Recommendation for a COUNCIL RECOMMENDATION on the 2022 National Reform Programme of Cyprus and delivering a Council opinion on the 2022 Stability Programme of Cyprus
Date: 2022-05-23
Institutions: European Commission, Secretariat-General
Subjects: Cyprus, digital transformation, economic policy, economic recovery, economic reform, energy policy, fiscal policy, green economy, stability pact, stability programme

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   EUROPEAN COMMISSION  Brussels, 23.5.2022  COM(2022) 604 final  Recommendation for a COUNCIL RECOMMENDATION on the 2022 National Reform Programme of Cyprus and delivering a Council opinion on the 2022 Stability Programme of Cyprus {SWD(2022) 604 final} - {SWD(2022) 640 final}  
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2022 National Reform Programme of Cyprus and delivering a Council opinion on 
the 2022 Stability Programme of Cyprus 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Articles 121(2) and 148(4) thereof, 

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies1, and in particular Article 5(2) thereof, 

Having  regard  to  Regulation  (EU)  No  1176/2011  of  the  European  Parliament  and  of  the 
Council  of  16  November  2011  on  the  prevention  and  correction  of  macroeconomic 
imbalances2, and in particular Article 6(1) thereof,  

Having regard to the recommendation of the European Commission, 

Having regard to the resolutions of the European Parliament, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

Having regard to the opinion of the Economic and Financial Committee, 

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

(1) 

(2) 

1 
2 
3 

Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council3,  which 
established  the  Recovery  and  Resilience  Facility,  entered  into  force  on  19  February 
2021.  The  Recovery  and  Resilience  Facility  provides  financial  support  for  the 
implementation of reforms and investment, entailing a fiscal impulse financed by the 
Union.  It  contributes  to  the  economic  recovery  and  to  the  implementation  of 
sustainable and growth-enhancing reforms and investment, in particular to promote the 
green and digital transition, while strengthening the resilience and potential growth of 
the Member States’ economies. It also helps strengthen sustainable public finances and 
boost growth and job creation in the medium and long term. The maximum financial 
contribution  per  Member  State  under  the  Recovery  and  Resilience  Facility  [was] 
updated on [XX] June 2022, in line with Article 11(2) of Regulation (EU) 2021/241. 

On  24  November  2021,  the  Commission  adopted  the  Annual  Sustainable  Growth 
Survey,  marking  the  start  of  the  2022  European  Semester  for  economic  policy 
coordination.  It  took  due  account  of  the  reaffirmed  joint  commitment  of  the  Porto 

OJ L 209, 2.8.1997, p. 1. 
OJ L 306, 23.11.2011, p. 25. 
Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council  of  12  February  2021 
establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17). 

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Social Summit of May 2021 to further implement the European Pillar of Social Rights, 
proclaimed  by  the  European  Parliament,  the  Council  and  the  Commission  on  17 
November  2017.  The  European  Council  endorsed  the  priorities  of  the  2022  Annual 
Sustainable Growth Survey on 25 March 2022. On 24 November 2021, on the basis of 
Regulation  (EU)  No  1176/2011,  the  Commission  also  adopted  the  Alert  Mechanism 
Report,  in  which  it  identified  Cyprus  as  one  of  the  Member  States  for  which  an  in-
depth  review4  would  be  needed.  On  the  same  date,  the  Commission  also  adopted  a 
recommendation  for  a  Council  recommendation  on  the  economic  policy  of  the  euro 
area, which was adopted on 5 April 2022 by the Council, as well as the proposal for 
the 2022 Joint Employment Report analysing the implementation of the  Employment 
Guidelines  and  the  principles  of  the  European  Pillar  of  Social  Rights,  which  was 
adopted by the Council on 14 March 2022.  

Russia’s  invasion  of  Ukraine,  in  the  wake  of  the  global  pandemic,  has  significantly 
altered the geopolitical and economic context. The impact of the invasion on Member 
States’ economies has been felt for example through higher energy and food prices and 
weaker  growth  prospects.  The  higher  energy  prices  weigh  particularly  on  the  most 
vulnerable households experiencing or at risk of energy poverty. The EU is also seeing 
an unprecedented inflow of people fleeing Ukraine. In this context, on 4 March 2022, 
the  Temporary  Protection  Directive  was  triggered5  for  the  first  time,  granting 
displaced persons from Ukraine the right to legally stay in the EU, as well as access to 
education and training, labour market, healthcare, housing and social welfare. 

Taking  account  of  the  rapidly  changing  economic  and  geopolitical  situation,  the 
European Semester resumes its broad economic and employment policy coordination 
in 2022, while evolving in line with the implementation requirements of the Recovery 
and  Resilience  Facility,  as  outlined  in  the  2022  Annual  Sustainable  Growth  Survey. 
The  implementation  of  the  adopted  recovery  and  resilience  plans  is  essential  for  the 
delivery of the policy priorities under the European Semester, as the plans address all 
or a significant subset of the relevant country-specific recommendations issued in the 
2019  and  2020  Semester  cycles.  The  2019  and  2020  country-specific 
recommendations  remain  equally  relevant  also  for  recovery  and  resilience  plans 
revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation 
(EU) 2021/241, in addition to any country-specific recommendations issued up to the 
date of submission of the modified plan.  
The General Escape Clause has been active since March 20206. In its Communication 
of  3  March  20217,  the  Commission  set  out  its  view  that  the  decision  on  the 
deactivation or continued application of the general escape clause should be taken as 
an overall assessment of the state of the economy, with the level of economic activity 
in the EU or euro area compared to pre-crisis levels (end-2019) as a key quantitative 
criterion. Heightened uncertainty and strong downside risks to  the economic outlook 
in  the  context  of  war  in  Europe,  unprecedented  energy  price  hikes  and  continued 

Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 
on the prevention and correction of macroeconomic imbalances, OJ L 306, 23.11.2011, p. 25. 
Council Implementing Decision (EU) 2022/382 of 4 March 2022 establishing the existence of a mass 
influx of displaced persons from Ukraine within the meaning of Article 5 of Directive 2001/55/EC, and 
having the effect of introducing temporary protection, OJ L 71, 4.3.2022, p. 1.  
Communication from the Commission to the Council on the activation of the general escape clause of 
the Stability and Growth Pact, Brussels, 20.3.2020, COM(2020) 123 final. 
Communication  from  the  Commission  to  the  Council  on  one  year  since  the  outbreak  of  COVID-19: 
fiscal policy response, Brussels, 3.3.2021, COM(2021) 105 final. 

(3) 

(4) 

(5) 

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(6) 

(7) 

supply  chain  disturbances  warrant  the  extension  of  the  general  escape  clause  of  the 
Stability and Growth Pact through 2023.  

Following the approach in the Council opinion of 18 June 2021 on the 2021 Stability 
Programme,  the  fiscal  stance  is  currently  best  measured  as  the  change  in  primary 
expenditure  (net  of  discretionary  revenue  measures),  excluding  COVID-19  crisis-
related  temporary  emergency  measures  but  including  expenditure  financed  by  non-
repayable  support  (grants)  from  the  Recovery  and  Resilience  Facility  and  other  EU 
funds,  relative  to  medium-term  potential  growth8.  Going  beyond  the  overall  fiscal 
stance, in order to assess whether national fiscal policy is prudent and its composition 
is conducive to a sustainable recovery consistent with the green and digital transitions, 
attention  is  also  paid  to  the  evolution  of  nationally-financed9  primary  current 
expenditure  (net  of  discretionary  revenue  measures  and  excluding  COVID-19  crisis-
related temporary emergency measures) and investment. 

On  2  March  2022,  the  Commission  adopted  a  Communication  providing  broad 
guidance  for  fiscal  policy  in  2023,  aiming  at  supporting  the  preparation  of  Member 
States’  Stability  and  Convergence  Programmes  and  thereby  strengthening  policy 
coordination10. The Commission noted that, based on the macroeconomic outlook of 
the  2022  winter  forecast,  transitioning  from  an  aggregate  supportive  fiscal  stance  in 
2020-2022  to  a  broadly  neutral  aggregate  fiscal  stance  would  appear  appropriate  in 
2023,  while  standing  ready  to  react  to  the  evolving  economic  situation.  The 
Commission announced that the fiscal recommendations for 2023 should continue to 
differentiate  across  Member  States  and  take  into  account  possible  cross-country 
spillovers. The Commission invited the Member States to reflect the guidance in their 
Stability  and  Convergence  Programmes.  The  Commission  committed  to  closely 
monitor  the  economic  developments  and  adjust  its  policy  guidance  as  needed  and  at 
the latest in its Semester spring package of late May 2022. 

(8)  With  respect  to  the  fiscal  guidance  provided  on  2  March  2022,  the  fiscal 
recommendations  for  2023  take  into  account  the  worsened  economic  outlook,  the 
heightened uncertainty and further downside risks, and the higher inflation compared 
to the winter forecast. Against these considerations, the fiscal response has to expand 
public investment for the green and digital transition and energy security, and sustain 
the purchasing power of the most vulnerable households so as to cushion the impact of 
the energy price hike and help limit inflationary pressures from second round effects 
via targeted and temporary measures; fiscal policy has to remain agile so as to adjust 
to the rapidly evolving circumstances, and be differentiated across countries depending 
on their fiscal and economic situation, including as regards the exposure to the crisis 
and the inflow of displaced persons from Ukraine. 

(9) 

8 

9 
10 

On  17  May  2021,  Cyprus  submitted  its  national  recovery  and  resilience  plan  to  the 
Commission, in accordance with Article 18(1) of Regulation (EU) 2021/241. Pursuant 
to  Article  19  of  Regulation  (EU)  2021/241,  the  Commission  assessed  the  relevance, 
effectiveness,  efficiency  and  coherence  of  the  recovery  and  resilience  plan,  in 
accordance with the assessment guidelines of Annex V to that Regulation. On 20 July 

The  estimates  on  the  fiscal  stance  and  its  components  in  this  recommendation  are  Commission 
estimates  based  on  the  assumptions  underlying  the  Commission  2022  spring  forecast.  The 
Commission’s estimates of medium-term potential growth do not include the positive impact of reforms 
that are part of the Recovery and Resilience Plan and that can boost potential growth.  
Not financed by grants from the Recovery and Resilience Facility and other EU funds. 
Communication  from  the  Commission  to  the  Council:  Fiscal  policy  guidance  for  2023,  Brussels, 
2.3.2022, COM(2022) 85 final. 

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2021,  the  Council  adopted  its  Decision  on  the  approval  of  the  assessment  of  the 
recovery and resilience plan for Cyprus11. The release of instalments is conditional on 
a decision by the Commission,  taken in  accordance with  Article 24(5)  of  Regulation 
(EU)  2021/241,  that  Cyprus  has  satisfactorily  fulfilled  the  relevant  milestones  and 
targets  set  out  in  the  Council  Implementing  Decision.  Satisfactory  fulfilment 
presupposes  that  the  achievement  of  preceding  milestones  and  targets  has  not  been 
reversed. 

(10)  On  5  May  2022,  Cyprus  submitted  its  2022  National  Reform  Programme  and,  on  2 
May 2022, its 2022 Stability Programme, in line with Article 4 of Regulation (EC) No 
1466/97.  To  take  account  of  their  interlinkages,  the  two  programmes  have  been 
assessed  together.  In  accordance  with  Article  27  of  Regulation  (EU)  2021/241,  the 
2022  National  Reform  Programme  also  reflects  Cyprus’  bi-annual  reporting  on  the 
progress made in achieving its recovery and resilience plan.  

in 

the 

relevant 

progress 

addressing 

(11)  The Commission published the 2022 country report for Cyprus12 on 23 May 2022. It 
assessed  Cyprus’ 
country-specific 
recommendations adopted by the Council in 2019, 2020 and 2021, and took stock of 
Cyprus’ implementation of the recovery and resilience plan, building on the Recovery 
and Resilience Scoreboard. Based on this analysis, the country report identified gaps 
with respect to those challenges that are not addressed or only partially addressed by 
the  recovery  and  resilience  plan,  as  well  as  new  and  emerging  challenges,  including 
those emerging from Russia’s invasion of Ukraine. It also assessed Cyprus’ progress 
on  implementing  the  European  Pillar  of  Social  Rights  and  on  achieving  the  EU 
headline  targets  on  employment,  skills  and  poverty  reduction,  as  well  as  progress  in 
achieving the UN’s Sustainable Development Goals.  

(12)  The  Commission  carried  out  an  in-depth  review  under  Article  5  of  Regulation  (EU) 
No  1176/2011  for  Cyprus  and  published  its  results  on  23  May  202213.  The 
Commission  concluded  that  Cyprus  is  experiencing  excessive  macroeconomic 
imbalances.  In  particular,  the  large  current  account  deficit  deteriorated  significantly 
during  the  COVID-19  crisis  which  put  an  additional  burden  on  the  already  high 
external,  public  and  private  debt,  while  non-performing  loans  in  the  financial  sector 
remain high, despite significant reduction.  

(13)  On  2  May  2022,  Cyprus  submitted  its  2022  Stability  Programme.  The  Council  has 
examined  the  2022  Stability  Programme  of  Cyprus  and  its  opinion  is  reflected  in 
particular in recommendation (1) below.  

the economy  and  support 

(14)  On  20  July  2020,  the  Council  recommended  Cyprus  to  take  in  2020  and  2021  all 
necessary measures, in  line with  the general  escape clause, to  effectively  address  the 
pandemic,  sustain 
It  also  
recommended  Cyprus  to  pursue,  when  economic  conditions  allow,  fiscal  policies 
aimed  at  achieving  prudent  medium-term  fiscal  positions  and  ensuring  debt 
sustainability,  while  enhancing  investment.  In  2021,  based  on  data  validated  by 
Eurostat, Cyprus’s general government deficit decreased from 5.8% of GDP in 2020 to 
1.7% in 2021. The fiscal policy response by Cyprus supported the economic recovery 
in 2021, while temporary emergency support measures  increased from 3.6% of GDP 
in  2020  to  3.9%  in  2021.  The  measures  taken  by  Cyprus  in  2021  have  been  in  line 

the  ensuing  recovery. 

11 

12 
13 

Council Implementing Decision of 20 July 2021 on the approval of the assessment of the recovery and 
resilience plan for Cyprus (ST 10686/2021; ST 10686/2021 ADD 1). 
SWD(2022) 604 final. 
SWD(2022) 628 final. 

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with  the  Council  Recommendation  of  20  July  2020.  The  discretionary  budgetary 
measures adopted by the government in 2020 and 2021 were temporary or matched by 
offsetting  measures.  Based  on  data  validated  by  Eurostat,  general  government  debt 
stood at 103.6% of GDP in 2021. 

(15)  The  macroeconomic  scenario  underpinning  the  budgetary  projections  in  the  2022 
Stability Programme is realistic. The government projects real GDP to grow by 2.7% 
in  2022  and  3.8%  in  2023.  By  comparison,  the  Commission’s  2022  spring  forecast 
projects a lower real GDP growth of 2.3% in 2022 and 3.5% in 2023, mainly due to an 
expected weaker  external  demand  in  the  Commission’s  forecast,  thus  a  negative 
contribution of net exports compared to a muted one in the 2022 Stability Programme. 
In  its  2022  Stability  Programme,  the  Government  expects  that  Cyprus  will  reach  a 
balanced budgetary position in 2022 and a budgetary surplus of 0.4% of GDP in 2023. 
The improvement in 2022 mainly reflects the unwinding of most emergency measures. 
According to the Programme, the general government debt-to-GDP ratio is expected to 
decrease to 93.9% in 2022, and to decline to 88.2% by 2023 Based on policy measures 
known  at  the  cut-off  date  of  the  forecast,  the  Commission  2022  spring  forecast 
projects  a  government  deficit  for  2022  and  2023  of  0.3%  of  GDP  and  0.2% 
respectively.  This  is  lower  than  the  balances  projected  in  the  2022  Stability 
Programme,  mainly  due  to  more  conservative  tax  revenue  projections  in  the 
Commission’s  forecast.  The  Commission  2022  spring  forecast  projects  a  broadly 
similar general government debt-to-GDP ratio, of 93.9% in 2022 and 88.8% in 2023.  

(16) 

Based on the  Commission spring 2022 forecast, the current  estimate of the  medium-
term (10-year average) potential output growth is 2.6%. However, this estimate does 
not include the impact of the reforms that are part of the Recovery and Resilience Plan 
and can boost Cyprus’ potential growth. 

In 2022, the government phased out the majority of measures taken in response to the 
COVID-19 crisis, such that the temporary emergency support measures  are projected 
to  decline  from  3.9%  of  GDP  in  2021  to  0.1%  in  2022.  The  government  deficit  is 
impacted  by  the  measures  adopted  to  counter  the  economic  and  social  impact  of  the 
increase in energy prices, which in the Commission spring 2022 forecast are estimated 
at  0.2%  of  GDP  in  2022  and  expected  to  be  phased  out  in  2023.14  These  measures 
mainly consist of social transfers to poorer households, cuts to indirect taxes on energy 
consumption and price caps on retail and wholesale prices. These measures have been 
announced as temporary. However, in case energy prices remain elevated also in 2023, 
some of these measures could be continued. Some of these measures are not targeted, 
notably the reduction of tax rate for household electricity bills, the reduction of price 
of  consumer  tariffs  or  the  reduction  of  excise  duties  on  petroleum.  The  government 
deficit is also impacted by the costs to offer temporary protection to displaced persons 
from Ukraine, which in the Commission 2022 spring forecast are projected at 0.1% of 
GDP in 2022 and 0.2% in 2023.15  

14 

15 

The figures represent the level of annual budgetary costs of those measures taken since autumn  2021, 
including current revenue and expenditure as well as – where relevant – capital expenditure measures. 
The total number of displaced persons from Ukraine to the EU is assumed to gradually reach 6 million 
by  the  end  of  2022,  and  their  geographical  distribution  is  estimated  based  on  the  size  of  the  existing 
diaspora, the relative population of the receiving Member State, and the actual distribution of displaced 
persons from Ukraine across the EU as of March 2022. For budgetary costs per person, estimates are 
based on the Euromod microsimulation model of the Commission’s Joint Research Centre, taking into 
account both cash transfers people may be eligible for as well as in-kind benefits such as education and 
healthcare. 

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(17)  On  18  June  2021,  the  Council  recommended  that  in  2022  Cyprus16  maintains  a 
supportive  fiscal  stance,  including  from  the  impulse  provided  by  the  Recovery  and 
Resilience  Facility,  and  preserves  nationally 
It  also 
recommended  Cyprus  to  pursue,  when  economic  conditions  allow,  a  fiscal  policy 
aimed  at  achieving  prudent  medium-term  fiscal  positions  and  ensuring  fiscal 
sustainability  in  the  medium  term,  and  at  the  same  time,  to  enhance  investment  to 
boost growth potential. 

investment. 

financed 

(18) 

(19) 

In  2022,  based  on  the  Commission’s  2022  spring  forecast  and  including  the 
information  incorporated  in  Cyprus’s  2022  Stability  Programme,  the  fiscal  stance  is 
projected to be broadly neutral, at +0.1% of GDP, while the Council recommended a 
supportive fiscal stance.17 Cyprus plans to provide continued support to the recovery 
by  making  use  of  the  Recovery  and  Resilience  Facility  to  finance  additional 
investment  as  recommended  by  the  Council.    The  positive  contribution  to  economic 
activity of expenditure financed by Recovery and Resilience Facility grants and other 
EU  funds  is  projected  to  increase  by  0.7%  of  GDP  compared  to  2021.  Nationally-
financed investment is projected to provide a contractionary contribution to the fiscal 
stance of 0.6 percentage points in 2022.18 Therefore, Cyprus does not plan to preserve 
nationally  financed  investment.  At  the  same  time,  the  growth  in  nationally-financed 
primary  current  expenditure  (net  of  new  revenue  measures)  in  2022  is  projected  to 
provide  a  broadly  neutral  contribution  of  0.2  percentage  points  to  the  overall  fiscal 
stance.  This  includes  the  additional  impact  of  the  measures  to  address  the  economic 
and social impact of the increase in energy prices (0.1 % of GDP) as well as the costs 
to offer temporary protection to displaced persons from Ukraine (0.1 % of GDP). 

In  2023,  the  fiscal  stance  is  projected  in  the  Commission  2022  spring  forecast  at 
+0.1%  of  GDP  on  a  no-policy  change  assumption.19  Cyprus  is  projected  to  continue 
using  the  grants  from  the  Recovery  and  Resilience  Facility  in  2023  to  finance 
additional  investment  in  support  of  the  recovery.  The  positive  contribution  to 
economic activity of expenditure financed by Recovery and Resilience Facility grants 
and other EU funds is projected to increase by 0.3 percentage points of GDP compared 
to  2022.  Nationally-financed  investment  is  projected  to  provide  a  contractionary 
contribution to the fiscal stance of 0.1 percentage points in 2023.20 At the same time, 
the  growth  in  nationally-financed  primary  current  expenditure  (net  of  new  revenue 
measures)  in  2023  is  projected  to  provide  a  broadly  neutral  contribution  of  0.1 
percentage  points  to  the  overall  fiscal  stance.  This  includes  the  impact  from  the 
phasing  out  of  the  measures  addressing  the  increased  energy  prices  (0.2  %  of  GDP) 
and additional costs to offer temporary protection to displaced persons from Ukraine 
(0.1% of GDP). 

16 

17 

18 

19 

20 

Council  Recommendation  of  18  June  2021  delivering  a  Council  opinion  on  the  2021  Stability 
Programme of Cyprus, OJ C 304, 29.7.2021, p. 58.  
A negative (positive) sign of the indicator corresponds to an excess (shortfall) of primary expenditure 
growth  compared  with  medium-term  economic  growth,  indicating  an  expansionary  (contractionary) 
fiscal policy. 
Other  nationally-financed  capital  expenditure  is  projected  to  provide  an  neutral  contribution  of  0.0 
percentage points of GDP. 
A negative (positive) sign of the indicator corresponds to an excess (shortfall) of primary expenditure 
growth  compared  with  medium-term  economic  growth,  indicating  an  expansionary  (contractionary) 
fiscal policy. 
Other  nationally-financed  capital  expenditure  is  projected  to  provide  a  contractionary  contribution  of 
0.2 percentage points of GDP. 

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(20) 

(21) 

In  the  2022  Stability  Programme,  the  general  government  surplus  is  expected  to 
gradually  increase  to  1.5%  of  GDP  in  2024  and  to  1.7%  by  2025.  Therefore,  the 
general  government  deficit  is  planned  to  remain  below  3%  of  GDP  within  the 
Programme horizon. These projections assume decreasing certain public expenditure, 
in  particular  subsidies,  and  limiting  the  growth  of  others,  including  intermediate 
consumption  and  social  transfers  in  kind.  A  decline  in  public  investments  as 
percentage  of  GDP  is  also  envisaged  after  the  peak  in  2022.  According  to  the 
Programme,  the  general  government  debt-to-GDP  ratio  is  expected  to  decrease  by 
2025,  specifically  with  a  decrease  to  81%  in  2024,  and  a  decline  to  76.7%  in  2025. 
Based on the Commission’s analysis, debt sustainability risks appear medium over the 
medium term. 

In accordance with Article 19(3), point (b), and Annex V, criterion 2.2, to Regulation 
(EU) 2021/241 the recovery and resilience plan includes an extensive set of mutually 
reinforcing reforms and investments to be implemented by 2026. These help address 
all  or  a  significant  subset  of  the  economic  and  social  challenges  outlined  in  the 
country-specific  recommendations  addressed  to  Cyprus  by  the  Council  in  the 
European  Semester 
to  any  country-specific 
recommendations issued up to the date of adoption of a plan. In particular, they relate 
to  public  finances  and  health  care,  labour  market  and  social  policy,  education  and 
skills, public and private investment and green and digital transition, structural reforms 
to  improve  the  functioning  of  the  public  sector,  fight  corruption  and  facilitate  the 
reduction of non-performing loans in the banking sector. 

in  2019  and  2020, 

in  addition 

(22)  The  implementation  of  the  recovery  and  resilience  plan  of  Cyprus  is  expected  to 
contribute  to  making  further  progress  on  the  green  and  digital  transition.  Measures 
supporting  the  climate  objectives  in  Cyprus  account  for  41%  of  the  plan’s  total 
allocation, while measures supporting digital objectives account for 23% of the plan’s 
total allocation. The fully-fledged implementation of the recovery and resilience plan, 
in line with the relevant milestones and targets, will help Cyprus swiftly recover from 
the fallout of the COVID-19 crisis, while strengthening its resilience. The systematic 
involvement of social partners and other  relevant  stakeholders  remains  important  for 
the  successful  implementation  of  the  recovery  and  resilience  plan,  as  well  as  other 
economic and employment policies going beyond the plan, to ensure broad ownership 
of the overall policy agenda. 

(23)  Cyprus  submitted  the  Partnership  Agreement  and  the  other  cohesion  policy 
programming  documents21  on  30  December  2021.  In  line  with  Regulation  (EU) 
2021/1060  of  the  European  Parliament  and  of  the  Council  of  24  June  2021,  Cyprus 
shall  take  into  account  the  relevant  country-specific  recommendations  in  the 
programming  of  the  2021-2027  cohesion  policy  funds.  This  is  a  prerequisite  for 
improving the effectiveness  and maximising the added value of the financial support 
to  be  received  from  cohesion  policy  funds,  while  promoting  the  coordination, 
complementarity and coherence between these funds and other Union instruments and 
funds.  The  successful  implementation  of  the  Recovery  and  Resilience  Facility  and 

21 

Regulation  (EU)  2021/1060  of  the  European  Parliament  and  of  the  Council  of  24  June  2021  laying 
down  common  provisions  on  the  European  Regional  Development  Fund,  the  European  Social  Fund 
Plus,  the  Cohesion  Fund,  the  Just  Transition  Fund  and  the  European  Maritime,  Fisheries  and 
Aquaculture Fund and financial rules for those and for the Asylum, Migration and Integration Fund, the 
Internal  Security  Fund  and  the  Instrument  for  Financial  Support  for  Border  Management  and  Visa 
Policy. OJ L 231, 30.6.2021, p. 159. 

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cohesion policy programmes also depends on the removal of bottlenecks to investment 
to support the green and digital transition and balanced territorial development. 

(24)  Beyond the economic and social challenges addressed by the recovery and resilience 
plan,  Cyprus  faces  an  additional  challenge  related  to  the  governance  of  state-owned 
entities  (SOEs).  The  governance  system  shows  gaps  with  respect  to  international 
standards  (e.g.,  the  guidelines  on  corporate  governance  of  SOEs  of  the  Organisation 
for  Economic  Co-operation  and  Development  and  the  World  Bank  Toolkit  for 
Corporate Governance of SOEs), which weighs on Cyprus’ productivity and business 
environment.  In  particular,  increased  transparency  of  and  higher  accountability  for 
financial  performance  and  public  objectives  would  increase  SOEs’  efficiency  and 
effectiveness.  So  would  implementation  of  best  practices  such  as  merit-based  and 
transparent process for nominations to SOE management bodies and shift of the SOE 
ownership  function  from  the  policy-oriented  line  ministries  to  a  dedicated  central 
body.  Opening  up  commercially  viable  markets  where  SOEs  currently  have  a 
dominant  position  (e.g.  renewables)  would  make  these  markets  more  efficient, 
accelerate  the  green  and  digital  transition,  and  help  diversify  the  economy.  Taking 
action on SOEs would make governance in Cyprus more effective and the market for 
local  and  foreign  businesses  fairer  and  more  transparent.  This  is  in  line  with  the 
objectives  of  the  long-term  strategy  for  Cyprus  and  the  action  plan  underpinning  it 
(under  the  ‘Modernise  state-owned  enterprises  and  create  the  right  incentives  for 
innovation  and  efficiency’  initiative  area).  Policies  aimed  at  improving  SOE 
governance can be conducive to reducing government debt as better SOE governance 
would  increase  public  sector  efficiency.  It  can  also  help  improve  the  business 
environment and increase potential growth. 

(25) 

In  response  to  the  mandate  by  the  EU  Heads  of  State  or  Government  set  out  in  the 
Versailles Declaration, the REPowerEU plan aims to phase out the European Union’s 
dependence on fossil fuel imports from Russia as soon as possible. For this purpose, 
the most suitable projects, investments and reforms at national, regional and EU level 
are being identified in dialogue with the Member States. These measures aim to reduce 
overall reliance on fossil fuels and shift fossil fuel imports away from Russia. 

(26)  The  full  potential  of  renewable  energy  sources  in  Cyprus  could  be  further  unlocked 
and accelerated, in particular by further streamlining permitting procedures and further 
investing in solar facilities. Cyprus currently uses no gas, though oil represents 85.6% 
of the energy mix. Given the widely fluctuating energy prices on global markets, it is 
crucial  for  the  sustainability  of  the  Cypriot  economy  to  reduce  its  heavy  reliance  on 
oil.  Oil  supply  is  fully  dependent  on  imports,  though  at  only  1%,  oil  imports  from 
Russia  are  well  below  the  EU  average  of  23%.22  To  diversify  energy  supplies  and 
reduce import dependence, Cyprus would benefit from expediting the development of 
hydrogen-compatible 
electricity 
interconnections  to  facilitate  the  expansion  of  renewable  energy  sources.  New 
infrastructure and network investments  related to  gas  are recommended to  be future-
proof where possible, in order to facilitate their long-term sustainability through future 
repurposing  for  sustainable  fuels.  In  addition,  energy  efficiency  policies  could  be 
extended  and  accelerated,  including  in  transport,  to  rein  in  the  growth  of  energy 
consumption,  which  is  significantly  above  the  EU  average.  Energy  efficiency 
measures are expected to also help address the energy poverty experienced by a high 

infrastructure 

additional 

import 

and 

gas 

22 

Eurostat (2020), share of Russian imports over total imports of natural gas, oil and hard coal. For the 
EU27  average,  the  total  imports  are  based  on  extra-EU27  imports.  For  Cyprus,  total  imports  include 
intra-EU trade. Oil includes crude oil and refined oil products.  

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share  of  the  population  (20.9%),  including  by  using  cohesion  policy  funds  as 
appropriate.  Further  increase  in  ambition  for  reducing  greenhouse  gas  emissions  and 
increasing of renewable energy and energy efficiency will be needed for Cyprus to be 
in line with the ‘Fit for 55’ objectives.  

(27)  While  the  acceleration  of  the  transition  towards  climate  neutrality  and  away  from 
fossil  fuels  will  create  significant  restructuring  costs  in  several  sectors,  Cyprus  can 
make  use  of  the  Just  Transition  Mechanism  in  the  context  of  cohesion  policy  to 
alleviate the socio-economic impact  of the transition in  the most  affected  regions.  In 
addition,  Cyprus  can  make  use  of  the  European  Social  Fund  Plus  to  improve 
employment opportunities and strengthen social cohesion. 

(28) 

(29) 

(30) 

In  the  light  of  the  Commission’s  assessment,  the  Council  has  examined  the  2022 
Stability Programme and its opinion23 is reflected in recommendation (1) below.  

In view of the close interlinkages between the economies of euro area Member States 
and  their  collective  contribution  to  the  functioning  of  the  Economic  and  Monetary 
Union,  the  Council  recommended  that  the  euro  area  Member  States  take  action, 
including 
the 
recommendation on the economic policy of the euro area. For Cyprus, this is reflected 
in particular in recommendations (1) and (2) below.  

resilience  plans, 

recovery  and 

implement 

through 

their 

to 

In the light of the Commission’s in-depth review and this assessment, the Council has 
examined  the  2022  National  Reform  Programme  and  the  2022  Stability  Programme. 
Its recommendations under Article 6 of Regulation (EU) No 1176/2011  are reflected 
in recommendations (1), (2), (3) and (4) below. The recommendations (1) and (2) also 
contribute  to  the  implementation  of  the  Recommendation  for  the  euro  area,  in 
particular the first and fourth euro area recommendations. Fiscal policies referred to in 
recommendation  (1)  help  inter-alia  address  imbalances  linked  to  high  government 
debt. Policies referred to recommendation (2) help inter alia address imbalances linked 
to  high  private  debt,  by  limiting  excess  borrowing  of  the  private  sector.  They  also 
address imbalances linked to high government debt and the current account deficit, by 
diversifying  the  economy,  as  well  as  imbalances  linked  to  the  high  stock  of  non-
performing  loans.  Policies  referred  to  in  recommendation  (3)  help  inter-alia  address 
imbalances linked to high government debt, by increasing government efficiency and 
long-term  growth,  and  imbalances  linked  to  private  and  external  debt,  by  increasing 
long-term  growth.  Policies  referred  to  in  recommendation  (4)  help  inter  alia  address 
vulnerabilities linked to high external debt in the longer term. 

HEREBY RECOMMENDS that Cyprus take action in 2022 and 2023 to:  

1. 

2. 

In 2023, ensure that the growth of nationally-financed current expenditure is in line 
with  an  overall  neutral  policy  stance,  taking  into  account  continued  temporary  and 
targeted support to households and firms most vulnerable to energy price hikes and 
to  people  fleeing  Ukraine.  Stand  ready  to  adjust  current  spending  to  the  evolving 
situation.  Expand  public  investment  for  the  green  and  digital  transition  and  for 
energy  security,  including  by  making  use  of  the  RRF,  RePowerEU  and  other  EU 
funds. For the period beyond 2023, pursue a fiscal policy aimed at achieving prudent 
medium-term fiscal positions. 

Proceed with the implementation of its recovery and resilience plan, in line with the 
milestones  and  targets  included  in  the  Council  Implementing  Decision  of  28  July 
2021.  Swiftly  finalise  the  negotiations  with  the  Commission  of  the  2021-2027 

23 

Under Article 5(2) of Council Regulation (EC) No 1466/97. 

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3. 

4. 

cohesion  policy  programming  documents  with  a  view 
implementation.  

to  starting 

their 

Take  measures  to  improve  governance  of  the  state-owned  entities  in  line  with 
international standards.  

Reduce  overall  reliance  on  fossil  fuel  and  further  diversify  energy  supply  by 
accelerating  the  deployment  of  renewables,  in  particular  by  further  streamlining 
permitting 
energy 
interconnections  with  neighbouring  countries,  while  extending  and  accelerating 
energy efficiency measures, including in the transport sector. 

photovoltaics.  Develop 

procedures 

expanding 

and 

Done at Brussels, 

For the Council 
The President 

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