 

12 

 
Pillar  of  Social  Rights,  are  key  to  safeguarding  inclusive  growth  and  making  the  green  and 
digital transitions fair. 

The digital and green transitions call for more focus on education, training and skills. The 
education  reform  is  progressing  at  a  slow  pace.  Learning  outcomes  and  performance  in  basic 
skills, as measured by the Programme for International Student Assessment (PISA), have yet to 
improve for students of all socio-economic backgrounds, as there is a wide gap in achievements 
of  students  from  low  and  high  socio-economic  status  (CY  29,2  percentage  points  vs  EU  25,5 
percentage  points,  2018).  Integrating  asylum  seekers  into  education  remains  a  challenge. 
Improved  recruitment  and  training  of  teachers  and  implementing  the  long-standing  reform  of 
teacher  evaluation  would  increase  the  effectiveness  of  the  education  system.  Despite  Cyprus’ 
highly educated population (59,8% of people aged 30-34 have tertiary education qualifications, 
2020),  health  as  well  as  science,  technology,  engineering  and  mathematics  (STEM)  graduates 
remain  scarce,  and  skills  mismatches  prevail.  Digital  education  is  a  policy  focus,  but 
implementation needs to be improved, as low digital penetration also acts as a barrier to distance 
learning.  Although  vocational  education  and  training  (VET)  offers  several  new  and  updated 
curricula to improve links to the labour market, low participation rates in upper secondary VET 
make it difficult to meet labour demands. Participation in adult learning remains low, especially 
among the low-skilled and the unemployed who are in most need of upgrading their skills and 
acquiring new ones. Accelerating the education reform and developing a national skills strategy 
that  addresses  the  challenges  that  have  been  identified  in  an  integrated  manner  could  support 
Cyprus’ post-COVID-19 crisis recovery and contribute to the green and digital transitions.  

The COVID-19 crisis has put additional strain on the health and long-term care systems’ 
limited resources, highlighting the need for reform. The pandemic and an ageing population 
pose numerous economic and social challenges, putting pressure in particular on Cyprus’ health 
care  and  long-term  care  system.  The  COVID-19  crisis  brought  to  the  fore  the  need  for  sound 
coordination  mechanisms  on  the  health  system  linked  to  streamlining  the  provision  of  care, 
including the integration of the long-term care system. Consolidating the recent National Health 
System reform is expected to foster patient equity by reducing a historically high reliance on out-
of-pocket payments. In future, the resilience of the health system will be hampered in particular 
by  a  suboptimal  deployment  of  e-Health  tools  and  challenges  in  recruitment  and  retention  of 
health  staff.  Moreover,  compatibility  of  e-Health  solutions  and  interoperability  among  the 
existing  systems  present  important  challenges.  Improving  access,  affordability  and  quality  of 
long-term  care  services  for  the  older  people  and  most  vulnerable,  including  for  people  with 
disabilities,  would  improve  their  quality  of  life,  facilitate  activation  of  working-age  family 
carers,  who  are  mainly  women,  and  contribute  to  reducing  inequality  and  poverty  levels.  The 
recent pandemic further highlighted the importance of the preparedness of both the State and the 
general population to deal with emergencies and, in particular, the role of civil protection. 

13 

 
2.3. Challenges related to the green and digital transition 

Green dimension 

The  recovery  and  resilience  plans  should  contribute  to  the  green  transition  and  must 
therefore include a minimum level of 37% of expenditure related to the green dimension. 
The measures in the plan must contribute to achieving the climate neutrality and the 2030 energy 
and climate targets set out in the national energy and climate plans. They should also contribute 
to  meeting  environmental  targets  for  waste,  water,  pollution  control,  sustainable  mobility, 
biodiversity protection and restoration, marine and water resources and support the transition to 
sustainable  food  systems  as  well  as  to  a  circular  economy  as  appropriate,  while  ensuring  that 
nobody is left behind. 

Cyprus is facing major challenges in relation to green growth as its economic growth model 
has a negative impact on the environment and hinders climate neutrality. Decisive efforts to 
transition 
the 
competitiveness and the long-term potential of the economy.7 

to  a  more  climate-friendly  growth  model  are  essential 

improving 

to 

Cyprus is among the Member States with the highest greenhouse gas emissions per head at 
11,6  tonnes  of  CO₂   equivalent  per  head  in  2017,  compared  with  the  EU  average  of  8,8 
tonnes. Moreover, emissions increased significantly by 56% between 1990 and 2017  –  among 
the highest increases in the EU. They are dominated by energy production in the two oil- / gas-
fired  power  plants  in  Vassilikos  and  Dhekelia,  which  amounted  to  33%  of  total  emissions  in 
2017, closely followed by transport with a share of 21% of total emissions and the cement plant 
in  Vassilikos.  Cyprus  is  far  from  meeting  its  2030  greenhouse  gas  emission  reduction  targets 
(gap  estimated  at  24  percentage  points),  compromising  significantly  the  transition  to  climate 
neutrality and sustainable growth.  

Ensuring  sustainable  and  green  mobility  is  key  for  Cyprus  due  to  the  large  and  growing 
proportion  of  CO2  emissions  in  transport.  Transport,  which  currently  accounts  for  40%  of 
final  energy  demand,  is  the  most  energy  intensive  sector  in  the  economy.  The  increasing  CO2 
emissions from transport risks meeting the 2030 climate and energy targets. The use of  private 
cars  is  well  above  the  EU  average,  while  the  use  of  public  transport  is  very  low  (3%  of  total 
trips).  Cyprus  has  a  very  low  share  of  renewables  in  transport  (2,5%),  and  the  uptake  of 
alternative fuels in the road transport is extremely low. In addition, the national authorities’ plans 
to increase the share of electric vehicles in the car fleet appear modest and they would not deliver 
results  if  energy  keeps  being  produced  from  fossil  fuels.  Cyprus  is  unlikely  to  comply  with 
requirements  on  renewable  energy  sources  for  road  transport  fuels.  In  2018,  the  percentage  of 

7  Tsemekidi-Tzeiranaki,  S.,  Paci,  D.,  Cuniberti,  B.,  Economidou,  M.  and  Bertoldi,  P.,  Analysis  of  the  Annual 
Reports 2020 under the Energy Efficiency Directive, EUR 30517 EN, Publications Office of the European Union, 
Luxembourg, 2020, ISBN 978-92-76-27416-2, doi:10.2760/180952, JRC122742. 

14 

 
                                                           
 
biofuels  was  only  2,69%,  which  is  far  from  the  10%  renewable  energy  sources  target  for  the 
transport sector for 2021 to 2030. Sustainable public urban and inter-urban transport is essential, 
through implementing integrated and multimodal sustainable urban mobility strategies, including 
a shift to clean and sustainable transport modes.  

The transition from highly polluting oil power plants to increased use of renewable energy 
sources for electricity production is urgent. Apart from addressing environmental and climate 
concerns, a transition to  renewable energy sources would also substantially reduce the costs of 
energy generation, especially given Cyprus’ potential for solar energy generation. In addition, it 
would also reduce the reliance on imported fossil fuels and therefore, reduce the current account 
deficit  and  the  exposure  to  fluctuations  in  global  oil  prices.  According  to  the  Cyprus’  2020 
national  energy  and  climate  plan,  the  country  estimates  that  it  will  reach  a  final  share  of 
renewable energy sources of 15% by 2021 and 22,6% by 2030. To reach these targets, policy and 
investment  measures,  especially  in  storage  technologies,  need  to  be  stepped  up.  More  decisive 
action  is  needed  to  open  up  the  electricity  market  to  renewable  energy  sources  producers,  to 
introduce  a  carbon  tax  and  to  promote  investments  in  large-scale  renewables.  That  would 
significantly increase electricity production from renewable energy sources, eventually replacing 
oil and natural gas power plants. 

Improving  the  energy  efficiency  of  buildings  has  great  potential  for  unlocking  economic, 
social and environmental benefits. Most buildings in Cyprus were constructed with no or low 
levels of thermal protection, which is a substantial source of energy inefficiency. 8 Higher energy 
efficiency  of  buildings  would  alleviate  the  rates  of  ‘energy  poverty’  in  Cyprus,  as  inability  to 
keep homes adequately  warm and in  arrears on  utility bills  are higher than the EU average.  In 
addition,  the  energy  renovation  at  a  cost  optimal  level  of  79%  of  existing  homes  by  2050  is 
expected  to  bring  primary  energy  savings  of  2.2  TWh  and  to  generate  about  94,000  full  time 
equivalent jobs9. 

Water  scarcity  leads  to  unsustainable  water  abstraction  levels.  The  existing  water  pricing 
policy  does  not  include  sufficient  behavioural  incentives  to  encourage  water  saving  behaviour. 
Agriculture puts significant pressure on surface waters, with 41% of surface waters in less than 
good  ecological  status  and  3%  failing  to  achieve  good  chemical  status  under  the  Water 
Framework  Directive10.  Collection  of  wastewater  and  the  connection  to  public  sanitation 

the  European  Union,  Luxembourg,  2019, 

8  Castellazzi,  L.,  Zangheri,  P.,  Paci,  D.,  Economidou,  M.,  Labanca,  N.,  Ribeiro  Serrenho,  T.,  Zancanella,  P.  and 
Broc, J., Assessment of second long-term renovation strategies under the Energy Efficiency Directive, EUR 29605 
EN,  Publications  Office  of 
ISBN  978-92-79-98727-4, 
doi:10.2760/973672,  JRC114200;  Castellazzi  L,  Zangheri  P  and  Paci  D.  Synthesis  Report  on  the  assessment  of 
Member States` building renovation strategies . EUR 27722. Luxembourg (Luxembourg): Publications Office of the 
European Union; 2016. JRC97754 
9 Zangheri, P., Armani, R., Kakoulaki, G., Bavetta, M., Martirano, G., Pignatelli, F., Baranzelli, C. Building energy 
renovation for decarbonisation and Covid-19 recovery. A snapshot at regional level, EUR  30433 EN, Publications 
Office of the European Union, Luxembourg, 2020, ISBN 978-92-76-24766-1, doi:10.2760/08629, JRC122143. 
10 European Commission Staff Working Document - second river basin management plans - Member State: Cyprus. 

15 

 
                                                           
infrastructure is still incomplete, with 34 agglomerations failing to comply with the Urban Waste 
Water Treatment Directive11. The latest reported compliance (2016 data) showed that CY is 76% 
compliant  with  the  Urban  Waste  Water  Treatment  Directive  (Reference:  10th  UWWTD 
implementation  report,  European  Commission,  2020).  On  the  positive  side,  the  percentage  of 
treated wastewater that is reused reaches 97% in Cyprus (the highest in the EU-12). 

Cyprus’ weak performance in waste management is worrying, while the transition towards 
a circular economy has barely begun. The current facilities for waste treatment are based on 
mechanical and biological treatment, mainly of mixed waste. The absence of financial incentives 
makes recycling unattractive. In 2018, Cyprus recycled only 17% of waste, well below the EU-
27  average  for  recycling  (38%)12  and  considerably  lower  than  the  2025  target  of  55%.  An 
overarching policy framework for the circular economy is lacking. The circular material use rate 
in  2018  was  2,7%,  while  the  EU-27  average  was  11,6%13.  Promoting  waste  prevention  and 
putting  in  place  the  necessary  infrastructure  for  re-use,  source  separation,  recycling  and  high-
level composting remains a challenge. 

On biodiversity, only  45% of habitats  of community interest in Cyprus are in favourable 
conservation  status,  according  to  the  latest  reporting  on  the  progress  made  with  the 
implementation  of  the  Habitats  Directive14.  Incompatible  activities  and  infrastructure,  such  as 
construction,  agriculture,  tourism  and  transport,  pose  a  great  threat  to  Natura  2000  sites, 
especially coastal zone areas. 

Table  2  gives  an  overview  of  Cyprus’  objectives,  targets  and  contributions  under  Regulation 
(EU)  2018/1999  of  the  European  Parliament  and  of  the  Council  of  11 December 2018  on  the 
Governance of the Energy Union and Climate Action. 

11 European Commission 10th UWWTD Implementation report. 
12 Eurostat – Databases on Waste – waste generation and waste treatment. 
13 Eurostat – Main tables on Circular economy – secondary raw materials. 
14 Habitats Directive reporting 2013-2018. National summaries (CY). 

16 

 
                                                           
Table 2: Overview of Cyprus’ objectives, targets and contributions under the Governance Regulation15  

National targets and contributions  

Binding target for greenhouse gas 
emissions compared to 2005 under the 
Effort Sharing Regulation (%) 

National target / contribution for 
renewable energy: Share of energy 
from renewable sources in gross final 
consumption of energy (%) 

Latest 
available 
data 

2020 

2030 

Assessment of 
2030 ambition 
level 

0% 

-5% 

-24% 

As in ESR 

13,6% 

13% 

22,6% 

Slightly below 23% 
(result of RES 
formula) 

National contribution for energy efficiency: 

Primary energy consumption (Mtoe) 

2,55 Mtoe 

2,5 Mtoe 

Final energy consumption (Mtoe) 

1,86 Mtoe 

1,9 Mtoe 

Level of electricity interconnectivity 
(%) 

Non-
interconnec 
ted 

Non-
interconnec 
ted 

2,4 
Mtoe 
2,0 
Mtoe 

Low 

Very low 

200% 

N.A. 

Source: Assessment of the final national energy and climate plan of Cyprus, SWD (2020) 912 final. 

Digital dimension  

The  recovery  and  resilience  plan  should  contribute  to  the  digital  transition  and  at  least 
20% of the financial allocation needs to contribute to digital objectives. The measures in the 
plan  should  among  other  things  contribute  to  the  digital  transformation  of  the  economic  and 
social  sectors  (including  public  administration,  public  services,  and  the  justice  and  health 
systems).  The  objective  of  the  measures  in  the  plan  should  be  to  not  only  improve 
competitiveness,  but  also  resilience,  agility,  and  security  of  companies  and  public  actors,  all 
while ensuring inclusiveness. 

Cyprus  ranks  among  the  last  Member  States  (24  out  of  27)  in  the  Commission’s  DESI 
Report for 2020 and falls short of the EU average in all 5 sub-dimensions.  

On  connectivity,  in  DESI  2021,  Cyprus  is  below  the  EU  average  in  most  performance 
indicators. It performs well in fast broadband coverage (100%, ranking at the top exceeding the 
EU average of 87%) and also ranks above the EU average in the overall fixed broadband take-up 
(92%,  compared  to  the  EU  average  of  77%)  and  mobile  broadband  take-up  (117  subscriptions 
per 100 people). However, despite significant progress, from 10% in 2019 to 26% in 2020, it still 
lags behind in the coverage of fixed very high capacity network (VHCN) (26% against 59% of 

15  Regulation  (EU)  2018/1999  of  the  European  Parliament  and  of  the  Council  of  11  December  2018  on  the 
Governance  of the Energy Union and Climate Action, OJ L 328, 21.12.2018 

17 

 
 
 
 
 
 
 
 
 
 
                                                           
the EU average). It also ranks among the lowest in the EU in the ultrafast fixed broadband take-
up (3% of the total households against the EU average of 34%), as well as in the broadband price 
index, where Cyprus  scores below the EU average (42 against 69 of the EU average in  2020). 
Cyprus’ 4G performance is better, with coverage 99,6%, reaching the EU average (99,7%). For 
5G,  Cyprus  has  assigned  spectrum  in  the  700  MHz  and  the  3,4-3,8GHz  band  (pioneer  bands), 
whereas the award assignment of the 26 GHz band is pending. The relevant processes in the ‘5G 
ready’ bands (the paired terrestrial 2 GHz band and the 2,6 GHz band) are expected to start still 
in 2021 and must be completed before 2026. While current 5G coverage stands at 0% against EU 
average of 14%, it is noted that Cyprus has assigned 67% of the total harmonised spectrum for 
5G, with  the EU  average being 39%. Even though some submarine cables land in Cyprus, the 
cost of backbone connectivity is very high. 

Cyprus  ranks  below  the  EU  average  on  digital  skills.  Despite  the  progress  made  in  recent 
years, the level of basic digital skills remains below the EU average. Only 45% of people aged 
16  to  74  have  at  least  basic  digital  skills  (against  the  EU  average  of  56%).  The  share  of  ICT 
specialists in the workforce is lower than the EU average (3,1% compared to 4,3% for ages of 
15-74). The share of ICT specialists that are female is at 18% in Cyprus, almost reaching the EU 
average of 19%. Cyprus needs to make efforts to enhance digital skills in all population groups 
(public  administration,  enterprises  and  society  at  large),  as  well  as  to  promote  Science, 
Technology, Engineering and Maths (STEM) education and professional path, also amongst girls 
and women, in order to effectively address the market shortage in ICT professionals. 

On the integration of digital technology in business activities, Cyprus ranks below the EU 
average but is making progress. Cypriot businesses take advantage of new technologies using 
social media (38% compared to the EU average of 23%), while 15% of SMEs are selling online 
(below  the  EU  average  of  17%).  The  adoption  of  new  dynamic  technologies  is  improving  but 
still relatively low, in particular regarding cloud services (22% compared to the EU average of 
26%), Big Data analytics for business purposes (6%, below the EU average of 14%), while no 
data on Artificial Intelligence (AI) is provided. Businesses are increasingly taking advantage  of 
the  opportunities  offered  online,  but  41%  of  businesses  that  recruited  ICT  specialists  had 
difficulties  in  doing  so,  although  Cypriot  companies  are  still  better  off  than  the  EU  average 
(55%) in this respect. 

In digital public services Cyprus ranks below the average in the EU. Cyprus performs well in 
digital public services for businesses as it scores above the EU average (8616 against 8416 of the 
EU). It also performs above the EU average on open data with 87%. However, the level of online 
interaction  between  public  authorities  and  the  general  public  could  be  improved  as  59%  of 
Cypriot  internet  users  are  actively  engaged  in  e-government  services,  compared  to  the  EU 
average  of  64%.  Finally,  in  digital  public  services  for  citizens,  Cyprus  scores  below  the  EU 
average  of  7516  with  a  score  of  6615.  It  should  be  noted  that  the  government  is  developing  the 

16 Indicator, score (0 to 100). 

18 

 
                                                           
national eID scheme following the eIDAS Regulation17. However, Cyprus has not yet notified an 
eID  scheme  to  the  Commission,  which  is  a  pre-condition  for  the  cross-border  recognition  of 
national eIDs. 

On e-Health, Cyprus is moving towards cross-border integration18. Cyprus will be part of a 
secure peer-to-peer network allowing the exchange of patient summaries and e-prescriptions via 
MyHealth@EU  using  the  eHealth  Digital  Service  Infrastructure  (eHDSI).  In  future,  further 
possible  support  by  EU4Health  funding19  may  help  expand  and  deploy  the  technical 
functionalities  of  the  system,  enabling  the  exchange  of  other  structured  documents,  such  as 
medical images and reports, laboratory reports, hospital discharge letters and finally the complete 
electronic  health  record.  The  objective  is  to  align  the  Cypriot  health  infrastructure  with  the 
standards set by the Commission for exchanging health data, across national borders within the 
EU,  and  to  provide  interoperable  e-Health  services.  Cyprus  is  one  of  the  signatories  of  the 
‘Declaration towards access to at least 1 million sequenced genomes in the EU by 2022’ and part 
of the ‘1+Million Genomes’ initiative20. 

Cyprus  is  committed  to  advancing  on  new  digital  technologies  and  investing  in  them 
through  EU-coordinated  programmes  and  plans21.  It  concerns,  among  others,  HPC22, 
Blockchain23  and  artificial  intelligence24.  In  addition,  Cyprus  signed  in  2019  a  declaration 
agreeing  to  explore,  together  with  24  Member  States,  how  to  develop  and  deploy  a  quantum 
communication infrastructure across the EU over the next 10 years. 

Although the digital sector is currently responsible for just 3,5% of global CO2 emissions25, 
efforts must also be made to reduce its own footprint, in order to work towards the future 
objectives of decarbonisation and climate neutrality. The energy, climate and environmental 
impacts  of  the  digital  sector  can  be  alleviated  by  adopting  energy  efficient  policies,  including 
renewables  and  complying  with  the  ‘do  no  significant  harm’  principle26.  In  addition,  the  EU 

17  The  eIDAS  Regulation  on  eID  and  Trust  Services  unlocks  our  Digital  Single  Market.  Its  importance  was 
particularly highlighted by the COVID-19 pandemic. 
18 Law on e-Health (59(I)/2019). 
19 https://ec.europa.eu/health/funding/eu4health_en 
20 https://ec.europa.eu/digital-single-market/en/european-1-million-genomes-initiative. 
21  Cyprus  performs  31.4  in  the  index  on  investment  in  emerging  technologies,  i.e.  Internet  of  Things  (IoT), 
Advanced Analytics and Artificial Intelligence, Augmented Virtual Reality and Wearables, Advanced Robotics and 
3D Printing. 
22 HPC: High Performance Computing. Cyprus hosts the ‘Cy-Tera’ institute which has the necessary know-how to 
upgrade  and  successfully  operate  a  more  powerful  HPC  capacity,  and  has  extensive  experience  in  HPC-powered 
applications. Cyprus has recently established its National HPC Competence Centre. 
23 https://digital-strategy.ec.europa.eu/en/policies/blockchain-strategy. 
24 https://ec.europa.eu/digital-single-market/en/artificial-intelligence 
25 According to a 2018 study, https://www.mdpi.com/2071-1050/10/9/3027 
26 Communication from the Commission - Powering a climate-neutral economy: An EU strategy for Energy System 
Integration. COM(2020) 299 final. 

19 

 
                                                           
circular action plan needs to be strengthened to harness the full potential of digital technologies 
to achieve its objectives. 

Figure 1. DESI 2020 - relative performance of Cyprus by dimension 

Note: EU aggregate corresponds to EU28, based on 2020 DESI report.  

20 

 
 
 
Box 1: Progress towards the Sustainable Development Goals 

The  objectives  of  the  Sustainable  Development  Goals  (SDG)  are  integrated  in  the  European 
Semester  since  the  2020  cycle.  This  provides  a  strong  commitment  towards  sustainability  in 
coordination  of  economic  and  employment  policies  in  the  EU.  In  that  respect,  this  section 
outlines  Cyprus’  performance  with  respect  to  SDGs  with  particular  relevance  for  the  four 
dimensions underpinning the 2021 Annual Sustainable Growth Strategy and of relevance to the 
recovery  and resilience plans (green transition,  fairness,  digital  transition  and productivity, and 
macroeconomic stability), indicating possible areas where investments and reforms in line with 
the objectives of the Facility could further accelerate the progress on the SDGs. 

Figure  2:  SDGs  and  key  dimensions  of 

the  recovery  and  resilience  plan

21 

 
 
Green Transition 

Cyprus  does  not  perform  well  on  many  SDGs  linked  to  the  green  transition.  The  country 
performs below EU average with respect to environmental impact of agriculture (SDG 2), clean 
water  and  sanitation  (SDG  6),  affordable  and  clean  energy  (SDG  7),  responsible  consumption 
and  production  (SDG  12),  climate  action  (SDG  13)  and  life  on  land  (SDG  5).  Many  of  the 
indicators  in  those  areas  are  further  deteriorating  from  already  sub-par  levels  and  this  is 
particularly  the  case  for  nitrate  in  groundwater  and  soil  sealing  index,  which  seems  consistent 
with  the  fact  that  Cyprus  scores  below  the  EU  average  and  has  further  deteriorated  when  it 
comes  to  the  waste  generation  and  recycling  rate.  Cyprus’  position  regarding  final  energy 
consumption,  resource  productivity  and  climate  mitigation  has  also  worsened,  which  does  not 
bode well for its environmental outcomes in the future. Cyprus is among the Member States with 
the highest greenhouse gas emissions per person at 11,6 tonnes of CO₂  equivalent per person in 
2017  (versus  8,8  tonnes  EU  average).  Reducing  the  carbon-intensity  of  the  Cypriot  economy 
would lead to progress on affordable and clean energy (SDG 7) and climate action (SDG 13). 

Fairness 

Cyprus’ performance on indicators assessing the fairness of society and economy is uneven. 
Overall,  Cyprus  progresses  towards  ending  poverty  (SDG  1),  notably  regarding  the  share  of 
people living in households with very low work intensity (CY 6,8% vs. EU-27 8,3%, 2019) and 
the in work at-risk-of-poverty rate (CY 6,7% vs. EU-27 9%, 2019). However, the rate of people 
at  risk  of  poverty  or  social  exclusion  (22,3%,  2019),  though  declining,  is  still  above  the  EU 
average  (20,9%).  Further,  Cyprus  has  one  of  the  highest  shares  of  people  unable  to  keep  their 
houses adequately warm in the EU (CY 21% vs. EU-27 6,9%, 2019) and the share of population 
living  in  poor  housing  conditions  has  increased  (CY  31,1%  vs.  EU-27  12,7%,  2019).  Cyprus 
performs  slightly  above  the  EU  average  on  good  health  and  well-being  (SDG  3),  showing  a 
considerable improvement on self-reported unmet need for medical care (CY 4,7%, 2014 vs. 1%, 
2019). However, the proportion of adults smoking is still higher than the EU average (CY 28% 
vs. EU-27 25%, 2020). Compared to the EU average, Cyprus is underperforming when it comes 
to  gender  equality  (SDG  5)  particularly  as  regards  the  gender  gap  for  tertiary  educational 
attainment and the gender gap in the inactive population due to caring responsibilities. Although 
Cyprus scores above the EU average for tertiary educational attainment, major challenges remain 
regarding  quality  education  (SDG  4).  The  situation  is  further  deteriorating  regarding 
underachievement  in  reading  and  science,  as  well  as  regarding  adult  participation  in  learning 
(CY 4,7% vs. EU-27 9,2%, 2020). 

Digital transition and productivity 

There  is  significant  room  for  improvement  regarding  Cyprus’  performance  in  industry, 
innovation, and infrastructure (SDG 9). With 0,6% of GDP allocated to R&D in 2019, Cyprus 
has  a  substantially  lower  R&D  spending  compared  to  the  EU  average  (2,2%).  Cyprus  ranks 
below the EU average on digital skills: Only 45% of people between 16 and 74 years of age have 
at  least  basic  digital  skills  (compared  to  the  EU  average  of  56%,  2019).  The  share  of  ICT 
specialists in the workforce is lower than the EU average (2,7% compared to 3,6%). The level of 

22 

 
e-commerce is low (CY 31,8% vs. EU-27 40,1%, 2019). In 2020, Cyprus had 0% 5G readiness 
compared to 21% in the EU. Increased R&D funding combined with targeted measures for skills 
development,  academia-business  cooperation, innovative SMEs  and start-ups could  support the 
country’s productivity growth, competitiveness and accelerate the digital transition. 

Macroeconomic stability 

Cyprus shows  overall good progress  on decent work and economic growth (SDG 8), with 
an increasing employment and decreasing long term unemployment rate. However, notably, 
the  increasing  share  of  young  people  aged  15-29  that  are  not  in  employment,  education  or 
training  (NEETs)  in  the current  economic  downturn  (CY  15,3%  vs.  EU-27  13,7%,  2020)  calls 
for targeted measures supporting the next generation. Real GDP per person and the investment 
share of GDP are still below the EU average with the former having further decreased in 2020. 
Cyprus still needs to improve towards objectives of peace, justice and strong institutions (SDG 
16), including reducing corruption. This would also contribute to a strong business environment. 
The  percentage  of  the  population  with  confidence  in  the  European  Institutions  and,  therefore, 
trust in European policies, increased in 2020. 

3.  OBJECTIVES, STRUCTURE AND GOVERNANCE OF THE PLAN 

3.1. Overall strategy of the plan  

The  Cyprus  recovery  and  resilience  plan  is  a  forceful  response  to  the  economic 
repercussions  from  the  COVID-19  pandemic  and  consists  mainly  of  future-oriented 
measures,  with  a  strong  focus  on  the  green  transition  and  digital  transformation.  It  is 
composed of 13 components grouped in  five policy axes: (i) public health, civil protection and 
lessons  learned  from  the  pandemic  (ii)  accelerated  transition  to  a  green  economy,  (iii) 
strengthening the resilience and competitiveness of the economy, (iv) towards a digital era, and 
(v) labour market, social protection, education and human capital.  

Policy Axis 1 focuses on health and civil protection 

  Component 1.1 (Resilient and effective health system, enhanced civil protection) consists 

of 3 reforms and 7 investments, for a total financial envelope of EUR 74,1 million. 

The component addresses the challenge of universal access to high-quality healthcare in Cyprus 
as  well  as  civil  protection’s  overall  emergency  preparedness  and  response.  Its  objective  is  to 
strengthen  the  effectiveness,  accessibility  and  overall  resilience  of  the  healthcare  sector 
supporting the recently introduced National Health System through various interventions. These 
include the (i) modernisation and digitalisation of health care infrastructure and equipment, (ii) 
stepping-up  of  e-Health  services,  (iii)  accreditation  of  provided  health  care  services  and 
introduction of evidence-based clinical protocols and quality monitoring systems, as well as (iv) 
upskilling opportunities for health workers. It further aims at enhancing Cyprus’ civil protection 
system by stablishing a modern Public Warning System. The reforms and investments included 
in the component contribute to addressing CSR 1 of 2020 and CSR 3 in 2019.  

23 

 
 
 
Policy  Axis  2  focuses  on  green  economy  and  contains  measures  within  the  domains  of 
energy policy, urban mobility and transport and water resource management.  

  Component 2.1 (Climate neutrality, energy efficiency and renewable energy penetration) 
consists  of  4  reforms  and  11  investments,  for  a  total  financial  envelope  of 
EUR 269,1 million. 

The  component  addresses  the  challenge  of  climate  change  mitigation  and  contribute  to  the 
country’s transition to climate neutrality through measures relating to green taxation, the opening 
up of the electricity market and the facilitation of licensing of renewable energy and renovation 
projects. The component seeks to contribute to the achievement of the national energy efficiency 
and renewable energy targets for 2030 by improving the energy efficiency of the building stock 
and  other  infrastructure  and  supporting  green  investments  for  SMEs,  households,  the  wider 
public  sector  and  NGOs.  The  component  also  targets  the  alleviation  of  energy  poverty  and 
addresses  Cyprus’  energy  isolation.  The  component  supports  addressing  the  CSRs  that 
recommend  focusing  investment  and  investment-related  policies  on  energy  efficiency  and 
renewable energy (CSR 4 in 2019 and CSR 3 in 2020). 

  Component 2.2 (Sustainable transport) consists of 3 reforms and 3 investments, for a total 

financial envelope of EUR 91,3 million. 

The  component  aims  at  promoting  cleaner,  smarter,  safer  and  fairer  urban  mobility  by 
encouraging  a  modal  shift  from  private  cars  to  more  sustainable  modes  of  transport  such  as 
public  transport,  cycling,  walking,  and  to  promote  the  use  of  zero  or  low-emission  vehicles 
(LEVs) as well as the use of digital systems in the transport sector. The component addresses the 
CSRs on investment in sustainable transport (CSR 4 in 2019 and CSR 3 in 2020). 

  Component  2.3  (Smart  and  sustainable  water  management)  consists  of  1  reform  and  8 

investments, for a total financial envelope of EUR 87,3 million. 

The  component  aims  to  ensure  adequate  and  uninterrupted  supply  of  good  quality  drinking 
water, maximising the infrastructure  for  waste  water collection systems, waste water treatment 
and reuse of treated effluent in agriculture; reducing water supply and distribution system water 
losses,  reducing  the  non-revenue  water  and  groundwater  abstraction,  improving  operational 
efficiency of the services being provided to the consumers through technological advances and 
establishing  transparency  in  financial  transactions.  The  component  aims  to  achieve  three 
strategic  goals  in  the  water  management  sector:  (i)  promote  green  and  blue  development,  (ii) 
protect  the  environment  while  promoting  the  efficient  use  of  resources  and  (iii)  reduce 
greenhouse  gas  emissions  and  adapt  to  climate  change.  The  component  addresses  the  CSRs 
related to water management (CSR 3 in 2020 and CSR 4 in 2019).  

Policy Axis 3 focuses  on strengthening the resilience and competitiveness  of the economy, 
through its diversification and integrating elements, such as of the circular economy, that 
support  resilience  and competitiveness,  the  enhancement  of  research  and  innovation,  and 

24 

 
 
 
 
 
 
the  legislative  and  financial  support  to  businesses.  In  addition,  it  aims  at  improving 
administrative  efficiency  of  the  public  sector,  including  local  authorities,  and  of  the  justice 
system,  supporting  the  competitiveness  of  the  business  environment.  Moreover,  it  includes 
measures to safeguard the fiscal and financial stability of the economy.  

  Component  3.1  (New  growth  model  and  diversification  of  the  economy)  consists  of  5 

reforms and 13 investments, for a total financial envelope of EUR 166,4 million.  

The component addresses the challenges of the Cypriot economy with regard to competitiveness, 
productivity  and  investment.  It  also  aims  to  reduce  overreliance  on  certain  economic  sectors, 
such as tourism, by helping the economy move to a new economic growth model (of Sustainable 
Business  and  Trade  Centre  of  Europe)  by  addressing  sectoral  challenges  in  the  primary  and 
secondary  sectors  as  well  as  by  promoting  sustainable  tourism  and  reputable  healthcare. 
Moreover,  it  aims  to  promote  circular  economy  (with  emphasis  on  waste  management).  The 
component  contributes  to  addressing  the  country  specific  recommendation  related  to  focus 
investment  on  the  green  and  digital  transition  and  on  waste  and  water  management  (CSR  3  in 
2020), to focus investment-related economic policy on sustainable transport and on environment, 
in particular waste and water management (CSR 4 in 2019). All that is in line with the recently 
adopted  Commission  Communication  “Updating  the  2020  New  Industrial  Strategy:  Building  a 
stronger Single Market for Europe’s recovery”. 

  Component  3.2  (Enhanced  research  and  innovation)  consists  of  3  reforms  and  4 

investments, for a total financial envelope of EUR 64 million. 

links 

between 

research 

The  component  addresses  the  challenges  that  Cyprus  faces  as  regards  the  Research  and 
Development  (R&D)  ecosystem  that  plays  a  relatively  limited  role  in  economic  growth,  by 
strengthening 
facilitating 
commercialisation  of  research  results,  increasing  intensity  in  R&D  and  investments  by  both 
public and private organisations therein. The component also aims to make all publicly funded 
research  infrastructure  accessible  to  the  entire  ecosystem.  Furthermore,  it  aims  to  enhance 
financial support to  start-ups, scale-ups,  SMEs, internationalisation, to  develop  local  talent  and 
attract talent from abroad to work in research and innovation, with emphasis on specific thematic 
areas, including ICT. The component addresses the CSR on increasing the focus on investment-
related economic policy on research and innovation (CSR 3 in 2020 and CSR 4 in 2019). 

organisations 

enterprises, 

and 

  Component  3.3  (Business  support  for  competitiveness)  consists  of  6  reforms  and  6 

investments, for a total financial envelope of EUR 51,44 million. 

The  component  addresses  the  challenges  of  low  productivity  and  competitiveness  of  the 
economy,  driven  by  the  enterprises’  small  size  on  average,  the  complex  licensing  process 
requested for an investment and difficulties of access to funding to business. In particular, it aims 
to  support entrepreneurs and enterprises and improve their competitiveness  and contribution  to 
the  growth  of  the  economy  by  improving  the  regulatory  framework  regarding  investment  and 

25 

 
 
 
 
entrepreneurial  activity  and  to  enhance  SMEs  productivity,  mainly  through  digitalisation.  The 
component addresses the parts of CSR 3 in 2020 and CSR 4 in 2019. 

  Component 3.4 (Modernising public and local authorities, making justice more efficient 
and  fighting  corruption)  consists  of  10  reforms  and  9  investments,  for  a  total  financial 
envelope of EUR 96 million.  

The  component  aims  to  (i)  increase  the  effectiveness,  efficiency  and  relevance  of  government 
processes, (ii) strengthen the administrative capacity and cooperation of the Ministry of Interior 
and  local  governments  to  ensure  the  effective  implementation  of  the  new  local  administration 
model,  (iii)  improve  the  quality  and  efficiency  of  the  justice  system,  through  accelerating  the 
delivery of justice and reducing the backlog of cases, and (iv) achieve greater coherence to the 
government’s efforts to fight corruption. The reforms and investments included in the component 
contribute to addressing the CSRs on improving efficiency in the public sector, in particular as 
regards the functioning of the public administration and of local governments (CSRs 1 in 2019 
and  CSR  4  in  2020),  on  promoting  flexible  working  arrangements  (CSR  2  of  2020),  on 
improving the efficiency and digitalisation of the judicial system (CSR 5 in 2019 and CSR 4 in 
2020) and on anti-corruption reforms (CSR 5 in 2019). 

  Component 3.5 (Safeguarding fiscal and financial stability) consists of 10 reforms and 2 

investments, for a total financial envelope of EUR 44,5 million. 

The  component  addresses  the  challenges  of  fiscal  and  financial  vulnerabilities,  as  well  as  the 
related excessive macroeconomic imbalances. The objective is to safeguard financial stability by 
(i) reducing legacy  risks in  the banking sector, to  a large  extent related to remaining stocks of 
non-performing loans, (ii) putting in  place measures against high private indebtedness,  such as 
improving monitoring, enhancing insolvency  frameworks and improving  financial literacy, and 
(iii)  improving  supervision  in  the  non-bank  sector  (insurance,  pension  funds,  and  securities 
markets).  To  ensure  fiscal  stability,  Cyprus  aims  at  combating  tax  evasion,  tax  avoidance  and 
aggressive tax planning; and providing policy makers with comprehensive data in order to design 
a  fair  tax  system.  The  envisaged  measures  are  expected  to  make  revenue  collection  more 
efficient  and  Cyprus’  tax  system  fairer,  reducing  the  spill-over  effects  from  aggressive  tax 
planning.  Specifically,  Cyprus  plans  to  introduce  a  withholding  tax  on  dividends,  interest,  and 
royalty  payments  in  a  first  step  to  jurisdictions  included  in  the  EU  list  of  non-cooperative 
jurisdictions  and  in  a  second  step  to  low  corporate  tax  jurisdictions.  Regarding  low  tax 
jurisdictions and in respect of interest and royalty payments, the Cypriot authorities may explore 
instead the approach of applying non-deductibility. Importantly, Cyprus also envisages to make a 
subsequent holistic evaluation of various measures related to aggressive tax planning, including 
those  adopted  under  the  plan  to  tackle  aggressive  tax  planning.  The  evaluation  is  expected  to, 
among others, estimate the expected impact of the measures on relevant cross-border flows. The 
evaluation  is  also  expected  to  include  the  17  July  2020  measure  on  intangible  assets.  If  the 
evaluation identifies shortcomings, Cyprus will follow up with policy action, including through 
legislative  changes.  The  component  supports  addressing  the  CSRs  on  financial  stability  and 

26 

 
 
 
 
 
private indebtedness (CSRs 2 and 5 in 2019), and on addressing features of the tax system that 
facilitate aggressive tax planning by individuals and multinationals (CSR 4 of 2020 and CSR 1 in 
2019). 

Policy  Axis  4  focuses  on  driving  forward  Cyprus’  digital  transformation  notably  by 
addressing infrastructure challenges in the area of data connectivity and by achieving the 
digital transformation of the public sector. 

  Component  4.1  (Upgrade  infrastructure  for  connectivity)  consists  of  2  reforms  and  3 

investments, for a total financial envelope of EUR 53 million. 

The component addresses infrastructure challenges and shortcomings in the area of connectivity, 
particularly in rural areas, with a view to narrowing the rural-urban divide, as well as differences 
along gender, age, income and education. The objective of the component is to enhance access to 
communication infrastructure for all citizens, thus bridging the digital divide and supporting an 
inclusive digital transformation. The component addresses the CSRs on investment in the digital 
transition and the digitalisation (CSR 4 in 2019 and CSR 3 in 2020). 

  Component  4.2  (Promote  e-government)  consists  of  4  reforms  and  2  investments,  for  a 

total financial envelope of EUR 36,4 million.  

The component aims  to  contribute to  accelerating the digital  transformation of Cyprus through 
the digitalisation of government services (G2G), as well as by enhancing the efficiency and the 
provision  of  online,  secure  and  prompt  services  to  citizens,  in  a  user  friendly,  efficient  and 
effective  way.  This  is  expected  to  facilitate  the  interaction  between  citizens  and  the  public 
services,  without  the  need  for  physical  presence.  The  objective  of  the  component  is  to  build  a 
secured,  integrated  and  modern  digital  architecture  to  achieve  the  transformation  to  a  digital 
government.  The  component  addresses  the  CSR  on  investment  in  the  digital  transition  and  the 
digitalisation (CSR 4 in 2019 and CSR 3 in 2020). 

Policy Axis 5 targets education and training, labour market and social policies. It focuses on 
the development of skills of the current and future workforce in order to respond effectively to 
the  trends  and  needs  of  the  labour  market,  including  those  arising  from  the  green  and  digital 
transition. In addition, the Axis includes actions on early childhood education and care and social 
welfare,  and  it  addresses  employment  weaknesses  such  as  gaps  in  social  protection,  limited 
flexible working arrangements and youth activation. 

  Component 5.1 (Educational system modernisation, upskilling and retraining) consists of 

5 reforms and 2 investments, for a total financial envelope of EUR 94 million. 

The  component  addresses  the  challenges  of  low  participation  in  vocational  education  and 
training  (VET)  and  lifelong  learning,  rising  skills  mismatches  (particularly  among  young 
graduates) and poor digital skills. It further addresses the quality of teaching and the availability 
and affordability of early childhood education and care (ECEC) for children aged four years old. 
Its objective is to (i) improve the quality and effectiveness of education and training at all levels, 

27 

 
 
 
 
 
(ii)  foster  the  uptake  of  labour  market-relevant  reskilling  and  upskilling  opportunities,  in 
particular  regarding  the  twin  transitions,  across  society  regardless  of  employment  status,  skills 
level or age, and (iii) modernise the school structures making them fit for the digital transition. 
The  reforms  and  investments  included  in  the  component  contribute  to  addressing  the  CSR  on 
education  and  skills  (CSR  2  in  2020  and  CSR  3  in  2019),  early  childhood  education  and  care 
(CSR 3 in 2019) as well as on digital skills (CSR 4 in 2019 and CSR 3 in 2020).  

  Component 5.2 (Labour Market, social protection, social welfare and inclusion) consists 

of 2 reforms and 5 investments, for a total financial envelope of EUR 78,9 million. 

The  component  addresses  (i)  inefficiencies  and  gaps  in  social  protection  notably  for  the  self-
employed and people working in non-standard forms of employment, (ii) the lack of legislation 
for  flexible  working  arrangements  in  the  form  of  teleworking,  (iii)  challenges  related  to 
unemployment and youth unemployment and the high level of young people not in employment, 
education or training (NEETs), (iv) gaps in early childhood education and care (ECEC) and (v) 
challenges with respect to social inclusion and welfare, including a high level of people at risk of 
poverty or social  exclusion (AROPE) and increasing needs in long-term  care. The reforms and 
investments  included  in  the  component  contribute  towards  addressing  the  CSRs  on  improving 
the effectiveness of the public employment services and the education and training system (CSR 
3  in  2019  and  CSR  2  in  2020),  providing  social  protection  for  all  and  introducing  flexible 
working  arrangements  (CSR 2 of 2020), and improving the efficiency and digitalisation of the 
public sector (CSR 1 in 2019 and CSR 4 in 2020). 

Table 3: Components and associated costs 

Component 

1.1 Resilient and effective health system, enhanced civil protection 
2.1 Climate neutrality, energy efficiency and renewable energy penetration 
2.2 Sustainable transport 
2.3 Smart and sustainable water management 
3.1 New growth model and diversification of the economy 
3.2 Enhanced research and innovation 
3.3 Business support for competitiveness 
3.4  Modernising  public  and  local  authorities,  making  justice  more  efficient  and  fighting 
corruption 
3.5 Safeguarding fiscal and financial stability 
4.1 Upgrade infrastructure for connectivity 
4.2 Promote e-government 
5.1 Educational system modernisation and reform 
5.2 Labour market, social protection, social welfare and inclusion 
Total cost of Cyprus’ plan 

Costs 
(EUR 
million) 

74,1 
269,1 
91,3 
87,3 
166,4 
64,0 
51,4 

96,0 

44,5 
53,0 
36,4 
94,0 
78,9 
1 206,4 

28 

 
 
 
3.2. Implementation aspects of the plan 

Consistency with other programmes 

The plan contributes to, and is aligned with, the following programmes: 

1. 
The Integrated National Energy and Climate Action Plan (INECP): The national targets 
for the next decade are monitored in detail in the INECP until 2030 and serves as a basis for the 
long-term strategy aiming towards the minimisation of greenhouse gas emissions by 2050. The 
recovery and resilience plan supports and promotes investments and reforms to improve climate 
resilience through the implementation of the national strategy and action plan on climate change 
adaptation that was adopted in 2017. Most of the priority areas of the NECP overlap with those 
of  the  RRF,  regarding  the  green  transition.27  These  include  the  building  renovation  and 
affordable,  energy-efficient  housing,  deployment  of  renewables,  sustainable  transport,  energy 
system  integration,  dealing  with  negative  externalities,  energy  efficiency  measures,  clean 
industry, other  clean  energy technologies, and including environmental impacts  (i.e. on natural 
resources  and  biodiversity).  The  recovery  and  resilience  plan  ensures  consistency  and 
complementarity with these policy areas through the components of Policy Axis 2 (Accelerated 
transition to a green economy), which are component 2.1 (Climate neutrality, energy efficiency 
and  renewable  energy  penetration),  component  2.2  (Sustainable  transport)  and  component  2.3 
(Smart  and  sustainable  water  management).  In  general,  the  implementation  of  the  reforms  and 
investments envisaged in the context of these components will assist with achieving the targets in 
the context of attaining the national energy and climate objectives for 2030 and beyond. 

2. 
The Youth Guarantee implementation plan, and the Territorial Just Transition plan under 
the  Just  Transition  Fund:  The  Cypriot  recovery  and  resilience  plan  is  consistent  with  the 
reinforced  Youth  Guarantee  and  the  short-  and  medium-term  investment  priorities  and  the 
ambition  “Youth  Employment  Support:  A  Bridge  to  Jobs  for  the  Next  Generation”.  Measures 
under  the  reinforced  Youth  Guarantee  are  financed  by  national  resources,  the  RRF,  the  Union 
instruments  under  cohesion  policy  and  in  particular  the  Youth  Employment  Initiative,  the 
European Social Fund (ESF) and other EU funding sources in line with  their legal  framework. 
The consistency between the plan and the reinforced Youth Guarantee will be primarily achieved 
through  the  investment  Improving  the  effectiveness  of  the  Department  of  Labour  and  Public 
Employment  Services  and  reinforcing  support  for  young  people  in  component  5.2  (Labour 
market,  social  protection,  social  welfare  and  inclusion)  and  the  investment  Skilling,  reskilling 
and upskilling in component 5.1 (Educational system modernisation, upskilling and retraining). 

27 For the assessment of targets and measures of the NECP please see: Economidou, M., Ringel, M., Valentova, M., 
Zancanella, P., Tsemekidi Tzeiranak, S., Zangheri, P., Paci, D., Ribeiro Serrenho, T., Palermo, V. and Bertoldi, P., 
National Energy and Climate Plans for 2021-2030 under the EU Energy Union, EUR 30487 EN, Publications Office 
of the European Union, Luxembourg, 2020, ISBN 978-92-76-27013-3, doi:10.2760/678371, JRC122862  

29 

 
 
 
                                                           
3. 
The  partnership  agreements  and  operational  programmes  under  the  Union  funds 
while they are at the stage of negotiation, Table A and Table B of Annex I of the plan provide 
a mapping of the plan and Cohesion Policy mapping with the CSRs. They also provide the full 
list of Cohesion Policy objectives and projects contributing to CSRs. The RRP is also consistent 
and  complementary  with  the  Common  Agricultural  Policy  in  terms  of  the  planned 
reforms/investments for agriculture and rural development. 

4. 
The  Technical  Support  Instrument  (TSI)  provides  expertise  in  building  capacities  to 
implement the plan in a number of areas covered such as healthcare, education, labour market, 
green and digital transition, public financial management and revenue administration, as well as 
for the overall implementation of the plan. Sectoral support for the design, implementation and 
evaluation  of  research  and  innovation  policy  reforms  will  also  be  available  via  the  Horizon 
Policy Support Facility. 

Consistency with the challenges and priorities identified in the most recent euro area 
recommendation 

The plan is also consistent with the challenges and priorities identified in the most recent 
euro area recommendation28. In particular, the plan includes reforms linked to improving the 
business environment in component 3.3 (Business support for competitiveness), to the efficiency 
of public administration and the effectiveness of the justice system, including anti-corruption in 
component  3.4  (Modernising  public  and  local  authorities,  making  justice  more  efficient  and 
fighting corruption), and to securing tax collection capacity and improving tax administration in 
component 3.5 (Safeguarding fiscal and financial stability).  

Coordination and implementation framework 

The  coordinating  structure  for  the  plan  for  Cyprus  was  endorsed  by  the  Council  of 
Ministers, as described in Section 4.8. This is presented in the governance, control and audit part 
of  the  plan.  The  Coordinating  Authority  of  the  plan  of  Cyprus  is  the  European  Commission's 
Directorate  General  for  European  Programmes,  Coordination  and  Development  (DG-EPCD). 
This is done in cooperation with the Ministry of Finance.  

Gender equality and equal opportunities for all  

With regard to gender equality and equal opportunities for all, the plan describes existing 
national challenges, explains which reforms and investments are expected to contribute to 
overcoming  them  and  contains  a  series  of  measures  across  several  components  that 
contribute to addressing the challenges in this area. The plan provides information about the 

28  Pending  final  adoption  by  the  Council,  after  endorsement  by  the  European  Council.  The  text  agreed  by  the 
Eurogroup  on  16  December  2020  is  available  at:  https://data.consilium.europa.eu/doc/document/ST-14356-2020-
INIT/en/pdf 

30 

 
 
                                                           
country’s governance structure for equality, and underlines that the promotion of equality, non-
discrimination  and accessibility during the implementation of the plan will be ensured through 
the involvement of the competent authorities. The plan describes the views of these authorities 
on  the  potential  equality  impacts  of  the  measures  included  in  the  plans.  It  includes  data 
disaggregated  by  sex  to  a  limited  extent.  Relevant  measures  aim  to  improve  the  access  to 
affordable quality early childhood education and care and long-term care as well as to promote 
flexible  working  arrangements  facilitating  labour  market  activation  for  people  with  caring 
responsibilities,  particularly  women,  social  inclusion  and  the  reduction  of  socio-economic 
disadvantages.  Challenges  regarding  female  entrepreneurship  or  financial  illiteracy  of  older 
women are also addressed. Support for young people not in employment, education or training 
(NEETs) is expected to over-proportionally benefit young people from vulnerable backgrounds, 
including with migration backgrounds. Throughout the plan needs of persons with disabilities are 
taken  into  account  and  a  quantitative  target  for  the  improvement  of  energy  performance  in 
households with persons with disabilities is included. 

Stakeholder consultations 

Based  on  the  summary  of  the  consultation  process  included  in  the  plan,  all  relevant 
stakeholders  such  as  social  partners,  civil  society  organisations  and  youth  organisations 
have been consulted in the preparation phase of the plan in accordance with the national 
legal  framework.  Within  the  scope  of  their  responsibilities,  the  different  Ministries, 
governmental services and local authorities have been involved at an early stage and in numerous 
steps  in  the  elaboration  of  the  plan.  The  Parliament  has  been  regularly  informed  about  the 
content  of  the  plan.  Also,  the  Cypriot  Economy  and  Competitiveness  Council,  equivalent  to  a 
national productivity board, has been consulted.  

Specifically, the authorities ran a consultation with social partners and political parties. They met 
separately with: 

the employers’ association and the Chamber of Commerce; 
the trade unions; 
the Youth Board of Cyprus; 
the Cyprus Scientific and Technical Chamber; 
the Pancyprian Teachers Association; 

 
 
 
 
 
  Birdlife Cyprus; 
 
 

the Federation of Environmental Organisations of Cyprus; 
representatives from all political parties (at a frequent basis). 

Each counterpart submitted project proposals for the plan, for consideration by the government. 
Following the consultation of all relevant stakeholders, part of the initially planned reforms and 
investments  have  been  adapted  from  the  plan.  Acoordination  process  with  all  relevant 
stakeholders,  including  social  partners  and  civil  society,  is  expected  to  take  place  also  for  the 
implementation  phase  of  the  plan.  To  ensure  ownership  by  the  relevant  actors,  it  is  crucial  to 
involve  all  local  authorities  and  stakeholders  concerned,  including  social  partners  and  civil 
society, throughout the implementation of the investments and reforms included in the plan. 

Security self-assessment 

31 

 
 
 
The  Cypriot  plan  includes  a  security  self-assessment  for  investments  in  digital  capacities 
and connectivity, in line with the Article 18(4) point (g) of the RRF Regulation. As regards 
investments  in  connectivity,  in  particular  in  5G  networks,  the  plan  identifies  relevant  security 
issues.  It  also  details  how  they  will  be  addressed,  based  on  the  common  objective  criteria 
included in the EU toolbox for 5G networks Cybersecurity. Strategic measures mentioned in the 
security  self-assessment  would  need  to  be  closely  monitored  during  the  implementation  of  the 
plan. 

Cross-border projects 

Cyprus included two cross-border projects in its plan for an electricity interconnector and 
submarine  cables  for  connectivity.  Both  projects  would  have  a  cross  border  element  with 
Greece.  First,  the  ‘EuroAsia  Interconnector’  in  component  2.1  (Climate  neutrality,  energy 
efficiency  and  renewable  energy  penetration)  aims  to  ensure  security  of  supply  and  more 
competitive  wholesale  electricity  prices,  and  to  enable  the  increased  use  of  electricity  from 
cleaner sources, in particular renewables, by connecting the electricity network of Cyprus to the 
Greek  network  in  Crete.  This  is  part  of  a  broader  investment  building  a  cross-border 
interconnector with a total length of 1 208 km between Crete, Cyprus and Israel. The project is 
expected to end the energy isolation of Cyprus. Second, the project for the submarine cables in 
component 4.1 (Upgrade infrastructure for connectivity) aims at creating high-capacity resilient 
backbone  internet  connectivity  for  Cyprus  through  a  new  submarine  link  for  data  connectivity 
between Cyprus and Greece. The deployment of a new separate backbone route between Cyprus 
and Greece should strategically support connectivity in the island. It is also expected to have a 
positive  impact  on  the  available  capacity  and  the  commercial  offers  of  backbone  connectivity 
needed  to  provide  very-high-speed  services  to  end-users.  Finally,  it  should  offer  significantly 
higher performance compared to existing dated cables. 

Communication 

Regarding  communication,  the  recovery  and  resilience  plan  presents  a  detailed 
communication  strategy.  Cyprus  foresees  an  estimated  budget  of  EUR  1  million  for  the 
implementation of the envisaged communication strategy. The objectives of the communication 
strategy are consistent with the RRF Regulation. The strategy aims to ensure awareness about the 
EU’s contribution to mitigate the economic and social consequences of the COVID-19 pandemic 
and  to  the  twin  transition.   The  overall  responsibility  for  the  implementation  of  the 
communication strategy and plan, coordinating and supervising all communication activities, is 
under  the  Coordinating  Authority  of  the  plan  (the  DG-EPCD).  In  this  context,  the  DG-EPCD 
presents  its  plan  in  relation  to  the  aims  of  the  communication  strategy,  as  well  as  its 
implementation phases. In particular, the DG-EPCD main aim is to set up the most appropriate 
mechanisms and tools for maximum visibility and communication impact (including of a website 
on  which  the  plan  is  uploaded).  Moreover,  the  communication  strategy  will  be  closely  linked 
with the implementation of the plan. At times when important milestones have been achieved, it 
will display its results when these are visible and measurable. Thus, the communication activities 
presented  will  be  planned  in  three  phases,  each  of  which  addresses  a  separate  audience. 

32 

 
Communication  activities  will  be  monitored  through  a  set  of  qualitative  and  quantitative 
indicators to ensure high-quality implementation. 

The target audiences are clearly defined and justified based on their specific role in relation 
to the RRF. These are expected to cover beneficiaries, stakeholders and media, reaching also to 
under-represented  groups of the society, such as people with  disabilities, and promote how the 
RRP  invests  in  such  under-represented  groups,  including  women,  youth  and  elderly.  The 
communication strategy will emphasise customised messages that will resonate with citizens and 
businesses. Innovative ideas will be put in place to increase the engagement. The main channels 
of  disseminating  information  will  be  media  coverage,  online  communication  tools,  events, 
printed  communication  material  and  outdoor  advertising.  Key  reforms  and  investment  projects 
from  the  plan  will  be  selected  for  communication  and  promotion  purposes.  The  plan  foresees 
close cooperation with the Commission on the implementation of the communication strategy.  

State aid 

State aid and competition rules fully apply to the measures funded by the RRF. Union funds 
channelled through the authorities of Member States, like the RRF funds, become State resources 
and can constitute State aid if all the other criteria of Article 107(1) TFEU are met. When this is 
the  case  and  State  aid  is  present,  these  measures  must  be  notified  and  approved  by  the 
Commission before Member States  can grant the aid, unless those measures are covered by an 
existing aid scheme or comply with the applicable conditions of a block exemption regulation, in 
particular the General Block Exemption Regulation (GBER) declaring certain categories of aid 
compatible with the internal market in application of Articles 107 and 108 TFEU29. When State 
aid is present and it requires notification, it is the duty of the Member State to notify State aid 
measures to the Commission before granting them, in compliance with Article 108(3) TFEU. In 
this  respect,  the  State  aid  analysis  carried  out  by  Cyprus  in  the  recovery  and  resilience  plan 
cannot be deemed a State aid notification. In as far as Cyprus considers that a specific measure 
contained  in  the  recovery  and  resilience  plan  entails  de  minimis  aid  or  aid  exempted  from  the 
notification  requirement,  it  is  the  responsibility  of  Cyprus  to  ensure  full  compliance  with  the 
applicable rules. Irrespective of whether they comply with the EU’s State aid regime, measures 
taken  under  this  framework  should  be  compatible  with  the  EU’s  international  obligations,  in 
particular under World Trade Organization rules. 

4.  SUMMARY OF THE ASSESSMENT OF THE PLAN 

4.1. Comprehensive  and  adequately  balanced  response  to  the  economic  and  social 

situation  

The  plan  puts  forward  a  well-balanced  package  of  reforms  and  investments  that  jointly 
cover  in  a  comprehensive  manner  the  six  pillars  of  the  Recovery  and  Resilience  Facility, 

29Commission Regulation 651/2014, OJ L 187, 26.6.2014, p. 1. 

33 

 
                                                           
taking into account the specific policy challenges of the Cypriot economy and society. The 
plan  features  75  investments  and  58  reforms,  spread  out  over  13  components  that  each  have  a 
particular  focus  (see  Section  3.1)  and  are  designed  around  the  overarching  objective  of 
strengthening the economy’s resilience and the country’s potential for economically, socially and 
environmentally  sustainable  long-term  growth  and  welfare.  The  plan  provides  a  detailed 
explanation of its contributions to the six pillars of the RRF. The coverage of the six pillars of 
the Facility is summarised in Table 4. All pillars are covered by at least one component, while 
each  component  contributes  to  several  pillars.  The  pillar  “Smart,  sustainable  and  inclusive 
growth” is covered by a large majority of components, reflecting its close link to the overarching 
objective of the plan as described above. This predominant position is therefore justified by the 
country-specific  challenges  faced  by  Cyprus.  In  summary,  the  plan  ensures  that  each  pillar  is 
addressed in a comprehensive and coherent manner. 

Table 4: Coverage of the six pillars of the Facility by the Cypriot plan’s components  

Green 
transition 

Digital 
transformation 

Smart, 
sustainable 
& inclusive 
growth 

Social 
and 
territorial 
cohesion 

Health, and 
economic, 
social and 
institutional 
resilience 

○ 

● 

● 

● 

○ 

○ 

○ 

● 

○ 

● 

○ 

○ 

○ 

○ 

○ 

○ 
● 

○ 

● 

● 

● 

● 

○ 

● 

● 

● 

● 

● 
● 

● 

● 

● 

● 

● 

● 

● 

○ 

● 

○ 

● 

● 

○ 

● 

● 

○ 

○ 

○ 

○ 
● 

● 

○ 

○ 

● 

● 

Policies 
for the 
next 
genera-
tion 
● 

○ 

○ 

○ 

○ 

○ 

● 

● 

● 

● 

1.1  Resilient  and  effective  health  system, 
enhanced civil protection 
2.1  Climate  neutrality,  energy  efficiency 
and renewable energy penetration 

2.2 Sustainable transport 

and 

sustainable  water 

2.3 
Smart 
management 
3.1  New  growth  model  and  diversification 
of the economy 
3.2 Enhanced research and innovation 

and 

public 

3.3 Business support for competitiveness 
3.4  Modernising 
local 
authorities,  making  justice  more  efficient 
and fighting corruption 
3.5  Safeguarding 
stability 
4.1 Upgrade infrastructure for connectivity 

fiscal  and 

financial 

4.2 Promote e-government 

system  modernisation, 

5.1  Educational 
upskilling and retraining 
5.2 Labour market,  social protection, social 
welfare and inclusion 

Key:  “●”  investments  and  reforms  of  the  component  significantly  contribute  to  the  pillar;  “○”  the  component 
partially contributes to the pillar 

34 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Green transition  

The  plan  addresses  key  challenges  related  to  the  green  transition,  which  are  substantial. 
Cyprus  has  relatively  high  greenhouse  gas  emissions  per  head,  notably  in  energy  generation, 
energy  efficiency  of  buildings  and  transport  sectors  (see  Section  2.3).  Emissions  have  been 
increasing over the  years, contrasting with ambitious EU and Cyprus’ targets toward the green 
transition.  Cyprus  also  faces  challenges  in  water  and  waste  management  and  in  enhancing 
biodiversity and wildlife. 

The  plan  dedicates  41%  of  the  total  allocation  to  measures  contributing  to  the  green 
transition. With a total climate allocation of approximately EUR 491 million, the plan therefore 
complies  with  the  minimum  requirement  of  at  least  37%  of  the  total  allocation  supporting 
climate  change  objectives.  The  proposed  measures  reflect  the  identified  challenges  and  are  in 
line with  the comprehensive  Integrated National  Energy  and Climate Plan (INECP) of January 
2020.  

Policy  Axis  2  represents  the  main  lever  of  the  green  transition  in  the  plan.  It  includes 
measures  that  contribute  to  Cyprus’  transition  to  climate  neutrality  through  energy  efficiency, 
renewable  energy,  promotion  of  sustainable  transport  and  improved  water  management. 
Specifically,  it  envisages  to  improve  the  environmental  and  climate  policy  through  the 
introduction  of  green  taxation,  the  opening-up  of  the  electricity  market  and  the  facilitation  of 
licensing of renewable energy and renovation projects. It aims to improve the energy efficiency 
of the building stock and other infrastructure and to support green investments. Furthermore, an 
envisaged  electricity  interconnector  aims  to  tackle  Cyprus’  energy  isolation  and  thus  its 
vulnerability  to  energy  supply  and  price  shocks.  Dedicated  measures  aim  at  accelerating  the 
replacement  of  conventional  transport  rolling  stock  with  zero  and  low  emission  vehicles 
accompanied  with  the  necessary  infrastructure  and  the  use  of  alternative  and  cleaner  means  of 
transport.  The  axis  further  envisages  smart  and  efficient  water  management  mainly  through 
introduction  of  new  technology.  The  axis  further  addresses  the  challenges  of  climate  change 
adaptation  through  a  number  of  protective  and  preventive  measures  in  the  areas  of  forest  fire 
protection and anti-flood management. Biodiversity preservation is addressed with one measure 
focusing on the protection of the marine ecosystem from hazards. 

Other components of the plan also contribute to the green transition. In particular, the plan 
includes envisaged construction of energy efficient buildings and energy efficient renovation of 
existing ones in component 1.1 (Resilient and effective health system, enhanced civil protection), 
the development  and promotion  of circular economy and investment  in  new port infrastructure 
for  the  aquaculture  sector  in  component  3.1  (New  growth  model  and  diversification  of  the 
economy), and support for smart cities and the renovation of Nicosia inner city in component 3.4 
(Modernising public and local authorities, making justice more efficient and fighting corruption). 
Also, a share of funding programmes is dedicated to research and innovation on green transition 
in  component  3.2  (Enhanced  research  and  innovation).  Policy  Axis  5  contributes  through 
dedicated investment in green skills and indirectly through measures promoting flexible working 
arrangements, mostly telework, thus reducing commuting to work and in turn carbon footprint. 

35 

 
 
Digital transformation  

The plan’s measures related to digital transformation are well anchored in the analysis of 
Cyprus’ main challenges in digitalisation. Cyprus lies at the lower end of the ranking of EU 
Member States in the DESI. While improving on some of the dimensions over past years, Cyprus 
has  not  succeeded  in  reducing  the  gap  to  the  EU  average.  The  relative  performance  gap  is 
particularly marked in connectivity (mostly in terms of fixed broadband, above 100 Mbps) and 
digital skills where the gap has recently increased.  

The  plan  dedicates  about  23%  of  the  total  allocation  to  measures  contributing  to  digital 
objectives. With a digital contribution of EUR 282 million, the plan complies with the minimum 
requirement  of  at  least  20%  of  the  total  allocation  supporting  digital  transition.  The  proposed 
measures  reflect  recommendations  of  the  new  National  Digital  Strategy  of  June  2020,  whose 
objectives are the digital transformation of the public and private sectors and promotion of digital 
innovation.  

Policy Axis 4 represents the main lever of digitalisation in the plan. Component 4.1 (Upgrade 
infrastructure  for  connectivity)  and  component  4.2  (Promote  e-government)  aim  to  improve 
connectivity  infrastructure  and  developing  e-government  solutions.  The  plan’s  objective  of 
ensuring  high-capacity  connectivity  for  the  whole  population  living  in  organised  communities, 
together with 5G coverage of main corridors, is expected to foster the use of digital services by 
both  the  private  and  public  sectors  and  ensure  an  inclusive  digital  transformation.  Measures 
promoting e-government are expected to simplify the communication of citizens and businesses 
with  the authorities, reduce the administrative burden and benefit the business  environment.  In 
addition,  the  creation  of  a  Public  and  Governmental  Cloud  environment  is  expected  to 
significantly contribute to the digital transformation of Cyprus. 

Several other components of the plan also feature digitalisation concerns at their core and 
significantly  contribute  to  the  digital  transformation.  Public  sector  digitalisation  spans  well 
beyond  the  Policy  Axis  4  and  involves  specific  sectors  of  the  public  administration.  In  Policy 
Axis 3, ambitious digital measures are included in taxation and customs, the application of the 
insolvency framework, supervision of financial markets and financial institutions, modernisation 
of central and local administrative functions and of the justice system. Digitalisation also features 
as a central element of the enhancements of the Cypriot health system, including the deployment 
of cross border e-Health services in Cyprus. The private sector is expected to indirectly benefit 
from the digital measures in the public sector, and its digitalisation should be directly supported 
through  measures  accompanying  the  productivity  and  competitiveness  of companies,  including 
SMEs. The development of digital skills is among the key aims of education and skills measures 
in  component  5.1  (Educational  system  modernisation,  upskilling  and  retraining).  Reforms  and 
investments  across  all  levels  of  education  are  foreseen  to  integrate  digital  skills  in  school 
curricula and invest in digital technologies to increase long term employment and productivity. 
Similarly, the plan addresses enhancing the attractiveness of STEM subjects from an early age, 
which  is  relevant  for  the  digital  transition.  Component  5.2  (Labour  market,  social  protection, 
social  welfare and inclusion) fosters digitalisation as part of the  reform of the social insurance 

36 

 
system and of social insurance services, and of the investment improving the effectiveness of the 
Department of Labour and Public Employment Services. 

Smart,  sustainable  and  inclusive  growth,  including  economic  cohesion,  jobs,  productivity, 
competitiveness,  research,  development  and  innovation,  and  a  well-functioning  single  market 
with strong SMEs 

The plan addresses numerous challenges related to smart, sustainable and inclusive growth 
in  the  context  of  the  pandemic.  Cyprus’  underperformance  in  terms  of  sustainable  economic 
growth is principally a result of low competitiveness, investment gap and an untapped potential 
to  further  diversify  the  economy  and  work  ‘smarter’,  i.e.  more  efficiently  (see  Section  2.2). 
Moreover,  in  Cyprus  at  times  of  economic  stress,  productive  investments  tended  to  decrease 
significantly with firms facing difficulties with access to finance, notably due to expensive bank 
lending coupled with a lack of equity funding. To make growth more sustainable, there is a need 
to shift focus to the green and digital transitions. Cyprus scores low on issues that relate to ICT 
and  digital,  innovation  indicators,  business  efficiency  measures,  such  as  productivity  and 
management. Cyprus also faces weaknesses in the business environment and institutions, such as 
the efficiency of the judicial system. Finally, there is a significant skills mismatch in Cyprus. 

The plan is expected to create jobs through stimulating public and private investment. The 
overall plan serves the purpose of providing a stimulus to the economy, directly and indirectly. 
The  post-pandemic  recovery  and  job  creation  should  be  particularly  helped  by  rolling  out 
investments  into  green  construction  sector  activities  (both  building  and  reconstructions), 
renewables,  sustainable  transport  and  digital  infrastructure  and  systems  falling  under  various 
components (see also the preceding sub-sections on green transition and digital transformation). 
In  turn,  the  expected  resulting  increase  in  the  competitiveness  of  businesses  through  reduced 
energy  costs  and  increased  attractiveness  to  foreign  investors  would  further  stimulate  job 
creation  indirectly.  Upskilling  and  reskilling  initiatives  and  the  modernisation  of  education 
curricula in component 5.1 (Educational system modernisation, upskilling and retraining) would 
also increase the employability of the workforce. 

Policy  Axis  3  is  focused  on  achieving  smarter  and  more  sustainable  growth,  through 
diversification,  innovation,  improved  access  to  funding  and  a  simplified  and  investment-
friendly business environment. In particular, measures in component 3.1 (New growth model 
and  diversification  of  the  economy)  contribute  to  this  objective  through  the  promotion  of  a 
resilient  and  competitive  primary  sector,  the  promotion  of  an  innovative  and  competitive 
secondary sector, the promotion of a sustainable, high value-added tourism sector and the further 
development of a circular economy. The  reforms and investments in component 3.2 (Enhanced 
research  and  innovation)  are  expected  to  contribute  to  increasing  Cyprus’  competitiveness 
through  innovation  by  strengthening  the  linkage  and  collaboration  between  research  and 
industry,  improving  commercialisation  of  research  results,  increasing  in  intensity  of  R&D 
activity  and  investments  and  in  making  the  research  infrastructure  accessible  to  the  entire 
ecosystem. Furthermore, the plan aims to enhance the financial support to innovative start-ups, 
scale-ups  and  SMEs,  with  emphasis  on  specific  thematic  areas,  while  developing  local  talent, 
including through measures in component 5.1 (Educational system modernisation, upskilling and 

37 

 
retraining),  and  attracting  talent  from  abroad  to  work  in  R&I.  Measures  in  components  3.3 
(Business  support  for  competitiveness)  and  3.4  (Modernising  public  and  local  authorities, 
making  justice  more  efficient  and  fighting  corruption)  improve  framework  conditions  through, 
among  others,  the  modernisation  of  the  Cyprus  Companies  Law,  including  the  insolvency 
framework,  the  creation  of  alternative  financing  mechanisms,  an  effectively  reformed  local 
administration  and  a  reorganised  judicial  system.  Other  measures  entail  direct  support  to 
businesses for capacity building and digital upgrade. Finally, component 3.5 (Safeguarding fiscal 
and financial stability) includes measures to strengthen the soundness of the banking system by 
supporting  further  declines  of  NPLs  and  consolidating  the  crisis  management  framework  for 
credit  institutions,  improving  the  application  of  the  insolvency  framework  and  measures  for 
combating private indebtedness. It also aims to increase the efficiency, effectiveness and fairness 
of  the  tax  system  and  tax  administration,  including  through  measures  to  tackle  aggressive  tax 
planning. 

Several  other  components  of  the  plan  also  contribute  substantially  to  boosting  potential 
growth  that  is  sustainable  and  inclusive.  In  particular,  measures  in  component  4.1  (Upgrade 
infrastructure  for  connectivity)  aim  at  improving  framework  conditions  for  digital  transition  in 
terms  of very high-capacity  connectivity infrastructure across the entire  Cyprus’ territory. This 
paves the way for Cyprus to benefit fully from high-capacity digital technologies, thus increasing 
the efficiency and competitiveness of Cyprus’ economy. Relatedly, measures in component 4.2 
(Promote  e-government)  aim  at  digitalising  and  thus  rendering  more  efficient  and  effective 
public  services.  This  is  rendered  future-proof  through  reforms  to  improve  the  delivery, 
maintenance and operating model of large-scale e-government projects. Smart growth will also 
be  promoted  through  measures  improving  Cyprus’  competitiveness  and  productivity  mainly 
through  digitalisation  throughout  the  plan,  including  component  1.1  (Resilient  and  effective 
health system,  enhanced civil  protection). Policy Axis  5 contains measures to  reduce the skills 
mismatch and to improve educational outcomes, to reform the social security system, to improve 
the  effectiveness  of  the  Department  of  Labour  and  Public  Employment  Services,  to  reinforce 
outreach for young people and to facilitate activation through flexible working arrangements and 
expanded care services. As regards the sustainable growth, the plan’s key reform and investment 
initiatives should, among others,  contribute to  a  cleaner energy mix, lower carbon footprint by 
enterprises  and  households  and  greening  of  transport  (under  Policy  Axis  2).  The  plan  aims  at 
strengthening  the  inclusion  through  reducing  the  digital  divide  and  the  negative  impact  of 
children’s  socio-economic  background  on  educational  outcomes  under  Policy  Axis  4  and  in 
component 5.1 (Educational system modernisation, upskilling and retraining). 

Social and territorial cohesion  

Cyprus  faces  several  structural  challenges  in  the  area  of  social  and  territorial  cohesion, 
which  were  further  aggravated  by  the  effects  of  the  COVID  crisis.  The  labour  market  and 
social  effects  of  the  economic  downturn  of  2020  have  affected  disproportionately  some 
categories of workers, such as women and the youth (see Section 2.2). Outreach to young people 
not  in  employment,  education  or  training  is  a  key  challenge  for  Cyprus,  requiring  structural 
improvements and efforts at the local level. The gender employment gap is high and reflects to 

38 

 
some extent gaps in early childhood, education and care where the needs are high. Moreover, the 
share  of  people  at  risk  of  poverty  or  social  exclusion  remains  high  relative  to  the  EU,  while 
social  services  need  enhancements  that  would  reflect  existing  territorial  disparities  within  the 
country.  

The plan addresses challenges in social and territorial cohesion through a mix of reforms 
and investments in education, health care and social protection. Measures in component 1.1 
(Resilient and effective health system, enhanced civil protection) aim at enhancing the healthcare 
sector,  improving  its  accessibility  and  resilience  and  implementing  a  patient-centred  approach 
that will benefit both social and territorial cohesion. Component 2.1 (Climate neutrality, energy 
efficiency and renewable energy penetration) puts forward an incentive framework conducive to 
building  renovations,  including  social  infrastructure  and  housing,  and  addresses  also  energy 
poverty issues. Building renovations at a large scale are also likely to help create jobs and boost 
economic  activity.  Component  3.1  (New  growth  model  and  diversification  of  the  economy) 
includes  measures  addressing  the  uneven  distribution  of  tourism  activity,  aiming  at  improving 
territorial cohesion by better spreading it benefits for local communities. This is the time for the 
sector  to  accelerate  meaningful  changes  with  regard  to  these  inequalities  that  are  expected  to 
make  a  lasting  difference  for  future  generations  Measures  in  component  4.1  (Upgrade 
infrastructure for connectivity) are expected to benefit territorial cohesion by reducing the digital 
divides  and  increasing  accessibility  of  digital  infrastructures.  Component  5.2  (Labour  market, 
social  protection,  social  welfare  and  inclusion)  should  bring  about  reforms  and  investment 
supporting  employment  of  women  and  the  youth,  as  well  as  that  of  persons  with  caring 
responsibilities for children and other dependents. It is also expected to improve the engagement 
with young people in the NEET category. In parallel, the reform of social insurance frameworks 
and improved work of the Department of Labour and Public Employment Services, is expected 
to jointly benefit social cohesion. 

Health, and economic, social and institutional resilience, with the aim of, inter alia, increasing 
crisis preparedness and crisis reaction capacity 

The COVID-19 pandemic highlighted weaknesses in Cyprus’ health system as well as weak 
resilience  of  its  economy,  notably  due  to  its  high  dependence  on  a  few  sectors  and  to  the 
high  level  of  indebtedness.  The  COVID-19  pandemic  and  population  ageing  pose  numerous 
economic  and  social  challenges,  putting  pressure  in  particular  on  the  healthcare  system.  While 
still relatively new, the National Health System reform has already made Cyprus more resilient 
to  the  pandemic  and  allowed  more  equitable  access  to  healthcare  services.  These  gains  are 
expected to be consolidated through further implementation of the reform. The recent pandemic 
crisis  further  highlighted  the  importance  of  the  preparedness  to  deal  with  emergencies  in  civil 
protection.  The  economy’s  high  concentration  in  a  limited  number  of  sectors,  high  level  of 
indebtedness  for  both  private  and  public  sector  and  a  relatively  narrow  tax  base,  heavily 
dependent on corporate income tax revenue, render it vulnerable to external shocks and thus has 
a significant bearing on its economic resilience and adjustment capacity (see Section 2.2). 

39 

 
Several  components  contribute  significantly  to  increasing  economic  resilience.  The  plan 
entails measures to create a more resilient Cyprus’ economy with reduced vulnerability to shocks 
(see sub-section on Smart, sustainable and inclusive growth). 

Regarding  social  resilience  and  the  social  protection  system,  several  measures  in  Policy 
Axis 5 are expected to contribute to the implementation of the principles of the European 
Pillar  of  Social,  translating  into  improvements  of  the  indicators  of  its  Social  Scoreboard 
(see  Section  4.3).  The  key  measures  aim  to  reach  out  to  young  people  not  in  employment, 
education or training and, to facilitate the activation of, among others, women and persons with 
caring responsibilities. Moreover, this policy axis seeks to reform the social insurance system to 
widen social protection for all regardless of the type and duration of employment by extending 
and  improving  coverage  of various  benefits. Further,  investments  and  reforms  improve  the 
access to quality education and training at all levels and across population groups contributing to 
improved education outcomes and reduced skills mismatches.  

The  resilience,  effectiveness  and  accessibility  of  the  health  and  long-term  care  sectors 
should  be  strengthened  by  the  investments  and  reforms  contained  in  component  1.1 
(Resilient and effective health system, enhanced civil protection). The reforms in the health 
sector  should  increase  the  resilience,  effectiveness  and  accessibility  of  the  system,  notably  by 
supporting  the  recently  introduced  National  Health  System  through  various  measures, 
particularly  modernisation  of  health  care  infrastructure  and  equipment,  modernisation  and 
digitalisation  of  healthcare  procedures  and  processes, including  introduction  of cross-border e-
Health services, of evidence-based clinical protocols and of value-based healthcare. In addition, 
it  entails  an  investment  to  enhance  Cyprus’  civil  protection  system  through  a  modern  public 
warning system.  

Finally, institutional  changes are  taking place  including in  relation  to  the justice system, the 
fight  against  the  corruption  (particularly  through  an  establishment  of  an  independent  authority 
against corruption, legislation to protect whistle-blowers and to  enhance transparency in public 
decision-making processes and to prevent conflict of interest), in revisiting the companies’ law, 
facilitating  the  licensing  for  strategic  investments,  easing  the  doing-business  procedure, 
reviewing the research and innovation policy along with the modernisation and digitalisation of 
public  services,  as  well  as  the  digitalisation  of  central  and  local  administrations,  schools  and 
health institutions. 

Policies for the next generation, children and the youth, such as education and skills  

Children and young people have endured a large share of the adverse effects of the COVID 
crisis, in part due to long-standing structural weaknesses in education and labour market 
policies. The downturn initiated by the pandemic has disproportionately affected the youth (see 
Section  2.2).  These  effects  are  compounded  by  challenges  in  the  education  system,  limited 
access  to  early childhood education and care, in particular for children below the age of three, 
skills  mismatches  in  the  economy.  Moreover,  specific  skills  related  to  the  digital  and  green 
transitions also need supportive measures.  

40 

 
Modernisation  of  education,  upskilling  and  retraining  proposed  in  Policy  Axis  5  address 
the  issues  of  educational  quality,  inclusiveness  and  readiness  for  the  digital  transition.  A 
reformed teacher and school evaluation system together with updated school curricula, as part in 
component 5.1 (Educational  system modernisation, upskilling and retraining), are an important 
step towards improving educational outcomes. Extended pre-primary education from the age of 
four  and  investments  into  early  childhood  education  and  care  capacities,  backed  by  a  national 
strategy, are expected to have benefits in terms of subsequent educational outcomes but also care 
affordability, and to benefit social inclusion, in particular of children from disadvantaged and/or 
migrant  background.  Improved  and  more  accessible  vocational  education  and  training  should 
increase  its  attractiveness  and  relevance  for  the  economy’s  needs,  ultimately  benefitting  the 
labour market prospects of its graduates. 

The  plan  features  a  number  of  labour  market  and  social  measures  expected  to  lead  to 
improved social cohesion, in accordance with the objectives of the European Pillar of Social 
Rights. Component 5.2 (Labour market, social protection, social welfare and inclusion) has the 
ambition  to  significantly  expand  the  outreach  towards  young  people  not  in  employment, 
education  or  training  with  the  ultimate  goal  of  ensuring  their  inclusion  on  the  labour  market. 
Support  for  the  employment  of  persons  with  care  obligations,  to  women  and  to  unemployed 
youth  is  expected  to  help  increase  their  labour  market  participation.  Social  insurance  coverage 
will  be  reviewed  to  reflect  new  employment  patterns,  while  the  component  also  aims  at 
improved  efficiency  and  quality  of  social  insurance  services.  Other  measures  support  and 
improve care for children under the guardianship of social services, for persons with disabilities 
and  for  people  in  need  of  long-term  care.  Moreover,  component  1.1  (Resilient  and  effective 
health  system,  enhanced  civil  protection)  includes  the  enhancement  of  a  hospital  dedicated  to 
children’s  health  care.  By  making  access  to  digital  infrastructure  more  even,  component  4.1 
(Upgrade  infrastructure  for  connectivity)  will  aim  at  reducing  the  digital  divide  among  young 
generations.  

Taking  into  consideration  all  reforms  and  investments  envisaged  by  Cyprus,  its  recovery 
and resilience plan represents, to a large extent a comprehensive and adequately balanced 
response to the economic and social situation, thereby contributing appropriately to all six 
pillars referred to in Article 3 of the RRF Regulation, taking the specific challenges and the 
financial  allocation  of  Cyprus  into  account.  This  would  warrant  a  rating  of  A  under  the 
assessment criterion 2.1 in Annex V to the RRF Regulation.  

4.2. Link with country-specific recommendations and the European Semester  

In  line  with  assessment  criterion  2.2  in  Annex  V  to  the  RRF  Regulation,  this  section 
provides an overview of the assessment of whether Cyprus’ plan is expected to effectively 
address  all  or  a  significant  subset  of  the  country’s  economic  and  social  challenges.  These 
challenges are identified in the relevant country-specific recommendations (CSRs) addressed to 
Cyprus  in  July  2019  and July  2020,  including  the  fiscal  aspects  thereof,  and  recommendations 

41 

 
made pursuant to Article 6 of Regulation (EU) No 1176/2011, based on the in-depth review for 
Cyprus under Article 5 of Regulation (EU) No 1176/2011 published in 2019 and 2020. 

By addressing the aforementioned challenges, the recovery and resilience plan is expected 
to  also  contribute  to  correcting  the  excessive  macroeconomic  imbalances  that  Cyprus  is 
experiencing30.  The  2021  in-depth  review  concluded  that  Cyprus’  excessive  macroeconomic 
imbalances continue to relate to high stocks of external, government, and private debt, and still 
high  non-performing  loans,  alongside  a  substantial  current  account  deficit31.  Addressing  these 
challenges  is  expected  to  significantly  boost  the  growth  potential  of  the  Cypriot  economy  and 
enhance  economic  resilience.  The  COVID-19  crisis  has  interrupted  the  adjustment  process 
initiated  in  previous  years.  The  recent  crisis  has  also  brought  to  the  fore  the  importance  of 
bolstering the country’s growth prospects in correcting the legacy imbalances and strengthening 
its economic and social resilience.  

Against  this  background,  the  plan  focus  on  CSRs  addressed  to  Cyprus  in  2019  and  2020 
under  the  European  Semester  covering  the  areas  of  public  finances,  health,  labour, 
education, investments, green and digital transition and financial sector: 

(1) Public  finances  and  health  care:  The  authorities  were  called  on  to  take  all  necessary 
measures  to  effectively  address  the  pandemic,  sustain  the  economy  and  support  the 
ensuing  recovery.  When  economic  conditions  allow,  pursue  fiscal  policies  aimed  at 
achieving  prudent  medium-term  fiscal  positions  and  ensuring  debt  sustainability,  while 
enhancing  investment.  Strengthen  the  resilience  and  capacity  of  the  health  system  to 
ensure quality and affordable services, including by improving health workers’ working 
conditions.  Cyprus  was  also  invited  to  address  features  of  the  tax  system  that  facilitate 
aggressive tax planning by individuals and multinationals. 

(2) Labour  market,  education  and  skills  and  social  policy:  Cyprus  was  invited  to  provide 
adequate  income  replacement  and  access  to  social  protection  for  all.  Strengthen  public 
employment  services  and  reinforce  outreach  and  activation  support  for  young  people, 
promote  flexible  working  arrangements  and  improve  labour  market  relevance  of 
education and training. The Council also recommended Cyprus to deliver on the reform 
of  the  education  and  training  system,  including  teacher  evaluation,  and  increase 
employers’ engagement and learners’ participation in vocational education and  training, 
and affordable childhood education and care. 

(3) Public and private investment: The authorities were called on to secure adequate access 
to finance and liquidity, especially for small and medium-sized enterprises to simplify the 
procedures for strategic investors to obtain necessary permits and licences and resume the 

30 COM(2021) 500 final. 
31 On 2 June 2021, the Commission published an in-depth review under Article 5 of Regulation (EU) 1176/2011 of 
the European Parliament and of the Council2 for Cyprus. SWD(2021) 408 final. 

42 

 
                                                           
implementation  of  privatisation  projects.  Cyprus  was  also  invited  to  front-load  mature 
public  investment  projects  and  promote  private  investment  to  foster  the  economic 
recovery.  

(4) Green  and  digital  transition:  Focus  investment  on  the  green  and  digital  transition,  in 
particular  on  clean  and  efficient  production  and  use  of  energy,  waste  and  water 
management, sustainable transport, digitalisation, research and innovation. 

(5) Structural reforms  to improve the functioning of the public sector  and fight  corruption: 
The authorities are encouraged to implement structural reforms to improve the efficiency 
and digitalisation of the judicial system and the public sector, including the governance of 
State-owned  entities  and  local  governments.  The  authorities  were  also  invited  to  take 
measures  to  strengthen  the  legal  enforcement  of  claims  and  ensure  reliable  and  swift 
systems  for  the  issuance  and  transfer  of  title  deeds  and  immovable  property  rights. 
Accelerate  anti-corruption  reforms,  safeguard  the  independence  of  the  prosecution  and 
strengthen the capacity of law enforcement. 

(6) Structural  reforms  to  facilitate  the  reduction  of  non-performing  loans:  Cyprus  was 
invited  to  set  up  an  effective  governance  structure  for  the  State-owned  bank  asset 
management  company,  take  steps  to  improve  payment  discipline  and  strengthen  the 
supervision  of  credit-acquiring  companies.  The  authorities  were  also  called  on 
strengthening supervision capacities in the non-bank financial sector, including by fully 
integrating the insurance and pension-fund supervisors. 

Overall,  the  plan  represents  a  comprehensive  and  adequate  response  to  the  challenges 
faced  by  Cyprus’  economy  and  society  and  its  implementation  is  expected  to  support  the 
correction of the identified excessive macroeconomic imbalances, while promoting a more 
inclusive and sustainable growth model. The plan builds on the reform agenda initiated under 
the  economic  adjustment  programme  and  currently  monitored  under  the  post  programme 
surveillance,  including  reforms  to  reduce  the  non-performing  loans  and  safeguard  financial 
stability. Moreover, the plan introduces reforms and investments in the areas of access to finance 
for small and medium enterprises, taxation, resilience of the health system, modernisation of the 
public administration, local  governments,  justice system, promoting social inclusion, education 
and  skills  and  investing  in  early  childhood  education  and  care.  The  plan  is  centred  on  the 
objective of supporting a digital and green transition. These constitute a significant subset of the 
challenges identified in the CSRs to Cyprus. Nevertheless, considering that these challenges are 
long-standing,  further  efforts  may  be  needed  in  the  coming  years  in  some  areas  such  as  the 
governance of State-owned enterprises, the legal enforcement of claims and payment discipline 
and  privatisations.  In  addition,  the  plan  provides  a  response  to  common  challenges,  notably  in 
particular the flagships identified in the 2021 Annual Sustainable Growth Strategy.  

Public finances and health care 

The  COVID-19  pandemic  and  the  related  lockdown  measures  increased  financing  needs 
and  significantly  affected  the  government  deficit  and  debt.  In  2020,  the  budget  balance 

43 

 
reached a deficit of 5,7% of GDP, while the government debt rose to 118,2% of GDP. Cyprus 
has introduced support measures to cushion the economy from the pandemic, and to support the 
healthcare  sector,  employment  and  businesses  by  providing  liquidity  to  households  and 
enterprises,  suspending  VAT  payments  and  preserving  jobs  by  providing  support  schemes  to 
businesses on the condition not to lay off employees. The plan complements the policy response 
undertaken by the authorities to mitigate the effects of the crisis by sustaining the economy and 
supporting the ensuing recovery (CSR 1 in 2020). 

The plan includes measures aiming at addressing tax evasion and aggressive tax planning 
practices  (CSR  1  in  2019  and  CSR  4  in  2020).  To  combat  tax  evasion  and  aggressive  tax 
planning by multinationals in particular, the plan foresees the introduction of withholding taxes 
to  outbound  payments  of  interest,  dividends  and  royalty  payments,  including  to  low  tax 
jurisdictions.  It  also  includes  a  corporate  tax  residency  test  based  on  the  incorporation  of  each 
entity,  which  should  be  additional  to  the  management  and  control  test.  The  assessment  of  the 
overall  set  of  measures  related  to  aggressive  tax  planning  is  expected  to  be  carried  out  by  an 
independent  evaluator.  The  evaluation  is  expected  to  conclude  with  policy  actions  to  be 
implemented by the authorities in case shortcomings are identified. The plan presents a range of 
reforms  and  investments  to  improve  the  tax  administration  and  tax  collection,  including  the 
integration of two major tax departments and introduction on new IT systems. 

The plan addresses the challenges faced by the Cypriot healthcare sector and complements 
the  efforts  undertaken  to  tackle  the  COVID-19  crisis.  Objectives  of  the  reforms  and 
investments introduced in the plan are to strengthen the healthcare system and the availability of 
healthcare  solutions  to  patients  (CSR  1  in  2020).  The  implementation  of  the  National  Health 
System (NHS) started in mid-2019 with the first phase. The roll-out of the second phase initiated 
in June 2020 was slowed down due to the outbreak of the COVID-19 pandemic and is expected 
to  be  gradually  completed  within  2021  (CSR  3  in  2019).  The  crisis  highlighted  some  crucial 
weaknesses  of  the  health  sector  such  as  the  shortage  of  a  flexible  workforce  and  skilled 
personnel  able  to  effectively  act  in  case  of  urgent  needs.  In  addition,  Cyprus  lags  in 
digitalisation,  modern  equipment  and  monitoring  capabilities  in  the  health  system.  Cyprus  is 
addressing  these  challenges  in  the  plan  notably  through  an  upgrade  of  medical  equipment  and 
investments in ICT systems and e-Health. Extension and construction of additional units are also 
envisaged.  

Labour market, education and skills and social policy 

The plan adequately complements Cyprus’ efforts to tackle challenges in the labour market 
and  skills  mismatches  (CSR  3  in  2019  and  CSR  2  in  2020).  The  plan  presents  a  series  of 
targeted upskilling  and reskilling programmes including in  the digital  and green  economy, and 
contains measures to improve the effectiveness of the Public Employment Services including by 
developing  a  performance  management  system  and  digitalising  of  incentive  schemes.  In 
addition,  the plan includes measures to  support  young people not  in  employment, education or 
training (NEETs), by providing for outreach activities, counselling and hiring incentive schemes. 

44 

 
Furthermore,  unemployed  young  people  are  expected  to  benefit  from  coaching  and  career 
guidance. The plan also introduces a national graduate tracking system, which is expected to help 
inform  the  update  of  secondary  schools’  educational  curricula  to  improve  digital  literacy, 
emotional  intelligence,  soft  skills  and  entrepreneurship  skills,  along  with  several  training 
schemes  to  enhance  the  digital  skills  across  all  population  groups.  All  these  measures  are 
expected to significantly improve labour market relevance of education and training. 

The  plan  effectively  addresses  challenges  facing  the  Cypriot  education  system  (CSR  3  in 
2019).  It  proposes  a  new  teacher  and  school  evaluation  system,  which,  among  others,  should 
provide incentives for teachers to systematically retrain and improve their skills and assess better 
the  quality  of  the  education  provided,  as  well  as  to  start  the  free  and  compulsory  pre-primary 
education from the age of four instead of four years and eight months, under the current system. 
These reforms aim to improve educational outcomes. Furthermore, targeted investments and the 
adoption  of  a  national  strategy  on  early  childhood  education  and  care  (ECEC)  are  expected  to 
improve  quality  and  affordability  of  the  services  provided.  Vocational  education  and  training 
(VET) is planned to be expanded by the construction of two model technical schools with state 
of the art equipment and improved geographical accessibility.  

The plan addresses effectively social challenges (CSR 2 in 2020). The social protection system 
is planned to be extended to cover several benefits such as unemployment, accident at work and 
occupational disease for the self-employed and people working with contracts or new forms of 
employment, such as digital platform workers. With the reform of the Social Insurance System 
and digitalising of the business processes of the Social Security Services, all gainfully occupied 
persons  in  Cyprus  should  enjoy  the  same  protection  and  improved  services.  A  law  to  regulate 
flexible  working  arrangements  in  the  form  of  telework  is  also  included  in  the  plan,  a  so  far 
important  missing  element  in  the  labour  market.  The  plan  aims  to  increase  the  social  and 
economic  inclusion  of  vulnerable  groups  of  the  population  via  access  to  high  quality  social 
services. The plan includes measures  (i) to improve the infrastructure capacity of Social Welfare 
Services to meet the hosting and care needs of unaccompanied minors and other children under 
their  guardianship,  (ii)  to  provide  support  for  adolescents  with  serious  conduct  issues,  (iii)  to 
provide persons with disabilities with suitable, comfortable, accessible, family-type homes in the 
community to live with safety, dignity and quality of life (iv) to establish community-based care 
centres for people who are in  need for long term care, and (v) to  improve the infrastructure of 
two special education schools. 

Public and private investment 

The plan highlights the front-loading of mature public investment projects and promotes 
public  and  private  investments  in  priority  sectors,  including  the  ones  contributing  to  the 
digital  and  green  transition  (CSR  3  in  2020).  The  plan  puts  emphasis  on  streamlining 
procedures  and  modernising  public  administration  through  the  implementation  of  digital 
platforms  and  trainings.  The  plan  focuses  also  on  the  enhancement  of  the  efficiency  and 
digitalisation  of  the  judicial  system.  Research  and  development  as  well  as  innovation  are 

45 

 
important features of the plan, aiming at increasing the competitiveness of firms active in various 
sectors and boosting growth, also through their cooperation with research academia. Moreover, a 
number of reforms and investments are included in the plan, focusing on renewable energy and 
energy  efficiency,  sustainable  transport  and  smart  and  sustainable  water  management.  These 
measures  are  complemented  by  the  establishment  of  National  Promotional  Agency,  aiming  at 
providing financial instruments to SMEs and start-ups, and measures addressing aggressive tax 
planning and corruption issues. 

The plan addresses challenges related to access to funding, especially for SMEs and start-
ups (CSR 4 in 2019 and CSR 3 in 2020). Access to finance and to alternative mechanisms of 
finance are limited in particular, for SMEs and start-ups. This barrier hampers the establishment 
of new businesses and the expansion of existing units by making new investments (see Section 
2.2).The  plan  aims  at  improving  the  access  to  funding  by  establishing  a  National  Promotional 
Agency,  which  would  provide  financial  instruments  such  as  loans,  guarantees  and  equity 
financing  in  a  coordinated  way  and  ensure  expertise.  In  addition,  the  plan  promotes  the 
implementation of funding programmes and schemes, with the objective of enhancing the growth 
and competitiveness of start-ups, SMEs and innovative firms.  

The  plan  includes  measures  to  simplify  the  processes  to  obtain  necessary  licenses  and 
permits (CSR 4 in 2019). To facilitate strategic investments, the plan proposes the creation of a 
new  unit  at  the  Department  of  Town  Planning  and  Housing  that  streamline  the  licensing  of 
strategic  investments.  The  reform’s  objective  is  to  facilitate  the  rules  and  procedures  for 
obtaining licences and permits. The privatisation of the Cyprus Stock Exchange (CSE) consists 
of  finding  the  most  suitable  strategic  investor  through  a  tender  process  to  appoint  a  reputable 
independent  advisor  or  consortium,  with  extensive  relevant  expertise.  The  objective  of  this 
privatisation project is to enhance the CSE by making it more competitive and flexible.  

Green and digital transition 

The  plan  contains  a  number  of  reforms  and  investments  aiming  at  supporting  the  green 
and digital transition. Energy efficiency and renewable energy (CSR 4 in 2019 and CSR 3 in 
2020)  represent  some  main  areas  where  Cyprus  needs  to  undertake  efforts,  as  numerous 
challenges remain, such as building stock with low energy efficiency rating, lack of competitive 
electricity market  and long permitting procedures for RES  projects  (see  Section 2.3). The plan 
includes  reforms  and  investments  addressing  the  mentioned  issues  through  the  green  taxation, 
opening of electricity market, enhancement of permitting processes and upgrading of buildings. 
The plan also targets the alleviation of energy poverty and addresses Cyprus’ energy isolation. 
Regarding the transport sector (CSR 4 in 2019 and CSR 3 in 2020), reforms and investments aim 
at tackling the air and noise pollution and support the green transition of the sector. The plan also 
addresses key concerns in the transport sector such as high dependency on private vehicles, road 
safety  and  suboptimal  public  transport  (see  Section  2.3),  through  the  development  of  electro-
mobility and related charging infrastructure, the promotion of a modal shift from private cars to 

46 

 
more  sustainable  modes  of  transport  such  as  public  transport,  cycling,  walking,  and  the  use  of 
zero or low-emission vehicles (LEVs). In addition, the plan encourages the digitalisation of the 
transport sector through the establishment of an Intelligent Transport System using Digital Twin 
Technologies  and  the  scrapping  of  the  most  polluting  vehicles  combined  with  incentives  for 
sustainable  mobility  options.  Water  scarcity,  inefficient  and  ageing  water  infrastructure,  water 
losses  and  non-revenue  water  (CSR  4  in  2019  and  CSR  3  in  2020)  are  key  features  that  are 
negatively impacting the Cypriot development, environment, agriculture and public health. The 
plan  by  complementing  the  actions  under  the  Common  Agricultural  Policy  addresses  those 
problems  through  the  enhancement  of  infrastructure  and  water  quality,  and  the  introduction  of 
technological advances in order to provide more efficient services to consumers.  

The plan promotes digitalisation projects in various areas such as health, SMEs, education 
and  public  administration  (CSR  4  in  2019  and  CSR  3  in  2020).  Concerning  the  healthcare 
sector, the objective of various projects proposed in the plan is to sustain the digital transition of 
the sector. In particular, e-Health initiatives would be promoted with the establishment of cross 
border  e-Health  services  in  the  country,  and  the  deployment  of  an  ICT  System  aiming  at 
reducing the existing paperwork processes. Moreover, a number of reforms and investments in 
the plan aim at promoting digitalisation and innovation to strengthen the competitiveness of all 
firms  in  the  country,  active  in  agriculture  amongst  others.  In  addition,  the  plan  highlights  the 
need  to  digitalise  the  public  administration,  which  is  facing  significant  efficiency  challenges 
notably  due  to  heavy  and  lengthy  procedures,  and  structural  weaknesses.  The  plan  proposes 
reforms  and  investments  aiming  at  promoting  e-government  and  increasing  the  efficiency  of 
public administration (CSR 1 in 2019 and CSR 4 in 2020) through enhancing the administrative 
capacity,  procedures  and  functioning  as  well  as  by  developing  digital  skills  and  competences. 
The digitalisation of procurement procedures should decrease compliance costs and alleviate the 
administrative burden on firms, in particular SMEs and start-ups. Furthermore, the plan includes 
reforms for the modernization of social insurance IT systems, the digitalization of applications to 
schemes  of  the  Public  Employment  Services  and  a  reform  aiming  at  promoting  flexible  work 
arrangements  in  the  form  of  telework.  Regarding  education,  there  is  a  need  to  increase  the 
informational literacy and students' digital skills (see Section 2.2). The plan proposes to address 
the  challenge  through  the  provision  of  necessary  resources  in  schools  to  develop  e-classes  and 
training of teachers.  

The plan encourages research and innovation (CSR 4 in 2019 and CSR 3 in 2020). While 
the research and development (R&D) ecosystem in Cyprus is growing, it remains small and the 
interaction with businesses is limited, which affects the commercialisation of research results and 
firms’ innovation capacity. In addition, Cyprus has a low share of STEM graduates and funding 
is  restricted  (see  Section  2.2).  The  plan  highlights  the  importance  of  research  and  innovation 
(R&I) for the economic growth and social prosperity.  It promotes various funding programs to 
increase  the  intensity  of  the  R&D  and  to  allow  in  particular  SMEs  and  start-ups  to  access 
financing.  The  establishment  of  a  central  knowledge  transfer  office  aims  at  making  research 

47 

 
accessible to  the  entire  ecosystem, and the implementation of policies  and incentives intend to 
encourage and attract talents, notably from abroad, to work in R&I. 

Structural reforms to improve the functioning of the public sector and fight corruption 

The  plan  contains  measures  addressing  inefficiencies  in  the  public  administration 
stemming from the legal framework and structural weaknesses (CSR 1 in 2019). Improving 
the  efficiency  of  the  public  administration  is  key  to  allow  citizens,  businesses  and  the  public 
sector itself to benefit from flexible, modern and productive public services. The plan addresses 
this  challenge  by  proposing  a  reform  aiming  at  improving  human  resource  management 
framework of the public administration and improving the administrative capacity of the Cyprus 
Police.  In  addition,  the  digitalisation  of  the  Cypriot  administration  is  taken  into  account  in  the 
plan.  Improved  governance  of  local  administration  is  proposed,  with  a  reform  aiming  at 
improving  the  decision-making  power,  the  administrative  autonomy  and  at  aligning  resources 
and responsibilities. The governance of State-owned enterprises is not addressed in the plan.  

The  serious  efficiency  issues  of  the  Cypriot  judicial  system  are  addressed  in  the  plan. 
Challenges  are mainly related to  the length  of court proceedings, which  are the longest  among 
EU countries. The high level of backlog cases, lack of ICT case management and communication 
technologies are additional deficiencies in the system (see Section 2.2). Reforms and investments 
included in the plan aim at improving the effectiveness of the justice system (CSR 5 in 2019 and 
CSR 4 in 2020) through the deployment of a digital transformation of courts, training of judges 
and improvement of infrastructure of courts. 

The plan addresses inefficiencies in the system of issuing and transferring title deeds, which 
affect the property rights, foreclosure procedures and liquidation of collaterals (CSR 5 in 
2019). The plan addresses these challenges by implementing reforms, with the objectives of (i) 
examination and issuance of title deeds for pending cases, (ii) extension of the new planning and 
building  permit  policy  to  enhance  the  permitting  procedures,  (iii)  review  of  the  Streets  and 
Buildings Regulation Law to introduce the right incentives for the supervising engineer to further 
discourage irregularities that would result in title deeds not being issued, (iv) amendment of the 
Sale of Property (Specific Performance) Law to ensure that the transfer of immovable property is 
executed  as  soon  as  the  buyer  fulfils  his/her  contractual  obligations.  Nevertheless,  the 
enhancement of the system  of issuance of title deeds for future cases can be considered as not 
ambitious enough.  

The plan tackles issues related to corruption, which is perceived as high in Cyprus (CSR 5 
in  2019).  Corruption  affects  citizens’,  businesses’  as  well  as  civil  servants’  trust  in 
administration, with negative consequences on the social life, the operation of the Public Service 
and the business environment. The implementation of a National Horizontal Action Plan against 
Corruption  aims  at  achieving  a  greater  coherence  in  the  fight  against  corruption.  This  strategy 
consists of providing legislation, which aims at protecting whistle-blowers, enhance transparency 
in  the  public  decision-making  processes  and  prevent  conflict  of  interest.  An  Independent 

48 

 
Authority against Corruption should be established in order to coordinate the efforts of all bodies 
engaged  in  the  fight  against  corruption,  as  well  as  supervise  the  implementation  of  actions  by 
various  competent  Services.  Anti-corruption  training  and  Awareness  Campaign  have  as 
objectives  to  raise  consciousness,  and  to  educate  and  train  citizens  about  issues  concerning 
corruption. Additional step of the strategy against corruption is the reinforcement of the Internal 
Audit Units in all the Ministries and the Internal Audit Service. In addition, the introduction of 
the  ISO  37100  accreditation  for  private  and  public  sectors  should  help  in  increasing 
transparency, stamping out bribes and creating an ethical business culture. Nevertheless, the plan 
does not include measures on prosecution and capacity law enforcement.  

Structural reforms to facilitate the reduction of non-performing loan 

The  plan  addresses  challenges  in  the  banking  sector,  notably  related  to  the  high  level  of 
non-performing 
loans  (NPLs),  payment  discipline,  supervision  of  credit-acquiring 
companies and non-bank financial sector (CSR 2 in 2019). Although the level  of NPLs has 
decreased substantially, Cyprus records the second highest level in the EU (see Section 2.2). The 
recovery and resilience plan addresses financial risk related to legacy NPLs in the banking sector 
by implementing an action plan on NPLs, which consists of sales of NPLs to specialised credit 
acquiring  companies,  reclassifications  of  NPLs  into  performing  loans  as  well  as  government-
backed schemes for loans collateralised by primary residences. The improvement of the working 
environment for NPLs  management for credit acquirers and credit services is crucial. The plan 
includes the adoption of a package of bills regarding credit acquiring companies and servicers, 
covering  access  to  the  land  registry  and  alignment  of  notification  requirements  in  case  of 
purchase  of  a  loan  by  a  credit  acquiring  company.  Regarding  payment  discipline,  the  plan 
expects  an  improvement  through  the  implementation  of  the  strategy  for  Combating  Financial 
illiteracy, which aims at enhancing financial education within the general population, enhancing 
financial decision making, correcting wrong attitudes and biases, supporting more informed and 
financially  responsible  citizens.  Nevertheless,  the  plan  does  not  include  any  safeguards  to 
maintain the effective foreclosure framework. The strengthening of supervision of the insurance 
and  pension  funds  sectors  is  expected  to  be  achieved  through  the  increase  of  personnel  and 
supervisory tools in the insurance and pension supervisory bodies, without their full integration.  

49 

 
 
Table 5: Mapping of country challenges identified in 2019-20 CSRs and the Cyprus plan components  

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access to finance 

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banking system and financial 
stability  
Address the challenges and 
inefficiencies in the public sector 

Address labour market, education 
and skills, and social challenges 
Improve health and long-term care 
systems 
Facilitate the green transition  

Facilitate the digital transition  

Associated CSR 
(2019-2020) and 
European Semester 
recommendations 
2019 4.6, 4.7, 4.8 
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2020 3.8 

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2019 2.1, 2.2, 2.3, 2.4 

2019 1.1, 1.2, 1.3, 1.4 
2019 5.1, 5.2, 5.3 
2020 1.1, 4.1, 4.2, 4.3 
2019 3.1, 3.2, 3.3 
2020 2.1, 2.2, 2.3, 2.4 
2019 3.4 
2020 1.1, 1.2 
2019 4.1, 4.2, 4.3 
2020 3.4, 3.5, 3.6 
2019 4.4 
2020 3.7  

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Key: “●” investments and reforms of the component significantly address the challenge; “○” the component partially addresses the challenge 

50 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Taking into consideration the reforms and investments envisaged by Cyprus, its recovery 
and  resilience  plan  is  expected  to  contribute  to  effectively  addressing  all  or  a  significant 
subset  of  challenges  identified  in  the  country-specific  recommendations,  or  challenges  in 
other  relevant  documents  officially  adopted  by  the  Commission  under  the  European 
Semester,  and  the  recovery  and  resilience  plan  represents  an  adequate  response  to  the 
economic  and  social  situation  of  Cyprus.  This  would  warrant  a  rating  of  A  under  the 
assessment criterion 2.2 in Annex V to the RRF Regulation. 

4.3. Growth  potential,  job  creation,  economic,  institutional  and  social  resilience, 
European  Pillar  of  Social  Rights,  mitigating  the  impact  of  the  crisis,  and  social 
territorial cohesion and convergence  

Fostering economic growth and jobs 

The plan includes a wide set of investments in physical and human capital and reforms that 
are expected to contribute to economic growth and increasing employment. The plan aims at 
accelerating the economic recovery in Cyprus and laying the base for a sustainable growth model 
in  the  long-term.  The  measures  included  in  the  plan  are  expected  to  ultimately  reduce  the 
country’s  vulnerability  to  shocks  by  improving  growth  potential,  creating  jobs  and  increasing 
economic, social and institutional resilience.  

Several  measures  aim  at  diversifying  the  sources  of  economic  growth  and  improving 
productivity. Even before the pandemic, Cyprus’ was facing challenges to its growth model and 
low productivity, which have been discussed in Section 2.2. The plan addresses several causes of 
this  issue.  Component  3.1  (New  growth  model  and  diversification  of  the  economy)  includes 
actions  to  increase  the  productivity  of  the  primary  sector,  primarily  through  agri-tech,  and  the 
secondary sector, aiming at developing a competitive light manufacturing. The component also 
invests  in  sustainable  tourism  by  diversifying  the  services  offered  as  well  as  to  the  circular 
economy.  Components  2.1  and  2.2,  4.1  (Upgrade  infrastructure  for  connectivity)  and  4.2 
(Promote  e-government)  include  measures  such  as  green  taxation,  promotion  of  renewables, 
sustainable  transport  and  investments  in  digital  connectivity  and  digitalisation  of  government 
services, which are expected to help the country transit to a greener and digital-based economy. 
In  particular,  component  2.1  (Climate  neutrality,  energy  efficiency  and  renewable  energy 
penetration)  is  expected  to  ensure  more  competitive  wholesale  electricity  prices  by  connecting 
the  electricity  network  of  Cyprus  to  the  Greek  network  in  Crete,  thus  improving  the 
competitiveness of the economy. Components 5.1 (Educational system modernisation, upskilling 
and  retraining)  and  5.2  (Labour  market,  social  protection,  social  welfare  and  inclusion) 
complement  the  efforts  of  diversification  and  productivity  boosting  by  including  reforms  and 
investments  addressing  skills  mismatches  in  the  labour  market.  Component  3.3  (Business 
support for competitiveness) aims at improving the business environment, along with component 
3.4  (Modernising  public  and  local  authorities,  making  justice  more  efficient  and  fighting 
corruption),  which  includes  reforms  such  as  the  national  promotional  agency  and  equity  fund, 
which  are  expected  to  improve  access  to  finance  for  the  SMEs.  Finally,  component  3.2 
(Enhanced research and innovation) makes an important contribution through strengthening the 

51 

 
linkage and collaboration between research and businesses, commercialising research results and 
intensifying R&D activity.  

The plan aims at simplifying the business environment and improving access to finance for 
the  SMEs.  Component 3.3  (Business  support  for  competitiveness)  is  key  in  efforts  to  create  a 
simplified  and  investment-friendly  business  environment,  provide  financing  opportunities  to 
SMEs  and  improve  internationalisation  opportunities  for  Cypriot  companies.  The  component 
includes measures such as the introduction of an integrated framework for the procedures related 
to the investment and entrepreneurial activity in Cyprus and modernisation of the companies law, 
including the insolvency framework. Furthermore, measures include, capacity building of SMEs 
through the provision of consulting and mentoring, the digital upgrade of the enterprises and the 
provision  of  incentives  aimed  at  improving  the  productivity  of  the  business  community,  and 
especially that of SMEs. Reforms are expected to also be implemented to facilitate and promote 
the creation of alternative financing mechanisms like equity funding, to meet the financing needs 
of  enterprises,  especially  innovative  enterprises  and  start-ups.  Component  3.4  (Modernising 
public and local authorities, making justice more efficient and fighting corruption) is expected to 
underpin the business environment and enhance ease-of-doing-business by investing in a modern 
public administration, increasing the quality and efficiency of the justice system and introducing 
several anti-corruption reforms.  

Implementation of measures aimed at safeguarding fiscal and financial stability is expected 
to  improve  the  resilience  of  the  economy  and  underpin  growth.  Component  3.5 
(Safeguarding  fiscal  and  financial  stability)  includes  measures  for  increasing  the  efficiency, 
effectiveness  and  fairness  of  the  tax  system  and  tax  administration  and  securing  revenue 
collection, as well as measures to address aggressive tax planning. The component also includes 
measures  to  strengthen  and  safeguard  the  soundness  of  the  financial  system  (banking,  capital 
markets, society/users and beneficiaries of the system) through reforms related to the high stock 
of NPLs and improvement of the insolvency regime, as well as measures for combating private 
indebtedness including new legal framework and system of exchange of data and credit bureaus 
and an action plan for the development of a liability monitoring register.  

Important  steps  are  taken  to  improve  the  efficiency  of  the  judicial  system.  The  plan  also 
includes  an  ambitious  agenda  to  improve  the  quality  and  efficiency  of  the  justice  system. 
Component  3.4  (Modernising  public  and  local  authorities,  making  justice  more  efficient  and 
fighting corruption) is expected to complete the digitalisation of judicial procedures and foresees 
the  use  of  updated  rules  of  civil  procedure.  This  is  accompanied  by  an  upgrade  the  existing 
infrastructure  and  measures  to  improve  the  skills  of  judges  and  judicial  staff  and  to  accelerate 
justice administration. 

The  plan  aims  at  addressing  key  skills  mismatches  in  the  labour  market  and  promoting 
employment.  Component  5.1  (Educational  system  modernisation,  upskilling  and  retraining) 
contains  reforms  and  investments  focused  on  enhancing  the  quality  and  effectiveness  of 
education  at  all  levels  and  to  help  learners  acquire  the  right  skills,  including  digital  skills  and 
competences for the needs of the economy. Additionally, Component 5.2 (Labour market, social 
protection,  social  welfare  and  inclusion)  addresses  the  challenges  of  self-employed  people  and 

52 

 
people  working  in  new  forms  of  employment  who  do  not  enjoy  adequate  social  protection,  as 
well  as  at  facilitating  employment  for  young  people  and  people  with  caring  responsibilities  of 
dependents, mostly women.  

The investments foreseen under the plan are expected to increase public investment. Public 
investment  in  Cyprus  has  been  below  the  EU  average  and  concentrated  in  construction  (see 
Section 2.2). Based on the analysis included in the plan, growth enhancing expenditure as a share 
of GDP would be on average 0,7 percentage points higher due to the measures financed through 
the Recovery and Resilience Facility compared to the baseline. The plan can be thus understood 
as additional to the expenditure policy currently in place. 

The Cypriot authorities have provided an estimation of impact of the plan on growth and 
jobs.  The  quantification  was  done  by  the  Economics  Research  Centre  of  the  University  of 
Cyprus  using  several  complementary  methods  and  techniques,  such  as  a  production  function 
approach,  econometric  models,  and  an  Input-Output  framework.  Focusing  on  the  period  of  the 
implementation of the plan, it could contribute on average an additional 1,2 percentage points of 
GDP growth per year during 2021-2026, compared to the non-plan baseline scenario. During the 
same period, the plan increases employment by more than 2,5% cumulatively. Considering also 
spill-over  effects  from  other  countries,  the  results  on  the  GDP  impact  using  Commission’s 
QUEST model are presented below (see Box 2).  

53 

 
 
Box 2: Stylised NGEU impact simulations with QUEST - Cyprus 

Model  simulations  conducted  by  the  Commission  using  the  QUEST  model  show  that  the 
economic  impact  of  the  NGEU  in  Cyprus  could  lead  to  an  increase  of  GDP  of  between 
1,1% and 1,8% by 2026.32 After 20 years, GDP could be 0,6% higher. Spill overs account 
for a sizable part of the effect.  

According to these simulations, this would translate into up around 3,000 additional jobs. Cross 
border (GDP) spill overs account for 0,5 percentage points in 2026, showing the value added of 
synchronised  expenditure  across  Member  States  (line  2).  Even  assuming  that  half  of  the 
expenditure is not productive still leads to a significant impact (line 3). 33 

Table  6:  QUEST  simulation  results  (%-deviation  of  real  GDP  level  from  non-NGEU  case,  linear 
disbursement assumption over 6 years)  

Source: European Commission  

This  stylised scenario  does  not  include  the  possible  positive  impact  of  structural  reforms, 
which  can  be  substantial.  A  model-based  benchmarking  exercise  shows  that  undertaking 
structural  reforms  that  would  result  in  halving  the  gap  vis-à-vis  best  performers  in  terms  of 
indicators of structural reforms could raise Cyprus’ GDP by 8% in 20 years’ time, compared to 
11% for the EU average34. 

Due  to  the  differences  in  the  assumptions  and  methodology  the  results  of  this  stylised 
assessment cannot be directly compared to the numbers reported in chapter 4 of Cyprus’ 
plan.  

Strengthening social cohesion 

32  RRF  amounts  to  roughly  90%  of  NGEU,  which  also  includes  ReactEU,  Horizon,  InvestEU,  JTF,  Rural 
Development and RescEU. 
33 Technically, the low productivity scenario considers a significantly reduced output elasticity of public capital. 
34  Varga,  J,  in  't  Veld  J.  (2014),  “The  potential  growth  impact  of  structural  reforms  in  the  EU:  a  benchmarking 
exercise", European Economy Economic Papers no. 541.  
http://ec.europa.eu/economy_finance/publications/economic_paper/2014/pdf/ecp541_en.pdf.  

54 

Scenario 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2040 Baseline 1,0 1,5 1,5 1,6 1,7 1,8 1,4 1,1 1,1 1,1 0,6  of which spill over 0,5 0,5 0,5 0,5 0,5 0,5 0,4 0,3 0,3 0,2 0,1 Low productivity 0,7 1,1 1,0 1,0 1,0 1,1 0,7 0,3 0,4 0,4 0,3   
 
                                                           
The  plan  presents  a  comprehensive  set  of  measures  to  address  labour  market  challenges 
and  to  improve  social  cohesion.  These  policies  include  investments  in  education  and  skills, 
activation policies and social services, fighting inequalities, modernising the labour market, and 
increasing social inclusion. The plan is also expected to contribute to the implementation of the 
European  Pillar  of  Social  Rights,  including  through  the  promotion  of  policies  reducing  child 
poverty and increasing youth employment, and help Cyprus further in being an inclusive society 
with good access to healthcare and a productive and sustainable economy. 

Measures  under  policy  axis  five  “Labour  market,  social  protection,  education  and  human 
capital”  of  the  plan  are  expected  to  strengthen  social  cohesion  and  contribute  to  the 
implementation  of  the  European  Pillar  of  Social  Rights  action  plan.  The  measures  in 
component 5.2 (Labour market, social protection, social welfare and inclusion) aim to reach out 
to young people not in employment, education or training (NEETs) and put them in employment. 
There are also measures to facilitate the activation of young unemployed people, women as well 
as  persons  with  caring  responsibilities.  Moreover,  this  policy  axis  seeks  to  reform  the  social 
insurance  system  to  widen  social  protection  for  all  regardless  of  the  type  and  duration  of 
employment  by  extending  and  improving  coverage  of  various  benefits.  The  plan  also  provides 
measures  to  strengthen  the  capacity  of  the  social  welfare  services  to  host  and  care  for 
unaccompanied minors and other children such as adolescents with serious conduct issues and to 
provide persons with disabilities and people in need of long-term care such as the elderly with 
suitable,  comfortable,  accessible,  family-type  homes  in  the  community  to  live  with  safety, 
dignity and quality of life. In addition, through the construction of two special education schools 
the  aim  is  to  strengthen  learning  outcomes  by  improving  the  school  environment  for  students 
with  special  educational  needs.  Component  5.1  (Educational  system  modernisation,  upskilling 
and retraining) improves the quality of human capital through increased spending on education, 
training,  reskilling,  and  upskilling.  This  is  expected  to  address  another  vulnerability  of  the 
Cypriot economy: skill mismatches which contribute to unemployment of young people. It also 
improves access and affordability of early childhood education and care. Moreover, component 
1.1 (Resilient and effective health system, enhanced civil protection) is expected to help improve 
accessibility  to  healthcare  and  component  2.1  (Climate  neutrality,  energy  efficiency  and 
renewable energy penetration) through higher energy efficiency of buildings energy poverty’ in 
Cyprus, as inability to keep homes adequately warm and in arrears on utility bills are higher than 
the EU average. 

Reducing vulnerability and increasing resilience 

Several measures and components aim at reducing Cyprus’ vulnerabilities and increasing 
its  capacity  to  absorb  shocks.  The  main  vulnerabilities  are  identified  by  the  Macroeconomic 
Imbalances Procedure (see Sections 2.1 and 4.2). These vulnerabilities are long-standing legacies 
from the economic and financial crisis in 2013 and correcting them requires time. The common 
feature  of  these  imbalances  is  that  their  correction  requires  improving  growth  potential, 
competitiveness  and  employment  in  a  sustainable  and  inclusive  manner.  Most  of  the  measures 
discussed in the previous two sub-sections are therefore highly relevant to address them.  

55 

 
The  plan  underpins  the  new  growth  model  of  Cyprus  which  aspires  to  improve  the 
resilience of the economy. The economy of Cyprus depends heavily on few sectors of economic 
activity.  Four  sectors  of  economic  activity  drive  around  70%  of  the  growth  in  GDP  and  four 
sectors accounted for the 80% of  exports of services. Component 3.1  (New  growth model  and 
diversification  of  the  economy)  aims  to  diversify  the  economy  and  in  particular  to  develop  a 
competitive agriculture sector by investing in  the modernisation of agricultural  technology  and 
practices,  animal  husbandry  and  establishing  strong  collaboration  between  farmers,  higher-
education  institutions  and  the  Agricultural  Research  Centre.  Furthermore,  the  plan  foresees 
upskilling  of  farmers  to  adapt  to  the  needs  of  agri-tech.  The  plan  also  provides  for  the 
construction of a collaborative infrastructure for marine aquaculture to accommodate the needs 
of  marine  offshore  aquaculture  activities  and  boost  the  sector  of  fisheries.  Concerning  the 
manufacturing  sector,  the  plan  focuses  on  light  manufacturing  by  setting  up  the  first  Eco-
Industrial Science Park in the country, creating a national commercial identity and promote the 
traditional  product  “halloumi”.  The  plan  also  foresees  support  to  the  manufacturing  sector  to 
modernise  and  digitalise  enterprises  engaged  in  manufacturing  and  trading  of  agricultural 
products.  The  plan  is  expected  to  enhance  the  resilience  of  the  tourism  services  by  supporting 
SMEs to invest in development of the tourism sector in the mountains, remote and inland areas. 

The  planned  reforms  in  the  labour  market  are  expected  to  improve  its  resilience  by 
addressing  skills  mismatches.  Component  5.1  (Educational  system  modernisation,  upskilling 
and retraining) addresses the skills mismatches in the labour market, by introducing a graduate 
tracking system and reform secondary and tertiary education curricula according to the results of 
the tracking system. This reform is expected to contribute over the medium-term to the resilience 
of  the  labour  market  and  the  economy.  Labour  market  resilience  is  also  expected  to  be 
strengthened  by  further  reforms  and  investments  in  component  5.2  (Labour  market,  social 
protection,  social  welfare  and  inclusion)  that  promote  and  support  vocational  education  and 
training  and  early  childhood  education  and  care.  Moreover,  in  this  component  and  component 
5.1 (Educational system modernisation, upskilling and retraining) sizeable investments in active 
labour market policies, including reskilling and upskilling as well as providing hiring incentives, 
accompanied  by  enhancement  of  the  public  employment  service  are  expected  to  help  reduce 
unemployment and the relatively high percentage of young people not in employment, education 
or training. 

The  plan  includes  a  number  of  measures  to  strengthen  the  financial  sector.  It  includes 
reforms related to the high stock of NPLs and improvement of the insolvency regime as well as 
measures  for  combating  private  indebtedness,  including  a  new  legal  framework,  a  system  of 
exchange  of  data  and  credit  bureaus  and  an  action  plan  for  the  development  of  a  liability 
monitoring  register.  These  measures  should  be  beneficial  in  reducing  asymmetric  information 
between  public  entities,  financial  institutions,  households  and  businesses,  which  may  lead  to  a 
more efficient allocation of credit and facilitate the functioning of the secondary market for non-
performing loans.  The plan also  includes measures to  address  financial illiteracy.  Furthermore, 
component 3.3 (Business support for competitiveness) includes reforms and investments which 
are  expected  to  help  the  corporate  sector  by  providing  alternative  sources  of  financing,  which 
may in turn improve the resilience of the economy as a whole. 

56 

 
Resilience is also expected to be improved through investments in and measures supporting 
the  health  system.  Component  1.1  (Resilient  and  effective  health  system,  enhanced  civil 
protection)  aims  to  strengthen  the  effectiveness,  accessibility  and  overall  resilience  of  the 
healthcare sector by supporting the recently introduced National Health System through various 
interventions,  such  as  modernisation  and  digitalisation  of  health  care  infrastructure  and 
equipment,  improved  e-Health  services,  accreditation  of  provided  health  care  services  and 
introduction of evidence-based clinical protocols and upskilling for health workers. In addition, it 
aims to enhance Cyprus’ civil protection system through a modern Public Warning System.  

Further strengthening of the tax and public administration are expected to support a more 
resilient economy. Over the medium and long term, reducing tax evasion and creating a fair and 
growth-friendly  tax  environment  can  be  beneficial  to  provide  fiscal  space  for  necessary  policy 
interventions.  Component  3.5  (Safeguarding  fiscal  and  financial  stability)  includes  reforms  to 
improve  tax  collection  and  effectiveness  of  the  Tax  Department  and  to  address  aggressive  tax 
planning. In addition, Components 3.4 (Modernising public and local authorities, making justice 
more  efficient  and  fighting  corruption)  and  4.2  (Promote  e-government)  invest  in  modernising 
the  public  administration  and  increase  e-governance.  Finally,  institutional  changes  included  in 
the plan in relation to the justice system and the fight against corruption are expected to increase 
transparency and boost the business environment.  

Cohesion and convergence 

The  plan  is  expected  to  contribute  to  enhancing  economic,  social  and  territorial  cohesion 
and convergence. The COVID-19 crisis brought into surface considerable economic and social 
disparities  in  Cyprus,  including  relatively  high  unemployment  for  youth,  high  percentage  of 
young people not in employment, education or training (NEETs) and increased risk of poverty 
and  social  exclusion  (especially  among  children  and  people  with  disabilities).  Some  socio-
economic differences persist within Cyprus, notably between rural and mountainous regions and 
urban  centres.  The  plan  includes  measures  to  enhance  the  tourism  sector  in  rural  and 
mountainous  regions  and  upgrade  infrastructure  for  connectivity  to  bridge  gaps  and  ensure  an 
inclusive  digital  transformation  and  access  to  communication  infrastructures  for  all  citizens. 
Furthermore, the investment Regeneration and revitalisation of Nicosia inner city aims to attract 
young  people  to  reside  in  this  area.  The  investments  on  early  childhood  education  and  care 
facilities  aim  to  cover  considerable  geographical  needs.  Concerning  social  cohesion,  the  plan 
includes measures that would facilitate the employment of young people women and people with 
caring responsibilities for children and other dependents. In addition, the plan aims at improving 
the  hosting  infrastructure  and  services  for  unaccompanied  minors  and  children  under  the 
responsibility of the social welfare services. The reform of the Social Insurance System should 
extend  coverage  for  all  independent  of  their  form  of  employment.  As  discussed  in  previous 
subsections, the plan includes a wide range of measures that are expected to help the economy to 
recover,  reduce  socio-economic  disparities  and  develop  a  sustainable  growth  model.  Within 
these measures, the ones that aim to support small and medium sized enterprises are particularly 
relevant  for  reducing  economic  disparities,  the  improvement  of  the  business  environment, 
including simplification of procedures, improvement of the financial sector and upskilling.  

57 

 
 
Box 3: Employment and social challenges in light of the Social Scoreboard accompanying 
the European Pillar of Social Rights 

The  Social  Scoreboard  supporting  the  European  Pillar  of  Social  Rights  points  to  a 
number of employment and social challenges in Cyprus.  The COVID-19 crisis has halted 
the positive labour market developments of the past years and risks leading to an increase in 
the  share  of  people  at  risk  of  poverty  or  social  exclusion,  despite  improvements  prior  to  the 
pandemic.  Unemployment  and  employment  indicators  have  worsened,  although  apart  from 
youth  employment,  they  remain  around  EU  average.  Poor  digital  literacy  (55%  of  the 
population lacking basic digital skills in 2019) negatively impacts on employability. 

The employment situation of young people in Cyprus is critical. The already high share of 
young people aged 15-29 not in employment, education or training (NEETs) worsened in the 
current crisis, reaching 15,3% in 2020 (vs. 14,1% in 2019). The youth unemployment rate rose 
from 16,6% in 2019 to 18,2% in 2020 (EU average: 15% and 16,8%, respectively). Also, the 
rate  of  early  leavers  from  education  and  training 
increased  to  11,5%  in  2020,  above  the  EU 
average (9,9%).  

The  COVID-19  crisis  may  exacerbate  already 
existing  social  challenges.  Growth  of  real  gross 
disposable household income (GDHI) per person 
was  one  of  the  slowest  in  Cyprus  in  2019  and 
wages  (both  nominal  and  real)  contracted  from 
Q2  2020.  Income  of  the  top  20%  of  the  income 
distribution  was  4,58  times  that  of  the  bottom 
20%  in  2019  (S80/S20),  while  the  at  risk  of 
poverty  or  social  exclusion  rate  (AROPE)  stood 
at  22,3%,  following  a  steady  reduction  from  its 
peak  in  2015  (28,9%),  but  still  above  the  EU 
average  (20,9%).  The  AROPE  rate  for  persons 
with  disabilities  remains  higher  than  the  EU 
average (CY 33% vs. EU-27 28,4% in 2019). 

social  challenges  relevant 

The  plan  of  Cyprus  addresses  employment 
the 
and 
implementation  of  the  Pillar.  To  foster  equal 
opportunities and access to the labour market, the 
plan  proposes  reforms  to  enhance  digital  and 
green  skills,  modernise  teachers’  and  schools’ 
evaluation  system,  and  address  overall  skills 

for 

58 

 
 
 
 
 
mismatches.  Investments  to  further  upgrade  vocational  education  and  training  (VET)  and 
provide  activation  for  youth  are  also  envisaged,  complementing  ESF+  actions.  To  improve 
labour market dynamics and working conditions, Cyprus has proposed a number of measures 
(including legislative) to make flexible working arrangements available more widely. The plan 
takes an integrated approach to labour market services and policies such as public employment 
services  (PES)  and  active  labour  market  policies  (ALMPs),  in  line  with  the  Commission 
Recommendation on Effective Active Support to Employment (EASE). The main target group 
is  the  youth,  with  the  plan  including  a  targeted  hiring  incentive  associated  with  training.  To 
improve  social  protection  and 
the  plan  proposes  measures  supporting 
deinstitutionalisation and long-term care services, to be further developed and integrated in the 
National Health System. 

inclusion, 

Cyprus  is  taking  steps  to  address  the  availability  and  affordability  of  quality  early 
childhood education and care (ECEC). The Cypriot plan includes a reform for the adoption 
of a new Law on the gradual eight-month extension of the entry age in free compulsory pre-
primary  education  from  the  age  of  four  years  and  provides  grants  to  community  and  private 
kindergartens. Furthermore, investments are also envisaged to increase childcare capacity and 
infrastructure  with  the  establishment  of  multifunctional  child  centres  and  the  construction  of 
new  public  childcare  centres.  These  actions  aim  to  increase  children’s  learning  outcomes, 
ensure equal access to quality and affordable ECEC, and facilitate labour market activation for 
people with caring responsibilities, particularly women. 

Taking  into  consideration  all  reforms  and  investments  envisaged  by  Cyprus,  its  recovery 
and resilience plan is expected to have a high impact on strengthening the growth potential, 
job  creation,  and  economic,  social  and  institutional  resilience  of  the  Member  State,  on 
contributing  to  the  implementation  of  the  European  Pillar  of  Social  Rights,  including 
through the promotion of policies for children and youth, and on mitigating the economic 
and  social  impact  of  the  COVID-19  crisis,  thereby  enhancing  the  economic,  social  and 
territorial cohesion and convergence within the Union. This would warrant a rating  of A 
under the assessment criterion 2.3 in Annex V to the RRF Regulation. 

4.4. The principle of ‘do no significant harm’  

The RRF Regulation provides that no measure included in the recovery and resilience plan 
should  lead  to  significant  harm  to  any  of  the  six  environmental  objectives  within  the 
meaning of Article 17 of the Taxonomy Regulation35. In line with the RRF Regulation and the 

35  The  six  environmental  objectives  comprise  (1)  climate  change  mitigation,  (2)  climate  change  adaptation, 
(3) sustainable use and protection of water and marine resources, (4) the circular economy, (5) pollution prevention 
and control, and (6) protection and restoration of biodiversity and ecosystems. 

59 

 
 
                                                           
Technical  Guidance  on  the  Application  of  ‘do  no  significant  harm’  under  the  RRF  Regulation 
(2021/C58/01; ‘DNSH Technical Guidance’), Member States provide a ‘do no significant harm’ 
(DNSH) assessment, on which basis the Commission assesses whether each and every measure 
(i.e. each reform and each investment) included in the plans complies with the DNSH principle. 
Compliance with the DNSH principle is a necessary condition for the Commission to positively 
assess the recovery and resilience plan. Cyprus has included a satisfactory DNSH assessment for 
each  measure  in  its  plan  and  has  provided  more  detail,  when  relevant,  in  accordance  with  the 
template  provided  by  the  Commission,  and  in  line  with  the  DNSH  Technical  Guidance.  The 
Commission  has  assessed  whether  and  how  each  measure  in  Cyprus’  plan  complies  with  the 
DNSH principle on that basis.  

Cyprus ensures that no significant harm is done to environmental objectives by selecting or 
designing  measures  complying  with  the  DNSH  principle,  and  by  substantiating  DNSH 
compliance  as  part  of  the  DNSH  assessment.  By  selecting  measures  that  either  contribute 
substantially  to  environmental  objectives,  or  have  no  or  an  insignificant  foreseeable  impact  on 
environmental objectives, many measures in  Cyprus’ plan can be considered DNSH  compliant 
from  the  outset  (e.g.  certain  measures  in  education  and  training,  labour  market,  public 
administration  and  justice,  and  digitalisation  of  systems  and  processes).  Other  measures  are 
designed  to  ensure  compliance  with  DNSH,  including  broad  support  schemes  that  span  across 
sectors and activities (e.g. in R&D&I, and support to SMEs, or more widely across industries). 
For  measures  requiring  a  ‘substantive  DNSH  assessment’  according  to  the  DNSH  Technical 
Guidance  (e.g.  healthcare,  sustainable  mobility,  energy  efficiency  and  renewable  energy 
investments  in  buildings,  the  ‘EuroAsia  Interconnector’),  Cyprus  has  provided  evidence  and 
assurances  substantiating  that  the  measures  do  not  lead  to  significant  harm  to  any  of  the  six 
environmental objectives.  

Cyprus has committed to apply  a number of  DNSH  requirements horizontally across  the 
plan.  For  example,  in  all  measures  involving  construction  of  new  buildings,  these  must  be 
Nearly Zero-Energy Buildings in line with the relevant EU legislation (Energy Performance of 
Buildings  Directives  2010/31/EU  and  (EU)  2018/844).  In  all  measures  that  involve  building 
renovations, compliance with the Energy Performance of Buildings Directives 2010/31/EU and 
Directive (EU) 2018/844 is required. For both new buildings and renovations, it is ensured that 
they are not located in areas vulnerable to floods, and the design of the buildings ensures a low 
impact of heat waves on interior thermal comfort.  

All measures that involve the purchasing and installation of biomass boilers and biomass-
based  fireplaces  via  the  energy  efficiency  schemes  in  component  2.1  (Climate  neutrality, 
energy  efficiency  and  renewable  energy  penetration)  must  comply  with  the  provisions  of 
Renewable  Energy  Directive  2018/2001/EU  (REDII)  and  related  implementing  and 
delegated  acts,  as  well  as  with  national  legislation  on  air  pollutant  emissions  from  such 
installations.  This  would  prevent  the  use  of  biomass  from  high  carbon  stock  land  and  high 
biodiverse land, or the use of high indirect land use change-risk biomass, providing a first level 
of DNSH-Biodiversity and DNSH-Mitigation. 

60 

 
Vehicles  or  vessels  to  be  procured  must  comply  with  high  environmental  performance 
standards,  e.g.  <50  g  CO2  emissions  /  km  in  the  case  of  light  duty  road  vehicles.  In  case  of 
special  purpose  vehicles,  the  best-available  technology  in  that  vehicle  category  should  be 
supported (e.g. for firefighting aircraft and vehicles, fire trucks and tractors in measure C2.1I9 - 
Forest Fires Protection). 

None  of  the  investments  and  reforms  included  in  the  plan  are  located  in  or  near 
biodiversity-sensitive  areas.  Moreover,  they  must  not  affect  nor  have  significant  effect  to  the 
areas and species protected by relevant national legislation, the Natura 2000 network of protected 
areas, UNESCO World Heritage sites and Key Biodiversity Areas. 

Where  relevant,  compliance  with  Strategic  Environmental  Assessment/  Environmental 
Impact Assessments/ Appropriate Assessments will be ensured and the results of relevant 
assessments will be taken into account. 

The  Cypriot  plan  also  includes  several  broad  measures  spanning  across  sectors  and 
activities,  which  are  designed  to  be  DNSH  compliant  (in  line  with  Technical  Guidance 
(2021/C58/01).  These  include  the  support  scheme  for  reducing  CO2  emissions  in  industries, 
businesses  and  organisations;  the  scheme  for  the  enhancement  of  competitiveness  in  the 
manufacturing sector; the action plan for enhancing circular economy in industry, as well as the 
innovation  funding  programmes  and  funding  schemes  for  the  enhancement  of  growth  & 
competitiveness of start-ups, innovative companies and SMEs.  

Provisions and milestones associated to these measures necessitate introducing appropriate 
criteria in the development of the terms of reference of the calls for proposals or calls for 
interest. The terms of reference should ensure that all projects selected under these calls comply 
with  the  ‘do  no  significant  harm’  principle,  by  preventing  activities  that  could  do  significant 
harm to environmental objectives (e.g. activities related to fossil fuels, activities above the ETS 
benchmarks  for  free  allocation,  waste  landfills  and  incinerators,  among  others)  from  being 
selected as part of the calls. For the activities under the ETS, where the emission reductions are 
not  substantially  lower  than  the  relevant  benchmarks,  an  explanation  on  why  this  level  of 
emission reductions cannot be achieved is expected to be provided. 

As regards the ‘EuroAsia Interconnector’, an Environmental Impact Assessment has been 
carried  out.  Cyprus  has  committed  to  adhering  to  the  mitigating  measures  identified  in  this 
assessment  with  regard  to  the  impact  on  the  marine  environment,  which  have  also  been 
incorporated into the construction permit for the project. 

Taking into consideration the assessment of all the measures envisaged, no measure for the 
implementation  of  reforms  and  investments  projects  included  in  Cyprus’  recovery  and 
resilience plan is expected to do a significant harm to environmental objectives within the 
meaning of Article 17  of Regulation (EU) No 2020/852 (the principle of ‘do no significant 
harm’). This would warrant a rating of A under the assessment criterion 2.4 in Annex V to 
the RRF Regulation. 

61 

 
4.5. Green transition  

Climate target 

The  Cypriot  plan  includes  measures  supporting  the  achievement  of  the  climate  change 
objectives  for  an  amount  which  represents  41%  of  the  plan’s  total  allocation  (EUR  491 
million  out  of  EUR  1,2  billion),  based  on  the  methodology  for  climate  tracking  set  out  in 
Annex VI of the RRF Regulation. This exceeds the minimum climate target of 37% as set out 
in  the  RRF  Regulation.  The  climate  change  contribution  of  each  of  the  components  of  the 
recovery and resilience plan of Cyprus is set out in Table 7.  

The  largest  contribution  in  the  plan  to  the  achievement  of  the  climate  change  objectives 
stems  from  the  policy  axis  2.  In  particular,  the  largest  contribution  (EUR  269  million)  stems 
from  component  2.1  (Climate  neutrality,  energy  efficiency  and  renewable  energy  penetration), 
followed  by  components  2.2  Sustainable  transport  (EUR  63  million)  and  2.3  Smart  and 
Sustainable  Water  Management  (EUR 55  million).  Other  components  with  significant 
contributions  to  the  climate  objectives  are  components  3.1  New  Growth  Model  and 
diversification  of  the  economy  (EUR  39  million)  and  component  1.1  (Resilient  and  effective 
health system, enhanced civil protection; EUR 38 million). 

Table 7: Share of climate contribution by component 

Cost  

(EUR 
million) 

Climate 
contribu-
tion  

(EUR 
million) 

Share 
dedicated 
to climate 
(% of total 
compo-
nent cost) 

Share 
dedicated 
to climate 
(% of total 
allocation) 

38 

269 

51% 

100% 

74 

269 

91 

87 

166 

64 

51 

96 

45 

53 

36 

94 

79 

3% 

22% 

5% 

5% 

3% 

1% 

0% 

1% 

0% 

0% 

0% 

0% 

0% 

41% 

63 

55 

39 

8 

0 

18 

0 

0 

0 

3 

0 

69% 

63% 

23% 

13% 

0% 

19% 

0% 

0% 

0% 

3% 

0% 

-- 

1 206 

491 

Component 

1.1 Resilient and effective health system, enhanced 
civil protection 
2.1 Climate neutrality, energy efficiency and renewable 
energy penetration 
2.2 Sustainable transport 

2.3 Smart and sustainable water management 

3.1 New growth model and diversification of the 
economy 
3.2 Enhanced research and innovation 

3.3 Business support for competitiveness 

3.4 Modernising public and local authorities, making 
justice more efficient and fighting corruption  
3.5 Safeguarding fiscal and financial stability 

4.1 Upgrade infrastructure for connectivity 

4.2 Promote e-government 

5.1 Educational system modernisation, upskilling and 
retraining 
5.2 Labour market, social protection, social welfare and 
inclusion  
Total 

Source: Cyprus’ plan 

62 

 
The  measure  with  the  most  important  contribution  to  the  achievement  of  the  climate 
change objectives is  the ‘EuroAsia Interconnector’ project (EUR 100 million). The project 
included in Cyprus’ recovery and resilience plan is part of a larger investment, which comprises 
the  electricity  interconnection  between  the  grids  of  Israel,  Cyprus  and  Greece  with  a  total 
capacity of 2000MW. The project is an energy highway  bridging Asia and Europe, with a total 
length of 1,208 km. This investment is expected to enable the import and export of electricity, 
which should aid electricity generation from cleaner sources, in particular renewables.  

Large  contributions  to  the  achievement  of  the  climate  change  objectives  are  provided  by 
various support schemes that support energy-efficiency and renewable energy investments 
for  households,  enterprises,  municipalities,  communities,  the  wider  public  sector  and 
NGOs. Sizeable contributions are also provided by investments encouraging a shift from private 
cars to public transport, cycling, walking, and promoting the use of clean vehicles. 

Another  important  feature  of  the  Cypriot  plan  is  the  inclusion  of  several  measures  with 
significant contribution to climate adaptation. These include measures such as C1.1I7 Public 
warning  system  for  supporting  emergency  operations  through  SMS  (EUR  4,5  million);  C2.1I9 
Forests  fire  protection  (EUR  18,7  million);  C2.3I5  Anti-flood  and  water  collection  measures 
(EUR 16  million);  C2.3I6  Enhance  water  security  for  Nicosia  and  Larnaca  regions 
(EUR 6,04 million).  

Cyprus’ plan correctly follows the methodology for climate tracking set out in Annex VI of 
the  RRF  Regulation.  It  identifies  intervention  fields  and  corresponding  coefficients  for  the 
calculation of support to the climate objectives, for each measure. It should be noted that: 

 

  a  number  of  climate-relevant  reform  measures  (i.e.  green  taxation  (C2.1R1),  the 
independence  of  the  Cyprus  Transmission  System  Operator  from  the  incumbent 
Electricity Authority of Cyprus (C2.1R2) and the Energy Storage Regulatory Framework 
(C2.1R4)) do not have any associated cost within the plan. In this context, the plan does 
not identify intervention fields for them, and they do not directly contribute to reaching 
the climate target. 
for the purposes of calculating the contribution to the climate objectives, the measures are 
split into sub-measures in such a way that the corresponding costs can be tagged with a 
suitable intervention field. For some measures, this split, which is presented in the table 
in  Annex  I  of  this  document,  differs  from  the  sub-measures  listed  in  the  Council 
Implementing Decision and other sections in the present Staff Working Document, where 
the sub-measures are defined as to facilitate and monitor the measure’s implementation. 
the choice of intervention fields for the climate transition is well justified and reflects the 
nature, focus, objective or expected outcome of the investments. 
the plan includes an increase of the climate coefficients, in line with the Regulation, for a 
number  of  investments  in  component  2.3  (Smart  and  sustainable  water  management; 
notably  the  investment  Smart  water  networks  management).  The  increase  of  climate 
coefficients  for  these  measures  takes  account  of  the  accompanying  reform  on  water 
resource management, which credibly increases the impact of these investments on their 

 

 

63 

 
 

climate objectives. The resulting increase to the climate contribution stays within the 3% 
limit provided by the RRF Regulation. 
in  a  limited  number  of  cases,  Cyprus  has  indicated  two  different  intervention  fields  for 
the  purpose  of  climate  and  digital  tagging,  respectively,  which  is  shown  in  the  table  in 
Annex I of this document. This has been applied when the measure cannot be split into 
different sub-parts, when no single intervention field that reflects the contribution to both 
climate and digital objectives can be applied, and when the measure is considered as fully 
or partly contributing to both climate and digital objectives. 

Green transition 

The  recovery  and  resilience  plan  puts  a  significant  focus  on  the  green  transition  with  a 
dedicated policy axis tackling the accelerated transition to a green economy.  Policy axis 2 
on accelerated transition  to  a  green  economy is the second largest  policy axis  in  the plan with 
36%  of  the  total  allocation  and  measures  addressing  energy  efficiency  and  renewable  energy, 
sustainable  mobility,  as  well  as  sustainable  water  management.  There  are  also  other  measures 
spread across the rest of the Policy axes, which promote the circular economy and research and 
innovation  linked  to  the  green  transition.  Overall,  the  proposed  actions  are  in  line  with  the 
context of the European Green Deal and put in perspective both the environmental and economic 
benefits of the green transition to foster recovery and resilience. The plan addresses significant 
challenges  to  the  green  transition  that  Cyprus  is  facing  (see  Section  2.3  and  Section  4.1).  The 
in  component  5.1  (Educational  system 
investment  Skilling,  reskilling  and  upskilling 
modernisation,  upskilling  and  retraining)  addresses  some  of  the  just  transition  challenges, 
aligning skills with the future economy.  

The Cypriot plan puts forward a number of key reforms to underpin the green transition. 
These reforms are linked to the introduction of green taxation, the liberalisation of the electricity 
market, licensing of renewable energy and renovation projects, water management, as well as the 
regulatory reforms aiming to facilitate and accelerate investments in electric mobility.  

Energy efficiency and renewable energy penetration 

The  Cypriot  recovery  and  resilience  plan  includes  measures  which  aim  at  making  a 
substantial contribution to the achievement of the national targets in energy efficiency and 
renewable  energy  for  2030  in  line  with  the  National  Energy  and  Climate  Plan  (NECP). 
Component  2.1  (Climate  neutrality,  energy  efficiency  and  renewable  energy  penetration) 
includes  reforms  relating  to  the  introduction  of  green  taxation,  the  independence  of  the 
Transmission System Operator from the incumbent electricity supplier to facilitate the opening 
of the electricity market to competition, as well as the establishment of digital one stop shops for 
licensing  Renewable  Energy  Sources  (RES)  projects  and  facilitating  energy  renovations  in 
buildings. The component further includes various support schemes aiming to assist households, 
enterprises, municipalities, communities, the wider public sector and NGOs to implement energy 
efficiency  and  renewable  energy  investments  and  to  combat  energy  poverty.  It  includes 
investments  related  to  the  energy  upgrade  of  public  buildings  and  other  public  infrastructure, 
including in the water treatment sector. Incentives for the reduction of greenhouse gas emissions 

64 

 
in  agriculture,  industries,  businesses  and  other  organisations  are  also  incorporated  in  this 
component, as well as the development of advanced testing procedures in the area of renewable 
energy  and  smart  grids  for  promoting  high-quality  research.  The  component  includes 
investments  relating  to  the  mass  roll-out  of  smart  meters  in  Cyprus,  as  well  as  the  ‘EuroAsia 
Interconnector’  project  aiming  to  enhance  the  energy  interconnection  between  Cyprus,  Greece 
and  Israel.  While  these  measures  are  expected  to  help  with  the  uptake  of  more  renewable 
capacity into the electricity mix in the future, the plan itself does not make major investments in 
increasing renewable energy generation. 

Sustainable mobility 

Cyprus  uses  the  plan  to  address  existing  challenges  in  the  transport  sector.  The  relevant 
measures  are  included  in  component  2.2  (Sustainable  transport).  The  component  supports  the 
European Flagship ‘Recharge and refuel’ and promotes clean technologies towards a sustainable, 
accessible  and  smart  transport.  In  particular,  the  plan  contains  kick-starting  the  replacement  of 
conventional  vehicles  with  zero-  and  low-emission  vehicles  accompanied  with  charging 
infrastructure  sufficient  for  the  planned  number  of  electric  vehicles  and  promotes  the  use  of 
alternative, cleaner fuels and means of transport, as well a wider use of public transport. Actions 
and  policy  measures  included  in  the  component  contribute  to  promoting  Renewable  Energy 
Sources (RES) projects and improving energy efficiency in accordance with the high-level goal 
of reaching the 2050 climate neutrality objective. 

Water Management  

Improving water management is one of the main environmental challenges that Cyprus is 
facing  and  the  plan  addresses  existing  investment  needs  in  its  component  2.3  (Smart  and 
sustainable  water  management).  The  component  is  comprised  of  a  set  of  interrelated  and 
reinforcing  investments  enhanced  by  a  water  management  reform,  all  of  which  are  aimed  at 
modernising water resource management and making it more sustainable. More specifically, the 
measures  in  the  component  aim  to  ensure  adequate  and  uninterrupted  supply  of  good  quality 
drinking  water,  maximising  the  infrastructure  for  waste  water  collection  systems,  waste  water 
treatment  and  reuse  of  treated  effluent  in  agriculture,  reducing  water  supply  and  distribution 
system  water  losses,  reducing  the  non-revenue  water  and  groundwater  abstraction,  improving 
operational  efficiency  of  the  services  being  provided  to  the  consumers  through  technological 
advances and establishing transparency in financial transactions. 

Circular economy  

Through its recovery and resilience plan, Cyprus intends to promote the circular economy 
as part of the efforts to establish a new growth model and diversify its economy. Component 
3.1  (New  growth  model  and  diversification  of  the  economy)  includes  measures  that  aim  at 
enhancement of the circular economy in the tourism and industrial sector, as well as at increasing 
sustainable  waste  management  practices,  including  recycling.  This  is  expected  to  contribute  to 
making better use of raw materials, as well as reducing waste, raising awareness for sustainable 
development and switching to renewable energy in order to mitigate the climate crisis, protecting 
social well-being and building a resilient economy. 

65 

 
Climate change adaptation and biodiversity 

Cyprus  addresses  the  challenges  of  climate  change  adaptation.  As  a  country  particularly 
vulnerable  to  the  impacts  of  climate  change,  the  Cypriot  plan  foresees  protective  and 
preventative  measures.  Component  2.1  (Climate  neutrality,  energy  efficiency  and  renewable 
energy  penetration)  includes  measures  to  increase  the  country’s  responsiveness  to  forest  fires, 
which  are  at  risk  of  increasing  due  to  climate  change  impacts.  Component  2.3  (Smart  and 
sustainable  water  management)  includes  anti-flood  and  water  collection  measures  for  the 
creation or upgrading of existing anti-flood infrastructure.  

Regarding  biodiversity,  component  2.3  (Smart  and  sustainable  water  management) 
includes an investment related to the protection of the marine ecosystem from hazards and 
the  improvement  of  the  level  of  efficacy  as  regards  oil  spills  prevention  and  response 
mechanisms. The objective of the measure is to protect marine ecosystems through an upgrade 
of  the  operational  capacity  of  the  Department  of  Fisheries  and  Marine  Research  to  respond 
promptly,  adequately  and  effectively  to  incidents  from  oil  pollution  to  marine  pollution.  The 
aforementioned  investments  in  adaptation  such  as  protection  of  forests  in  component  2.1 
(Climate  neutrality,  energy  efficiency  and  renewable  energy  penetration)  are  expected  to  also 
have  benefits  for  biodiversity.  In  addition,  component  3.1  (New  growth  model  and 
diversification of the economy) includes several measures that are expected to have an indirect 
contribution  to  protecting  biodiversity  such  as  building  collaborative  marine  aquaculture 
infrastructure,  developing  touristic  routes,  extension  of  the  Cyprus  Green  Points  Network  for 
improving  waste  collection  and  recycling.  Finally,  the  DNSH  assessment  ensures  that  the 
country’s Natura 2000 sites are not threatened by any measure included in the plan. 

66 

 
Research and innovation linked to the green transition 

Cyprus also plans investments in research and innovation focusing on the green transition. 
Component 3.2 (Enhanced research and innovation) includes a thematic research and innovation 
support  programme  on  the  green  transition.  The  objective  of  the  measure  is  to  provide  grant 
funding through thematic R&I programmes focusing on green transition. The supported projects 
should  focus  on  renewable  energy,  energy  efficiency  and  sustainable  transport.  They  should 
entail collaboration with Centres of Excellence for R&I, and facilitate the commercialisation of 
research results. 

Taking into consideration the assessment of all the measures envisaged, the recovery and 
resilience plan is expected, to a large extent, to make a significant contribution to the green 
transition or to address the challenges resulting from it and ensures that at least 37% of its 
total  allocation  contribute  to  the  climate  target.  This  would  warrant  a  rating  of  A  under 
criterion 2.5 in Annex V to the RRF Regulation. 

4.6. Digital transition  

Digital tagging  

The  plan  follows  the  methodology  for  digital  tracking  set  out  in  Annex  VII  of  the  RRF 
Regulation  by  identifying  intervention  fields  and  corresponding  coefficients  for  the 
calculation of contribution to the digital objectives. The choice of intervention fields for the 
digital transition is well-justified and reflects the nature, focus, objective or expected outcome of 
the investments included in the component. To ensure an accurate selection of the intervention 
fields  and  to  avoid  any  overestimations  of  the  contribution  of  certain  measures  to  the  digital 
objectives,  Cyprus  has  split  the  measures  based  on  their  costs  whenever  possible.  In  a  limited 
number of cases, Cyprus has indicated two different intervention fields for the purpose of climate 
and  digital  tagging,  respectively.  This  has  been  applied  when  the  measure  cannot  be  split  into 
different sub-parts, when no single intervention field that reflects the contribution to both climate 
and  digital  objectives  can  be  applied,  and  when  the  measure  is  considered  as  fully  or  partly 
contributing  to  both  climate  and  digital  objectives.  The  plan  does  not  propose  any  increased 
digital coefficients for any measure.  

Overall, based on the methodology, the contribution to achievement of the digital objectives 
accounts for 23% of the recovery and resilience plan’s total allocation,  which is above the 
20% target of the RRF Regulation. Out of the thirteen components of the plan, almost all of 
them  include  measures  related  to  digital  and  eight  of  them  are  directly  supporting  the  digital 
transition  or  addressing  related  challenges.  The  most  important  contributions  come  from 
components addressing connectivity infrastructure in component 4.1 (Upgrade infrastructure for 
connectivity)  and  the  digitalisation  of  the  public  sector  in  component  4.2  (Promote  e-
government),  followed  by  the  two  components  addressing  e-justice  in  component  3.4 
(Modernising public and local authorities, making justice more efficient and fighting corruption) 
and fiscal  and financial stability in  component 3.5 (Safeguarding fiscal  and financial stability). 
Therefore, while Policy Axis 4 (Towards a Digital Era) focuses solely on the digital transition, 
measures related to digital are spread out throughout the Cypriot plan.  

67 

 
Table 8: Digital contribution per component  

Component 

1.1  Resilient  and  effective  health  system, 
enhanced civil protection 
2.1  Climate  neutrality,  energy  efficiency  and 
renewable energy penetration 
2.2 Sustainable transport 
2.3 Smart and sustainable water management 
3.1  New  growth  model  and  diversification  of 
the economy 
3.2 Enhanced research and innovation 

3.3 Business support for competitiveness 
3.4  Modernising  public  and  local  authorities, 
making  justice  more  efficient  and  fighting 
corruption 
3.5 Safeguarding fiscal and financial stability 
4.1 Upgrade infrastructure for connectivity 
4.2 Promote e-government 
5.1 Educational system moderation, upskilling 
and retraining 
5.2  Labour  market,  social  protection,  social 
welfare and inclusion  
Total 
Source: Cyprus’ plan 

Digital transition 

Total Cost  
(EUR 
million) 

Digital 
contribu-
tion 
(EUR 
million) 

Share 
dedicated to 
digital (% of 
total 
component 
cost) 

Share 
dedicated to 
digital (% of 
total allocation) 

74 

269 

91 
87 
166 

64 

51 
96 

45 
53 
36 
94 

79 

15 

17 

4 
23 
2 

0 

17 
54 

28 
53 
35 
24 

10 

20% 

6% 

4% 
27% 
1% 

0% 

33% 
57% 

63% 
100% 
98% 
26% 

12% 

1% 

1% 

0% 
2% 
0% 

0% 

1% 
5% 

2% 
4% 
3% 
2% 

1% 

1206 

282 

-- 

23% 

With  a  significant  share  of  the  overall  budget  and  a  prominence  of  digital  aspects  across 
the majority of its components, the recovery and resilience plan proposed by Cyprus puts a 
strong  emphasis  on  the  digital  transition  and  addressing  the  challenges  resulting  from  it 
across all sectors. The measures of the plan cover five of the seven priority areas identified in 
Annex  VII  to  the  RRF  Regulation:  connectivity,  human  capital,  the  digitalisation  of  public 
services,  the  digitalisation  of  businesses,  investments  in  digital  capacities  and  advanced 
technologies.  The  plan  also  tackles  the  four  strategic  priorities  identified  at  EU  level  and 
reaffirmed  in  the  recent  communication  on  Europe’s  Digital  Decade36:  skills,  infrastructures, 
digital  transformation  of  businesses  and  digitalisation  of  public  services.  Finally,  the  proposed 

36 COM(2021) 118 - 2030 Digital Compass: the European way for the Digital Decade, 9 March 2021. 

68 

 
 
                                                           
measures are aligned with the four digital flagship initiatives identified in the Annual Sustainable 
Growth Strategy 202137: Connect, Modernise, Scale-Up and Reskill and Upskill. 

Component 4.1 (Upgrade infrastructure for connectivity), solely dedicated to connectivity, 
includes  both  reforms  and  investments  that  aim  to  foster  and  facilitate  the  widespread 
deployment of very high-capacity networks (VHCN). This includes 5G and fibre, in line with 
EU’s  2025  connectivity  objectives,  with  the  5G  Action  Plan  and  in  some  cases  with  the 
implementation  of  the  Connectivity  Toolbox.  By  identifying  and  removing  the  administrative 
bottlenecks and barriers to the rapid deployment of VHCN, the reforms are expected to facilitate 
investments by private operators. Investments should also support the build-up of VHCN in areas 
of  no  private  interest  thereby  addressing  territorial  disparities  of  broadband  availability.  For 
completeness,  with  component  4.1  (Upgrade  infrastructure  for  connectivity),  Cyprus  will  also 
implement  a  voucher  scheme  for  physical  persons,  to  encourage  the  construction  of  their 
building internal cabling, for connection to a VHCN passing close to their premises. Finally, the 
installation of a high-capacity resilient backbone internet connectivity for Cyprus through a new 
submarine  link  for  data  connectivity  between  Cyprus  and  Greece  should  further  improve 
connectivity on the island. As Cyprus ranks last for connectivity on the DESI of 2020, enhancing 
access to communication infrastructure for all citizens, in order to bridge the digital divide and to 
support  an  inclusive  digital  transformation  is  particularly  a  key  set  of  measures  of  the  Cypriot 
plan. 

The digitalisation of public administrations is a priority of the Cypriot plan. Component 4.2 
(Promote  e-government)  is  dedicated  to  the  promotion  of  e-government,  a  goal  that  is  also 
envisaged by various other, complementary measures of the plan. The reforms and investments 
in component 4.2 (Promote e-government) are expected to contribute to accelerating the digital 
transformation  of  Cyprus  through  the  digitalisation  of  government  services  enhancing  the 
efficiency and the provision of online, secure and prompt services to citizens, in a user friendly, 
efficient and effective way. This is expected to facilitate the interaction between citizens and the 
public  services,  without  the  need  for  physical  presence.  The  measures  include  notably  the 
creation of a new delivery model for the development of end-to-end quality digital services to the 
public,  the  development  of  government  cloud  (G-Cloud),  the  creation  of  a  new  platform 
(Digipol) for police procedures, the creation of a modernised registry for companies, digitalising 
key  workflows  in  a  number  of  ministries  and  central  government  services,  digitalising  key 
processes  in  the  Cyprus  Ports  Authority  to  improve  their  efficiency  and  effectiveness.  Cyprus 
ranks  below  EU  average  for  Digital  Public  Services  according  to  the  DESI  2020,  and  the 
included measures are expected to build a secured, integrated and modern digital architecture and 
thus contribute to the digital transformation of the government, benefitting all citizens in Cyprus. 

Digitalisation of public administration and services is also covered beyond  component 4.2 
(Promote  e-government)  and  is  covered  throughout  the  plan.  Measures  in  component  3.5 

37 COM(2020) 575 - Annual Sustainable Growth Strategy 2021, 17 September 2020. 

69 

 
                                                           
(Safeguarding fiscal and financial stability) are expected to support digitalisation of the tax and 
customs departments and provide their staff and users with modern digital tools. The reform of 
the insolvency framework includes an enhancement of the IT system used by the Department of 
Insolvency to increase its efficiency and to facilitate the use of insolvency tools in the economy. 
The  investment  into  a  cloud-based  IT  system  for  the  Cypriot  Securities  and  Exchange 
Commission is expected to allow it to handle more efficiently large amounts of transaction data 
to fulfil its supervisory tasks.  

An important focus of the digitalisation of the public sector of the Cypriot plan is entailed 
in component 3.4 (Modernising public and local authorities, making justice more efficient 
and fighting corruption). The Cypriot plan contains measures using digitalisation as a way to 
modernise and reinforce the efficiency of key administrative functions and of the justice system. 
Such measures include the improvement of public procurement by using an e-procurement tool 
that  is  expected  to  simplify  participation  in  procurement  in  particular  for  SMEs,  the  digital 
transformation  of  the  Law  Office  to  improve  efficiency  and  working  conditions  of  the 
employees,  enhancing  the  e-system  for  issuing  building  permits  to  allow  for  a  fully  digital 
process, as well as addressing the inefficiencies of the justice system through the digitalisation of 
currently manual or paper-based processes. 

Digitalisation is also an essential aspect of the measures envisaged to modernise the Cypriot 
health  system.  Several  measures  in  component  1.1  (Resilient  and  effective  health  system, 
enhanced  civil  protection)  are  expected  to  make  medical  and  operational  processes  in 
institutional  care  and  civil  protection  more  efficient.  These  measures  are  also  expected  to 
increase the quality, accessibility and equity of healthcare and civil protection. The development 
of the dedicated platforms is expected to provide an electronic access to the healthcare staff on 
(i) the clinical standards and protocols, (ii) infectious disease and epidemiological data and the 
analysis  of  such  data,  and  (iii) antibiotic  consumption,  antimicrobial  resistance  and  healthcare-
associated  infections.  Deployment  of  generic  cross  border  e-Health  services  in  Cyprus  is 
expected  to  contribute  to  developing  the  core  of  electronic  health  records  based  on  a  common 
European  exchange  format  to  give  European  citizens  secure  access  to  and  exchange  of  health 
data  across  the  EU,  while  designed  to  comply  with  requirements  for  a  European  Health  Data 
Space.  In  turn,  this  is  expected  to  allow  for  more  targeted  and  faster  research,  diagnosis  and 
treatment.  At the same time, data analytics modules to  be developed are expected to  reply and 
endorse  trustworthy  artificial  intelligence  (AI)  as  defined  in  the  white  paper  on  AI  and 
“Technology  that  works  for  people”  pillar  of  the  EU  digital  strategy.  In  the  field  of  civil 
protection, a new public warning system is expected to increase public safety, preparedness and 
resilience. 

The  digitalisation  of  the  public  sector  is  rightfully  complemented  by  measures  enhancing 
digitalisation  of  the  private  sector,  notably  through  measures  accompanying  the 
productivity  SMEs,  mainly  through  digitalisation.  Component  3.3  (Business  support  for 
competitiveness) is expected to unlock the potential of digital technologies and to contribute to 
the digital transition of SMEs, notably with a scheme for the digital upgrade of enterprises that is 
expected to have a long-lasting impact effect on the economy’s resilience and growth. 

70 

 
The  development  of  digital  skills,  an  essential  prerequisite  for  successfully  meeting  the 
challenges  of  the  digital  transformation,  is  among  the  main  objectives  of  measures  in 
component  5.1  (Educational  system  modernisation,  upskilling  and  retraining).  The 
envisaged measures put digital skills development at their core, combining the reform in teacher 
and  school  evaluation,  transformed  curriculum,  development  of  new  educational  material, 
training  of  teachers  and  investments  in  the  digital  equipment  of  schools.  Taken  together,  the 
related  reforms  are  expected  to  contribute  to  the  development  of  a  digital  learning  ecosystem. 
Improved  access  to  digital  equipment  and  infrastructure  for  students  of  low  socio-economic 
background  and  general  improvement  of  digital  skills  teaching  is  expected  to  help  overcome 
educational  barriers  for  disadvantaged  children  and  make  society  more  resilient  to  crises.  In 
parallel, Cyprus will develop a national e-Skills action plan targeting the enhancement of digital 
skills across all population groups (including in public administration, enterprises and society at 
large), to ensure continued inclusion of all adults in a society transformed by digitalisation. The 
e-Skills  action  plan  envisages  targeted  measures  aimed  at  developing  specialised  IT  skills  for 
professionals  working  in  the  public  sector.  The  plan  also  envisages  a  targeted  investment  to, 
amongst others, improve the digital skills of elderly and unemployed.  

The  measures  that  contribute  to  the  digital  share  of  Cyprus  recovery  and  resilience  plan 
are  expected  to  have  a  lasting  impact  on  the  digital  transition.  The  digitalisation  of  public 
administration, enhanced connectivity, digitalisation of the health and justice systems as well as 
the take up of digital skills are expected to have a lasting impact on the accessibility of the public 
services  and  on  the  way  in  which  citizens  and  businesses  are  able  to  interact  with  them.  The 
measures should also improve the efficiency of public services provision and will increase their 
resilience, while also ensuring social and territorial cohesion. 

Taking into consideration the assessment of all the measures envisaged, the recovery and 
resilience plan is expected, to a large extent, to make a significant contribution to the digital 
transition or to address the challenges resulting from it and ensures that at least 20% of its 
total allocation contribute to support digital objectives. This would warrant a rating of A 
under criterion 2.6 in Annex V to the RRF Regulation.  

4.7. Lasting impact of the plan  

Structural change in administration and institutions 

The  plan  presents  a  series  of  measures  to  contribute  to  the  digital  transition  and  to 
addressing the low level of digital public services. Components 3.4 (Modernising public and 
local  authorities,  making  justice  more  efficient  and  fighting  corruption),  4.1  (Upgrade 
infrastructure for connectivity) and 4.2 (Promote e-government) are particularly relevant in this 
respect.  It  is  expected  to  introduce  structural  improvements  in  the  functioning  of  key  services 
and to narrow the gap on the quality and use of digital public services, on which Cyprus ranked 
27th  among  28  countries  assessed  in  the  Digital  Economy  and  Society  Index  in  2020.  The 
measures  included  are  expected  to  ensure  coverage  5G  and  very  high-capacity  broadband  for 
100% of the population living in organised communities, including deployment of 5G along the 
main terrestrial corridors, and enabling universal and affordable access to Gigabit connectivity in 

71 

 
all urban and rural areas, including 5G and Gigabit connectivity. The plan is expected to promote 
e-government.  Digital  projects,  such  as  smart  cities  and  digitalising  the  law-making  process  in 
combination with projects for improving the management system, evaluation and recruitment of 
the  staff  in  the  public  administration  and  an  overhaul  of  the  local  authorities  are  expected  to 
make  a  structural  and  lasting  change  in  the  functioning  of  the  public  administration,  which 
should  ultimately  improve  the  business  environment.  The  establishment  of  an  independent 
authority  to  coordinate  and  oversee  measures  to  fight  corruption  is  a  key  element  of  the  plan 
concerning structural change in institutions. 

The plan includes an overhaul of the justice system. Reforms and investments included in the 
plan aim at having a lasting positive impact on the effectiveness of the justice system through the 
deployment of a digital transformation of courts, training of judges and introducing updated rules 
of  civil  procedures  which  are  expected  to  increase  significantly  the  efficiency  of  the  courts  to 
adjudicate legal cases.  

The lasting impact of the plan can also be enhanced through synergies,  complementarity, 
and consistency between the plan and other programmes, including those financed by the 
cohesion  policy  funds,  notably  by  addressing  territorial  challenges  and  promoting  a 
balanced  development.  In  order  to  promote  wider  coherence  across  these  instruments,  a 
balanced territorial allocation of resources is encouraged. 

Structural change in policies 

Further, the plan is expected to address a number of structural changes to strengthen the 
financial  sector  and  the  business  environment.  Component  3.5  (Safeguarding  fiscal  and 
financial  stability)  introduces  measures  to  tackle  private  indebtedness,  assist  the  monitoring  of 
financial market information and credit expansion, and remove information asymmetries that are 
expected to  address  inherent  weakness  in  the financial sector and increase the resilience of the 
economy to future shocks. Measures in components 3.1 (New growth model and diversification 
of  the  economy),  3.2  (Enhanced  research  and  innovation),  3.3  (Business  support  for 
competitiveness)  and  3.4  (Modernising  public  and  local  authorities,  making  justice  more 
efficient and fighting corruption) are expected to improve the regulatory and further ease doing 
business, inter alia, by supporting SMEs, simplifying procedures for strategic investments, boost 
Research and Innovation and digitalise the law-making process.  

The plan puts forward a number of key reforms to underpin the green transition  address 
problems associated with Cyprus’ excessive reliance on fossil fuels. These reforms are related 
to  the  introduction  of  green  taxation,  the  liberalisation  of  the  electricity  market,  licensing  of 
renewable energy and renovation projects, water management, as well as the regulatory reforms 
aiming to facilitate and accelerate investments in electric mobility. 

Lasting impact 

The  implementation  of  the  plan  is  expected  to  result  in  lasting  improvements  in  the 
education  system  and  the  labour  market.  The  plan  includes  major  reforms  in  the  education 
system,  such  as  introducing  a  new  system  for  teacher  and  school  evaluation,  extending  free 

72 

 
compulsory  preschool  education,  adapting  the  curricula  of  higher  and  secondary  education 
according to the needs of the labour market and foster digital skills in schools. Furthermore, the 
plan includes the preparation of a national  strategy for the  early childhood education and care. 
These  measures  are  expected  to  improve  the  quality  of  education  for  all  ages  and  students’ 
performance and make better connections between the school and the labour market.  

Taking into consideration all reforms and investments envisaged by Cyprus in its recovery 
and  resilience  plan,  their  implementation  is  expected,  to  a  large  extent,  to  bring  about  a 
structural change in the administration or in relevant policies and to have a lasting impact. 
This would warrant a rating of A under criterion 2.7 in Annex V to the RRF Regulation. 

4.8. Milestones, targets, monitoring and implementation 

The governance arrangements proposed by Cyprus for implementation of the overall plan 
are robust and the monitoring and reporting mechanism appears sufficient. The main actors 
are  the  Monitoring  Committee,  the  Coordinating  Authority,  the  Costing  Coordinator,  the 
Monitoring Bodies and the Implementing Bodies. 

A  Monitoring  Committee,  approved  by  the  Council  of  Ministers  for  the  high-level 
monitoring of the progress in the implementation of the plan and for addressing risks and 
resolving  issues  which may  have  an  impact  on  implementation  is  going  to  be  established. 
The  Monitoring  Committee  will  be  chaired  by  the  Director-General  of  Directorate  General  for 
European  Programmes,  Coordination  and  Development  (DG  EPCD).The  Directors-General  of 
all Ministries and Deputy Ministries involved in the plan are expected to attend it as participants. 
They will meet at least quarterly or on an ad-hoc basis if deemed necessary. 

The Directorate for Recovery and Resilience (D-RR) of the DG-EPCD has been designated 
as  the  Coordinating  Authority.  Overall,  its  responsibility  is  to  coordinate  and  monitor  the 
implementation of the plan at operational level, as well as to ensure compliance with provisions 
of  the  monitoring  and  control  system  and  with  the  national  legislation.  It  is  responsible  for 
monitoring and certifying the achievement of the milestones and targets. It is also responsible for 
coordinating  the  work  of  the  Implementing  Bodies  for  the  timely  implementation  of  the 
milestones  and  targets,  in  accordance  with  the  plan’s  timetable.  It  is  the  point  of  contact  to 
exchange  information  and  liaise  with  the  Commission.  It  has  been  designated  to  prepare  and 
submit to the Commission the reports on the progress of the implementation of the plan in the 
context of the European Semester in line with Article 27 of the RRF Regulation. It should also be 
responsible for the preparation of the payment requests and, in case needed, for any revision of 
the plan. The  continuous cooperation of the D-RR with  the other Directorates in  DG EPCD is 
expected to ensure that all programmes financed by EU funds are coordinated horizontally and 
that  there  is  no  double  funding  from  different  programmes.  In  addition,  the  Coordinating 
Authority  prepares  and  coordinates  the  meetings  of  the  Monitoring  Committee.  It  supports  the 
Monitoring Bodies and the Implementing Bodies (see below) in the exercise of their tasks. The 
administrative capacity of the Coordinating Authority consists of 10 staff, including the Director 
of  the  D-RR,  who  have  relevant  experience  in  coordinating,  monitoring,  controlling  and 
managing  programmes  and  projects  in  Cyprus,  both  at  national  and  at  EU  level.  The 

73 

 
Coordinating  Authority  is  also  planning  to  hire  three  additional  staff  in  the  near  future  and 
support may be granted, where necessary, by the staff of other Directorates in DG-EPCD.  

The Verifications and Certification Directorate of the Treasury of the Republic of Cyprus 
is designated as the Costing Coordinator of the plan. It acts as the central intermediate body 
for  administrative  verifications  of  expenditure  and  supports  the  financial  management  of  all 
operational  programmes  co-financed  through  European  Structural  and  Investment  Funds.  This 
experience  provides  an  additional  safeguard  as  regards  avoidance  of  double  funding.  The 
Costing  Coordinator  is  staffed  with  one  senior  accountant  and  ten  accountants,  all  qualified 
accountants  and  members  of  the  Cyprus  Association  of  Certified  Accountants,  with  years  of 
experience  in  financial  management  and  control  of  co-financed  projects  and  programmes  and 
analysis of investment costs and reforms. 

The specialised Monitoring Bodies are entrusted with the task of monitoring the progress, 
supporting the implementing bodies in addressing problems, supporting the Coordinating 
Authority in drawing up progress reports and certifying the achievement of the milestones 
and targets for parts of the plan that require specialised input. They have a reporting line to 
the Coordinating Authority. The Deputy Ministry of Research, Innovation and Digital Policy is 
responsible  for  monitoring  the  implementation  and  certifying  the  achievement  of  the  plan’s 
milestones and targets that relate to digital interventions, while the Directorate of Control of the 
Ministry  of  Transport,  Communications  and  Works  is  responsible  for  monitoring  the 
implementation and for certifying the achievement of the plan’s milestones and targets that will 
be  implemented  by  the  State  Health  Services  Organisation  of  Cyprus  (regrouping  public 
healthcare providers, notably hospitals). 

Lastly,  the  Implementing  Bodies  are  responsible  for  implementing  the  reforms  and 
investments  of  the  plan.  As  deemed  necessary,  they  may  be  directly  supervised  by  the 
Coordinating Authority and/or the Monitoring Bodies, by their own internal control mechanisms, 
by  the  Auditor  General  of  the  Republic  and  by  other  bodies  implementing  horizontal  policies 
such as the Office of the Commissioner for State Aid Control, Public Procurement Directorate of 
the  Treasury  of  the  Republic  of  Cyprus,  Department  of  Environment  of  the  Ministry  of 
Agriculture, Rural  Development  and Environment,  the Ministry of Justice and Public Order  as 
regards  gender equality  and the Department  of  Labour of the Ministry of  Labour, Welfare  and 
Social Insurance as regards non-discrimination. 

The controls and audit arrangements are described in Section 4.10.  

The  milestones  and  targets  of  the  Cypriot  plan  constitute  an  appropriate  system  for 
monitoring the plan’s implementation. They constitute key steps of the measures and represent 
concrete achievements directly linked to the implementation of the measures. The milestones and 
targets are designed in a way that they are under the control of the Cypriot authorities. They are 
realistic,  relevant  for  the  implementation  of  the  plan  and  reflect  the  plan’s  overall  level  of 
ambition.  The  verification  mechanisms,  data  collection  and  responsibilities  described  by  the 
Cypriot authorities appear sufficiently robust to justify adequately the payment requests once the 

74 

 
milestones and targets are completed. The monitoring indicators are in general sufficiently clear 
and comprehensive to ensure that the implementation of the measures is on track.  

The arrangements proposed by Cyprus in its recovery and resilience plan are expected to 
be  adequate  to  ensure  effective  monitoring  and  implementation  of  the  recovery  and 
resilience  plan,  including  the  envisaged  timetable,  milestones  and  targets,  and  the  related 
indicators. This would warrant a rating of A under the assessment criterion 2.8 in Annex V 
to the RRF Regulation. 

4.9. Costing  

Cyprus  provided  cost  estimates  for  all  investments  and  reforms  included  in  the  plan  for 
which funding through the Facility is requested. In many cases, supporting documentation or 
additional information on costing were also provided, including references and links to external 
sources.  For  some  reforms,  no  request  for  funding  was  envisaged  and  thus  no  costing 
information included. 

The reforms and investments included in the plan comply with the eligibility criteria set out 
in the RRF Regulation. Based on the information presented in the plan, all measures are set to 
be  implemented  and  generate  costs  only  after  1  February  2020,  thus  fulfilling  the  related 
eligibility  criteria.  Similarly,  according  to  the  planned  milestones  and  targets  and  associated 
payments  requests,  no  funding  is  planned  to  be  requested  after  the  cut-off  date  of  31  August 
2026. Furthermore, the cost estimates in the plan do not include VAT, which is an eligible cost 
only  in  very  special  circumstances.  In  one  case,  related  to  the  setting-up  and  operation  of  an 
Anti-corruption agency, RRF funding would cover recurrent costs in the form of permanent staff 
costs. While in general not an eligible cost, under special circumstances such costs could still be 
accepted.  In  this  case,  the  measure  relates  directly  to  a  CSR  addressed  to  Cyprus  and  the 
recurrent  cost  element  is  limited  in  size.  The  plan  also  clearly  states  the  intention  of  the 
government to continue financing the agency via the state budget beyond the time horizon of the 
plan. 

The  information  in  the  Cypriot  plan  seems  to  indicate  that  the  costing  is  to  a  medium 
extent  reasonable  and  plausible.  In  particular,  the  costing  information  provided  for  the 
different  measures  are  generally  rather  detailed,  with  methods  explained  and  calculations 
possible  to  follow.  For  many  measures,  in  particular  the  larger  ones,  supporting  evidence  was 
provided,  which  gives  greater  assurance  that  the  cost  estimates  in  the  plan  are  reasonable.  For 
some smaller measures, the plan refers to the existence of such supporting evidence. 

The  information  on  costing  provided  suggests  that  costs  would be  in  line with  the nature 
and  type  of  the  envisaged  reforms  and  investments,  thus  supporting  their  plausibility. 
Depending  on  the  type  of  measure,  it  can  be  more  or  less  challenging  to  provide  costing 
estimates.  For  instance,  in  the  case  of  funding  programmes,  where  final  beneficiaries  have  to 
submit applications for intended projects, ex-ante cost estimations risk being less precise than for 
measures  where  the  type  and  nature  of  projects  are  clear  from  the  beginning.  However, 
experience from  similar programmes  can  give an idea of the expected take-up and thus  reduce 

75 

 
the uncertainty regarding plausibility. Such information was provided for a number of measures 
in the Cypriot plan.  

The Cypriot plan states that costs expected to be financed by the Facility will not be funded 
at the same time from other EU sources. This provides some reassurance that the additionality 
criterion  of  the  RRF  Regulation  will  be  respected.  To  maximise  the  recovery  impact,  the 
authorities aim at making the various European financing tools operate in synergy with the plan. 
Therefore,  the  plan  reports  that  coordination  mechanisms  have  been  established  to  allocate  the 
proposed  measures  between  the  various  instruments,  safeguarding  consistency,  enhancing 
synergies  and  complementarity  and  avoiding  overlaps  and  double  funding  with  other  EU 
sources.  For  that  purpose,  there  has  also  been  collaboration  between  public  and  private  actors, 
both at policy, technical and advisory level.  

The amount of the estimated total costs of the plan appears commensurate to the expected 
social and economic impact of the funded measures and in line with the principle of cost-
efficiency.  A  large  part  of  the  measures  included  in  the  Cypriot  plan  addresses  CSRs  and  the 
overall size of the Cypriot plan of around 4,5% of GDP would make a significant contribution to 
the  recovery  of  the  Cypriot  economy.  The  full  implementation  of  the  plan  could  have  a 
significant impact on both GDP and employment in both the short and long term, initially driven 
by  investment  and  then  driven  increasingly  by  productivity  gains  induced  by  reforms  (see 
Section 4.3). Thus, the envisaged social and economic gains that would flow from the plan seem 
commensurate  with  the  measures  envisaged  and  would  be  in  line  with  the  principle  of  cost-
efficiency.  

The  justification  provided  by  Cyprus  on  the  amount  of  the  estimated  total  costs  of  the 
recovery  and  resilience  plan  is  to  a  medium  extent  reasonable,  plausible,  in  line  with  the 
principle  of  cost-efficiency  and  is  commensurate  to  the  expected  national  economic  and 
social impact. Cyprus provided sufficient information and evidence that the amount of the 
estimated cost of the reforms and investments of the plan to be financed under the Facility 
is not covered by existing or planned Union financing. The above would warrant a rating of 
B under the assessment criterion 2.9 in Annex V to the RRF Regulation.  

4.10. 

Controls and audit 

Robustness of internal control system and distribution of roles and responsibilities 

The  plan  clearly  identifies  the  actors  responsible  for  controls  and  audit  and defines  their 
roles (see also section 4.8 of this document). The key actors for controls and audit, as identified 
in Annex 4 to the recovery and resilience plan, are: the Monitoring Committee; the Coordinating 
Authority, namely D-RR of the DG-EPCD; the Costing Coordinator; the specialised Monitoring 
Bodies; the Implementing Bodies; the contact point for the European Anti-Fraud Office (OLAF), 
which is  the Treasury of the Republic of Cyprus; the Audit  Bodies, which include the  Internal 
Audit Service of the Republic of Cyprus (IAS) and the Audit Service of the Republic of Cyprus; 
the  National  Coordinating  Body  for  the  fight  against  fraud  against  the  interests  of  the  EU 
(AFCOS);  and  the  Prosecutor  General  of  the  Republic  and  Police.  Control  mechanisms  of 
implementing  bodies  are  set  out  in  detail,  with  dedicated  roles  for  audit  officers,  officials  in 

76 

 
charge and Financial Management Directorates in the line ministries. The envisaged verifications 
are well-explained and listed, covering verifications of the contracts, on-the-spot checks and all 
the interventions under the plan, when appropriate, subject to risk assessment. 

The National Control and Audit Coordinator for the implementation of the plan, which is 
the Verifications and Certification Directorate of the Treasury of the Republic of Cyprus, 
supports the Coordinating Authority in overseeing controls  by all  stakeholders, including 
Implementing Bodies, in accordance with the management and control system of the plan 
and the national and EU legislation. In that respect, it is expected to also monitor the status of 
the  findings  of  ex  post  audits,  acting  as  the  intermediate  body  between  the  Coordinating 
Authority  and  the  IAS  and  the  Audit  Office  of  the  Republic  of  Cyprus  (together,  “the  audit 
bodies”).  The  National  Control  and  Audit  Coordinator  is  not  expected  to  be  involved  in  the 
planning and execution of the audits, which is within the sole responsibility of the audit bodies. 
The  Control  and  Audit  Coordinator  has  the  responsibility  to  oversee  the  treatment  of  serious 
irregularities,  meaning  fraud,  corruption  and  conflicts  of  interests,  and  to  ensure  that  double 
funding is avoided.  

The  Implementing  Bodies  will  have  the  first  line  responsibility  to  prevent,  detect,  report 
and correct conflicts of interest, corruption  and fraud, and avoid double funding.  To that 
end, they will undertake first level controls and verifications of the physical and financial aspect 
of the measures under their responsibility and regularly update the Coordinating Authority and 
the  specialised  Monitoring  Bodies,  where  relevant,  regarding  progress  in  achieving  the 
milestones  and  targets  of  the  measures  under  their  responsibility  and  by  providing  all  the 
necessary supporting documentation. 

The envisaged audit processes are adequate. The IAS and the Audit Service of the Republic of 
Cyprus have audit strategies laid out in the plan, setting out the risk assessment to be undertaken, 
types of audits to be conducted, an explanation of the sampling approach, an explanation of how 
the annual audit plans will be drawn up and arrangements to make sure that activities related to 
the  recovery  and  resilience  plan  will  be  included  in  the  audit  plans.  In  particular,  the  IAS  is 
responsible for conducting ex post internal audits in any central government body including the 
audit of the achievement of milestones and targets of the plan, through an appropriate sampling 
method.  The  Audit  Office  of  the  Republic  of  Cyprus  is  responsible  for  conducting  financial, 
performance and compliance ex post (and in  some cases real  time) external  audits  for projects 
implemented under the national budget through an appropriate sampling method which complies 
with  the  International  Organisation  of  Supreme  Audit  Institutions  (INTOSAI)  standards.  The 
plan sets out how the audit trail will be ensured: how data will be kept in the future Monitoring 
Information System (MIS), in the archiving systems of the bodies involved, and how archiving 
and record keeping will be conducted before the MIS is ready. 

Any  weaknesses  identified  will  be  reported  to  the  Commission  and  where  relevant  to 
OLAF.  Every  payment  application,  prepared  by  the  Coordinating  Authority,  will  be 
accompanied by  a management  declaration  and  a summary  of the audits carried out,  including 
weaknesses  identified  and  any  corrective  actions  taken.  To  that  end,  the  National  Control  and 
Audit  Coordinator  will  support  the  Coordinating  Authority  in  retrieving  the  results  of  audit 

77 

 
procedures  undertaken  by  the  audit  bodies  (including  the  Internal  Audit  Service  and  the  Audit 
Office),  as  well  as  all  cases  of  serious  irregularities,  including  cases  of  fraud  or  suspicion  of 
fraud, corruption and conflicts of interest, that will feed into the summary of audits. AFCOS will 
inform  the  European  Commission  and  OLAF  of  cases  of  suspected  irregularities  of  fraud, 
corruption or conflict of interest. 

The plan stipulates that the key national actors responsible for audit, namely the IAS and 
the Audit Service of the Republic, are  independent. The IAS  and the  Internal  Audit  Officer 
are independent of the directorates of the audited bodies. The Audit Office of the Republic is an 
independent service of the Republic and not attached to any Ministry. Moreover, the plan details 
provisions  ensuring  the  independence  of  the  Prosecutor  General  (with  regard  to  criminal 
prosecutions,  including  cases  of  irregularities)  and  the  Ombudsman  (the  institution  of  extra-
judicial review of the administration in Cyprus). There is a draft law in preparation to establish 
an  Independent  Anti-Corruption  Authority  by  31  March  2022  (see  also  Section  4.2  subsection 
Structural reforms to improve the functioning of  the public sector and fight corruption). In the 
meantime, AFCOS is tasked with fighting corruption.  

The  plan  sets  out  several  additional  layers  of  controls  to  avoid  serious  irregularities  and 
avoid  double  funding.  The  Coordinating  Authority  will  maintain  a  single  central  list  of 
contractors, subcontractors, final recipients of aid or their actual beneficiaries, for all the plan’s 
measures.  It  makes the central  list  available to  the National  Control and Audit  Coordinator  for 
the  exercise  of  its  responsibilities.  Notably,  for  the  avoidance  of  double  funding,  besides  the 
initial  screening  when  projects  in  the  recovery  and  resilience  plan  were  selected,  the 
Implementing  Bodies  will  do,  among  others,  automated  checks  or  on–the-spot  checks.  The 
National Control and Audit Coordinator will do horizontal controls on a sample basis and cross-
checks versus the central list, if new applicants (contractors, sub-contractors, final beneficiaries) 
have  applied  or  are  financed,  including  from  European  structural  and  investment  funds  or 
national  programmes.  The  risk  of  conflicts  of  interest  is  expected  to  be  minimised  through 
declarations of honour by the evaluators of tenders and proposals for the selection of contractors 
or final recipients of aid. In addition, potential conflicts of interest can be checked with the help 
of the future Monitoring Information System (MIS), or the Register of Operating Beneficiaries of 
the Registrar of Companies, or by means of a central list. Furthermore, serious irregularities can 
come  to  the  attention  of  the  Coordinating  Authority  through  complaints  lodged  to  the  Audit 
Office of the Republic or the Ombudsman or through information from AFCOS.  

There  are  also  adequate  procedures  in  place  for  the  correction  of  serious  irregularities, 
including recovery of funds and prosecution. 

Adequacy of repository systems and other relevant arrangements 

A  dedicated  Monitoring  Information  System  (MIS)  will  be  used  by  the  Coordinating 
Authority  for  the  implementation  of  the  plan.  Its  core  functionalities,  or  a  contingent 
repository system with the required functionalities, are expected to be in place by 31 December 
2021. Cyprus is expected to submit a dedicated audit report confirming the effectiveness of the 
functionalities of the repository system by 31 March 2022 and in any case by the first payment 
request. In terms of core required functionalities, a repository system will, as a minimum, record 

78 

 
and store the relevant data related to the implementation of the recovery and resilience plan, in 
particular  on  the  achievement  of  milestones  and  targets,  data  on  final  recipients,  contractors, 
subcontractors  and  beneficial  owners  in  line  with  Article  22(2)(d)  (i)  to  (iii)  of  the  RRF 
Regulation,  by the first  payment  request.  In addition to  the above functionalities, the MIS  will 
extract  data  from  third  party  systems,  indicatively  including  the  EU  ARACHNE  system,  to 
utilise  the  offered  functionality  for  the  management  of  risks  and  indicators  of  fraud  and 
corruption. The plan adequately describes what data will be collected and how it will be made 
available.  There  is  also  a  description  of  how  data  will  be  kept  before  the  MIS  is  ready  and  a 
description of the processes to transfer data to the MIS when it is ready.  

79 

 
 
 
Legal empowerment and administrative capacity of control function  

The legal mandates for bodies responsible for audit and control are set out appropriately. 
The existing legal mandates of the bodies involved are well explained. Moreover, it is explicitly 
explained that by means of the Council of Ministers decision of 14 May 2021, which approved 
the  plan,  the  monitoring  and  implementation  procedures  described  in  the  plan  are  adopted  and 
enter into force, and responsibilities of the bodies involved are defined.  

The  plan  describes  the  administrative  capacity  at  length  (see  also  Section  4.8).  The  plan 
describes organisation and staffing of the various actors involved in controls and audit, notably 
the  Coordinating  Authority,  the  specialised  Monitoring  Bodies,  the  Internal  Audit  Service  and 
the Audit Service of the Republic of Cyprus. The plan goes so far as to describe the training and 
experience of key  staff  and to  provide information on vacancies that are to  be filled. The plan 
also explains new posts that were created for the plan-related work. 

The  arrangements  proposed  by  Cyprus  in  the  recovery  and  resilience  plan  to  prevent, 
detect  and  correct  corruption,  fraud  and  conflicts  of  interest  when  using  the  funds 
provided  under  the  Facility,  including  the  arrangements  aimed  to  avoid  double  funding 
from the  Facility and other Union programmes,  are assessed to be adequate, subject to a 
repository system being put in place before the first payment request. This would warrant 
a rating of A under the assessment criterion 2.10 in Annex V to the RRF Regulation. 

4.11. 

Coherence  

Mutually-reinforcing measures 

The  recovery  and  resilience  plan  for  Cyprus  is  a  comprehensive  plan,  which  coherently 
contributes to smart, inclusive and sustainable economic development. The plan is structured 
around  thirteen  components  grouped  around  five  main  policy  axes  (“Resilient  and  Effective 
Health  System,  Enhanced  Civil  Protection”,  “Climate  neutrality,  energy  efficiency  and 
renewable  energy  penetration”,  “Strengthening  the  resilience  and  competitiveness  of  the 
economy”, “Towards a digital era”, and “Labour market, social protection, education and human 
capital”),  which  include  measures  that  are  mutually  reinforcing  (both  within  and  across  the 
policy axes) and expected to generate synergies when implemented. In most components there is 
a measure that sets the strategic dimensions of the sectoral system reform, reforms that foresee 
the  legislative  and  administrative  framework  of  the  system  and  investments  that  facilitate 
behavioural  changes  of  the  private  sector  in  a  sustainable  way.  Moreover,  in  all  components 
there are elements in the reforms that have green or digital transition efforts, as well as elements 
that  reinforce  the  plan’s  overall  goal  of  sustainable  growth.  Policy  Axis  1  and  Policy  Axis  5 
(“Resilient and Effective Health System, Enhanced Civil Protection” and “Labour market, social 
protection, education and human capital”) are mutually reinforcing in social welfare, in fostering 
the  quality  of  healthcare  services  covered,  long-term  care  support,  social  protection  and 
inclusiveness.  Policy  Axis  3  (“Strengthening  the  resilience  and  competitiveness  of  the 
economy”)  has  mutually-reinforcing  measures  with  both  Policy  Axis  2  and  4  (“Climate 
neutrality,  energy  efficiency  and  renewable  energy  penetration”  and  “Towards  a  digital  era”). 
The links are particularly strong with Policy Axis 1, as - in an attempt to increase the resilience 

80 

 
and competitiveness of the economy  - the plan includes measures to strengthen agriculture and 
make  it  more  attractive  and  promotes  circular  economy.  It  also  foresees  incentives  for  the 
digitalisation  of  business  and  of  the  government,  mutually  reinforcing  the  measures  of  Policy 
Axis 4. 

Complementarity of measures 

The Cypriot plan is coherent and exploits complementarity between measures and between 
components. The plan was coordinated by the DG-EPCD, in co-ordination with the Ministry of 
Finance. As these bodies are also  responsible for the economic strategies of Cyprus (including 
the  long-term  economic  strategy),  the  European  Semester  and  thus  the  National  Reform 
Programme, the measures are carefully designed to satisfy the fulfilment of the CSRs.  

The components related to the green transition, such as those in components 2.1, 2.2 and 
2.3, reinforce each other and act as complementary reforms and investments as they jointly 
contribute  to  the  energy  transition.  The  objective  of  these  measures  is  to  produce  cleaner 
energy on the one hand and save on final energy consumption on the other hand, while ensuring 
to  reach  EU  climate  and  energy  goals  by  2030.  The  reforms  in  component  2.1  (Climate 
neutrality,  energy  efficiency  and  renewable  energy  penetration)  contribute  to  the  climate  and 
energy  plans  through  investments  and  reforms  that  intend  to  accelerate  the  development  of 
renewables. All this is complementary to the sustainable development of the Cypriot economy. 
Similarly,  the  reforms  and  investments  in  component  2.2  (Sustainable  transport)  and  in 
component  2.3  (Smart  and  sustainable  water  management)  are  coherent  with  enhancing 
economic growth, creating job opportunities and promoting social resilience.  

The  Cypriot  plan  also  presents  measures  for  the  digital  transition  in  components  4.1 
(Upgrade  infrastructure  for  connectivity)  and  4.2  (Promote  e-government),  which  are 
complementary  to  the  measures  under  the  public  administration  in  component  3.4 
(Modernising  public  and  local  authorities,  making  justice  more  efficient  and  fighting 
innovation  in  component  3.2  (Enhanced  research  and 
corruption),  research  and 
innovation),  as  well  as  modernising  key  economic  sectors  in  component  3.1  (New  growth 
model and diversification of the economy). Measures linked to digital transformation reforms 
and investments, together with simplified taxation system are also coherent and consistent with 
component  3.4  (Modernising  public  and  local  authorities,  making  justice  more  efficient  and 
fighting corruption) and strengthening the financial sector and capital markets in component 3.5 
(Safeguarding  fiscal  and  financial  stability).  Measures  and  investment  under  the  former  two 
components will contribute to improved business environment, creating friendlier conditions for 
investors  and  companies  by  modernising  procedures  and  institutional  frameworks.  Component 
4.1 (Upgrade infrastructure for connectivity) presents the necessary reforms for the transition to 
fast  broadband  connections  and  pave  the  way  towards  5G  technology  and  component  4.2 
(Promote e-government) aims to digitalise the Cyprus public sector, coherent with the measures 
in  component  3.4  (Modernising  public  and  local  authorities,  making  justice  more  efficient  and 
fighting corruption) to improve its operational model and to achieve improved quality services to 
citizens and businesses. Socio-economic policies and measures, related to the labour market  in 
component 5.2 (Labour market, social protection, social welfare and inclusion), job creation and 

81 

 
education, training,  and  skills,  including the promotion  of digital  skills  and investing in  digital 
infrastructure in education in component 5.1 (Educational system modernisation, upskilling and 
retraining), are complementary and go hand in hand with the green and digital transition. In order 
to  promote  wider  coherence  across  instruments,  notably  with  the  European  cohesion  policy 
funds, a balanced territorial allocation of resources is encouraged. 

Taking into consideration the qualitative assessment of all components of Cyprus’ recovery 
and  resilience  plan,  their  individual  weight  (importance,  relevance,  financial  allocation) 
and their interactions, the plan contains measures for the implementation of reforms and 
public investments which, to a high extent, represent coherent actions. This would warrant 
a rating of A under the assessment criterion 2.11 in Annex V to the RRF Regulation. 

82 

 
 
 
ANNEX: CLIMATE TRACKING AND DIGITAL TAGGING TABLE

38 

Int. Field = intervention field 
Coeff. = Coefficient for the calculation of support to climate change objectives and to digital transition, 
on the basis of Annex VI and Annex VII of the RRF Regulation 

Measure 
ID 

C1.1R1 

C1.1R2 

C1.1I1 

C1.1I2 

C1.1I5 

C1.1I5 

C1.1I5 

C1.1I6 

C1.1I7 

(Sub-)Measure name 

Reform 1: National Centre for Clinical 
Evidence and Quality Improvement - 
Digital platform 
Reform 2: Design of an Electronic 
platform for the surveillance of 
Nosocomial Antibiotic Consumption 
and Healthcare – Associated Infections 
Investment 1: New facilities for the 
Cyprus Blood Establishment and 
procurement of the latest technology 
attendant equipment - Construction of 
new buildings 
Investment 2: Cyprus Innovative 
Public Health ICT System (CIPHIS) 

Investment 5: Enhancement, 
modernization and upgrade of Cyprus 
State Hospitals - Construction of new 
buildings [Haemodyalisis unit at 
Paphos Hospital] 
Investment 5: Enhancement, 
modernization and upgrade of Cyprus 
State Hospitals - Energy efficient 
renovation 
Investment 5: Enhancement, 
modernization and upgrade of Cyprus 
State Hospitals - Digitalisation in 
Health Care 
Investment 6: Deployment of generic 
cross border e-Health services in 
Cyprus 
Investment 7: Public warning system 
for supporting emergency operations 

Budget 
(EUR 
m) 

1.00 

0.40 

Climate 

Digital 

Int. 
Field 

Coeff. 
% 

Int. 
Field 

095  

Coeff. 
% 
100% 

095  

100% 

3.52  025ter  

40% 

5.70 

095  

100% 

3.79  025ter  

40% 

30.18  026bis  

100% 

1.18 

1.94 

095  

100% 

013  

100% 

4.50  036  

100% 

055  

100% 

38 While the total cost of Cyprus’ recovery and resilience plan exceeds the total allocation of non-repayable financial 
support and loans to Cyprus, Cyprus will ensure that all spending related to the measures mentioned in this table as 
contributing to climate objectives are fully financed by the funds from the Recovery and Resilience Facility. 

83 

 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
                                                           
Measure 
ID 

(Sub-)Measure name 

Budget 
(EUR 
m) 

Climate 

Digital 

Int. 
Field 

Coeff. 
% 

Int. 
Field 

Coeff. 
% 

through SMS 

Reform 3: Digital One-Stop Shops to 
streamline RES projects permitting 
and to facilitate Energy Renovation in 
Buildings 
Investment 1: Promoting energy 
efficiency investments in SMEs, 
municipalities, communities and the 
wider public sector 
Investment 2: Promoting renewables 
and individual energy efficiency 
measures in dwellings and tackling 
energy poverty in households with 
people with disabilities 
Investment 3: Encouraging the use of 
renewables and energy savings by 
local/wider public authorities as well 
as NGOs and facilitating the transition 
of local communities towards climate 
mitigation & adaptation 
Investment 4: Reduction of CO2 
emissions in industries, businesses and 
organizations  

Investment 5: Energy Efficiency 
Upgrading of public buildings - 
Schools & Fire Service  

Investment 5: Energy Efficiency 
Upgrading of public buildings - 
Nicosia Hospital & Water  

Investment 6: Upgrading renewable 
energy and smart grids testing 
infrastructure at the University of 
Cyprus 
Investment 7: Mass installation and 
operation by the Distribution System 
Operator (DSO) of Smart Metering 
Infrastructure (Advanced Metering 
Infrastructure) 
Investment 8: Monitoring and 
reduction of GHG emissions in 
agriculture 
Investment 9: Forests fire protection 

C2.1R3 

C2.1I1 

C2.1I2 

C2.1I3 

C2.1I4 

C2.1I5 

C2.1I5 

C2.1I6 

C2.1I7 

C2.1I8 

C2.1I9 

84 

0.50  011bis  

40% 

011bis  

100% 

40.00  024ter  

100% 

20.50  025bis  

100% 

12.50  026bis  

100% 

20.00  027  

100% 

8.35  026bis  

100% 

3.10  029  

100% 

1.59  033  

100% 

033  

40% 

35.00  033  

100% 

033  

40% 

4.13  022  

100% 

18.70  036  

100% 

 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
(Sub-)Measure name 

Budget 
(EUR 
m) 

Climate 

Digital 

Int. 
Field 

Coeff. 
% 
100% 

Int. 
Field 

033  

Coeff. 
% 
40% 

4.70  033  

Measure 
ID 

C2.1I10 

C2.1I11 

C2.2R1 

C2.2R2 

C2.2I1 

C2.2I2 

C2.2I3 

C2.2I3 

C2.3R1 

C2.3I1 

Investment 10: Market Management 
System to facilitate the opening of the 
electricity market to competition 

Investment 11: Ending energy 
isolation - Project of Common Interest 
‘EuroAsia Interconnector’ 

Reform 1: Establishment of an 
Intelligent Transport System using 
Digital Twin technologies  
Reform 2: Provide the regulatory 
framework for an interoperable and 
effective electric vehicle (EV) 
recharging infrastructure and an 
efficient EV recharging market  
Investment 1: Implementation of 
Sustainable Urban Mobility Projects 
(SUMP) and accessibility enhancing 
measures - SUMP / Cycling 
Infrastructure & accessibility 
enhancing measures 
Investment 2: Creation of electro-
mobility infrastructure 

Investment 3: Promote widespread use 
of Electric Vehicles (EVs) - new 
electric cars + PS vehicles (ZEV) 
Investment 3: Promote widespread use 
of Electric Vehicles (EVs) - scrapping 
+ new LEV 
Reform 1: Water Resource 
Management Reform 

Investment 1: Choirokitia‐ Famagusta 
Conveyor Replacement 

100.00  033  

100% 

4.00  076bis  

40% 

076bis  

100% 

0.20  073  

100% 

14.50  075  

100% 

6.79  073  

100% 

33.81 

 n/a39 

100% 

15.00 

 n/a40 

40%  

0.74  040  

40% 

11.76  040  

40% 

39 The ‘Methodology for climate tracking’ annexed to the Recovery and Resilience Facility Regulation does not set 
out intervention fields that would allow for climate or environmental tracking of electric vehicles or plug-in hybrid 
vehicles, except for vehicles for urban transport falling under intervention field 074. According to Article 18(4)(e) of 
the Regulation, the methodology should however ‘be used accordingly for measures that cannot be directly assigned 
to an intervention field listed in Annex VI’. In this context, the Commission has applied a 100% climate contribution 
coefficient for zero-emission vehicles of all categories (this includes battery electric and fuel cell/hydrogen-powered 
vehicles); a 40% climate contribution coefficient for plug-in hybrid light-duty vehicles; and, in line with the criteria 
under the Taxonomy Regulation, a 100% climate coefficient for low-emission heavy-duty vehicles. 

85 

 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
                                                           
Measure 
ID 

(Sub-)Measure name 

Budget 
(EUR 
m) 

Climate 

Digital 

Int. 
Field 

Coeff. 
% 
40% 

Int. 
Field 

Coeff. 
% 

C2.3I2 

C2.3I3 

C2.3I4 

C2.3I4 

C2.3I4 

C2.3I4 

C2.3I5 

C2.3I6 

C2.3I7 

C3.1R2 

C3.1R3 

C3.1I1 

C3.1I2 

C3.1I4 

Investment 2: Water Treatment Plants: 
upgrade for water quality improvement 

6.02  040  

Investment 3: Integrated Monitoring 
and Control Management System for 
the Water Development Department’s  
infrastructure 
Investment 4: Smart Water and 
Sewerage Networks Management - 
Larnaca Sewerage (digital) 
Investment 4: Smart Water and 
Sewerage Networks Management - 
Larnaca Sewerage (solar) 
Investment 4: Smart Water and 
Sewerage Networks Management - 
Larnaca Sewerage (energy efficiency) 
Investment 4: Smart Water and 
Sewerage Networks Management - 
Larnaca & Limassol Waterboard / 
water management  
Investment 5: Anti-flood and water 
collection measures 

Investment 6: Enhance water security 
for Nicosia and Larnaca regions 

Investment 7: Eastern Nicosia 
infrastructure for the re-use of treated 
wastewater 
Reform 2: On-line, cloud-based 
platform for improving the trade and 
information symmetry in the fresh 
produce supply chain 
Reform 3: Genetic improvement of the 
Cyprus sheep and goat population - 
Digital  
Investment 1: Construction of a 
collaborative marine aquaculture 
infrastructure (port and land facilities) 
in the Pentakomo coastal area 
Investment 2: Enhancing the existing 
isotopic databases of Cypriot local 
traditional food/drinks, by developing 
a Block Chain platform, to ensure their 
identity 
Investment 4: Initiating the setup of 
the first Eco-Industrial Science Park 

86 

5.96  040  

40%  

055  

100% 

0.33  010ter  

100% 
* 

010ter  

100% 

0.95  029  

100% 

0.25  024  

17.00  040  

100% 
* 

100% 
* 

16.00  035  

100% 

6.04  037  

100% 

10.95  040  

40% 

055  

100% 

0.54 

0.20 

011  

100% 

011  

100% 

29.00  081bis  

40% 

1.00 

011  

100% 

0.10  022  

100% 

 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
(Sub-)Measure name 

Budget 
(EUR 
m) 

Climate 

Digital 

Int. 
Field 

Coeff. 
% 
40% 

Int. 
Field 

Coeff. 
% 

1.40  047  

Measure 
ID 

C3.1I9 

C3.1I10 

C3.1R4 

C3.1I11 

C3.1I12 

C3.1I13 

C3.2I2 

C3.2I3 

C3.3I1 

C3.3I2 

C3.3I4 

C3.4R4 

C3.4R5 

C3.4I1 

Investment 9: Promotion of circular 
economy in hotel establishments 

Investment 10: Enrichment of the 
tourism product in rural, mountainous 
and remote areas - Natural heritage  

Reform 4: Enhancement of Circular 
Economy in the Industry 

Investment 11: Improvement and 
extension of the Cyprus Green Points 
Network and creation of a network of 
Collection Points and Recycling 
Corners 
Investment 12: Waste management 
towards circular economy  

Investment 13: Establishment of the 
Orounda Livestock Waste and Animal-
By-Product  Management Facilities 
Investment 2: Innovation Funding 
Programs & Funding schemes for the 
enhancement of growth & 
competitiveness of start-ups, 
innovative companies and SMEs - 
Green transition  
Investment 3: Thematic research and 
innovation funding program on green 
transition 
Investment 1: Integrated Information 
system for the Registrar of Companies 
and Official Receiver 
Investment 2: Creation of a Regulatory 
Sandbox to enable FinTech 

Investment 4: Scheme for the digital 
upgrade of enterprises  

Reform 4: Strengthen administrative 
capacity and transparency through the 
professionalisation of public 
procurement and further digitalisation 
of its process - Digital  
Reform 5: Enhancement of the 
capacity of the Law Office  

Investment 1: Rationalisation of the 
shift system through the 
implementation of a Roster Planning 

87 

1.80  050  

40% 

15.00  047  

40% 

10.00  047  

40% 

14.30  042  

40% 

25.00  047  

40% 

2.00  022  

100% 

6.00  022  

100% 

6.58 

0.40 

10.00 

4.00 

1.03 

0.55 

011  

100% 

021ter  

100% 

010  

100% 

011  

100% 

011  

100% 

011  

100% 

 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
Measure 
ID 

(Sub-)Measure name 

System  

Budget 
(EUR 
m) 

Climate 

Digital 

Int. 
Field 

Coeff. 
% 

Int. 
Field 

Coeff. 
% 

C3.4I2 

C3.4R7 

C3.4I4 

Investment 2: Digitalisation of the law-
making process  

Reform 7: Urban land consolidation - 
Digital  

Investment 4: Enhancing e-system for 
issuing building permits  

1.69 

0.12 

1.12 

011  

100% 

011  

100% 

011  

100% 

C3.4I5 

Investment 5: Smart cities  

35.00  055bis  

40% 

055bis  

100% 

C3.4I6 

C3.4R9 

C3.5R6 

C3.5I1 

C3.5R9 

C3.5I2 

C4.1R1 

C4.1I1 

C4.1I2 

C4.1I3 

C4.2R1 

C4.2R2 

Investment 6: Regeneration and 
Revitalization of Nicosia Inner City - 
Renovation 

Reform 9: Digital transformation of 
courts 

Reform 6: Reinforcing and 
strengthening the insolvency 
framework - Digital 
Investment 1: Enhancement of the 
Supervisory Function of Cyprus 
Securities and Exchange Commission 
Reform 9: Improving tax collection 
and effectiveness of the Tax 
Department - Digital 
Investment 2: Modernisation of 
Customs and Electronic Payment 
System  
Reform 1: Empower the National 
Regulatory Authority (OCECPR) 

Investment 1: Expansion of Very 
High-Capacity Networks in 
underserved areas 
Investment 2: Enhance building 
cabling to be “Gigabit-ready” and 
promote connectivity take-up 
Investment 3: Submarine link to 
Greece 

Reform 1: Digital Services Factory 
(DSF) 
Reform 2: Definition and 
implementation of a new cloud policy 
with regard to government IT systems 

10.00  025  

40% 

10.89 

0.60 

0.25 

16.43 

10.58 

0.50 

35.00 

10.00 

7.50 

4.70 

6.00 

88 

011qua
ter  

100% 

011  

100% 

011  

100% 

011  

100% 

011  

100% 

011  

100% 

053  

100% 

053  

100% 

051  

100% 

011  

100% 

011  

100% 

 
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
  
 
Measure 
ID 

(Sub-)Measure name 

Budget 
(EUR 
m) 

Climate 

Digital 

Int. 
Field 

Coeff. 
% 

Int. 
Field 

Coeff. 
% 

C4.2R3 

C4.2R4 

C4.2I1 

C4.2I2 

C5.1R2 

C5.1R4 

C5.1R5 

C5.1I2 

C5.1I2 

C5.2R1 

C5.2I1 

and services 

Reform 3: Police Procedures 
Digitalization (“Digipol”) 
Reform 4: Setting up the Beneficial 
Ownership Registry 

Investment 1: Digitalisation in various 
central government ministries/services 
- system development, hardware  
Investment 2: Digitalisation of the 
Cyprus Ports Authority 

Reform 2: A new teacher and school 
evaluation system - digital 

Reform 4: Digital transformation of 
school units with the aim of enhancing 
digital skills and skills related to 
STEM education 
Reform 5: E-skills Action Plan – 
Implementation of specific actions 

Investment 2: Skilling, reskilling and 
upskilling - green skills  

Investment 2: Skilling, reskilling and 
upskilling - digital skills  

Reform 1: Reform of the Social 
Insurance System and Restructuring of 
the Social Insurance Services - Digital 

Investment 1: Improving the 
effectiveness of the Department of 
Labour and Public Employment 
Services (PES) and reinforcing support 
for young people - Digital  

8.00 

0.40 

13.10 

3.28 

0.30 

13.80 

011  

100% 

011  

100% 

011  

100% 

011  

100% 

011  

100% 

012  

100% 

1.85 

108  

100% 

2.58  01  

100% 

8.42 

7.25 

2.30 

108  

100% 

011  

100% 

011  

100% 

A  single  asterisk  (*)  indicates  that  the  coefficient  was  uplifted,  as  the  investment  is  reinforced  by  an 
accompanying reform. 

For some measures and sub-measures, two different intervention fields are used for the purpose of climate 
and digital tagging. This is applied when the investment cannot be split into different sub-parts, when no 
single intervention field that reflects the contribution to both climate and digital objectives can be applied, 
and when the measure is considered as fully or partly contributing to both climate and digital objectives.  

In the above table, the measures are split into sub-measures in such a way that the corresponding costs 
can  be  tagged  with  a  suitable  intervention  field.  For  some  measures,  this  split  differs  from  the  sub-

89 

 
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
measures listed in the Council Implementing Decision and other sections in the Staff Working Document, 
where the sub-measures are defined instead to facilitate and monitor the measure’s implementation. 

90