COMMISSION STAFF WORKING DOCUMENT 2022 Country Report - Cyprus Accompanying the document 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

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 23.5.2022  SWD(2022) 604 final  COMMISSION STAFF WORKING DOCUMENT 2022 Country Report - Cyprus Accompanying the document 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 {COM(2022) 604 final} - {SWD(2022) 640 final}  
 
 
 
 
 
ECONOMIC AND EMPLOYMENT SNAPSHOT 

tourism sector was severely hit by a decline in 
tourist  arrivals  of  84%  in  2020,  which  it  has 
not  yet  fully  recovered  from.  Going  forward, 
economic activity is expected to slow down in 
2022,  2.3%,  negatively  affected  by  Russia’s 
invasion  of  Ukraine,  before  it  resumes  its 
strong  growth  momentum  in  2023,  3.5%. 
Significant  uncertainty  and  downside  risks  to 
the  growth  outlook  remain,  mainly  related  to 
the  economic  impact  of  the  aggression  of 
Russia against Ukraine. 

Inflation  has  been  increasing.  The  high 
global  prices  of  raw  materials  in  general  and 
oil in particular pushed inflation up to 2.3% in 
2021,  following  many  years  of  low  inflation. 
Inflation  is  forecast  to  peak  in  2022  at  5.2%, 
before  moderating  to  2.7%  in  2023.  Cyprus 
depends  heavily  on  imported  oil  products  for 
energy  consumption,  putting  further  pressure 
on  vulnerable  households.  Energy  poverty  is 
already prevalent, with over 20.9% of the total 
population  unable 
their  homes 
adequately warm, compared to 8.2% in the EU 
in  2020  (see  Annex  6).  The  government  has 
rolled out measures to support the population 
by  reducing  VAT  and  excise  duties  and 
providing  special  discounts  for  vulnerable 
groups.  

to  keep 

have 

Government 
been 
finances 
improving  on  the  back  of  the  economic 
recovery.  Cyprus’  prudent  fiscal  policy  put  it 
in  a  strong  fiscal  position  following  the 
financial  crisis.  As  a  result,  the  general 
government  balance 
reached  a  surplus 
position since 2016 and public debt decreased 
from  109.1%  of  GDP  in  2014  to  91.1%  in 
2019. 
In  2020,  the  general  government 
balance turned to a deficit of 5.8% of GDP due 
to 
the  government’s 
measures  to  support  the  economy  and  the 
labour  market.  However,  the  deficit  narrowed 
to  1.7%  in  2021  on  the  back  of  the  strong 
economic recovery and is expected to improve 
further  this  year.  Likewise,  after  peaking  in 

recession  and 

the 

Cyprus weathered the pandemic 
well but vulnerabilities remain 

Cyprus went into the COVID-19 crisis with 
robust  growth,  showing  a  swift  recovery 
from the 2013 financial crisis. At the same 
time, the catching up process was still ongoing 
when COVID-19 struck, with GDP per head (in 
purchasing power standards) at 90% of the EU 
average  in  2019  compared  to  91.3%  before 
the financial crisis.  

Cyprus  is  a  comparatively  small,  open 
and  service-oriented  economy.  Services 
accounted  for  almost  84%  of  GDP  and 
employed more than 70% of the labour force 
in  2020.  Tourism,  professional  and  financial 
services and real estate are among the biggest 
contributors  to  GDP  (see  Annex  19).  Tourism 
remains  a  key  economic  driver  as  it  has 
significant  spillover  effects  into  other  sectors, 
such as transport and trade. 

The  COVID-19  pandemic  interrupted  the 
dynamic  growth  of  previous  years  only 
temporarily  and  the  economy  bounced 
back strongly in 2021. Real GDP contracted 
by  5%  in  2020,  which  was  less  pronounced 
than  the  EU  average  in  2020  and  the  6.6% 
contraction  in  the  2013  financial  crisis  of 
2013.  The  economy  recovered  quickly,  and 
GDP  grew  by  5.5%  in  2021.  This  good 
performance  was  also  due 
to  support 
measures, which cushioned the drop in income 
and  consumer  spending  and  helped  exposed 
sectors  like  tourism  to  weather  the  crisis. 
Measures  included  temporary  and  short-term 
work  schemes,  also  benefiting  from  the 
European instrument for temporary Support to 
mitigate Unemployment Risks in an Emergency 
(SURE,  EUR  603  million  disbursed),  banks’ 
moratoria  on  loan  repayments,  as  well  as 
schemes  to  provide  subsidised  interest  rates 
loans.  The 
for 

loans  and  guarantees  on 

2 

 
 
to  93.9% 

2020, the public debt-to-GDP ratio is expected 
to  fall  significantly 
in  2022, 
gradually  returning 
to  pre-financial  crisis 
levels. There are moderate medium- and long-
term fiscal sustainability risks due to the high 
current  level  of  government  debt,  the  debt 
path’s  sensitivity  to  macro-fiscal  shocks  and 
projected 
spending. 
Between  2019  and  2070,  total  ageing  costs 
are  estimated  to  increase  by  2.0  percentage 
points  (pps)  of  GDP,  among  which  public 
pensions by 2.1 pps of GDP. (1) Also, the risk of 
climate  change  is  substantial  for  Cyprus  in 
particular due to risks related to wildfires.  

age-related 

public 

Graph 1.1: Key fiscal indicators 

Source: European Commission 

Despite  the  banking  sector’s  resilience 
during  the  COVID-19  crisis,  risks  remain. 
The banking sector’s total consolidated assets 
are  3.1  times  the  size  of  the  economy,  which 
largely  enabled  it  to  absorb  the  economic 
shock from the pandemic. The banks’ average 
capital  and  liquidity  ratios  remained  well 
above  regulatory  minimums  and  the  sector 
had  already  returned  to  profitability  in  2021. 
Throughout  the  crisis,  banks  have  continued 
building  up  additional  buffers  while  reducing 
their  non-performing  loans (2)  through  organic 
reductions  and  portfolio  sales.  Overall,  loans 

(1)  See the Ageing Report 2021. However, this does not 

take into account legislated future increases to the 
General Social Insurance Scheme contribution rate over 
the period until 2039. 

(2)  The NPLs figures referred to in this report are based on 

ECBs’ data and thus they differ from the figures 
referred to in the Post-Programme Surveillance Report 
Cyprus, Spring 2022, where data are based on Central 
Bank of Cyprus’ data. 

that  have  exited  the payment moratoria  have 
performed  encouragingly  but  Cyprus  still  has 
the  second-highest  level  of  non-performing 
loans in the EU. 

A  significant  amount  of  troubled  assets 
remains  in  the  economy.  These  assets  are 
managed outside the banking sector by  credit 
acquiring  and  credit-servicing  companies. 
While  the  supervision  of  credit  acquiring 
companies  has  been  strengthened,  there  are 
still  challenges  related  to  their  operating 
environment.  Therefore,  the  recovery  and 
resilience  plan  contains  a  proposal  for  a 
legislative  framework  to  allow  both  credit 
acquiring  companies  and their  credit-servicers 
to  access  data  on  debtors’  creditworthiness 
and property. 

The  current  account  deficit  widened, 
mainly due to pandemic and the collapse 
of  revenues  from  tourism.  Despite  a 
noticeable  improvement  in  2021,  it  is  well 
above  the  level  required  to  stabilise  the  net 
international 
investment  position.  Further 
developing  export-oriented  sectors  and  lower 
import  dependence  in  particular  on  oil  are 
essential to ensure that levels of external debt 
remain  sustainable  in  the  future.  The  large 
current account deficit is mirrored by the fact 
that  savings  are  falling  short  of  investment, 
sector. 
particularly 
Households in Cyprus have been net borrowers 
since at least as far back as 2000 and Cyprus’ 
savings rate, 8% is one of the lowest in the EU 
compared to the EU average of 18.3% in 2020 
(see Annex 17).  

household 

the 

in 

Achieving  environmentally  sustainable 
economic  growth  is  still  a  key  challenge. 
Cyprus  is  among  the  Member  States  with  the 
highest greenhouse gas emissions per person. 
With  its  existing  measures,  it  will  fall  15  pps 
short of its effort sharing reduction target of -
24%  compared 
its  2005  base  year 
emissions. At the same time, it would have to 
step up its efforts significantly to achieve the 
proposed  new  effort  sharing  reduction  target 
based  on  the  higher  ambitions  of  the  Fit  for 
55  Directive  (see  Annex  5).  High  dependence 
on imported oil, which makes up around 85.6% 
of the country’s energy mix, is the main cause 
of  higher  emissions  and  exposes  Cyprus  to 

to 

3 

60%70%80%90%100%110%120%130%-6%-5%-4%-3%-2%-1%0%1%2%11121314151617181920212223Headline balance as % of GDPDebt as % of GDP 
  
                                                 
price  fluctuations  on  the  international  oil 
market. With renewable energy accounting for 
16.88%  of  gross  final  energy  consumption (3) 
in  2020,  Cyprus  overshot  its  intermediate 
target,  but  showed  a  lack  of  ambition  in 
relation  to  its  very  large  potential.  Due  to  its 
location  in  the  eastern  Mediterranean  region, 
Cyprus  faces  particularly  high  risks  from 
dramatic  temperature  increases  and  climate 
change.  The  transition  towards  a  circular 
economy  has 
increasing 
municipal  waste  generation,  the  low  recycling 
in  EU 
rate 
average)  (see  Annex  7)  and  high  transport 
emissions due to the wide use of private cars 
remain major challenges. 

(16.4%  compared  to  47.8% 

just  begun,  and 

Cyprus  is  lagging  behind  in  the  digital 
transition. Cyprus ranks among the lowest in 
the Commission’s Digital Economy and Society 
Index  (DESI)  Report  for  2022.  Notably,  while 
Cyprus  is  performing  better  in  digital  public 
services  than  in  the  other  DESI  dimensions,  it 
is  lagging  behind  in  the  categories  ‘fixed  very 
high  capacity  network  coverage’,  ‘basic  digital 
skills’, 
information 
communications  technology  specialists’  and 
‘relatively high broadband price’ (see Annex 8). 

‘shortages 

of 

The  labour  market  is  improving,  but 
challenges  remain  especially  with  regard 
to  young  people  and  women.  Both 
employment  and  hours  worked  increased  in 
2021.  Although  unemployment 
increased 
slightly  during  the  pandemic,  it  fell  again  in 
2021.  However,  the  already  high  levels  of 
unemployment among youth (15-24 years old) 
and  young  people  not 
in  employment, 
education  or  training  increased  during  the 
pandemic to 17.1% and 15.4%, respectively in 
2021.  The  gender  employment  gap  remains 
relatively  wide,  reaching  12.2  pps  in  2021 
compared  to  the  EU  average  of  10.8  pps, 
owing  partly  to  the  low  number  of  children 
below  the  age  of  3  enrolled  in  childcare 
services (see Annex  12). Following a decrease 
in  2020,  wages  recovered  in  2021.  Cyprus 

(3)  Gross final energy consumption is the energy consumed 
by end-users and deducts energy losses during energy 
transformation from the gross inland energy 
consumption. The share of renewables in the latter 
stands at 13.8%. Coal accounts for the remaining 0.6% 
of gross final energy consumption.  

introduce  a  national  statutory 
intends  to 
minimum  wage,  which  is  expected  to  help 
reduce  the  risk  of  poverty  and  to  benefit 
mostly young people and female employees.  

recently 

Cyprus 
introduced  a  new 
national  health  insurance  system.  It  has 
already  made  Cyprus  more  resilient  to  the 
pandemic  and  made  access  to  healthcare 
services  more  equitable.  The  recovery  and 
resilience plan is expected to help  consolidate 
these gains. 

Low  productivity,  skills  shortages  and 
mismatches  in  the  labour  market  still 
pose  challenges.  In  2021,  Cyprus’  labour 
productivity  per  hour  worked  was  around 
75.5%  of  the  EU  average,  having  slightly 
increased  since  2020,  after  stagnating  for 
(see  Annex  10).  Low 
almost  a  decade 
productivity  also  characterises  commercial 
state-owned  entities.  GDP  potential  growth  is 
mainly driven by employment and investments 
rather  than  technology  improvements  and 
innovation (see Annex 9).  

Cyprus  performs  well  in  implementing 
most  principles  of  the  European  Pillar  of 
Social  Rights,  but  challenges  remain. 
Despite  high  numbers  of  students  completing 
tertiary  education,  Cyprus  has  one  of  the 
lowest  proportions  of  graduates  in  science, 
technology,  engineering  and  mathematics  in 
the  EU.  The  proportion  of  upper  secondary 
students  participating  in  vocational  education 
and  training  was  comparatively low  too  (17% 
against  an  EU  average  of  49%  in  2019),  as 
was the proportion of those with at least basic 
digital skills (50% against EU average of 54% 
in 2021) (see Annex 12). As a result, there are 
in  professions  related  to 
skills  shortages 
technology, 
information 
and 
science, 
mathematics.  There  are  also  shortages  of 
nurses  in  the  healthcare  sector  and  unskilled 
professions in the catering industry. There are 
the 
significant  skills  mismatches  among 
working  age  population  as  a  considerable 
share  (33.2%  in  2020,  above  the  EU  average 
of  21.5%)  of  tertiary  graduates  aged  20-64 
are  overqualified  for  their  current  job (4).  The 
level  of  basic  skills  among  pupils  in  Cyprus 

communications 

engineering 

technology, 

(4)  Skills - Eurostat (europa.eu) 

4 

 
                                                 
                                                 
remains  a  concern  and  highlights  socio-
economic disparities (see Annex 13). 

The  low  corporate  tax  rate  remains  a 
challenge.  Standing  at  10.8%  in  2020,  the 
average effective tax rate on corporate income 
is  well  below  the  EU  average  of  19.3%  (see 
Annex 18). While measures are being taken to 
address  the  issue  of  aggressive  tax  planning, 
the  corporate  tax  rate  remains  very  low.  This 
leads 
to  spillover  effects  for  other  EU 
countries,  while  not  adding  much  to  the  real 
economy,  since  many  businesses  attracted 
have a weak link to the Cypriot economy. 

on 

international 

In  terms  of  competitiveness,  Cyprus’ 
performance  is  below  the  EU  average. 
Based 
competitiveness 
rankings (Global Competitiveness Report or the 
World  Competitiveness  Rankings),  Cyprus 
performs  below  the  EU  average.  According  to 
these  reports  the  tax  regime  and  the  high 
educational 
competitiveness, 
whereas the small market size, weaknesses in 
the 
low 
system, 
digitalisation  and  research  and  innovation 
capacity are a drag on competitiveness.  

level  boost 

relatively 

financial 

SDG 

related 

(SDGs). 

further 
the 

progress 
UN’s 

Overall,  Cyprus  is  performing  well  and 
towards 
making 
Sustainable 
reaching 
Cyprus 
Development  Goals 
performs very well (SDG 15) or is improving on 
several 
to 
indicators 
environmental sustainability (SDG 2, 7, 9, 11). 
Further,  it  performs  very  well  or  well  on 
poverty  and  health  SDG  indicators  (SDG  1,  3, 
10) and is improving on several SDG indicators 
assessing  the  fairness  of  society  and  the 
is  also 
(SDG  2,  4,  5).  Cyprus 
economy 
improving on SDG indicators related to decent 
work  and  economic  growth 
(SDG  8), 
macroeconomic  stability  (SDG  16)  as  well  as 
productivity  (SDG  4,  9).  However,  important 
challenges remain (see Annex 1). 

Russia’s invasion of Ukraine 
weighs on the growth of the 
economy  

invasion 

of  Ukraine 

Russia's 
has 
disrupted  the  tourism  sector’s  recovery. 
is  Cyprus’  second  most  important 
Russia 
tourist market  after  the UK.  Its  share  of  total 
tourist  arrivals  and  revenues  hovered  around 
20% in 2016-2019. Currently, one fifth of the 
tourist  arrivals  expected  in  2022  are  at  risk 
owing  to  travel  restrictions  and  the  impact  of 
sanctions  on  Russian  purchasing  power. 
Moreover, rising inflation is expected to erode 
disposable  income  in  Cyprus’  other  tourist 
markets, 
for 
holidays.  

reducing  demand 

thereby 

technology, 

Russia’s 
is  also 
invasion  of  Ukraine 
expected  to  have  a  negative  impact  on 
exports  of  services  other  than  tourism. 
Cyprus’  exports  to  Russia  include  information 
communication 
accounting, 
consulting,  as  well  as  shipping  and  transport 
services,  which  accounted  for  17.5%  of  total 
exports of services in 2020. The disconnection 
of several Russian Banks from the Society for 
Worldwide 
Financial 
Interbank 
Telecommunications  (SWIFT),  as  well  as  the 
impact  of  sanctions  on  Russian 
negative 
companies  are  expected  to  negatively  affect 
these sectors.  

The  already  high  current  account  deficit 
is set to widen further. The expected loss in 
exports  of  tourism  and  other  services  in 
combination with expensive imports of oil and 
raw  material,  for  which  domestic  demand  is 
inelastic,  are  expected  to  push  the  current 
account deficit to a high level, around 8.8% of 
GDP in 2022.  

Russia  has  the  biggest  proportion  of 
Foreign Direct Investments (FDI) stocks in 
Cyprus.  FDI  stocks  concern  mainly  financial 
special purpose entities (SPEs)  that reportedly 
do  not  have  strong  links  with  the  domestic 
economy,  with  Cyprus  being  used  as  a  pass-
through  destination.  Real  estate  accounts  for 
4.4% of total FDI stocks vis-à-vis Russia. (See 

5 

 
Post-Programme  Surveillance  Report,  Spring 
2022).  

The links between Russia and the Cypriot 
banking  sector  have  been  significantly 
reduced since the banking crisis of 2013, 
but risks remain. Russian residents’ deposits 
make  up  around  4%  of  total  deposits  in 
Cypriot  banks  and  the  exposure  of  Cypriot 
banks 
In  the 
meantime,  following  the  Russian  invasion  of 
Ukraine,  RCB  Bank  Ltd  took  a  decision  to 
voluntarily  phase  out  its  banking  operations 
after weighting the impact of geopolitical risks 
on its operations (5). 

in  Russia  appears 

limited. 

(5)  RCB Bank Ltd announced its plans and committed to 
repay fully all depositors. In the meantime, the ECB 
restricted RCB’s business and the bank cannot take new 
deposits, grant new loans, or make new investments 
anymore. In addition, a temporary administrator was 
appointed to work with the current management, 
ensuring the smooth conclusion of the deposit 
relationships while monitoring bank’s liquidity and 
capital. 

6 

 
                                                 
 
THE RECOVERY AND RESILIENCE PLAN IS UNDERWAY 
THE RECOVERY AND RESILIENCE PLAN IS UNDERWAY 

The  Cypriot  recovery  and  resilience  plan 
is  ambitious  and  addresses  the  majority 
of long-standing challenges.  It amounts to 
EUR 1.2 billion (at current prices, equivalent to 
5.4 % of GDP in 2019) in grants and loans for 
the  period  2021-2026  (see  Annex  2).  This 
comes  on  top  of  EU  Cohesion  policy,  which 
provides EUR 968 million for the period 2021-
2027 (see Annex 3). The plan consists of 133 
measures  that  jointly  cover  the  six  pillars  of 
the  Recovery  and  Resilience  Facility (6).  Those 
measures  target  structural  challenges  in  the 
areas  of  energy  efficiency  and  production, 
digitalisation,  transport,  waste  and  water 
management, 
labour  market, 
education,  research  and  innovation,  business 
environment and competitiveness.  

health, 

the 

The  Cypriot  recovery  and  resilience  plan 
will  play  a  key  role  in  accelerating  the 
fair  green  and  digital  transition.  It  puts 
forward  several  reforms  and  investments  to 
underpin 
transition.  The 
fair  green 
centrepiece  is  the  EuroAsia  Interconnector 
project, a Project of Common Interest, which is 
expected to connect Cyprus’ electricity network 
to the Greek network in Crete and to the Israeli 
network,  ending  Cyprus’  energy  isolation  and 
facilitating  renewable  energy  development. 
Furthermore,  green  taxation,  liberalisation  of 
the electricity market and energy efficiency of 
buildings  are  among  the  measures  that  will 
contribute substantially to the greening of the 
economy  and  to  the  country’s  transition  to 
climate  neutrality.  On  digital  transition,  the 
recovery  and  resilience  plan  supports  the 
deployment  of  very  high-capacity  broadband 
networks,  including  in  areas  with  no  private 
sector 
fosters  digitalisation 
measures  in  areas  such  as  e-government,  e-
health,  e-justice  services  and  education  and 
the  digitalisation  of 
training.  Moreover, 

interest. 

It 

(6)  Regulation (EU) 2021/241 of the European Parliament 
and of the Council of 12 February 2021 establishing 
the Recovery and Resilience Facility 

7 

companies,  in  particular  small  and  medium-
sized  enterprises,  is  facilitated  by  measures 
that  aim  to  increase  businesses’  productivity 
and competitiveness.  

The  Cypriot  recovery  and  resilience  plan 
will  improve  urban  sustainable  mobility 
and  transport  and  promote  circular 
economy  waste  management.  Several 
measures  provide  the  impetus  for  cleaner, 
smarter,  safer  and  fairer  urban  mobility  by 
incentivising the shift to sustainable and smart 
modes of transport, the creation of e-mobility 
infrastructure and the integration of smart and 
digital  systems  in  the  transport  sector.  A 
number  of  measures  will  help  to  improve  the 
tourism, 
circular  economy,  especially 
agriculture 
notably 
addressing  the  key 
issue  of  coordination 
between  different  levels  of  government.  The 
plan  also  includes  initiatives  in  the  area  of 
waste  management  that  aim  to  increase 
sustainable  waste  management  practices, 
including  recycling.  Furthermore,  there  are 
water 
measures 
management practices.  These include  a  water 
management  reform  as  well  as  a  set  of 
interrelated and reinforcing investments aimed 
at reducing water losses by upgrading existing 
infrastructure.  

in 
and  manufacturing, 

inefficient 

targeting 

Health  care  will  become  more  efficient 
and accessible. Specifically, the plan includes 
not  only  reforms  that  will  contribute  to 
increase 
the  efficiency,  accessibility  and 
overall  resilience  of  the  National  Health 
System,  but  also  investments  to  strengthen 
public  health  capacities  and  the  hospital 
sector.  The  latter  measures  will  also  help 
improve working conditions for health workers. 
Notably, Cyprus intends to shift towards value-
based 
healthcare 
expenditure  for  disease  management  by  Q1-
2023,  by  stepping  up the use  of  good  clinical 
practice  protocols.  Digitalising 
the  public 
health  information  systems  and  reporting  on 

reimbursement 

of 

 
 
                                                 
 
will 
antibiotics/antimicrobial 
substantially improve the resilience of Cyprus’ 
healthcare  and tackle  some  of the  challenges 
identified (see Annex 14).  

resistance 

of 

for 

not 

and 

people 

reforms 

implement 

investments 

The  recovery  and  resilience  plan  targets 
inefficiencies  in  education  and  training, 
the  labour  market  and  social  policies, 
the 
to 
thereby  helping 
European  Pillar  of  Social  Rights.  The  plan 
tackles challenges in social cohesion through a 
mix 
in 
employment, education and training, which will 
also  support  the  green  and  digital  transition 
(see  Annex  12).  Projects  include  outreach 
measures 
in 
young 
employment,  education  or  training  (NEETs) 
using  mobile  units  and  the  strengthening  of 
the  public  employment  services  and  the 
Department of Labour. At the same time, there 
are  plans  for  legislation  to  protect  flexible 
forms  of  employment  including  teleworking. 
Early  childhood  education  and  care  is  being 
extended  to  children  starting  from  4  years  of 
age,  and  childcare  centres  are  put  in  place, 
while for the first time a national strategy and 
accompanied action plan will be developed for 
early  childhood  education  and  care  in  Cyprus. 
Curriculum  development,  graduate  tracking- 
and  guidance  as  well  as  the  construction  of 
modern  vocational  education  and  training 
schools  will  address  mismatches  between 
education  and  the  labour  market’s  needs. 
Social  protection  actions  include  reforms  to 
extend  the  coverage  of  the  social  security 
system and to create care centres for children 
in  need  and  for  people  in  need  of  long-term 
care.  Cyprus  must  tackle  all  these  challenges 
in  order  to  achieve  the  2030  EU  headline 
targets  on  employment,  skills  and  poverty 
reduction.  

The  Cypriot  recovery  and  resilience  plan 
will  foster  a  more  diverse  and  resilient 
growth  model,  and  improve  the  business 
environment.  The  plan  includes measures  to 
boost  agricultural  technology  and  practices, 
increase  light  manufacturing  activities  and 
upskill  farmers  to  adapt  to  the  needs  of 
agritech.  In  the  tourism  sector,  the  plan  will 
provide  grants  to  enable  small  and  medium-
sized  enterprises  in  mountainous  areas  to 
improve  their  infrastructure  and  services.  It 

8 

the 

and 

links  between 

also  includes  reforms  and  investments  to 
promote  export-oriented  businesses  and 
research 
strengthen 
organisations 
that 
commercialises research results. In relation to 
the business environment, there are measures 
to  simplify  the  procedures  for  conducting 
business  in  Cyprus,  and  to  improve  access  to 
and  medium-sized 
finance 
enterprises.  

enterprises 

small 

for 

the 

improve 

is  expected 

functioning  of 

The recovery and resilience plan includes 
measures  that  aim  to  safeguard  fiscal 
and  financial  stability  and  make  public 
administration  more  efficient.  The  plan 
includes  a  dedicated  component  for  financial 
to 
and  fiscal  stability  that 
strengthen  the  soundness  of  the  banking 
sector, 
the 
insolvency  framework  and  prevent  high  levels 
of  private  debt.  As  part  of  the  plan,  Cyprus 
also  aims  to 
implement  tax  reforms  to 
increase  the  effectiveness,  efficiency  and 
fairness  of  the  tax  system  by  combating  tax 
evasion  and  aggressive  tax  planning  by 
multinational  enterprises.  The  plan  also 
includes  measures  to  modernise  the  public 
sector including local authorities, by increasing 
the  efficiency  and  digitalisation  of  the  public 
administration  and 
system  and 
enhancing  anti-corruption  and  transparency 
measures (see also Annex 11). 

justice 

its 

very 

ambitious, 

Implementation  is  essential  to  reap  the 
full  benefits  of  the  plan.  Continuous 
dialogue  with  national  authorities  will  allow 
the  progress  made  on 
implementing  the 
investments  and  reforms  to  be  tracked  over 
the next 4 years. Since the plan’s key reforms 
successful 
are 
implementation  requires  political  commitment 
of  the  government  and  Parliament.  The  first 
payment  request  includes  milestones  that 
cover reforms of (i) the energy market, (ii) the 
efficiency  of  public  administration,  (iii)  the 
fight  against  corruption  and  protection  of 
whistle-blowers,  (iv)  the  promotion  of  the 
circular  economy,  (v)  the  enhancement  of 
digital  skills  and  (vi)  the  strengthening  of 
financial  stability.  Several  milestones  also 
concern  major  energy-efficient  investments 
and investments in renewables and upgrading 
the infrastructure of courts.  

 
 Box 1: 

Key deliverables under the recovery and resilience plan in 2022-23 

 

 

 

 

 

 

 

 

 

 

 

The reform of public administration, to simplify procedures and improve efficiency; 

The establishment of the anti-corruption Framework, to protect whistle-blowers and to 
make anti-corruption efforts more coherent; 

The reform of the justice system, by introducing an e-justice system to accelerate the 
administration of justice and reduce the backlog of cases; 

The Framework and Action Plan for addressing non-performing loans;  

A national research and innovation strategy and the launch of the central Knowledge 
Transfer Office, strengthening links between research organisations and enterprises, and 
supporting commercialisation of innovative solutions; 

Reforms to improve small and medium-size enterprises’ access to finance, to increase the 
availability of alternative financing sources; 

The kick-off of the ‘EuroAsia interconnector’ project to end energy isolation; 

The adoption of the national e-skills action plan to support the digital transition;  

The entry into force of the revised Social Insurance Law, extending social security coverage 
to the self-employed and workers in non-standard forms of employment; 

Green Taxation, which shall aim at making a tangible contribution to reaching the 2030 target 
for reducing greenhouse gas emissions; 

Design of and establishment of a National Promotional Agency, to improve access to 
finance for Small Medium Enterprises (SMEs). 

9 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FURTHER PRIORITIES AHEAD 
FURTHER PRIORITIES AHEAD 

Beyond  the  challenges  addressed  by  the 
recovery  and  resilience  plan,  as  outlined 
above, Cyprus faces additional challenges 
not sufficiently covered in the plan. These 
include the need to improve the governance of 
state-owned  entities,  further  strengthen  the 
financial sector, make further efforts to foster 
resilient,  sustainable  and  inclusive  growth,  as 
well  as  ensure  energy  security  and  the  green 
transition.  Addressing  these  challenges  will 
also  enable  further  progress  to  be  made  in 
achieving  the  Sustainable  Development  Goals 
stability, 
related 
environmental  sustainability, 
fairness  and 
productivity. 

macroeconomic 

to 

Improving the governance of 
state-owned entities 

in 

notably 

process 

The  governance  of  state-owned  entities 
falls  short  of  international  standards (7). 
The  existing  state-owned  entity  management 
framework 
lacks 
Cyprus 
transparency,  as  Cyprus  does  not  publish  a 
comprehensive  dataset  on  those  entities’ 
performance  in  meeting  financial  and,  where 
relevant,  public  policy  objectives.  In  addition, 
the 
the 
management bodies of those companies is not 
transparent.  According  to  the  OECD  product 
market  regulation  indicator,  Cyprus’  state-
owned  entities  are  subject 
to  political 
interference,  mainly  because  they  are  owned 
by  the  policy-oriented  line  ministries  rather 
than  by  a  dedicated  central  body.  Moreover, 
state-owned  entities  are  insulated  to  some 
extent  from  market  discipline,  as  not  all  of 
them are subject to company law. 

nominations 

for 

to 

(7)  For example, OECD guidelines on corporate governance 
of state-owned enterprises, World Bank Toolkit for 
Corporate Governance of State-Owned Enterprises. 

10 

financial, 

State-owned  entities  dominate  certain 
important  economic  sectors  and  their 
profitability 
is  supported  by  state 
transfers.  While  state  ownership  can  be 
justified  in  public  services,  notably  regulatory 
and educational areas, this is less the case for 
commercial  state-owned  entities.  With  total 
assets  of  27%  of  GDP  in  2020,  commercial 
state-owned  entities  make  up  a  sizeable 
proportion  of  Cyprus’  economy,  notably in  the 
energy, 
telecommunications, 
healthcare,  water  distribution  and  sewerage 
sectors.  For  instance,  in  the  energy  sector, 
Cyprus  needs  to  ramp  up  renewable  energy 
sources  in  electricity  towards  the  EU  average 
(12.0% vs. 37.5% in 2020). Therefore, through 
its ownership of the incumbent energy supplier 
(the  Electricity  Authority  of  Cyprus,  with  a 
market 
in  electricity 
generation  and  98.7%  in  supply),  the  State 
could  play  a  significant  role  in  achieving  the 
green  transition.  This  would  also  help  reduce 
country’s  high  energy  dependency  on  imports. 
Overall,  the  commercial  state-owned  entities 
are  profitable,  with  net  profits  amounting  to 
0.7%  of  GDP  in  2020,  but  their  revenue  is 
supported  by  government  grants  of  1.9%  of 
GDP.  Notably,  the  State  Health  Services 
Organisation  receives  significant  transfers, 
although  by  law,  it  should  become  financially 
and operationally autonomous by June 2024.  

share  of  86.8% 

in 

to 

the 

improve 

included 

While  some  progress  was  achieved  in 
2019,  measures 
the 
governance  of state-owned  entities were 
recovery  and 
not 
resilience  plan.  Only  some  progress  was 
country-specific 
achieved  on 
the  2019 
recommendation  to 
legislative 
reforms  to  improve  the  governance  of  state-
owned  entities’  (see  Annex  4).  Notably,  in 
2019, the Cypriot Council of Ministers adopted 
decisions, amongst others, to oblige the Board 
of Directors and key line ministers to prepare a 
risk report for each state-owned entity, and to 
link strategic plans and staffing levels of these 

‘adopt  key 

 
 
                                                 
 
entities  to  the  next  annual  budget.  In  2019, 
the  Treasury  also  issued  a  circular  with  a 
detailed  procedure  to  follow  for  the  state-
owned  entities  to  be  eligible  to  receive  the 
state grant (8). The recovery and resilience plan 
includes some measures to open the electricity 
market to competition, notably  by  making the 
System  Operator 
Cyprus 
incumbent  Electricity 
independent  of 
Authority  of  Cyprus  (by  the  end  of  2021). 
However,  the  broader  issue  of  governance  of 
state-owned entities was not addressed.  

Transmission 

the 

healthcare  sector  are  currently  at  risk  of 
needing  additional  support, 
in  excess  of 
previous estimates (for instance, illustrated by 
comparing  the  actual  financial  results  to  the 
2020  draft  budgetary  plan).  Furthermore,  the 
State is exposed to its entities’ ability to fulfil 
pension 
large 
workforces.  Increasing  long-term  growth  and 
reducing  fiscal  risks  would  also  contribute  to 
correcting  the  vulnerabilities  related  to  high 
public,  private  and  external  debt  that  were 
identified 
the  macroeconomic 
imbalances procedure (see Annex 17). 

commitments 

under 

their 

for 

of 

the 

regard 

governance 

transparency 

Better 
state-owned 
entities  would  increase  productivity  and 
environment. 
improve 
business 
higher 
and 
Increased 
accountability  with 
financial 
to 
performance and public objectives is expected 
to  make  State-owned  entities  more  efficient. 
Moreover,  opening  up  commercially  viable 
markets where those entities 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.  This  would,  in  turn, 
improve  the  entities’  productivity  and  the 
quality  and/or  price  of  the  services  they 
provide  (e.g.  the  electricity  price).  Overall,  this 
would  make  governance  more  effective  and 
the  marketplace 
foreign 
businesses fairer and more transparent, in line 
with  the  objectives  of  the  long-term  strategy 
for Cyprus and the action plan underpinning it 
(see  the  Initiative  Area  ‘Modernise  state-
right 
owned  enterprises  and  create 
incentives for innovation and efficiency’).  

local  and 

the 

for 

Effective  oversight  would  also 
lower 
fiscal  risks.  The  support  given  by  the  State 
takes  various  forms,  including  grants,  debt 
increase  or  guarantees. 
financing,  capital 
in  the 
Notably,  the  state-owned  entities 

(8)  The procedure requires state-owned entities to provide 

information to the competent ministries/deputy 
ministries, concerning, audited financial statements, 
strategic plans, staff recruitment, public procurement 
procedures. In addition, the state-owned entities are 
required to submit affirmation by their Board of 
Directors signed by the Chairman regarding the 
implementation of good corporate governance 
practices, sound financial management principles, 
compliance with laws/rules, implementation of 
procedures and internal controls. 

Consolidating the recovery of the 
financial sector 

Cyprus has made considerable progress in 
reducing  financial  risks  in  recent  years, 
but  the  stock  of  non-performing  loans 
(NPLs)  still  remains  a  key  challenge. 
Cypriot  banks  currently  have  the  second-
highest  NPL  ratio  in  the  EU  and  they  are 
continuing  to  either  work-out  the  remaining 
loan 
NPL  portfolio  or  pursue  additional 
portfolio  sales  in  order  to  further  reduce  the 
stock  of  distressed  assets  weighing  on  their 
ability  to  carry  out  normal  business.  At  the 
same time, the authorities continue working on 
their  plan  to  transform  KEDIPES (9)  into  a 
national  asset  management  company.  This 
initiative  needs  to  be  carefully  designed  with 
the  necessary  safeguards  to  ensure  asset 
management  on  a  par  with  private  investor 
practices  so  as  to  minimise  the  risk  to 
taxpayers and ensure the efficient recovery of 
assets (see Annex 16). 

(9)  KEDIPES is the state-owned asset management 

company established in 2018 as the residual entity of 
the former state-owned Cyprus Cooperative Bank 
whose performing part was sold to Hellenic Bank. 

11 

 
                                                 
                                                 
Graph 3.1: NPL ratio in Cyprus vs EU Member States and EU average 

Source: Eurostat 

to 

improve 

that  aims 

Effective  foreclosure  and  enforcement 
frameworks  are  important  for  payment 
discipline. The sale of loans has proven to be 
the most effective tool in dealing with the high 
level of NPLs. The recovery and resilience plan 
includes  an  action  plan  for  NPLs,  including  a 
legislative  package  for  credit  acquirers  and 
servicers 
their 
operational  environment  by  facilitating  their 
access  to  the  credit  and  land  registry  and  by 
ensuring 
regulatory  supervision  of  credit 
servicers.  However,  an  effective  foreclosure 
framework  is  needed  for  a  further  structural 
In  2021,  political 
reduction  of  NPLs. 
discussions  on  amending 
the  foreclosure 
framework  re-emerged,  which  could  partially 
undo the strengthening achieved in 2018. This 
creates legal uncertainty that could jeopardise 
the disposals of NPLs to specialised investors. 
The  adoption  of  the  amended  Civil  Procedure 
Law,  which 
is  expected  to  facilitate  the 
execution  of  court  orders  for  the  seizure  of 
movable  property,  would  improve  the  legal 
framework  for  the  enforcement  of  court 
decisions and contractual claims. The adoption 
of  this  law  by  Parliament  has  been  pending 
since  March 2020.  Moreover, 
challenges 
remain  such  as  improving  the  operations  of 

12 

the  Department  of  Insolvency  and  of  the 
bailiff system.  

Diversification and resilience of 
the economy 

as 

on 

The  pandemic  and  Russia’s  invasion  of 
Ukraine  provided  further  proof  that  lack 
of  diversification  makes  the  economy 
vulnerable  to  shocks.  The  Cypriot  economy 
remains  dependent  on  tourism,  albeit  to  a 
the  past  years,  on 
lesser  extent  over 
professional  services 
linked  to  companies 
under  the  special  purpose  entities  regime,  as 
residential 
well 
construction  with  a  particular  link  to  Russia, 
which  however  has  diminished  after  the 
termination  of  the  citizenship-by-investment 
communications 
scheme. 
technology,  tertiary  education,  health  and 
renewable  energy  are  new  emerging  sectors, 
but  still  with  a 
low  share. 
Investments  in  Cyprus  are  below  the  EU 
average,  at  20%  of  GDP  in  2020  (vs  EU 
average of 22.3%)  and they  are concentrated 

foreign-funded 

Information 

relatively 

0510152025303540ELCYPLBGHRLVPTITROMTHUESIESISKFRDKATCZBENLLTEEFIUKDESELUEAEUNon-performing loans of domestic banks (incl foreign controlled subsidiaries and branches)2019-Q32021-Q3% of loans and advances 
  
in construction, machinery and equipment. The 
latter mainly  consists  of  transport  equipment, 
which 
and 
deregistration 
contrast, 
investments that could increase the economy’s 
potential growth and productivity are still low.  

registration 
By 

effectively 
of 

ships. 

is 

So  far,  Cyprus’  growth  model  has  put  a 
strain  on  its  environment.  The  country 
hosts  up  to  four  and  a  half  times 
its 
population  in  tourists  every  year.  Although 
investment  in  construction,  which  has  been 
contributes 
buoyant 
significantly  to  growth,  it  puts  a  significant 
strain  on  the  country’s  environment  and 
natural resources, and also puts the long-term 
sustainability of the tourism sector at risk. (10) 

for  many 

years, 

Diversifying the economy and ensuring its 
environmental and social sustainability is 
crucial.  The  new  long-term  strategy  for  the 
sustainable  and  inclusive  growth  of  Cyprus  is 
concluded,  but  pending  adoption  by  the 
government.  The  strategy  provides  a  good 
opportunity  to  further  re-orient  the  country’s 
into  higher  value 
economic  development 
information 
such 
added 
as 
sectors 
professional 
technology, 
communications 
services,  tertiary  education,  health,  fintech, 
agritech  and  R&I.  It  is  also  crucial  to  ensure 
that future growth is inclusive and reaches all 
through  actions 
groups  of  society  also 
fostering  social  resilience.  Moreover,  reducing 
the economy’s reliance on the competitive tax 
regime  would  be  essential  for  its  future 
resilience. In addition, making further progress 
on  the  green  transition  and  on  reducing 
reliance  on  energy  imports  is  of  utmost 
importance  to  ensuring  the  economy’s  long-
term  sustainability  and  protecting  it  from 
external shocks.  

(10)  The Resilience Dashboards confirm that Cyprus is one 
of the most vulnerable EU countries in the areas of 
‘climate change adaptation and mitigation’, ‘sustainable 
use of resources’ as well as ‘ecosystems, biodiversity, 
sustainable agriculture’ 
(https://ec.europa.eu/info/strategy/strategic-
planning/strategic-foresight/2020-strategic-foresight-
report/resilience-dashboards_en#heatmap). 

Increased energy diversification 
and green transition  

in 

in 

and 

creating 

including 

Cyprus’  high  dependency  on  oil  makes  it 
very  vulnerable.  Oil  (all  imported)  account 
for  85.6%  of  its  energy  mix,  exposing  the 
economy  to  fluctuations  of  the  oil  price  on 
international  markets 
a 
dependency  on  imports  (see  Annex  5).  Cyprus 
has one of the highest electricity prices in the 
EU  due  to  this  reliance  on  imported  energy 
sources,  its  isolated  island  location  and  an 
uncompetitive  electricity  market.  Energy 
consumption, 
transport,  has 
increased  by  about  60%  over  the  past  three 
decades,  while  it  has  remained  more  or  less 
constant 
that  period. 
the  EU  during 
Accelerating  the  creation  of  interconnections 
with  neighbouring  countries  would  help  to 
achieve  strategic  autonomy,  boost  the  green 
transition  and  reduce  electricity  prices.  In 
particular,  additional  interconnectors  would 
enable  the  grid  to  take  on  more  renewables 
and  end  Cyprus’  electricity  isolation.  Similarly, 
finishing  the  construction  of  facilities  for 
importing  liquefied  natural  gas,  which  was 
interrupted by the COVID-19 pandemic, would 
support 
gas 
goals. 
interconnection  pipeline  projects  should  be 
time, 
hydrogen-compatible.  At 
Cyprus  would  benefit 
intensifying 
ongoing efforts to reduce energy consumption 
by  increasing  energy  efficiency  through  the 
measures identified in the National Energy and 
Climate Plan (11).  

the  same 
from 

Proposed 

those 

exist 

Favourable 
for 
conditions 
accelerating  the  roll-out  of  renewables. 
Greenhouse  gas  emissions,  which  are  caused 
to  a  large  extent  by  energy  production  and 
transport  rank  well  above  the  EU-27  average, 
its 
and  Cyprus  will  struggle 
greenhouse  gas  emissions  in  line  with  its  EU 
obligations  (see  Annex  5).  It  is  currently 
investing  in  renewable  energy  sources,  in 
addition  to  the  internal  electricity  grid  and 
storage  systems  to  accommodate  a  higher 
percentage of renewable energy. Furthermore, 

reduce 

to 

(11)  https://meci.gov.cy/en/useful-information/strategic-
planning/cyprus-integrated-national-energy-and-
climate-plan-for-the-period-2021-2030 

13 

 
                                                 
                                                 
reforms  in  the  recovery  and  resilience  plan, 
such  as  liberalising  the  electricity  market, 
introducing  a  carbon  tax  or  amending  the 
energy  storage  regulatory  framework  could 
help  Cyprus  to  achieve  the  targets  in  the 
2021-2030 National Energy and Climate Plan. 
However,  Cyprus  boasts  enormous  untapped 
potential, 
in  solar  power 
generation.  An  accelerated  deployment  of 
renewables by a swift rollout  of photovoltaics 
and 
streamlining  of  permitting 
procedures  would  increase  competitiveness 
and  productivity,  make  Cyprus  less  fossil  fuel 
dependent,  create  green  jobs  (see  Annex  6) 
and  make  the  island’s  energy  system  more 
environmentally friendly. 

in  particular 

further 

Transport  is  responsible  for  a  significant 
proportion  of  CO2  emissions  in  Cyprus. 
This  is  to  a  large  extent  due  to  the  fact  that 
almost  all  land  transport  is  road-based  and 
private.  Passenger  transport  relies  heavily  on 
private cars with internal combustion engines, 
while  public  transport  usage  is  very  low  (see 
Annex  5).  Transport  is  the  most  energy-
intensive  sector  in  the  economy,  accounting 
for  40%  of  final  energy  demand.  Cyprus is  in 
the  process  of implementing  reforms  in  order 
to shift towards sustainable mobility solutions. 
However,  great  effort  will  be  needed  to 
achieve  the  targets,  and  further  steps  should 
be taken through EU programmes and national 
financing. 

Cyprus 

barely 

begun. 

Cyprus’  weak  performance 
in  waste 
management  is  a  concern,  while  the 
transition  towards  a  circular  economy 
has 
recycles 
significantly  less  than  the  EU  average  and  its 
own 2025 target, and has not yet updated its 
waste  management  plan.  Cyprus  has  a  very 
low recycling rate and is still disposing most of 
its  waste  in  landfills.  Thus,  the  country  could 
improve  its  waste  performance  through  the 
broad  use  of  economic  instruments,  such  as 
the  implementation  of  a  meaningful  landfill 
tax,  pay-as-you-throw  schemes  and  extended 
producer  responsibility.  Similarly,  the  circular 
use of materials is much lower than in the rest 
of  the  EU  (see  Annex  7).  Measures  in  the 
recovery  and  resilience  plan,  such  as  the 
promotion  of  the  circular  economy  in  hotel 
establishments are certainly going in the right 

direction  and  some  progress  has  been 
observed in recent years, although on a small 
scale compared to the EU average. 

14 

 
KEY FINDINGS 
KEY FINDINGS 

  Cyprus’  Recovery  and  Resilience  Plan 
includes  measures  to  address  a  series 
of its structural challenges through: 

  strengthening  the  legal  framework  for  the 
court  decisions  and 

enforcement  of 
contractual claims; 

  strengthening 

the  supervision  of 

the 

financial sector. 

  making  the  country’s  economic  growth 
model  more  diverse  and  environmentally 
sustainable,  building  on  the  support  of  the 
national recovery and resilience plan and by 
implementing a long-term strategy. 

  strengthening  financial  and  fiscal  stability 
to  achieve  a  sounder  banking  sector, 
reducing  risks  related  to  private  debt, 
improving  supervision  of  the  non-banking 
sector,  and  creating  a  more  effective, 
efficient and fairer tax system; 

  increasing  the  efficiency  and  digitalisation 
of  the  public  sector,  including  the  justice 
system,  and  improving  digital  connectivity 
as  well  as 
further  anti-
introducing 
corruption measures; 

  improving  access  to  quality  healthcare  as 
the  digital  health 

well  as  enabling 
transition;  

  increasing  the  quality  of  education  and 
training at all levels, including digital skills, 
and fostering youth employment; 

  enabling  and  increasing  recycling,  building 
new  and  upgrading  existing  infrastructure 
to  deal  with  inefficient  waste  and  water 
management.  

Beyond  the  reforms  and  investments  in 
the RRP, Cyprus would benefit from: 

  improving  the  governance  of  state-owned 
entities in line with international standards; 

supply 

energy 

diversify 

  reduce  overall  reliance  on  fossil  fuel  and 
further 
by 
accelerating the deployment of renewables, 
further  streamlining 
in  particular  by 
permitting  procedures  and  expanding 
photovoltaics. 
energy 
interconnections  with  neighbours,  while 
energy 
extending 
efficiency  measures, 
the 
in 
transport sector. 

accelerating 
including 

Develop 

and 

15 

 
 
 
ANNEXES 

 
 
 
LIST OF ANNEXES 

Cross-cutting progress indicators 

Annex 1: Sustainable Development Goals 

Annex 2: Recovery and Resilience Plan implementation 

Annex 3: Other EU instruments for recovery and growth 

Annex 4: Progress in the implementation of country-specific recommendations 

Environmental sustainability 

Annex 5: Green Deal 

Annex 6: Employment and social impact of the green transition 

Productivity 

Annex 7: Resource efficiency and productivity 

Annex 8: Digital transition 

Annex 9: Innovation 

Annex 10: Industry and single market 

Annex 11: Public administration 

Fairness 

Annex 12: Employment, skills and social policy challenges in light of the European Pillar of Social Rights 

Annex 13: Education and skills 

Annex 14: Health and health systems 

Annex 15: Economic and social performance at regional level 

Macroeconomic stability 

Annex 16: Key financial sector developments 

Annex 17: Macroeconomic Imbalance Procedure assessment matrix 

Annex 18: Taxation 

Annex 19: Key economic and financial indicators 

Annex 20: Debt sustainability analysis 

LIST OF TABLES 

Table A2.1: 
Table A4.1: 
Table A5.1: 
Table A7.1: 
Table A8.1: 

Key elements of the Cypriot RRP 
Summary table on 2019,2020 and 2021 CSRs 
Indicators underpinning the progress on EU Green Deal from macroeconomic perspective 
Selected resource efficiency indicators 
Key Digital Economy and Society Index Indicators 

19 

21 

21 

23 

24 

26 

29 

29 

32 

34 

34 

36 

38 

40 

43 

46 

46 

48 

50 

52 

54 

54 

56 

59 

61 

62 

23 
27 
31 
34 
37 

 
 
 
Table A9.1: 
Table A10.1: 
Table A11.1: 
Table A12.1: 
Table A13.1: 
Table A14.0: 
Table A15.1: 
Table A16.1: 
Table A17.1: 
Table A18.1: 
Table A19.1: 
Table A20.1: 
Table A20.2: 

Key research, development and innovation indicators 
Key Single Market and Industry Indicators 
Public administration indicators 
Social Scoreboard 
EU-level targets and other contextual indicators under the European Education Area strategic framework 
Key health indicators 
 Selected indicators at regional level - Cyprus 
Financial Soundness Indicators 
Assessment of Macroeconomic Imbalances matrix 
Indicators on taxation 
Key economic and financial indicators 
Debt sustainability analysis for Cyprus 
Heat map of fiscal sustainability risks for Cyprus 

LIST OF GRAPHS 

Graph A1.1: 

Progress towards SDGs in Cyprus in the last five years 

Graph A2.1: 

Share of RRF funds contributing to each policy pillar 

Graph A3.1: 

ESIF 2014-2020 Total budget by fund (EUR billion, %) 

Graph A3.2: 

Cohesion policy contribution to the SDGs (EUR billion) 

Graph A4.1: 

Cyprus’ progress on the 2019-2020 CSRs (2022 European Semester cycle) 

Graph A5.1: 

Fiscal aspects of the green transition Taxation and government expenditure on environmental protection 

Graph A5.2: 

Thematic – Energy Share in energy mix (solids, oil, gas, nuclear, renewables) 

Graph A5.3: 

Thematic – Biodiversity  Terrestrial protected areas and organic farming 

Graph A5.4: 

Thematic – Mobility  Share of zero emission vehicles (% of new registrations) 

Graph A6.1: 

Fair green transition challenges 

Graph A6.2: 

Energy poverty by income decile 

Graph A7.1: 

Economic importance and expansion of the circular economy: Employment and value added in the Circular Economy 

sectors 

Graph A11.0: 

E-government benchmark scores and (lhs) and e-government users (rhs) 

Graph A11.1: 

Performance on the single market public procurement indicators 

Graph A13.1: 

Low achievement in reading by socioeconomic status, PISA 2018 

Graph A14.1: 

Life expectancy at birth, in years 

Graph A14.2: 

Projected increase in public expenditure on health care over 2019-2070 (reference scenario) 

Graph A15.1: 

GVA per worker 

Graph A18.1: 

Indicators on tax wedge 

39 
41 
45 
46 
48 
51 
52 
54 
57 
59 
61 
62 
63 

22 

23 

24 

25 

26 

29 

29 

30 

30 

32 

33 

34 

43 

44 

49 

50 

50 

53 

60 

20 

 
 
 
 
ANNEX 1: SUSTAINABLE DEVELOPMENT GOALS 
CROSS-CUTTING PROGRESS INDICATORS 
ANNEX 1: SUSTAINABLE DEVELOPMENT GOALS 

2021),  after  increasing  from  9.7  pps  in  2016. 
Reforms  and  investments  under  Policy  Axis  5  of 
the  recovery  and  resilience  plan  (RRP)  aim  to 
improve  quality  of  education  and  training,  and  to 
enhance  access  to  early  childhood  education  and 
care and to flexible working arrangements, thereby 
providing  equal  opportunities  for  all  children  and 
facilitating  women’s  participation  in  the  labour 
market. 

is 

Cyprus 
indicators 
improving  on  SDG 
related to productivity (SDG 4, 8, 9). However, 
strengthening  digital  skills  remains  a  challenge. 
With  only  50%  of  adults  having  at  least  basic 
digital skills in 2021, Cyprus’ performance is below 
the EU average (54%). Cyprus is making progress 
in ‘Decent work and economic growth’ (SDG 8) as 
well  as  ‘Industry,  innovation,  and  infrastructure’ 
(SDG 9). However, Cyprus spent only 0.82% of its 
GDP  on  R&D  in  2020,  which  is  one  of  the  lowest 
R&D  expenditures  in  the  EU.  In  addition,  the 
proportion of the active population working in R&D 
(0.5%)  was  much  lower  than  the  EU  average  in 
2020 
(1.43%).  The  RRP  targets  bottlenecks, 
especially  in  digitalisation  and  the  diversification 
of  the  economy,  to  facilitate  further  progress  on 
these SDGs.  

is 

Cyprus 
indicators 
improving  on  SDG 
related  to  macroeconomic  stability  (SDG  8, 
16).  Notably,  Cyprus’  employment  rate  increased 
from 68.7 % in 2016 to 75.9% in 2021, which is 
higher  than  the  EU  average  (73.1%  in  2021).  On 
the  other  hand,  the  proportion  of  young  people 
aged  15-29  not  in  employment,  education  or 
training (NEETs) reached 15.4% in 2021 (vs the EU 
average  of  13.2%),  and  the  gender  gap  in  the 
inactive  population  due  to  caring  responsibilities 
(32  pps)  remains  considerably  wider  than  the  EU 
average  (21.7  pps)  in  2021.  Cyprus  improved  its 
scores on indicators measuring ‘Peace, justice, and 
strong  institutions’  (SDG  16),  with  10.4%  of  the 
population  reporting  crime,  violence  or  vandalism 
in  their  area  in  2020  (compared  to  12%  in  2015 
and  the  EU  average  of  10.9%  in  2020).  The  RRP 
includes reforms to address several long-standing 
institutional challenges in the areas of justice and 
the fight against corruption. 

of 

four 

dimensions 

This annex assesses Cyprus’ progress on the 
Sustainable Development Goals (SDGs) along 
the 
competitive 
sustainability.  The  17  SDGs  and  their  related 
indicators  provide  a  policy  framework  under  the 
UN’s  2030  Agenda  for  Sustainable  Development. 
The  aim  is  to  end  all  forms  of  poverty,  fight 
inequalities  and  tackle  climate  change,  while 
ensuring that no one is left behind. The EU and its 
Member  States  are  committed  to  this  historic 
global  framework  agreement  and  to  playing  an 
active  role  in  maximising  progress  on  the  SDGs. 
The graph below is based on the EU SDG indicator 
set  developed  to  monitor  progress  on  SDGs  in  an 
EU context. 

Cyprus  performs  very  well  (SDG  15)  or  is 
improving  on  several  SDG  indicators  related 
to  environmental  sustainability  (SDG  2,  7,  9, 
11).  Although  overall  energy  consumption  in 
Cyprus is below the EU average, renewable energy 
accounts for only 16.9%. While this represents an 
improvement,  it  is  still  significantly  below  the  EU 
average  in  2020  (22.1%).  Furthermore,  the  high 
groundwater 
concentration 
nitrate 
of 
(63.4mg/litre  vs  EU  21.2mg/litre 
in  2019) 
combined with a recycling rate of municipal waste 
that  is  only  around  a  third  of  the  EU  average 
(16.4%  vs  EU  47.8%  in  2020)  pose  considerable 
challenges.  Various  measures  in  the  recovery  and 
resilience  plan  (RRP),  such  as  energy-efficiency 
renovations  of  public  and  private  buildings  and 
investments  in  sustainable  water  management 
and transport, will help to achieve further progress 
on these SDGs. 

in 

Cyprus performs very well (SDG 1, 3) or well 
(SDG  10)  and  is  improving  on  several  SDG 
indicators  assessing  the  fairness  of  society 
and  the  economy  (SDG  2,  4,  5). (12)  Cyprus 
outperforms  the  EU  average  in  most  indicators 
related  to  poverty,  health  and  inequality  (SDGs  1, 
3, 10). However, the still high rate of early school 
leavers  (10.2%  vs  EU  9.7%  in  2021)  combined 
with  low  basic  skills (in  PISA  2018,  43.7%  of  15-
year-olds were low-achievers in reading literacy vs 
22.5%  at  EU  level)  pose  significant  challenges.  In 
addition,  the  gender  employment  gap  remains 
above the EU average (12.2 pps vs EU 10.8 pps in 

(12)  See Annex 12 – ‘Employment, skills and social policy 

challenges in light of the European Pillar of Social Rights’ for 
further information. 

21 

 
 
                                                 
 
 
Graph A1.1: Progress towards SDGs in Cyprus in the last five years 

For detailed datasets on the various SDGs see the annual ESTAT report ‘Sustainable development in the European Union’, 
https://ec.europa.eu/eurostat/web/products-statistical-books/-/KS-03-21-096; Extensive country specific data on the short-term 
progress of Member States can be found here: Key findings - Sustainable development indicators - Eurostat (europa.eu). 
Source: Eurostat, latest update of 28 April 2022. Data mainly refer to 2015-2020 and 2016-2021. 

22 

 
 
ANNEX 2: RECOVERY AND RESILIENCE PLAN IMPLEMENTATION 
ANNEX 2: RECOVERY AND RESILIENCE PLAN IMPLEMENTATION 

its 

The  Recovery  and  Resilience  Facility  (RRF)  is 
the  centrepiece  of  the  EU’s  efforts  to 
support  its  recovery  from  the  COVID-19 
pandemic,  fast  forward  the  twin  transition 
and  strengthen  resilience  against  future 
shocks.  Cyprus  submitted 
recovery  and 
resilience  plan  (RRP)  on  17  May  2021.  The 
Commission’s positive assessment on 8 July 2021 
and the Council’s approval on 28 July 2021 paved 
the way for disbursing EUR 1 billion in grants and 
EUR 0.2 billion in loans (out of EUR  1.5 billion total 
loan  envelope)  under  the  RRF  over  2021-2026. 
The  financing  agreements  were  signed  on  31 
August  2021  and  the  operational  arrangement 
was  adopted  by  the  Commission  on  11  May.  The 
key  elements  of  the  Cyprus  RRP  are  set  out  in 
Table  A2.1.  The  share  of  funds  contributing  to 
each of the RRF’s six policy pillars is outlined in the 
graph below. 

the Commission. 

Table A2.1: Key elements of the Cypriot RRP 

(1) See Pfeiffer P., Varga J. and in ’t Veld J. (2021), 
“Quantifying Spillovers of NGEU investment”, European 
Economy Discussion Papers, No. 144 and Afman et al. (2021), 
“An overview of the economics of the Recovery and Resilience 
Facility”, Quarterly Report on the Euro Area (QREA), Vol. 20, 
No. 3 pp. 7-16. 
Source: European Commission, 2022 

and 

Resilience 

Scoreboard. 

in  the 
The  progress  made  by  Cyprus 
implementation of its plan is published in the 
Recovery 
The 
Scoreboard also gives an overview on the progress 
of the implementation of the RRF as a whole, in a 
transparent  manner.  The  graphs  below  show  the 
current  state  of  play  of  the  fulfilled  milestones 
targets,  as  completed  by  Cyprus  and 
and 
subsequently assessed as satisfactorily fulfilled by 

Graph A2.1: Share of RRF funds contributing to each policy pillar 

(1) Each measure contributes towards two policy areas of the six pillars, therefore the total contribution to all pillars is displayed 
on this chart amounts to 200% of the estimated cost of the Cypriot RRP. The bottom part represents the amount of the primary 
pillar, the top part the amount of the secondary pillar. 
Source: RRF Scoreboard 

23 

Total allocation EUR 1 billion in grants (4.5% of 2019 GDP) and EUR 0.2 billion in loans (0.9% of 2019 GDP)Investments and Reforms 75 investments and 58 reforms Total number of Milestones and Targets271Estimated macroeconomic impact (1) Raise GDP by 1.8% by 2026 (0.5% in spillover effects)Pre-financing disbursed EUR 0.2 billion (September 2021) First instalment Cyprus did not yet submit a first payment request0%10%20%30%40%50%60%70%Green transitionDigitaltransformationSmart,sustainable andinclusive growthSocial andterritorialcohesionHealth, andeconomic,social andinstitutionalresiliencePolicies for thenext generation 
 
 
  
 
 
 
  
ANNEX 3: OTHER EU INSTRUMENTS FOR RECOVERY AND GROWTH 
ANNEX 3: OTHER EU INSTRUMENTS FOR RECOVERY AND GROWTH 

The EU’s budget of more than EUR 1.2 trillion 
for  2021-2027  is  the  investment  lever  to 
help  implement  EU  priorities.  Underpinned  by 
an  additional  amount  of  EUR  800  billion  through 
NextGenerationEU  and  its  largest  instrument,  the 
Recovery  and  Resilience  Facility,  it  represents 
significant  firepower  to  support  the  recovery  and 
sustainable growth. 

Graph A3.1: ESIF 2014-2020 Total budget by fund 
(EUR billion, %) 

(1) The data for the EAFRD and REACT EU refer to the period 
2014-2022. 
Source: European Commission, Cohesion Open Data 
Note: bn EUR in current prices, % of total 

support 

In  2021-2027,  EU  Cohesion  policy  funds (13) 
development 
long-term 
will 
objectives  in  Cyprus  by  investing  EUR  968 
million (14)  including  EUR  101.1  million  from  the 
Just  Transition  Fund  directed  to  alleviate  the 
socio-economic  impacts  of  the  green  transition  in 
the  most  vulnerable  territories.  The  2021-2027 
Cohesion policy funds Partnership agreements and 
programmes are designed taking into account the 
investment  guidance 
2019-2020  CSRs  and 
provided  within  the  context  of  the  European 
and 
Semester, 
complementarities  with  other  EU  funding. 
In 
addition, Cyprus will benefit from EUR 380 million 
support for the 2023-27 period from the Common 
Agricultural 
social, 
environmental,  and  economic  sustainability  and 
rural  areas, 
innovation 
contributing  to  the  European  Green  Deal,  and 
ensuring long-term food security. 

in  agriculture  and 

Policy,  which 

synergies 

supports 

ensuring 

total 

policy 

investment 

In  2014-2020,  the  European  Structural  and 
Investment Funds (ESIF) for Cyprus are set to 
invest  EUR  1.09  billion (15)  from  the  EU 
budget.  The 
including 
national  financing  amounts  to  EUR  1.37 
billion (Graph A3.1), representing around 0.99% 
of  GDP  for  2014-2020  and  28.22%  of  public 
investment (16).  By  31  December  2021,  108%  of 
the  total  was  allocated  to  specific  projects  and 
65%  was  reported  as  spent,  leaving  EUR  0.49 
billion to be spent by the end of 2023 (17). Among 
the  eleven  objectives,  the  most  relevant  ones  for 
are 
funding 
cohesion 
competitiveness  of  SMEs,  low  carbon  economy, 
environment  protection  and  resource  efficiency 
and  active  labour  market  policies  including  youth, 
education and training, and social inclusion. By end 
2021, Cohesion Policy investments supported 737 
enterprises,  2052  direct  jobs,  1358  households 
with 
improved  energy  efficiency  and  5000 
population  equivalent  of  waste  water  treatment 
and resulted in a reduction of GHG 24 986 Tonnes 
of CO2eq. Furthermore, investments resulted in 14 
956 participants in education and training of which 
long-term 
unemployed,  3  586 
13  103 
unemployed,  and  7  083  young  persons  below  25 
years of age. 

Cyprus 

in 

are 

funds 

policy 

Cohesion 
already 
substantially contributing to the Sustainable 
Development  Goals  (SDGs)  objectives  (Graph 
In  Cyprus,  Cohesion  policy  funds  are 
A3.2). 
supporting 10 of the 17 SDGs with up  to 90% of 
the  expenditure  contributing  to  the  attainment  of 
the goals.  

(15)  ESIF includes cohesion policy funds (ERDF, ESF+, CF, Interreg) 
and European Agricultural Fund for Rural Development 
(EAFRD) and European Maritime and Fisheries Fund (EMFF). 
According to the ‘N+3 rule’, the funds committed for the 
years 2014-2020 must be spent by 2023 at latest (by 2025 
for the EAFRD). Data source: Cohesion Open data, cut-off 
date 31.12.2021 for ERDF, ESF+, CF, Interreg; cut-off date 
31.12.2020 for EAFRD and EMFF.  

(13)  European Regional Development Fund (ERDF), European 

(16)  Public investment is gross fixed capital formation plus 

Social Fund+ (ESF+), Cohesion Fund (CF), Just Transition Fund 
(JTF), Interreg. 

(14) Current prices, source: Cohesion Open Data  

capital transfers, general government. 

(17)  Including REACT-EU. ESIF data on 

https://cohesiondata.ec.europa.eu/countries/CY 

24 

CF0.3 bnEAFRD0.33 bnEMFF0.05 bnERDF0.4 bnESF0.24 bnYEI0.04 bn 
 
  
                                                 
                                                 
 
ancillary,  health-related  measures. 
The 
Council granted financial assistance under SURE to 
Cyprus  in  September  2020  and  top-up  support  in 
April  2021  for  a  maximum  of  EUR  603  million, 
which  was  disbursed  by  25  May  2021.  SURE  is 
estimated  to  have  supported  approximately  40% 
of  workers  and  25%  of  firms  for  at  least  one 
month  in  2020  and  20%  of  workers  and  10%  of 
firms  in  2021,  primarily  in  accommodation  and 
food  services,  wholesale  and  retail  trade  and 
manufacturing. Cyprus is estimated to have saved 
a total of EUR 0.06 billion on interest payments as 
a result of SURE’s lower interest rates.  

civil 

Instrument 

to  support  Cyprus 

rules, 
supporting 
long-term  strategy 

The  Commission  is  engaged  in  providing 
tailor-made  expertise  via  the  Technical 
in 
Support 
designing  and 
implementing  growth-enhancing 
reforms, including for implementing its RRP. Since 
2015,  Cyprus  has  received  assistance  through 
more than 150 technical support projects. Projects 
delivered  in  2021  aimed  for  example  at  building 
the  capacity  of  the  newly  established  General 
Secretariat  for  European  Affairs,  assisting  the 
Supreme  Court  of  Cyprus  with  the  modernisation 
the 
of 
procedure 
development  of  a 
for 
sustainable  growth  and  a  strategy  for  lifelong 
learning.  The  Commission  also  assisted  Cyprus  in 
implementing specific reforms and investments in 
the  RRP,  for 
the  digitalisation  of 
insolvency proceedings, the creation of specialised 
courts and for the green taxation reform. In 2022, 
new projects will start to support, amongst others, 
the  set-up  of  an  Examination  Centre  for  the 
Cyprus Public Service Commission in the context of 
the  public  administration  reform.  Besides,  the 
country will benefit from additional support for the 
implementation  of  the  RRP,  for  which  it  will 
transfer resources in line with Article 7 of the TSI 
Regulation,  to  further  enhance  early  childhood 
education and care.  

instance 

also 

from 

other 

benefits 

EU 
Cyprus 
programmes,  such  as  the  Connecting  Europe 
Facility,  which  allocated  EU  funding  of  EUR  84.0 
million  to  specific  projects  on  strategic  transport 
networks,  and  Horizon  2020,  which  allocated  EU 
funding of EUR 319.4 million. 

Graph A3.2: Cohesion policy contribution to the 
SDGs (EUR billion) 

Source: European Commission, DG REGIO 

The  REACT-EU  under  NextGenerationEU 
provided  EUR  111.4  million  of  additional 
funding 
to  2014-2020  cohesion  policy 
allocations  for  Cyprus  to  ensure  a  balanced 
recovery,  foster  convergence  and  provide  vital 
support  to  regions  following  the  impact  of  the 
coronavirus  outbreak.  REACT-EU  provided  support 
in  Cyprus  to  contribute  to  short-time  work 
schemes 
in  complementarity  with  the  SURE 
instrument, to support some 6.200 SMEs affected 
by the COVID-19 pandemic and to support actions 
contributing to climate change objectives. 

It 

to  finance 

Investment 
The  Coronavirus  Response 
Initiative (18) provided the first EU emergency 
support  to  Cyprus  in  relation  to  the  COVID-
introduced  extraordinary 
19  pandemic. 
flexibility enabling Cyprus to re-allocate resources 
of  around  EUR  57  million 
the 
reinforcement  of  the  health  sector.  Investments 
aimed  to  strengthen  hospitals  and  other  health 
centres  with  appropriate  equipment 
(masks, 
overalls,  consumables).  Furthermore,  it  supported 
the  necessary  human  resources  and  financed 
employment  support  measures.  Cyprus  also 
benefited  in  2021  from  the  temporary  100%  EU 
financing  of incurred  measures in  Cohesion  policy 
in  order  to  help  beneficiaries  overcome  liquidity 
scarcity in the implementation of their projects. 

for 

Cyprus  received  support  under  the  European 
instrument 
to 
an 
mitigate 
emergency  (SURE)  to  finance  short-time 
work  schemes,  similar  measures  and  as  an 

support 
in 

unemployment 

temporary 

risks 

(18)  Re-allocating ESIF resources according to Regulation (EU) 

2020/460 of the European Parliament and of the Council of 
30 March 2020, and Regulation (EU) 2020/558 of the 
European Parliament and of the Council of 23 April 2020. 

25 

0.010.010.010.020.050.060.070.080.100.180.220.00.10.20.3SDG 15 Life on landSDG 4 Quality educationSDG 13 Climate actionSDG 11 Sustainable cities and communitiesSDG 7 Affordable and clean energySDG 6 Clean water and sanitationSDG 1 No povertySDG 12 Responsible consumption and productionSDG 3 Good health and well beingSDG 9 Industry, innovation, infrastructureSDG 8 Decent work and economic growth 
  
                                                 
ANNEX 4: PROGRESS IN THE IMPLEMENTATION OF COUNTRY-SPECIFIC 
ANNEX 4: PROGRESS IN THE IMPLEMENTATION OF COUNTRY-SPECIFIC 
RECOMMENDATIONS 
RECOMMENDATIONS 

Graph A4.1: Cyprus’ progress on the 2019-2020 
CSRs (2022 European Semester cycle) 

The  Commission  assessed  the  2019-2021 
country-specific  recommendations  (CSRs) (19) 
addressed  to  Cyprus  in  the  context  of  the 
European  Semester.  The  assessment  takes  into 
account  the  policy  action  taken  by  Cyprus  to 
date (20),  as  well  as  the  commitments  in  the 
Recovery  and  Resilience  Plan  (RRP) (21).  At  this 
early  stage  of  the  RRP  implementation,  overall 
54%  of  the  CSRs  focusing  on  structural  issues  in 
2019  and  2020  have  recorded  at  least  “some 
progress”, while 46% recorded “limited” (see Graph 
A4.1).  Considerable  additional  progress 
in 
addressing structural CSRs is expected in the years 
to  come  with  the  further  implementation  of  the 
RRP.  

Source: European Commission 

(19)  2021 CSRs: https://eur-lex.europa.eu/legal-

content/EN/TXT/?uri=CELEX%3A32021H0729%2813%29&qi
d=1627675454457  
2020 CSRs: https://eur-lex.europa.eu/legal-
content/EN/TXT/?uri=CELEX%3A32020H0826%2813%29&qi
d=1526385017799  
2019 CSRs: https://eur-lex.europa.eu/legal-
content/EN/TXT/?uri=CELEX%3A32019H0905%2813%29&qi
d=1526385017799  

(20)  Incl. policy action reported in the National Reform 

Programme, as well as in the RRF reporting (bi-annual 
reporting on the progress with implementation of milestones 
and targets and resulting from the payment request 
assessment). 

(21)  ) Member States were asked to effectively address all or a 

significant subset of the relevant country-specific 
recommendations issued by the Council in 2019 and 2020 in 
their RRPs. The CSR assessment presented here takes into 
account the degree of implementation of the measures 
included in the RRP and of those done outside of the RRP at 
the time of assessment. Measures foreseen in the annex of 
the adopted Council Implementing Decision on the approval 
of the assessment of the RRP which are not yet adopted nor 
implemented but considered as credibly announced, in line 
with the CSR assessment methodology, warrant “limited 
progress”. Once implemented, these measures can lead to 
“some/substantial progress” or “full implementation”, 
depending on their relevance. 

26 

Limited Progress46%Some Progress49%Substantial Progress5% 
 
 
 
 
 
 
 
 
                                                 
  
 
 
 
 
 
 
 
 
 
 
 
 
Table A4.1: Summary table on 2019,2020 and 2021 CSRs 

(Continued on the next page) 

27 

CyprusAssessment in May 2022*RRP coverage of CSRs until 20262019 CSR1Some ProgressAdopt key legislative reforms to improve efficiency in the public sector, in particular as regards the functioning of the public administrationSome ProgressRelevant RRP measures planned as of 2021, 2022, 2023, 2024 and 2025.and the governance of State-owned entitiesSome Progressand local governments.Substantial ProgressRelevant RRP measures planned as of 2024 and 2025.Addressfeaturesofthetaxsystemthatmayfacilitateaggressivetaxplanningbyindividualsandmultinationals,inparticularbymeansofoutbound payments by multinationals.Limited ProgressRelevant RRP measures planned as of 2022.2019 CSR2Some ProgressFacilitate the reduction of non-performing loans including by setting up an effective governance structure for the State-owned asset management company,Some ProgressRelevant RRP measures planned as of 2021, 2022 and 2023.taking steps to improve payment disciplineLimited ProgressRelevant RRP measures planned as of 2021, 2022 and 2023.and strengthening the supervision of credit-acquiring companies.Substantial ProgressStrengthen supervision capacities in the non-bank financial sector, including by fully integrating the insurance and pension-fund supervisors.Limited ProgressRelevant RRP measures planned as of 2022 and 2023.2019 CSR3Some ProgressComplete reforms aimed at increasing the effectiveness of the public employment services and reinforce outreach and activation support for young peopleSome ProgressRelevant RRP measures planned as of 2022.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,Limited ProgressRelevant RRP measures planned as of 2021, 2022, 2023 and 2024.and affordable childhood education and care.Limited ProgressRelevant RRP measures planned as of 2022 and 2024.Take measures to ensure that the National Health System becomes operational in 2020, as planned, while preserving its long-term sustainability.Some ProgressRelevant RRP measures planned as of 2022, 2023 and 2024.2019 CSR4Limited ProgressFocus investment-related economic policy on sustainable transport,Limited ProgressRelevant RRP measures planned as of 2023 and 2024.environment, in particular waste and water management,Limited ProgressRelevant RRP measures planned as of 2021, 2022, 2023, 2024 and 2025.energy efficiency and renewable energy,Some ProgressRelevant RRP measures planned as of 2021, 2022, 2023 and 2024.digitalisation, including digital skills,Some ProgressRelevant RRP measures planned as of 2021, 2022, 2023, 2024 and 2025.andresearchandinnovation,takingintoaccountterritorialdisparities within Cyprus.Some ProgressRelevant RRP measures planned as of 2021, 2022, 2023 and 2024.Adoptlegislationtosimplifytheproceduresforstrategicinvestorstoobtain necessary permits and licences.Limited ProgressRelevant RRP measures planned as of 2022, 2023 and 2024.Improve access to finance for SMEs,Some ProgressRelevant RRP measures planned as of 2021, 2022, 2023 and 2024.and resume the implementation of privatisation projects.Limited ProgressRelevant RRP measures planned as of 2024.2019 CSR5Some ProgressStepupeffortstoimprovetheefficiencyofthejudicialsystem,includingthefunctioningofadministrativejusticeandrevisingcivilprocedures,increasingthespecialisationofcourtsandsettingupanoperationale-justicesystem.Takemeasurestostrengthenthelegalenforcement of claimsSome ProgressRelevant RRP measures planned as of 2021, 2022, 2023 and 2025.andensurereliableandswiftsystemsfortheissuanceandtransferof title deeds and immovable property rights.Limited ProgressRelevant RRP measures planned as of 2022.Accelerateanti-corruptionreforms,safeguardtheindependenceofthe prosecution and strengthen the capacity of law enforcement.Limited ProgressRelevant RRP measures planned as of 2021 and 2025.2020 CSR1Some ProgressInlinewiththegeneralescapeclause,takeallnecessarymeasurestoeffectivelyaddressthepandemic,sustaintheeconomyandsupporttheensuingrecovery.Wheneconomicconditionsallow,pursuefiscalpoliciesaimedatachievingprudentmedium-termfiscalpositionsandensuringdebtsustainability,whileenhancinginvestment.Not relevant anymoreNot applicableStrengthentheresilienceandcapacityofthehealthsystemtoensurequalityandaffordableservices,includingbyimprovinghealthworkers’ working conditions.Some ProgressRelevant RRP measures planned as of 2022, 2023 and 2024.2020 CSR2Some ProgressProvideadequateincomereplacementandaccesstosocialprotection for all.Some ProgressRelevant RRP measures planned as of 2023.Strengthen public employment services,Some ProgressRelevant RRP measures planned as of 2022.promote flexible working arrangements andLimited ProgressRelevant RRP measures planned as of 2023. 
 
 
  
 
Table (continued) 

*See footnote 21 
Source: European Commission 

28 

improve labour market relevance of education and training.Limited ProgressRelevant RRP measures planned as of 2021, 2022, 2023 and 2024.2020 CSR3Some ProgressSecureadequateaccesstofinanceandliquidity,especiallyforsmalland medium-sized enterprises.Some ProgressRelevant RRP measures planned as of 2021, 2022, 2023 and 2024.Front-load mature public investment projectsLimited ProgressRelevant RRP measures planned as of 2021, 2022, 2023, 2024 and 2025.and promote private investment to foster the economic recovery.Some ProgressRelevant RRP measures planned as of 2021, 2022, 2023 and 2024.Focusinvestmentonthegreenanddigitaltransition,inparticularonclean and efficient production and use of energy,Some ProgressRelevant RRP measures planned as of 2021, 2022, 2023 and 2024.waste and water management,Limited ProgressRelevant RRP measures planned as of 2021, 2022, 2023, 2024 and 2025.sustainable transport,Limited ProgressRelevant RRP measures planned as of 2023 and 2024.digitalisation,Some ProgressRelevant RRP measures planned as of 2021, 2022, 2023, 2024 and 2025.research and innovation.Some ProgressRelevant RRP measures planned as of 2021, 2022, 2023 and 2024.2020 CSR4Limited ProgressStepupactiontoaddressfeaturesofthetaxsystemthatfacilitateaggressive tax planning by individuals and multinationals.Limited ProgressRelevant RRP measures planned as of 2022.Improve the efficiency and digitalisation of the judicial systemLimited ProgressRelevant RRP measures planned as of 2021, 2022, 2023 and 2025.and the public sector.Some ProgressRelevant RRP measures planned as of 2021, 2022, 2023, 2024 and 2025.2021 CSR1Some ProgressIn2022,maintainasupportivefiscalstance,includingtheimpulseprovidedbytheRecoveryandResilienceFacility,andpreservenationally financed investment.Some ProgressNot applicableWheneconomicconditionsallow,pursueafiscalpolicyaimedatachievingprudentmedium-termfiscalpositionsandensuringfiscalsustainability in the medium term.Substantial ProgressNot applicableAtthesametime,enhanceinvestmenttoboostgrowthpotential.Payparticularattentiontothecompositionofpublicfinances,onboththerevenueandexpendituresidesofthenationalbudget,andtothequalityofbudgetarymeasuresinordertoensureasustainableandinclusiverecovery.Prioritisesustainableandgrowth-enhancinginvestment,inparticularinvestmentsupportingthegreenand digital transition.Limited ProgressNot applicableGiveprioritytofiscalstructuralreformsthatwillhelpprovidefinancingforpublicpolicyprioritiesandcontributetothelong-termsustainabilityofpublicfinances,including,whererelevant,bystrengtheningthecoverage,adequacyandsustainabilityofhealthand social protection systems for all.Substantial ProgressNot applicable 
 
 
 
 
 
 
 
 
  
 
ENVIRONMENTAL SUSTAINABILITY 
ENVIRONMENTAL SUSTAINABILITY 
ANNEX 5: GREEN DEAL 
ANNEX 5: GREEN DEAL 

intends 

The  European  Green  Deal 
to 
transform the  EU  into a  fair and prosperous 
society,  with  a  modern,  resource-efficient 
and competitive economy where there are no 
net  emissions  of  greenhouse  gases  in  2050 
and  where  economic  growth  is  decoupled 
from resource use. This Annex offers a snapshot 
of  the  most  significant  and  economically  relevant 
developments  in  Cyprus  in  the  respective  building 
blocks  of 
is 
complemented by Annex 6 on the employment and 
social impact of the green transition and Annex 7 
for circular economy aspects of the Green Deal.  

the  European  Green  Deal. 

It 

sustainable, 
economy. 

low-carbon  and  climate-resilient 

records 

revenues 

from 
high 
Cyprus 
environmental taxation, both as a proportion of 
total taxation and compared to the GDP. Regarding 
the  categories  of  environmental 
tax 
collections  are  lower  than  the  EU  average  only  in 
the  categories  ‘resources’  and  ‘pollution’  (22).  In 
contrast, 
on 
environmental  protection  accounts  for  a  smaller 
proportion  of  total  government  expenditure  in 
Cyprus than the EU average (Graph A5.1). 

government 

expenditure 

taxes, 

Graph A5.1: Fiscal aspects of the green transition 
Taxation and government expenditure on 
environmental protection 

Graph A5.2: Thematic – Energy 
Share in energy mix (solids, oil, gas, nuclear, 
renewables) 

Source: Eurostat 

Cyprus faces significant challenges to reduce 
its greenhouse gas emissions in line with its 
EU  obligations.  Total  greenhouse  gas  emissions 
have  increased  substantially  compared  to  1990, 
and  both  its  greenhouse  gas  intensity  and  its 
emissions per capita are above the EU average. In 
the  sectors  covered  by  the  EU  Effort  Sharing 
Regulation (ESR), emissions have barely decreased 
over the period 2005–2019 (even though they fell 
significantly  in  2020  due  to  the  COVID-19  crisis). 
In  its  National  Energy  and  Climate  Plan  (NECP), 
Cyprus announced measures to achieve reductions 
roughly  in  line  with  its  current  effort  sharing 
reduction  (ESR)  target  for  2030  of  -24%.  The 
proposed new ESR target for Cyprus is -32%. In its 
RRP,  Cyprus  allocates  41%  of  the  plan  to  climate 
objectives  and  outlines  crucial 
reforms  and 
investments  to  facilitate  the  transition  to  a  more 

The energy mix is based on gross inland consumption, and 
excludes heat and electricity. The share of renewables 
includes biofuels and non-renewable waste. 
Source: Eurostat.  

is 

lagging  behind 

 Cyprus 
in  terms  of 
renewable  energy  (Graph  A5.1).  In  2020,  its 
share  of  fossil  fuels  in  gross  inland  energy 
consumption  was  85.6%,  and  its  electricity mix is 
dominated  by  oil  products,  exposing  the  country’s 
economy to fluctuations in international oil prices. 
Cyprus has neither nuclear power (no nuclear plant 
is  planned)  nor  Hydro  Power  Plants  while 
geothermal energy is limited; it consumes a small 
amount  of  coal  in  one  cement  factory.  According 
to  its  NECP,  Cyprus  plans  to  reach  its  renewable 
energy  contribution  to  the  EU’s  2030  target  of 
22.9%  in  gross  final  energy  consumption  in  the 
scenario  with  planned  policies  and measures,  and 

(22)  For more information on taxation see Annex 18 

29 

0.01.02.03.04.05.06.07.08.0Environmental taxes(% of GDP)Environmental taxes(% of total taxation)Governmentexpenditure onenvironmentalprotection (% of totalexpenditure)CY (2020)EU27 (2020)020406080100200520102015201820192020RenewablesOilSolid fossil fuels, peat and oil shale 
 
 
  
  
                                                 
 
 
in 

the  scenario  with 

29.7% 
the  EuroAsia 
Interconnector,  which  is  in  line  to  benefit  from  a 
EUR 657 million  grant  under 
the  Connecting 
Europe  Facility. Cyprus’ stated  RES objective lacks 
ambition  in  relation  to  its  very  large  potential, 
especially for solar power. 

Graph A5.3: Thematic – Biodiversity  
Terrestrial protected areas and organic farming 

to 

fine 

Air  quality  in  Cyprus  is  generally  good  with 
exceptions. The latest available annual estimates 
(for 2019) from the European Environment Agency 
indicate  that  about  700  premature  deaths  were 
attributable 
particulate  matter 
concentrations, 40 to ozone concentration and 130 
concentrations (23).  The 
to  nitrogen  dioxide 
emission  of  key  air  pollutants  has  decreased 
significantly  in  Cyprus  despite  continued  GDP 
growth.  According 
latest  projections 
submitted  under  Article  10(2)  of  the  National 
Emission  Reduction  Commitments  Directive, 
Cyprus  projects  that  it  will  achieve  emission 
reduction  commitments  for  all  air  pollutants 
covered by the Directive from 2030 onwards. The 
projections  do  not,  however,  demonstrate  how 
reduction 
Cyprus  will  meet 
commitments  for  SO2  and  NOx  for  the  period 
2020 to 2029. 

the  emission 

the 

to 

For terrestrial protected areas data for 2018, and data for the 
EU average (2016, 2017) is lacking. 
Source: EEA (terrestrial protected areas) and Eurostat 
(organic farming). 

In  terms  of  biodiversity  and  ecosystem 
health,  Cyprus  presents  a  mixed  picture 
(Graph A5.3). By 2021, 29.1% of  Cyprus’ national 
land area of Cyprus was covered by Natura 2000 
(EU average 18.1%), with Special Protection Areas 
(SPAs) classified under the Birds Directive covering 
26.7% 
(EU  average  12.3%)  and  Sites  of 
Community  Importance  (SCIs)  under  the  Habitats 
Directive  covering  16.7%  (EU  average  13.8%)  of 
Cypriot territory. Cyprus has designated 66 Natura 
2000 sites to date, and a few more are planned to 
be designated within 2022. The latest assessment 
of  the  SCI  part  of  the  Natura  2000  Network 
reveals shortcomings in for the terrestrial part. The 
main  insufficiencies  concern  the  designation  of 
marine  SCIs  and  SPAs  in  the  Cypriot  offshore 
waters.  It  is  noted  that  a  new  marine  area 
“Oceanid”  has  been  designated  as  a  SAC  and  a 
SPA in 2021. Further marine areas are expected to 
be  identified  via  on-going  scientific  studies  and 
mapping  which  are  expected  to  provide  results  in 
2023.  Therefore,  Cyprus  has  yet  to  complete  its 
Natura  2000  Network,  in  particular  the  marine 
network.  An  infringement  case  is  open  on  the 
matter.  Counting  both  Natura  2000  and  other 
nationally  designated  protected  areas,  Cyprus 
legally  protects  37.6%  of  its  terrestrial  areas  (EU 
average  25.7%)  and  8.58  %  of  marine  areas  (EU 
average 10.7%). 

Graph A5.4: Thematic – Mobility  
Share of zero emission vehicles (% of new 
registrations) 

Zero emission vehicles (passenger cars) include battery and 
fuel cell electric vehicles (BEV, FCEV). 
Source: European Alternative Fuels Observatory.  

In  terms  of  mobility,  Cyprus  has  a  long  way 
to  go.  Transport  emissions,  in  particular,  are 
steadily  growing  and  constitute  21%  of  Cyprus’ 
total greenhouse gas (GHG) emissions. The use of 
private  cars  is  well  above  the  EU  average,  while 
the use of public transport is low. The market for 
zero-emission  passenger  cars  in  Cyprus  is  still  at 
an early stage in its development (Graph A5.4). 

(23)  Please note that these figures refer to the impacts of 

individual pollutants, and cannot be added up to derive a 
sum in order to avoid double-counting. 

30 

0102030402016201720192020Terrestrial protected areas (% total area)Area under organic farming (% total utilised agricultural area)EU27 (terrestrial)EU27 (organic)0.02.04.06.08.010.0201620172018201920202021% of new registrationsCYEU27 
  
  
                                                 
Table A5.1: Indicators underpinning the progress on EU Green Deal from macroeconomic perspective 

(1) The 2030 non-ETS GHG target is based on the Effort Sharing Regulation. The FF55 targets are based on the COM proposal to 
increase EU's climate ambition by 2030. Renewables and Energy Efficiency targets and national contributions under the 
Governance Regulation (Regulation (EU) 2018/1999).(2) Distance to target is the gap between Member States’ 2030 target under 
the Effort Sharing Regulation and projected emissions, with existing measures (WEM) and with additional measures (WAM) 
respectively, as a percentage of 2005 base year emissions. The Cypriot NECP is currently under evaluation to set new targets and 
policy measures in order to adjust to the higher ambitions of the Fit for 55 targets. (3) Percentage of total revenues from taxes 
and social contributions (excluding imputed social contributions). Revenues from the ETS are included in environmental tax 
revenues (in 2017 they amounted to 1.5% of total environmental tax revenues at the EU level). (4) Covers expenditure on gross 
fixed capital formation to be used for the production of environmental protection services (i.e. abatement and prevention of 
pollution) covering all sectors, i.e. government, industry and specialised providers. (5) The climate protection gap indicator is part 
of the European adaptation strategy (February 2021), and is defined as the share of non-insured economic losses caused by 
climate-related disasters. (6) Sulfur oxides (SO2 equivalent), Ammonia, Particulates < 10µm, Nitrogen oxides in total economy 
(divided by GDP). (7) Transportation and storage (NACE Section H). (8) Zero emission vehicles include battery electric vehicles 
(BEV) and fuel cell electric vehicles (FCEV). (9) European Commission Report (2019) 'Benchmarking smart metering deployment in 
the EU-28'. (10) European Commission (2021). Each year the DESI is re-calculated for all countries for previous years to reflect 
any possible change in the choice of indicators and corrections to the underlying data. Country scores and rankings may thus 
differ compared with previous publications. 
Source: Eurostat, JRC, European Commission, EEA, EAFO. 

31 

TargetTarget2005201920202030WEMWAM2030WEMWAMNon-ETS GHG emission reduction target (1)MTCO2 eq; %; pp (2)4.35%-3%-24%-15-5-32%-23-13200520162017201820192020Share of energy from renewable sources in gross final consumption of energy (1)%3%10%10%14%14%17%23%Energy efficiency: primary energy consumption (1)Mtoe2.52.42.52.52.52.22.4Energy efficiency: final energy consumption (1)Mtoe1.81.81.91.91.91.62.0201520162017201820192020201820192020Environmental taxes (% of GDP)% of GDP3.02.93.02.92.52.52.42.42.2Environmental taxes (% of total taxation)% of taxation (3)9.29.19.18.87.47.26.05.95.6Government expenditure on environmental protection% of total exp.0.870.650.750.600.700.771.661.701.61Investment in environmental protection% of GDP (4) 0.430.310.300.18--0.420.380.41Fossil fuel subsidiesEUR2020bn0.080.110.160.160.15-56.8755.70-Climate protection gap (5)score 1-4Net GHG emissions1990 = 100150157158157157135797669GHG emissions intensity of the economykg/EUR'100.460.460.450.430.400.410.320.310.30Energy intensity of the economykgoe/EUR'100.130.130.130.120.120.110.120.110.11Final energy consumption (FEC)2015=100100.0105.9111.7111.4113.194.3103.5102.994.6FEC in residential building sector2015=100100.0102.7105.7103.2111.0111.6101.9101.3101.3FEC in services building sector2015=100100.0107.1110.8130.7136.2116.1102.4100.194.4Smog-precursor emission intensity (to GDP) (4)tonne/EUR'10 (6)1.271.281.241.231.09-0.990.93-Years of life lost caused due to air pollution by PM2.5per 100.000 inh.631473544576595-863762-Years of life lost due to air pollution by NO2per 100.000 inh.2619483197119-12099-Nitrate in ground watermg NO3/litre70.597.651.955.348.8-21.720.7-Terrestrial protected areas% of total-37.537.5-37.637.6-25.725.7Marine protected areas% of total-0.1--8.6--10.7-Organic farming% of total utilised agricultural area3.74.94.64.65.04.48.08.59.100-0606-1212-18Net land takeper 10,000 km213.011.05.0201520162017201820192020201820192020GHG emissions intensity of transport (to GVA) (7)kg/EUR'100.180.230.330.450.260.230.890.870.83Share of zero emission vehicles (8)% in new registrations0.00.20.30.30.60.41.01.95.402691398812Share of electrified railways%------55.656.0---35.737.337.7-28.928.8-YearCYEUShare of smart meters in total metering points (9) - electricity% of total20180.035.8Share of smart meters in total metering points (9) - gas% of total20180.013.1ICT used for environmental sustainability (10)%2021-65.9DigitalFiscal and financialindicators1.9 out of 4 (increase from historical level of 1.3). This is a low/medium risk category (4 being a high risk).ClimateEnergyPollutionBiodiversity2000-20062006-20122012-2018109.728.423.8MobilityNumber of plug-in electric vehicles per charging pointCongestion (average number of hours spent in road congestion per year by a representative commuting driver)Progress to policy targetsNational contribution to 2030 EU targetCYPRUSEU'Fit for 55'DistanceDistance 
 
  
 
ANNEX 6: EMPLOYMENT AND SOCIAL IMPACT OF THE GREEN TRANSITION 
ANNEX 6: EMPLOYMENT AND SOCIAL IMPACT OF THE GREEN TRANSITION 

The  green  transition  not  only  encompasses 
environmental 
to 
improvements 
sustainability, but also includes a significant 
social dimension.  While measures in this regard 
include the opportunity for sustainable growth and 
job creation, it must also be ensured that no one is 
left  behind  and  all groups  in  society  benefit  from 
the transition. Cyprus’ green transition can benefit 
from  recent  policy  measures  and  provides  strong 
potential for quality job creation. At the same time, 
the green transition raises important challenges, in 
particular in terms of energy poverty and for lower 
income households. 

Graph A6.1: Fair green transition challenges 

Source: Eurostat, World Inequality Database 

the 

improve 

investments 

(including  via 

transition.  The  RRP 

Cyprus’  recovery  and  resilience  plan  (RRP) 
includes  key  reforms  and  investments  for  a 
fair  green 
includes 
measures  to  support  access  to  essential  services, 
the 
alleviate  energy  poverty 
reduction  of  energy  and  water  bills),  and  make 
housing  more  affordable.  The  plan  also  includes 
targeted 
living 
to 
conditions and energy efficiency of households for 
people living in poverty, as well as for persons with 
disabilities. Moreover, investments in reskilling and 
upskilling  are  expected  to  strengthen  the  green 
and  digital  skills  of  the  population,  particularly 
those  of  the  unemployed,  women  and  vulnerable 
groups.  Cyprus’  integrated  National  Energy  and 
Climate Plan (NECP) of 22 January 2020 takes into 
consideration  the  employment  impacts  of  the 
transition to a climate-neutral economy, which are 
expected  by  2030 
raise  economy-wide 
to 
employment  by  0.3%,  provided  that  planned 

policies and measures are fully implemented. The 
NECP  does  not  address  the  skills  needs  of  the 
transition.  However,  the  recovery  and  resilience 
plan  will 
in  training 
invest  EUR  15  million 
programmes to reskill and upskill workers in green 
skills.  In  synergy  with  the RRF,  the  Just  Transition 
Fund  will  make  sizeable  contributions  through 
training  programmes  (EUR  2  million)  and  the 
establishment  of  a  Green  Technical  School  (EUR 
13 million). The NECP provides a detailed analysis 
of  the  issue  of  energy  poverty  and  develops  an 
approach for addressing it. 

nevertheless 

The  Cypriot  economy  has  reduced  its  carbon 
footprint,  which 
remains 
sizeable,  while  the  green  transition  should 
create  good  quality  jobs.  The  greenhouse  gas 
(GHG)  emission  intensity  of  the  Cypriot  economy, 
in terms of tonnes of CO2 equivalent emission per 
unit  of  gross  value  added  decreased  by  10% 
between  2015  and  2020  (but  is  still  more  than 
50%  above  the  EU  average).  GHG  emissions  per 
worker  in  Cyprus,  at  15.6  tonnes,  is  15%  higher 
than  the  EU  average  (13.6  tonnes)  (see  Graph 
A6.2).  The  fossil  fuel  based  sector  is  the  most 
heavily declining sector for the country (24). Cyprus 
counts  cement  among  its  transforming  sectors 
and energy-intensive industries (EII), with a single 
cement  plant  in  Vassilikos  producing  16%  of  the 
total  GHG  emissions (25).  At  the  same  time,  EII 
provide  jobs  for  less  than  1%  of  the  total 
employed workforce, which is among the lowest in 
EU.  For  these  workers,  up-  and  reskilling  will  be 
particularly 
(see  Annex  15).  While 
Cyprus  does  not  have  data  on  the  environmental 
its  solar  energy 
goods  and  services  sector, 
potential provides opportunities for green jobs (26). 
There are labour shortages in sectors linked to the 
transition to a climate-neutral economy, especially 
in construction, as well as in professional, scientific 
and technical activities (Eurofound, 2021). 

important 

As  for  the  social  dimension  of  the  green 
transition,  Cyprus  experiences  substantial 
challenges, 
energy 
poverty and lower income households. A large 
proportion of the population at risk of poverty lives 
in rural areas (19.8% versus 18.7% in the EU), and 

concerning 

notably 

(24)  SWD(2021) 275 final. 

(25)  2020 European Semester: Overview of Investment Guidance on the 
Just Transition Fund 2021-2027 per Member State (Annex D)  

(26)  https://publications.jrc.ec.europa.eu/repository/handle/JRC126047 

32 

Tonnes ofGHG per Euroof gross valueaddedTonnes ofGHGemissions perworkerEmploymentshare inenergy-intensiveindustriesShare ofpeople at riskof poverty inrural areasInability tokeep homeadequatelywarm (%)CarboninequalityCyprusEU 2020Cyprus 2015 
 
  
                                                 
 
taxation  would  complement  the  tax  system, 
particularly for the three lowest deciles (30). 

has increased by almost 4 pps since 2015 (27). The 
percentage of the population unable to keep their 
homes  adequately  warm  is  among  the  highest  in 
the  EU,  and  substantially  above  the  EU  average 
(8.2%),  despite  having  decreased  from  28.3%  in 
2015 to 20.9% in 2020. Lower-income groups are 
most affected (see Graph A6.1), and the country is 
among the worst performers in the EU  for people 
in  the  lowest  decile.  Consumer  spending  patterns 
vary to a limited extent across the population, with 
the  average  carbon  footprint  of  the  top  10%  of 
emitters  being  5.1  times  higher  than  that  of  the 
bottom  50%  of  the  population  (5.3  times  in  the 
EU). 

Graph A6.2: Energy poverty by income decile 

Source: Eurostat database 

Tax  systems  are  key  to  ensuring  a  fair 
transition  towards  climate  neutrality (28). 
Cypriot  revenues  from  total  environmental  taxes 
decreased  from  3.04%  of  GDP  in  2015  to  2.48% 
in  2019,  and  remained  stable  at  2.48%  in  2020 
(against  2.24%  in  the  EU).  The  labour  tax  wedge 
for  low-income  earners (29)  increased  from  17.3% 
in  2014  to  18.1%  in  2019,  with  no  change  in 
2021, making the tax wedge in Cyprus one of the 
lowest  in  the  EU  (where  the  2021  average  is 
31.9%;  see  Annex  18).  The  potential  of  transfers 
impacts  of  energy 
to  address  distributional 

(27)  As a proxy for potential transport challenges in the context of 

the green transition (see COM(2021) 568 final). 

(28)  COM(2021) 801 final. 

(29)  Tax wedge for a single earner at 50% of the national 
average wage (Tax and benefits database, European 
Commission/OECD). 

(30)  SWD(2021) 641 final PART 3/3 on distributional effects of 

energy taxation revision, based on the European Commission 
Joint Research Centre GEM-E3 and Euromod models. 

33 

0%10%20%30%40%50%60%12345678910CyprusEuropean Union 
  
                                                 
                                                 
PRODUCTIVITY 
PRODUCTIVITY 
ANNEX 7: RESOURCE EFFICIENCY AND PRODUCTIVITY 
ANNEX 7: RESOURCE EFFICIENCY AND PRODUCTIVITY 

while 

minimising 

The  efficient  use  of  resources  is  key  to 
ensuring  competitiveness  and open strategic 
autonomy, 
the 
environmental  impact.  The  green  transition 
presents  a  major  opportunity  for  European 
industry 
clean 
creating  markets 
technologies  and  products.  It  will  have  an  impact 
across  the  entire  value  chains  in  sectors  such  as 
energy and transport, construction and renovation, 
food  and  electronics,  helping  create  sustainable, 
local and well-paid jobs across Europe. 

for 

by 

resources  to  produce  wealth.  Improving  resource 
productivity can help to minimise negative impacts 
on  the  environment  and  reduce  dependency  on 
raw  material  markets.  With  1.45 
volatile 
purchasing power standard (PPS) generated per kg 
of  material  consumed  in  2020,  Cyprus  is  well 
below  the  EU  average  of  2.23  PPS  per  kg  and 
shows no signs of improving. 

Graph A7.1: Economic importance and expansion of 
the circular economy: Employment and value 
added in the Circular Economy sectors 

is 

performance 

concerning,  while 

in  waste 
Cyprus’  weak 
management 
the 
transition  towards  a  circular  economy  has 
barely begun. The latest available figures (2020) 
show  that  Cyprus  recycled  only  16.4%  of  its 
municipal waste, well below the EU-27 average for 
recycling (47.8%) and considerably lower than the 
2025 target of 55.0%. The circular (secondary) use 
of  materials  in  Cyprus  was  2.4%  in  2016  and 
3.4%  in  2020,  compared  to  the  EU  average  of 
12.8%  in  2020,  showing  that  some  progress  of 
circular secondary material usage has been made 
in  recent  years,  although  on  a  small  scale 
compared to the EU average.  

Resource productivity in Cyprus is well below 
the EU average. Resource productivity expresses 
the  economy  uses  material 
how  efficiently 

Table A7.1: Selected resource efficiency indicators 

Source: Eurostat 

Cyprus’  economic  growth 

is  not  yet 

Source: Eurostat  

34 

1.91%1.99%1.99%2.05%0.80%0.86%0.98%1.03%1.72%1.73%1.75%1.71%0.94%0.94%0.96%0.97%0.0%0.5%1.0%1.5%2.0%2015201620172018Persons employed in the circular economy, CY (% of total employment)Value added at factor cost, CY (% of GDP )Persons employed in the circular economy, EU27 (% of total employment)Value added at factor cost, EU27 (% of GDP )SUB-POLICY AREA201520162017201820192020EU27 CircularityResource Productivity (Purchasing power standard (PPS) per kilogram)1.61.61.41.51.51.42.22020Material Intensity (kg/EUR)0.60.60.70.70.70.70.42020Circular Material Use Rate (%)2.42.42.42.82.93.412.82020Material footprint (Tones/capita)15.917.721.621.023.2-14.62019Waste Waste generation (kg/capita, total waste)-2897-2646--52342018Landfilling (% of total waste treated)-58.7-55.4--38.52018Recycling rate (% of municipal waste)16.616.116.216.516.316.447.82020Hazardous waste (% of municipal waste)-6.4-9.7--4.32018CompetitivenessGross value added in environmental goods and services sector (% of GDP)------2.322019Private investment in circular economy (% of GDP)0.10.10.10.1--0.122018Latest year EU 27 
 
 
  
 
 
 
  
 
decoupled from its generation of waste. After 
a  downward  trend,  municipal  waste  generation  in 
Cyprus  has  started  to  increase  again  in  recent 
years. The lack of progress in this area is expected 
to  worsen  the  country’s  performance  in  key 
environmental  indicators,  such  as  the  nitrate  in 
groundwater and the soil sealing index, which are 
already below EU average levels. 

A successful transition to a circular economy 
in  Cyprus  requires  social  and  technological 
innovation. The circular economy will only be able 
to  reach  its  full  potential  when  it  is  implemented 
across  all  value  chains.  Therefore,  eco-innovation 
is  an  important  enabling  factor  for  the  circular 
economy.  Product  design  approaches  and  new 
business  models  can  help  produce  systemic 
circularity 
innovations,  creating  new  business 
opportunities. In 2021, Cyprus ranked 23rd on the 
2021  Eco-Innovation  Scoreboard,  indicating  that 
the  country  needs  to  catch  up  with  regard  to  its 
eco-innovation activities. In all five components of 
the  2021  Eco-Innovation  Index,  Cyprus  performs 
below the EU average.  

35 

 
 
ANNEX 8: DIGITAL TRANSITION 
ANNEX 8: DIGITAL TRANSITION 

The Digital Economy and Society Index (DESI) 
monitors EU Member States’ digital progress. 
The  areas  of  human  capital,  digital  connectivity, 
the 
technologies  by 
businesses  and  digital  public  services  reflect  the 
Digital  Decade’s  four  cardinal  points (31).  This 
Annex describes Cyprus’ DESI performance.  

integration  of  digital 

included 

significant 
Cyprus’  RRP  has 
investments  in  digitalisation  exceeding  the 
digital target of 20% by reaching 23% of the 
total  budget (32).  It  invests  in  all  digital  areas: 
services, 
from 
integration  of  digital  technology  and  human 
capital 
smart 
to  e-health,  e-justice,  and 
infrastructures.  

connectivity, 

digital 

public 

Digital public services is one among the DESI 
dimensions  in  which  Cyprus  performs  well, 
yet  it  still  has  room  for  improvement.  The 
country scores well above the EU average in digital 
public services for business (86 versus 82), but is 
still  below  the  EU  average  in  providing  digital 
public  services  for  citizens  (56  versus  75)  and 
slightly  below 
(63% 
compared to 65%) (34). Therefore, more efforts are 
needed to improve the efficiency and digitalization 
of the public sector.  

in  e-Government  users 

The  performance  of  Cyprus  in  the  DESI 
dimension  human  capital  is  rather  poor.  The 
basic digital skills of Cypriots and the share of ICT 
specialists  in  the  workforce  remain  below  the  EU 
average.  The  share  of  female  ICT  specialists  in 
Cyprus  is  at  EU  average.  In  December  2021, 
Cyprus  adopted  a  National  Action  Plan  for  Digital 
Skills  2021-2025 
to 
improve  the  digital  skills  of  all,  including  for 
vulnerable groups. 

(“e-skills  Action  Plan”) 

Cyprus  has  a  moderate  performance 
in 
digital  connectivity.  Regarding  the  allocation  of 
5G  spectrum  scores  above  the  EU  average  (67% 
compared  to  56%) (33)  and  its  5G  performance  in 
terms of coverage is 75% against the EU average 
of  66%.  However,  despite  recent  significant 
improvement  in  fixed  very  high  capacity  network 
coverage, Cyprus still ranks below the EU average. 

technology. 

Cyprus  has  a  mixed  performance  in  the 
integration  of  digital 
The 
percentage  of  SMEs  having  at  least  a  basic  level 
of digital intensity is above the EU average. Cyprus 
is doing well on Cloud, being above the EU average 
(66% vs 55% in the EU). A main challenge is that 
Cypriot  companies do  not yet take  full  advantage 
of 
the  use  of  all  state-of-the-art  digital 
technologies available, i.e., the use of Big data and 
Artificial Intelligence is below the EU average.  

(31)  2030 Digital Compass: the European Way for the Digital 

Decade Communication, COM (2021) 118 final. 

(32)  The share of financial allocation contributing to digital 

objectives has been calculated using Annex VII of the RRF 
Regulation. 

(33)  Source Digital Economy and Society Index 2022 and 

(34)  Source: Data visualisation tool, key indicators and Digital 

European 5G Observatory. 

Economy and Society Index 2022. 

36 

 
 
                                                 
                                                 
 
Table A8.1: Key Digital Economy and Society Index Indicators 

(*) The 5G coverage indicator does not measure users’ experience, which may be affected by a variety of factors such as the type 
of device used, environmental conditions, number of concurrent users and network capacity. 5G coverage refers to the percentage 
of populated areas as reported by operators and national regulatory authorities. 
Source: Digital Economy and Society Index 2022. 

37 

EUEU top-performanceHuman capitalDESI 2020DESI 2021DESI 2022DESI 2022DESI 2022At least basic digital skillsNANA50%54%79%% individuals202120212021ICT specialists2.7%3.1%3.9%4.5%8.0%% individuals in employment aged 15-7420192020202120212021Female ICT specialists19%18%19%19%28%% ICT specialists20192020202120212021ConnectivityFixed Very High Capacity Network (VHCN) coverage10%26%41%70%100%% households201920202021202120215G coverage(*)NA0%75%66%99.7%% populated areas2020202120212021Integration of digital technologySMEs with at least a basic level of digital intensityNANA66%55%86%% SMEs202120212021Big data5%6%6%14%31%% enterprises20182020202020202020CloudNANA42%34%69%% enterprises202120212021Artificial IntelligenceNANA3%8%24%% enterprises202120212021Digital public servicesDigital public services for citizensNANA5675100Score (0 to 100)202120212021Digital public services for businessesNANA8682100Score (0 to 100)202120212021Cyprus 
 
 
 
  
 
in 

technology, 

engineering 

availability,  as  it  has  the  lowest  number  of  STEM 
and 
(science, 
mathematics)  graduates  in  the  EU.  While  Cypriot 
academic structures perform roughly on a par with 
the  EU  average  in  terms  of  quality  of  the  R&I 
system (illustrated by  the  percentage  of  scientific 
publications 
the  most  cited  publications 
worldwide),  this  does  not  appear  to  translate  into 
productive  uses,  as  demonstrated  e.g.  by  the 
relatively  low  number  of  patents  (0.6  patent 
applications  per  billion  GDP  compared  to  the  EU 
average of 3.5). On a positive note, the volume of 
venture  capital  available  in  Cyprus  has  increased 
annually  by  an  average  of  18.4%  over  the  period 
2010–2020  and  has  more  recently  risen  slightly 
above the EU average.    

ANNEX 9: INNOVATION 
ANNEX 9: INNOVATION 

This  Annex  provides  a  general  overview  of 
the  performance  of  Cyprus’  research  and 
innovation  system.  Cyprus 
is  a  moderate 
innovation  performer  according  to  the  2021 
edition of the European Innovation Scoreboard (35) 
and  has  difficulties  to  reduce  its  gap  with the  EU 
innovation  leaders.  The  R&D  intensity  of  the 
country for 2020 stands at 0.82% of GDP, which is 
well below the EU average of 2.32%. 

and 

funding 

creating 

In  recent  years,  Cyprus  has  been  moving  in 
the right direction by providing a stable rise 
new 
in  R&D 
institutional  structures  to  support  research, 
innovation and digital policy.  In the context of 
the  formulation  of  the  National  Research  and 
Innovation  (R&I)  Strategy,  the  Deputy  Ministry  of 
Research, Innovation and Digital Policy (DMRID) in 
cooperation with the National Statistical Service is 
in  the  process  of  setting  a  new  ambitious  R&D 
target  for  2030,  in  the  context  of  the  new 
European  Research  Area  (ERA)  and  the  Pact  for 
R&I 
in  Europe.  Achieving  an  ambitious  R&D 
intensity  target  will  require  decisive  actions  by 
both the public sector and business enterprises, as 
both  sides  would  need  to  increase  considerably 
their  spending.  To  address  this,  Cyprus  has 
introduced  in  its  RRP  measures  to  strengthen  the 
links  between 
research  organisations  and 
enterprises,  facilitate  the  commercialisation  of 
research  results,  and  support  investments  in  R&D 
by  both  public  and  private  organisations. 
Meanwhile,  in  December  2021  Cyprus  adopted  a 
2021-2025 national action plan for digital skills to 
improve  the  digital  skills  of  all  population  groups 
across all levels of society. 

are 

sector 

still 
is 

cooperation 

Despite  a  gradual  increase  in  R&D  funding, 
the 
the 
links  between  academia  and 
weak. 
productive 
Academia-business 
low,  as 
evidenced  by  the  low  level  of  private  funding  of 
publicly  executed 
fact,  public 
research. 
financed  by  business 
expenditure  on  R&D 
enterprises  as  a  percentage  of  GDP  in  2019  is 
close  to  zero  and  thus  just  a  fraction  of  the  EU 
average.  Total  public  sector  support  for  private 
R&D  investment  as  percentage  of  GDP  is  also 
significantly  below  the  EU  average.  Also,  Cyprus 
needs  to  catch  up  in  human  capital  and  skills 

In 

(35)  2021 European Innovation Scoreboard, Country profile: 

Cyprus 

https://ec.europa.eu/docsroom/documents/45909  

38 

 
 
                                                 
 
Table A9.1: Key research, development and innovation indicators 

Source: Eurostat, OECD, DG JRC, Science-Metrix (Scopus database and EPO’s Patent Statistical database), Invest Europe 

39 

CompoundEUannual growthaverage2010-20R&D Intensity (GERD as % of GDP)0.440. 480.620.710.826.42.32Public expenditure on R&D as % of GDP0.310.300.300.330.361.50.78Business enterprise expenditure on R&D (BERD) as % of GDP0.080.110.250.310.3717.21.53Scientific publications of the country within the top 10% most cited publications worldwide as % of total publications of the country 11.28.99.6::1.09.9PCT patent applications per billion GDP (in PPS)0.60.80.6::3.5Public-private scientific co-publications as % of total publications8.97.47.58.18.1-3.39.05Public expenditure on R&D financed by business enterprise (national) as % of GDP0.0030.0020.0030.006:5.80.054New graduates in science & engineering per thousand pop. aged 25-3410.913.414.514.4:3.616.3Total public sector support for BERD as % of GDP0.0170.0140.0310.043:7.50.196Share of environment-related patents in total patent applications filed under PCT (%)11.0 9.75.8 ::-7.712.8Venture Capital (market statistics) as % of GDP0.0120.0000.0290.0500.07918.40.054Employment in fast-growing enterprises in innovative sectors (% of total employment)1.30.11.51.6:2.75.52020Cyprus2010201520182019Finance for innovation and Economic renewalKey indicators Quality of the R&I systemAcademia-business cooperationHuman capital and skills availabilityPublic support for business enterprise expenditure on R&D (BERD)Green innovation  
 
 
 
 
 
  
 
ANNEX 10: INDUSTRY AND SINGLE MARKET 
ANNEX 10: INDUSTRY AND SINGLE MARKET 

bank  loan  in  recent  years).  In  the  area  of  public 
procurement,  Cyprus  performs  well  in  terms  of 
SMEs  bids  and 
figures 
consistently  above  the  EU  average  in  terms  of 
proportion  of  SME  contractors  and  bids.  However, 
these figures have been falling since 2019, which 
will warrant attention in the coming years.  

contractors,  with 

Cyprus  has  a  good  level  of  compliance  with 
single market rules, although it has a limited 
level of integration, which is due partly to its 
size, sectoral specialisation and geographical 
in  the 
location.  Cyprus  has  made  barriers 
regulated professions less restrictive, with notable 
in  key  professions  such  as 
improvements 
architectures  and  civil  engineerings. 
It  also 
performs  significantly  better  than  the  rest  of  the 
EU  in  terms  of  recognising  the  qualifications  of 
professionals  from  other  EU  and  EFTA  countries. 
Moreover,  according 
the  Single  Market 
to 
Scoreboard,  it  has  an  average  track  record  in  the 
transposition  of  EU  law  into  national  legislation. 
indicate  that  confidence  in 
However,  surveys 
investment  protection 
local 
businesses  (30%,  compared  to  an  EU  average  of 
56%). 

low  among 

is 

In  terms  of  resilience,  and  competitiveness 
dynamics,  Cyprus 
is  expected  to  suffer 
significantly  from  increasing  energy  prices 
and supply chain disruptions. Given the size of 
the  economy,  Cyprus  is  structurally  vulnerable  to 
exogenous, global shocks, such as the recent spike 
in  energy  prices  and  material  shortages  due  to 
supply  chain  disruption.  Energy  prices  increased 
significantly  over  the  past  year,  in  line  with  the 
rest of the EU, and the low proportion of installed 
electric 
the  overall 
vulnerability  if  imported  energy  prices  do  not 
decrease. In terms of supply disruptions, while still 
below  EU27  averages,  Cypriot  businesses  are 
increasing facing constraints in sourcing their raw 
material.  Since  their  high  reliance  on  imports  of 
from  outside  the  EU  makes  them  even  more 
vulnerable.  This  trend  will  have  to  be  carefully 
monitored in the next years. 

capacity  will  add 

to 

prosperity,  well-being 

Productivity  growth  is  a  critical  driver  of 
and 
economic 
convergence over the long run. A major source 
of  productivity  for  the  EU  economy  is  a  well-
functioning single market, where fair and effective 
competition  and  a  business  friendly  environment 
are  ensured, 
in  which  small  and  medium 
enterprises  (SMEs)  can  operate  and  innovate 
without  difficulty.  Businesses  and  industry  rely 
heavily  on  robust  supply  chains  and  are  facing 
bottlenecks that bear a negative impact on firms’ 
productivity 
levels,  employment,  turnover  and 
entry/exit  rates.  This  may  impact  the  Member 
States’  capacity  to  deliver  on  Europe’s  green  and 
digital transformation. 

been 

productivity 

In  2020,  Cyprus’ 

Cyprus  is  experiencing  low  and  decreasing 
levels of labour productivity compared to the 
rest  of  the  EU. 
labour 
productivity per hour worked was around 74.2% of 
the  EU27  average,  down  from  85.2%  at  the 
beginning  of  the  financial  crisis. (36)  Nevertheless, 
there  are  reasons  for  optimism.  Since  2015, total 
factor 
increasing. 
has 
Investments have also increased substantially, but 
matched by similar increases in employment. As a 
consequence, capital deepening has remained flat 
over  this  period.  The  Cypriot  economy  is  now 
expected  to  shift  gradually  to  a  more  sustainable 
and  productivity-led  growth  model  thanks  to  the 
RRF reforms and quality investments. This will take 
place in a context of relatively low unemployment 
and  efforts  to  expand  and  diversify  drivers  of 
growth,  while 
the 
grasps 
opportunities provided by the twin transitions. 

economy 

the 

structural 

Cyprus  has  a  relatively  favourable  business 
environment,  but 
challenges 
persist.  Contract  enforcement  is  hampered  by 
long  delays  both  in  the  resolution  of  civil  and 
commercial  cases  and 
in  obtaining  building 
permits,  despite  some  improvement  with  regards 
to  the  residential  buildings,  thus  hindering  the 
development of land-intensive projects such as the 
deployment of renewable energy plants. Access to 
finance  remains  limited  due  to  late  payments 
(mentioned  in  surveys  by  almost  two  thirds  of 
Cypriot companies) and limited access to loans for 
SMEs. There have been only limited improvements 
over  time  in  this  area  in  terms  of  the  gap  still 
local  SMEs  from  their  EU  peers 
separating 
(although no SMEs have reported being refused a 

(36)  Commission services, AMECO database 

40 

 
 
                                                 
 
 
 
 
 
Table A10.1: Key Single Market and Industry Indicators 

(Continued on the next page) 

41 

SUB-POLICY AREAINDICATOR NAMEDESCRIPTION20212020201920182017Growth ratesEU27 average*Value added by source (domestic)VA that depends on domestic intermediate inputs, % [source: OECD (TiVA), 2018]55.5462.6%Value added by source (EU)VA imported from the rest of the EU, % [source: OECD (TiVA), 2018]16.3919.7%Value added by source (extra-EU)% VA imported from the rest of the world, % [source: OECD (TiVA), 2018]28.117.6%Cost competitivenessProducer energy price (industry)Index (2015=100) [source: Eurostat, sts_inppd_a]11899.8113.2106.29622.9%127.3Material Shortage using survey dataAverage (across sectors) of firms facing constraints, % [source: ECFIN CBS]5412425%26%Labour Shortage using survey dataAverage (across sectors) of firms facing constraints, % [source: ECFIN CBS]01221-100%14%Sectoral producer pricesAverage (across sectors), 2021 compared to 2020 and 2019, index [source:Eurostat]n.a.5.4%Concentration in selected raw materialsImport concentration a basket of critical raw materials, index [source: COMEXT]0.140.120.140.230.19-26%17%Installed renewables electricity capacity Share of renewable electricity to total capacity, % [source:Eurostat, nrg_inf_epc]16.6014.2013.7013.6022%47.8%Net Private investmentsChange in private capital stock, net of depreciation, % GDP [source: Ameco]6.76.84.38.3-19.3%2.6%Net Public investmentsChange in public capital stock, net of depreciation, % GDP [source: Ameco]0.50.42.70.50%0.4%Investment dynamicsHEADLINE INDICATORSEconomic structureRESILIENCEShortages/supply chain disruptionsStrategic dependencies 
 
 
 
  
 
Table (continued) 

Source: See above in the table the respective source for each indicator in the column "description" 

42 

Single Market integrationIntra-EU tradeRatio of Intra-EU trade to Extra-EU trade, index [source: Ameco]1.251.071.180.750.9531%1.59Professional services restrictivenessRegulatory restrictiveness indicatorRestrictiveness of access to and exercise of regulated professions (professions with above median restrictiveness, out of the 7 professions analysed in SWD (2021)185 [source: SWD (2021)185; SWD(2016)436 final])3   6-50%3.37Professional qualifications recognitionRecognition decisions w/o compensationProfessionals qualified in another EU MS applying to host MS, % over total decisions taken by host MS [source: Regulated professions database]63.545%Transposition - overall5 sub-indicators, sum of scores [source: Single Market Scoreboard]On averageAbove averageOn averageAbove averageInfringements - overall4 sub-indicators, sum of scores [source: Single Market Scoreboard]On averageOn averageOn averageOn averageInvestment protectionConfidence in investment protectionCompanies confident that their investment is protected by the law and courts of MS if something goes wrong, % of all firms surveyed [source: Flash Eurobarometer 504]3056%BankruptciesIndex (2015=100) [source: Eurostat, sts_rb_a]n.a.n.a.n.a.n.a.n.a.n.a.70.1Business registrationsIndex (2015=100) [source: Eurostat, sts_rb_a]n.a.n.a.n.a.n.a.n.a.n.a.105.6Late paymentsShare of SMEs experiencing late payments in past 6 months, % [source: SAFE]63.652.351.1n.a.n.a.25%45%EIF Access to finance index - LoanComposite: SME external financing over last 6 months, index from 0 to 1 (the higher the better) [source: EIF SME Access to Finance Index]0.370.340.320.282.7%0.56EIF Access to finance index - EquityComposite: VC/GDP, IPO/GDP, SMEs using equity, index from 0 to 1 (the higher the better) [source: EIF SME Access to Finance Index]0.20.070.180.196.9%0.18% of rejected or refused loansSMEs whose bank loans’ applications were refused or rejected, % [source: SAFE]00012.733.4-100.0%12.4%SME contractorsContractors which are SMEs, % of total [source: Single Market Scoreboard]817184766.6%63%SME bidsBids from SMEs, % of total [source: Single Market Scoreboard]8497100100-16%70.8%Business demographyAccess to financeBUSINESS ENVIRONMENT - SMEsPublic procurement SINGLE MARKETCompliance - cooperation EC and MS 
 
 
 
  
 
Cyprus  is  taking  measures  to  improve  open 
data  and  transparency.  The  Cyprus  National 
Action  plan  for  Public  Sector  Information (PSI)  re-
use  has  set  as  a  priority 
the  continuous 
development  of 
the  national  PSI  Portal,  a 
designated area to showcase open data re-use. A 
new 
the  principles  of 
transparency  and  accountability  in  the  public 
sector is part of the RRP and it entered into force 
at the end of 2020.  

strengthening 

law 

Graph A11.0: E-government benchmark scores and 
(lhs) and e-government users (rhs) 

Source: Eurostat (ICT use survey) and E-government 
benchmark report 

is  due 

Selected elements of Cyprus’ public financial 
management warrant attention. Over the past 
few  years,  Cyprus  performance  in  the  Single 
Market  Scoreboard’s  public  procurement  indicator 
has gone down and Cyprus ranks at the bottom of 
to  broad 
EU  Member  States.  This 
underperformance 
of 
across 
transparency,  competition,  efficiency  and  quality 
(Graph  A11.2).  Cyprus  also 
of 
performs  below  average  in  in  terms  of  the 
Commission´s 
budgetary 
framework and strength of fiscal rules indices. The 
RRP  includes  measures  aiming  at  digitalising  and 
professionalising 
procurement 
framework.  

medium-term 

information 

measures 

public 

the 

ANNEX 11: PUBLIC ADMINISTRATION 
ANNEX 11: PUBLIC ADMINISTRATION 

capacity 

administrative 

Good 
enables 
economic  prosperity,  social  progress,  and 
fairness. Public administrations at all government 
levels deliver crisis response, ensure the provision 
of  public  services,  and  contribute  to  building 
resilience  for  the  sustainable  development  of  the 
EU economy.  

in 

public 

Cyprus 
administration 
The 
demonstrates  effectiveness  well  below  the 
average  in  the  EU27 (37).  Local  government  is 
fragmented,  increasing  the  running  costs  and 
introducing higher coordination burden. Despite the 
Better Regulation Project, open public consultation 
of  legislation  is  rare  at  an  early  stage.  The 
recovery and resilience plan contains measures to 
improve  public  administration,  policy  making  and 
implementation,  including  the  introduction  of  a 
new legal  framework for evaluation and selection 
processes  for  public  servants  and  a  new  legal 
framework  for  local  authorities.  This  new  legal 
framework  for  local  authorities  was  adopted  in 
2022  with the  aim  to  notably  reduce the  number 
of municipalities. 

Cyprus  accelerated  the  digitalisation  of  its 
public  administration  during  the  COVID-19 
pandemic.  Several  digital  solutions  to  facilitate 
the submission of applications by citizens, workers 
and SMEs were put in place during the crisis. Yet a 
gap  with  the  EU  average  remains  in  the  e-
government  score (50  vs 71  EU  average).  Around 
63%  of  internet  users  engage  actively  with  e-
government  services  (against  an  EU  average  of 
71%)  (Graph  A11.1).  The  recovery  and  resilience 
plan  (RRP)  includes  reforms  and  investments 
aiming  at  digitalization  of  public  administration, 
covering  e-government,  e-health,  and  e-justice 
services.  

Cyprus  scores  low  on  several  civil  service 
indicators.  The  share  of  public  sector  workers 
aged above 55 has been steadily increasing, while 
participation in adult training has been decreasing. 
Cyprus  lacks  data  for  more  in-depth,  systemic 
assessment  of  its  civil  service  management.  As 
part  of  the  RRP,  a  new  law  on  performance 
assessment, promotions and recruitments in public 
administration was adopted in January 2022.  

(37)  Worldwide Governance Indicators, 2020.  

43 

01020304050607080CYEU27averageCYEU27averageUser centricityTo obtain informationTransparencyTo download official formsKey EnablersTo submit completed formsCross-border servicesE-governmentbenchnark scoreE-government users 
 
 
                                                 
  
 
Graph A11.1: Performance on the single market 
public procurement indicators 

(1) The competition and transparency indicators are triple-
weighted, whereas the efficiency and quality indicators have 
unitary weights. All others receive a 1/3 weighting in the SMS 
composite indicator. 
Source: Single market scoreboard 2020 data. 

The  justice  system  faces  serious  efficiency 
and  quality  concerns.  Civil,  commercial  and 
administrative  judicial  proceedings  remain  very 
lengthy. The time needed to resolve administrative 
cases  in  first  instance  courts  (863  days  in  2020) 
remains  among  the  highest  in  the  EU.  The  justice 
system  faces  serious  challenges  as  regards 
digitalisation. 
tools  are 
scarcely  used 
in  courts.  The  electronic  case 
management system responds to basic needs but 
requires  further  development.  As  regards  judicial 
independence, no systemic deficiencies have been 
reported. (38)  The  RRP  contains  measures  that 
intend to increase the quality and efficiency of the 
justice system.  

In  particular,  digital 

(38)  For more detailed analysis of the performance of the justice 
system in Cyprus, see the 2022 EU Justice Scoreboard 
(forthcoming) and the country chapter for Cyprus of the 
Commission’s 2022 Rule of Law Report (forthcoming). 

44 

 
 
                                                 
Table A11.1: Public administration indicators 

(1) High values stand for good performance barring indicators # 7 and 8. 
(2) Measures the user centricity (including for cross-border services) and transparency of digital public services as well as the 
existence of key enablers for the provision of those services. 
(3) Break in the series in 2021. 
(4) Defined as the absolute value of the difference between the share of men and women in senior civil service positions. 
Source: ICT use survey, Eurostat (# 1); E-government benchmark report (# 2); Open data maturity report (# 3); Fiscal Governance 
Database (# 4, 9, 10); Labour Force Survey, Eurostat (# 5, 6, 8), European Institute for Gender Equality (# 7), Single Market 
Scoreboard public procurement composite indicator (# 11); OECD Indicators of Regulatory Policy and Governance (# 12).  

45 

CY20172018201920202021EU27152.049.058.059.063.070.82nananana50.270.93nananana91.381.1464.366.866.866.8na56.8557.855.655.660.061.455.3611.110.910.04.913.518.6718.416.029.227.220.021.8816.119.519.120.719.521.390.620.620.620.62na0.72101.21.21.21.2na1.511-8.3-10.3-10.7-12.0na-0.7120.88nananana1.6Public Financial Management Medium term budgetary framework indexStrength of fiscal rules indexPublic procurement composite indicatorEvidence-based policy makingIndex of regulatory policy and governance practices in the areas of stakeholder engagement, Regulatory Impact Assessment (RIA) and ex post evaluation of legislation Share of public sector workers between 55 and 74 years (3)Indicator (1)E-government Share of individuals who used internet within the last year to interact with public authorities (%)2021 e-government benchmark´s overall score (2) Open government and independent fiscal institutions2021 open data maturity indexScope Index of Fiscal InstitutionsEducational attainment level, adult learning, gender parity and ageingShare of public administration employees with tertiary education, levels 5-8  (3)Participation rate of public administration employees in adult learning (3)Gender parity in senior civil service positions (4) 
 
 
 
  
 
 
FAIRNESS 
FAIRNESS 
ANNEX 12: EMPLOYMENT, SKILLS AND SOCIAL POLICY CHALLENGES IN LIGHT OF 
ANNEX 12: EMPLOYMENT, SKILLS AND SOCIAL POLICY CHALLENGES IN LIGHT OF 
THE EUROPEAN PILLAR OF SOCIAL RIGHTS  
THE EUROPEAN PILLAR OF SOCIAL RIGHTS  

labour  shortages.  At  77.1% 

While  the  labour  market  is  bouncing  back 
from  the  COVID-19  crisis,  strengthening  the 
labour  market 
effectiveness  of  active 
policies and outreach to young people is key 
to increasing labour market participation and 
reducing 
in 
Q4-2021, the employment rate in Cyprus is above 
the  EU  average  of  74%.  The  proportion  of  young 
people  aged  15-29  not in  employment,  education 
or  training  (NEETs),  however,  reached  15.4%  in 
2021 (up from 14.1% in 2019). Investments under 
the  European  Social  Fund  Plus  (ESF+)  in  active 
labour market policies including for young people, 
together with outreach activities for young people, 
which  are  planned  as  part  of  the  recovery  and 
resilience  plan 
(RRP),  will  help  address  this 
challenge. Meanwhile, the gender employment gap 
remains relatively wide at 12.2 pps in 2021 (vs EU 
10.8 pps). This is partly due to the low proportion 
of children below the age of 3 enrolled in childcare 
services.  In  2020,  this  proportion  was  20.7%, 
having  dropped  10.4  pps  since  2019.  This  is 
considerably  below  the  EU  average  of  32.3%, 
which  has  a  negative 
impact  on  equal 
opportunities  for  children  and  work-life  balance. 
However,  this  drop  could  be  attributed  to  the 
COVID-19 pandemic and to the national lockdown. 
Both  the  ESF+  and  Cyprus’  RRP  will  support 
measures to strengthen early childhood education 
and  care  in  Cyprus,  by  focusing  on  equal  access 
and affordable services. Tackling these challenges 
will  help  Cyprus  to  reach  the  2030  EU  headline 
target on employment. 

The  population’s  low  level  of  digital  skills 
and the high rate of early school leaving are 
significant challenges for Cyprus, also for its 
implementation  of  the  green  and  digital 
transitions.  Poor  digital  literacy  continues  to 
negatively  affect  people’s  employability:  In  2021, 
50%  of  the  population  had  basic  digital  skills, 
which is below the EU average of 54%. The early 
school  leaving  rate  in  Cyprus  increased  to  10.2% 
in  2021,  which is  above the  EU  average  of  9.7%, 
and  is  particularly  high  amongst  non-EU  born 
people  and  people  with  disabilities.  Thus,  greater 
efforts  on  inclusiveness  are  required  in  education 
in  general,  and  notably  in  tertiary  education. 
Measures  under  the  ESF+  to  integrate  students 
with  a  migrant  background  into  the  education 
system  will  help  tackle  this  challenge.  The  2018 
PISA results point to pupils’ below average skills in 

Table A12.1: Social Scoreboard 

Update of 29 April 2022. Members States are classified on 
the Social Scoreboard according to a statistical methodology 
agreed with the EMCO and SPC Committees. It looks jointly at 
levels and changes of the indicators in comparison with the 
respective EU averages and classifies Member States in seven 
categories. For methodological details, please consult the 
Joint Employment Report 2022. Due to changes in the 
definition of the individuals' level of digital skills in 2021, 
exceptionally only levels are used in the assessment of this 
indicator; NEET: neither in employment nor in education and 
training; GDHI: gross disposable household income.  
Source: Eurostat 

The European Pillar of Social Rights provides 
the  compass 
for  upward  convergence 
towards better working and living conditions 
in the EU. The implementation of its 20 principles 
on  equal  opportunities  and  access  to  the  labour 
market,  fair  working  conditions,  social  protection 
and inclusion, supported by the 2030 EU headline 
targets  on  employment,  skills  and  poverty 
reduction, will strengthen the EU’s drive towards a 
digital,  green  and  fair  transition.  This  annex 
provides  an  overview  of  Cyprus’  progress  in 
achieving  the  goals  under  the  European  Pillar  of 
Social Rights. 

46 

10.250.015.412.24.375.97.52.694.917.619.034.723.51.920.70.4Critical situationTo watchWeak but improvingGood but to monitorOn averageSocial Scoreboard for CYPRUSEqual opportunities and access to the labour marketEarly leavers from education and training(% of population aged 18-24) (2021)Youth NEET(% of total population aged 15-29) (2021)Gender employment gap (percentage points) (2021)Income quintile ratio (S80/S20) (2020)Individuals' level of digital skills (% of population 16-74) (2021)Dynamic labour markets and fair working conditionsSocial protection and inclusionAt risk of poverty or social exclusion for children (in %) (2020)Disability employment gap (ratio) (2020)Better than averageAt risk of poverty or social exclusion (in %) (2020)Employment rate(% population aged 20-64) (2021)Unemployment rate(% population aged 15-74) (2021)Long term unemployment(% population aged 15-74) (2021)GDHI per capita growth (2008=100) (2020)Best performersImpact of social transfers (other than pensions) on poverty reduction (% reduction of AROP) (2020)Children aged less than 3 years in formal childcare (% of under 3-years-olds) (2020)Self-reported unmet need for medical care (% of population 16+) (2020)Housing cost overburden (% of population) (2020) 
 
 
 
 
  
 
 
 
According  to  a  recent  study (40),,  a  monthly 
minimum wage of EUR 1 000 is expected to have 
a significant impact on reducing the risk of poverty 
(-10%), especially in-work poverty (-22%), and will 
benefit  young  and  female  workers  in  particular. 
Furthermore,  the  reform  would  positively  affect 
the  government  budget  by  increasing  taxes  and 
social  security  contributions  while  decreasing 
social benefit expenses. 

the 

reading,  maths,  and  science  (see  also  Annex  13). 
The proportion of people with a tertiary education 
in  Cyprus  is  considerably  above  the  EU  average 
(583% versus 41.2% in 2021), but Cyprus still has 
one  of 
lowest  proportions  of  science, 
technology,  engineering  and  mathematics  (STEM) 
graduates. The proportion of adults participating in 
learning  (during  the  four  weeks  preceding  the 
interview)  was  below  the  EU  average  in  2021 
(9.7%  vs  10.8%),  having  increased  by  5  pps  in  a 
year,  up  from  7.5%  in  2015. (39)  Plans  under  the 
ESF+,  RRP  and  the  Just  Transition  Fund  to 
strengthen  the  capacity  and  quality  of  vocational 
education and training, to provide programmes for 
training  in  green  and  digital  skills  and  to  develop 
and implement a national skills strategy and an e-
skills  action  plan,  will  help  achieve  the  2030  EU 
headline target on adult participation in learning. 

While  the  proportion  of  people  at  risk  of 
poverty  or  social  exclusion  has decreased,  it 
remains  high  for  specific  groups.  Although  the 
at-risk-of-poverty-or-social-exclusion (AROPE) rate 
is  relatively  low  in  Cyprus,  it  remains  higher  than 
the  EU  average  among  people  with  disabilities 
(33.3%  vs  EU  28.9%  in  2020).  To  foster  equal 
opportunities  and  social  inclusion,  the  ESF+  will 
support  measures  to  restructure  social  welfare 
services in Cyprus, and to establish a new network 
of  social 
inclusion  services  for  people  with 
disabilities.  These  measures  will  also  be  key  to 
reaching  the  2030  EU  headline  target  on  poverty 
reduction. Cyprus’ growth of real gross disposable 
household  income  (GDHI)  per  person  was  one  of 
the  slowest  in the  EU,  and  it decelerated  in  2020 
as  well.  In  2019,  Cyprus  had  one  of  the  highest 
proportions  of  65+  women  with  a  severe  level  of 
difficulty with personal care or household activities 
(94.7% vs EU 78.1%), yet long-term care attracts 
low  levels  of  public  funding  at  0.3%  of  GDP 
(2019).  Furthermore,  staff  shortages  pose  a 
challenge,  including  for  the  health  system  (the 
density of nurses is 5.2 per 1 000 population, well 
below  the  EU  average  of  8.4).  Cyprus’  RRP  and 
ESF+ operational programme will help address this 
problem  by  supporting  long-term  care  for  older 
people and people with disabilities. Energy poverty 
is a problem with 20.9% of the total population  - 
and  41.6%  among  those  at  risk  of  poverty  - 
unable  to  keep  their  home  adequately  warm  in 
2020 (against the EU average of 7.4%) in the total 
population  (see  also  Annex  6).  Cyprus  intends  to 
introduce  a  universal  legislative  minimum  wage. 

(39)  There is a break in the series in 2021. 

Euromod model. 

(40)  European Commission, Joint Research Centre, based on the 

47 

 
                                                 
 
 
                                                 
ANNEX 13: EDUCATION AND SKILLS 
ANNEX 13: EDUCATION AND SKILLS 

This  annex  outlines  the  main  challenges  for 
Cyprus’  education  and  training  system  in 
light of the EU-level targets of the European 
Education  Area  strategic  framework  and 
other  contextual  indicators,  based  on  the 
analysis  from  the  2021  Education  and 
Training  Monitor.  Cyprus’  education  system  is 
highly  centralised,  insufficiently  monitored  and 
evidence-based.  Cyprus  lags  behind  in  basic  skills 
and also in rankings on digital skills.  

Despite  efforts,  accessible  and  affordable 
early  childhood  education  and  care  (ECEC) 
remains  a  challenge.  Participation 
in  early 
childhood  education  is  2.7  pps  below  the  EU 
average  (92.8%)  and  also  below  the  EU-level 
target  for  2030  (90.1%  vs  96%).  Public  spending 
on early childhood education is among the lowest 
in 
inclusive 
education  outcomes,  Cyprus  relies  heavily  on 
informal  settings  or  private  institutions  especially 

the  EU.  Although  ECEC  boosts 

for  children  under  3.  Free  public  and  subsidised 
private  childcare  is  available  only  to  guaranteed 
minimum  income  recipients.  EU  funds  aim  to 
expand  capacities  and  strengthen  provisions  for 
affordable  ECEC.  Efforts  so  far  have  been 
fragmented,  although  Cyprus  will  prepare  and 
adopt by the end of 2024 a national strategy and 
its  accompanying  action  plan  on  ECEC  in  order  to 
further  enhance  early  childhood  education  and 
care, and will also benefit from additional support 
via the Technical Support Instrument and the RRF.  

In  recent  years,  there  has  been  only  limited 
progress  in  education  and  training  reforms, 
including  the  evaluation  of  teachers.  This 
remains one of the key challenges for the Cypriot 
education  system.  It  negatively  affects  pupils’ 
educational  outcomes,  and 
low 
participation  rates  in  vocational  education  and 
training (one of the lowest in the EU in 2019) and 

results 

in 

Table A13.1: EU-level targets and other contextual indicators under the European Education Area 
strategic framework 

Notes: The 2018 EU average on PISA reading performance does not include ES; b = break in time series, p = provisional, : = not 
available; data are not yet available for the remaining EU-level targets under the European Education Area strategic framework, 
covering underachievement in digital skills, exposure of vocational education and training (VET) graduates to work-based learning 
and participation of adults in learning. 
Source: Eurostat (UOE, LFS); OECD (PISA). 

48 

96%81.3%91.9%90.1%201992.8%2019Reading< 15%35.6% 20.4%43.7%201822.5%2018Mathematics< 15%42.6% 22.2%36.9%201822.9%2018Science< 15%42.1% 21.1%39.0%201822.3%2018< 9 %5.2%11.0%10.2%9.7%Men7.7%12.5%12.7%11.4%Women3.1%u9.4%7.9% 7.9%Cities3.8%u9.6%10.7% 8.7%Rural areas8.5%u12.2%8.0%u10.0%Native3.1%10.0%3.9%8.5%EU-born17.0%u20.7%20.5%u21.4%Non EU-born16.6%u23.4%31.4% 21.6%45%54.7%36.5%58.3%41.2%Men44.9%31.2%50.0%35.7%Women63.9%41.8%66.2%46.8%Cities60.9%46.2%63.0%51.4%Rural areas45.4%26.9%53.2%29.6%Native62.8%37.7%69.4%42.1%EU-born31.9%32.7%38.7%40.7%Non EU-born34.3%27.0%36.9%34.7%21.7% 38.3%27.4%201938.9%2019IndicatorTargetCyprusEU27CyprusEU27Participation in early childhood education (age 3+)Low achieving 15-year-olds in:Early leavers from education and training (age 18-24)TotalBy genderBy degree of urbanisationBy country of birthTertiary educational attainment (age 25-34)TotalBy genderBy degree of urbanisationBy country of birthShare of school teachers (ISCED 1-3) who are 50 years or over 
 
 
 
  
 
inhabitant  ratio.  The  proportion  of  young  people 
(aged  18-34)  among  recently  arrived  asylum 
seekers  is  especially  high  at  62%  (2018).  The 
implementation  of  enhanced  education  measures 
aimed  at  pupils  with  a  migrant  background  is 
ongoing and supported by ESF+. 

Although  tertiary  education  attainment  is 
one  of  the  highest  in  the  EU,  the  labour 
market  relevance  of  education  needs  to  be 
tackled.  Cyprus  ranks  high  regarding  tertiary 
education attainment, but has a significant gender 
gap for men of around 20 pps. A large gap of 30.8 
pps  also  exists  between  native-born  and  foreign-
born  people.  Interaction  between  academia  and 
the  business 
limited  and  no 
comprehensive  strategy  for  internationalisation 
exists.  In  addition,  the  proportion  of  graduates  in 
science, technology, engineering and mathematics 
(STEM) is one of the lowest in the EU (13.8%). 

sector 

is 

Spending  on  education  as  a  percentage  of 
GDP  is relatively  high  in  Cyprus  but  it  is  not 
reflected 
in  high  educational  outcomes. 
Cyprus  exceeds  the  EU  average  of  10%  for  the 
proportion  of 
total  government  expenditure 
devoted  to  education.  However,  the  high  overall 
levels  of  spending  on  education  do  not  translate 
into  corresponding  good  educational  outcomes 
compared to other Member States. This highlights 
challenges  with  regard  to  the  effectiveness  and 
efficiency of investment in education in Cyprus. 

these 

some  of 

The  reforms  and  investments  under  the 
Recovery  and  Resilience  Facility  will  help 
longstanding 
address 
challenges. Key measures focus on (i) rising skills 
mismatches  and  low  digital  skills,  (ii)  addressing 
the  skills  mismatch  between  education  and  the 
labour  market,  (iii)  modernising  the  evaluation 
system  for  teachers  and  schools,  (iv)  addressing 
the  quality  of  teaching  and  the  availability  and 
affordability of ECEC. 

adult learning, as well as skills mismatches. 

The  level  of  basic  skills  among  pupils  in 
Cyprus  remains  a  concern  and  highlights 
socio-economic disparities. PISA 2018 indicated 
that Cyprus has a high proportion of low achievers 
in  reading,  maths  and  sciences  and  a 
low 
proportion  of  top  performers  compared  to  other 
EU  Member  States.  Almost  two  out  of  three 
students  from  the  lowest  socio-economic  quartile 
are  low  achievers  in  reading  (EU  average:  36.4%) 
(see  Graph  A13.1).  In  the  top  socio-economic 
quartile,  -one  out  of  three  students  is  a  low 
achiever, which is one of the highest proportions in 
the  EU.  There  is  also  a  significant  gender  gap  in 
reading, with girls outperforming boys on average 
by  47  score  points.  There  is  a  risk  that  the 
pandemic  will  have  a  long-lasting  negative  effect 
on students’ learning outcomes.  

Graph A13.1: Low achievement in reading by 
socioeconomic status, PISA 2018 

(1) The EU average does not include ES. 
Source: OECD (2019), PISA 2018.  

Since  2015,  early  school  leaving  rates  have 
increased,  largely  due  to  more  foreign-born 
young  people 
leaving  school  early.  The 
proportion  of  early  leavers  from  education  and 
training is almost three boys to two girls. Cyprus is 
struggling 
into 
education and training. The country has one of the 
rates  by 
EU’s  highest  asylum  application 

integrate  asylum  seekers 

to 

49 

0%10%20%30%40%50%60%EUCYLow achievement in reading by socioeconomic status, PISA 2018All studentsStudents in the bottom socio-economic quartileStudents in the top socio-economic quartile 
  
 
ANNEX 14: HEALTH AND HEALTH SYSTEMS 
ANNEX 14: HEALTH AND HEALTH SYSTEMS 

Especially  relevant  in  light  of  the  ongoing 
COVID-19 pandemic, resilient healthcare is a 
prerequisite  for  a  sustainable  economy  and 
society.  This  Annex  provides  a  snapshot  of  the 
healthcare sector in Cyprus. 

(Graph  A14.2).  Nevertheless,  public  funding  of 
long-term  care  remains  very  low  at  0.3%  of  GDP 
(2019).  The  lack  of  a  relevant  comprehensive 
framework 
long-term  care 
further 
provision in Cyprus.  

impedes 

Life  expectancy  in  Cyprus  is  higher  than  in 
the  EU  as  a  whole  and  increased  in  2020, 
despite  COVID-19  (Graph  A14.1).  However,  this 
disruption was smaller than for the rest of the EU, 
with  only  one  other  Member  State  (Denmark)  not 
reporting a drop  in life expectancy. As of 17 April 
2022,  1.11  cumulative  COVID-19  deaths  per 
1 000  inhabitants  had  been  reported,  and  523 
confirmed  cumulative  COVID-19  cases  per  1 000 
inhabitants.  Cyprus  fares  comparatively  well  in 
avoiding  deaths  from  treatable  causes,  which  is 
also  reflected  in  low  cancer  mortality.  However, 
high  antibiotics  consumption  is  a  cause  for public 
health concerns over antimicrobial resistance. 

Graph A14.1: Life expectancy at birth, in years 

Source: Eurostat database 

Health  spending  relative  to  GDP  in  Cyprus 
was  below  the  EU  average  in  2019.  A  recent 
extensive  health  system  reform  to 
introduce 
universal  health  coverage  (implemented  in  two 
phases in 2019-2020) has reduced what was the 
highest level of out-of-pocket  spending in the EU, 
made  healthcare  more  affordable  and  reported 
levels  of  unmet  needs  are  low  (see  Annex  12). 
However, disparities by income groups and waiting 
lists for certain services persist. Public expenditure 
on  health  is  projected  to  increase  by  0.3  pp.  of 
GDP by 2070 (compared to 0.9 pp. for the EU) (41) 

(41)  “The 2021 Ageing Report: Economic and Budgetary 

Projections for the EU Member States (2019-2070)”, 
European Commission (ECFIN) and Ageing Working Group 
(EPC). Note that, due to data availability at the time of the 
projections, this does not account for the impact of the 
health system reform on expenditure in 2019-2021, which is 
expected to be substantial (and adding to the projected 

Graph A14.2: Projected increase in public 
expenditure on health care over 2019-2070 
(reference scenario) 

Source: European Commission/EPC (2021)  

Staff  shortages  raise  concern  over  the 
health  system’s  long-term  performance.  The 
number of nurses in Cyprus is low and the number 
of  graduates  is  falling.  In  the  area  of  long-term 
care,  the  Deputy  Ministry  of  Social  Welfare  has 
started  mapping  needs,  yet  more  concise  and 
evidence-based  mapping, 
at 
is  still  needed.  Shortages, 
specialised  staff, 
particularly of nurses, exist in both the health care 
and long-term care system. The increasing need, in 
particular,  for 
long-term  care  requires  more 
comprehensive measures.  

looking 

also 

Through  its  recovery  and  resilience  plan, 
Cyprus plans to invest EUR 69.9 million (5.8 % 
of  the  total  RRP)  to  strengthen  its  health  system 
by refurbishing facilities and upgrading (procuring) 
equipment. 
on 
is 
strengthening  the  performance  of  the  public 
health system, notably through digitalisation. 

focusing 

Cyprus 

also 

increase up to an additional 4.6 percentage points to reach 
7.5% of GDP in 2021, the level expected by the Cypriot 
authorities).  

50 

80.580.980.981.081.380.481.882.782.282.982.382.4201520162017201820192020EUCyprus6.62.90.90.302468EUCyprus% of GDP20192070increase 
 
  
                                                 
  
                                                                              
 
Table A14.0: Key health indicators 

(1) Doctors' density data refer to practising doctors in all countries except FI, EL, PT (licensed to practice) and SK (professionally 
active). Nurses' density data refer to practising nurses in all countries (imputation from year 2014 for FI) except IE, FR, PT, SK 
(professionally active) and EL (nurses working in hospitals only). More information: https://ec.europa.eu/health/state-health-
eu/country-health-profiles_en 
Source: Eurostat Database; except: * Eurostat Database and OECD, ** ECDC.  

51 

20162017201820192020EU average (latest year) Treatable mortality per 100 000 population (mortality avoidable through optimal quality healthcare)71.273.978.977.192.1 (2017)Cancer mortality per 100 000 population193.8208.5204.6195.4252.5 (2017)Current expenditure on health, % GDP 6.66.66.87.09.9 (2019)Public share of health expenditure, % of current health expenditure42.342.142.956.579.5 (2018)Spending on prevention, % of current health expenditure 1.31.31.31.22.8 (2018)Acute care beds per 100 000 population342.7329.6318.3311.5387.4 (2019)Doctors per 1 000 population *3.83.94.14.33.8 (2018)Nurses per 1 000 population *5.35.45.45.48.2 (2018)Consumption of antibacterials for systemic use in the community, daily defined dose per 1 000 inhabitants per day **28.428.928.030.128.914.5 (2020) 
 
  
 
ANNEX 15: ECONOMIC AND SOCIAL PERFORMANCE AT REGIONAL LEVEL 
ANNEX 15: ECONOMIC AND SOCIAL PERFORMANCE AT REGIONAL LEVEL 

is  an 

tertiary  degree  but 

The  regional  dimension 
important 
factor  when  assessing  economic  and  social 
developments  in  Member  States.  Taking  into 
account  this  dimension  enables  a  well-calibrated 
and targeted policy response that fosters cohesion 
and  ensures  sustainable  and  resilient  economic 
development  across  all  regions.  Cyprus is  at  90% 
of  the  EU  average  in  terms  of  GDP  per  head  (in 
purchasing  power  standards).  Socio-economic 
differences  persist  in  Cyprus  between  territories 
and  there  are  large  differences  in  terms  of 
educational  attainment.  More  than  52%  of  the 
population  has  a 
this 
proportion drops to 38% in towns and suburbs and 
to  29%  in  rural  areas.  The  proportion  of  young 
people  dropping  out  of  school  and  training  tends 
to be higher in rural areas while the proportion of 
young  people  not  in  education,  employment  or 
training  is  higher  in  towns  and  suburbs.  The 
incidence  of  poverty  is  also  higher  in  rural  areas 
where  more  than  24%  of  the  population  was  at 
risk of poverty or social exclusion in 2020, against 
18% in towns and suburbs and 15% in cities. Key 
challenges  remain  in  relation  to  environmental 
sustainability.  Waste  and  water  management  is 
inefficient  and  the  transition  towards  a  circular 
economy  has  barely  begun.  Despite  some 
progress,  Cyprus  remains  vulnerable  to  climate 
change due to droughts and water scarcity.  

In the last decade, Cyprus has not converged 
with  the  rest  of  the  EU.  GDP  per  head 
decreased  from  102%  of  the  EU-27  average  in 
2010 to 90% in 2019. Real GDP per head grew on 
average at a rate of 0.4% per year between 2010 
and  2019,  which  was  much  lower  than  the 
average EU growth rate of 1.4% per year. Labour 
productivity  is  below  the  EU-27  and  the  gap  with 
the EU has steadily increased. In 2000, real gross 
value  added  per  worker  was  80%  of  the  EU 

average and it dropped to 76%.  

Cyprus is among the Member States with the 
highest  greenhouse  gas  (GHG)  emissions: 
11.2  tonnes  of  CO2  equivalent  per  head  in 
2019,  compared  to  8.4  at  EU  level.  Thus, 
meeting  the  carbon  neutrality  goals  and  adapting 
to  climate  change  will  be  particularly  challenging 
for Cyprus in two respects. First, energy production 
and  consumption  will  have  to  shift  towards  a 
significant  increase  in  electricity  production  and 
consumption  from  renewable  energy  sources. 
Second,  investments  will  have  to  be  made  in 
cleaner technologies to make manufacturing more 
efficient and less polluting. For such a transition to 
be  effective,  investments  need  to  be  made  not 
only  in  diversifying,  greening  and  making  the 
economy  more  modern  and  competitive,  but  also 
in  alleviating  the  socio-economic  costs  of  the 
transition.  This  should  include  the  upskilling  and 
reskilling  of  workers in  green  and  digital  skills,  as 
well  as  helping  job-  jobseekers  to  find  work.  It 
should  also  include  measures  to  tackle  energy 
poverty,  such  as  those  included  in  the  RRP.  A 
concrete plan for social and regional development 
measures is being deployed through the roll-out of 
the relevant Territorial Just Transition Plan.  

to 

Cyprus  is  a  moderate  innovator.  Over  time, 
its  performance  relative  to  the  EU  has 
improved  greatly.  According 
the  2021 
European Innovation Scoreboard, Cyprus performs 
strongly  in  Linkages,  Innovators,  and  Employment 
impacts,  and 
indicators  are 
International  scientific  co-publications,  Innovative 
SMEs  collaborating  with  others,  and  Population 
with tertiary education. The strong improvement in 
performance  between  2019  and  2021  is  due  to 

top-three 

its 

Table A15.1: Selected indicators at regional level - Cyprus 

Source: EUROSTAT, *EDGAR Database 

52 

 
 
 
 
 
 
 
  
 
The  COVID-19  pandemic  has  severely 
affected  health  conditions  in  Cyprus.  Since 
week  9  of  2020, mortality  has  been15.3% higher 
than the average mortality in the same weeks for 
the period from 2015 to 2019. The pandemic did 
not  trigger  significant  changes  in  working  habits, 
with  the  proportion  of  people  working  from  home 
increasing  by  only  3.2%  in  2020.  Cyprus  is 
currently  preparing  a  legislative  framework  for 
telework,  which  will  encourage  flexible  working 
arrangements.  The  legislation  has  not  yet  been 
voted on, but Cyprus has already launched flexible 
working arrangement schemes included in the RRP 
and ESF+.  

in 

significant 

improvements 

very 
several 
indicators,  including  Venture  capital,  Broadband 
penetration,  Product  innovators  and  Innovative 
SMEs  collaborating  with  others.  Cyprus’  scores  on 
the  climate  change-related  indicators  are  below 
average. 

Graph A15.1: GVA per worker 

Source: European Commission 

Cyprus  ranks  21st  among  the  27  EU  Member 
States in the 2021 edition of the DESI. Cyprus 
has  improved  its  performance  in  almost  all  DESI 
dimensions,  although  in  most  cases  it  still  scores 
below  the  EU  average.  Most  of  its  progress  has 
been  made  in  connectivity.  The  newly  established 
Deputy  Ministry  of  Research, 
Innovation  and 
Digital  Policy  is  responsible  for  implementing  the 
‘2020-2030 digital strategy for Cyprus’, which will 
accelerate the country’s digital transformation. The 
new Ministry has also drawn up an action plan for 
digital skills (2021-2025), as Cyprus currently has 
a low percentage of people with basic digital skills. 

The  unemployment  rate  decreased  steadily 
over  the  last  5  years.  However,  in  2020  it 
started 
increasing  moderately  again  by  0.5 
percentage  points.  In  2020,  the  unemployment 
rate  in  cities  was  somewhat  lower  than  in  other 
types  of  areas,  at  7.3%  of  the  active  population, 
against  8.0%  in  towns  and  suburbs  and  8.1%  in 
rural areas. 

53 

35404550556000020406081012141618thousands of EUR per  personCapital regionOther NUTS2 regionsEU27National average 
 
  
 
 
 
MACROECONOMIC STABILITY 
MACROECONOMIC STABILITY 
ANNEX 16: KEY FINANCIAL SECTOR DEVELOPMENTS 
ANNEX 16: KEY FINANCIAL SECTOR DEVELOPMENTS 

average was 7.2%.  

during 

support  measures 

Asset quality remains a challenge for Cypriot 
banks, but has improved for both corporates 
and  households,  both  benefitting  from  the 
public 
the 
pandemic.  Banks  made  progress  in  improving 
their asset quality and working out non-performing 
loans  through  organic  reductions  and  portfolio 
sales,  bringing  the  non-performing  loans  ratio 
down  to  8.1%  in  Q3-2021.  The  lending  business 
slowed  down  in  2020,  but  recovered  to  pre-
pandemic  levels  in  the  third  quarter  of  2021  for 
both  households  and  companies.  Household 
lending  benefited  from  a  buoyant  mortgage 
market  while  lending  to  businesses  was  boosted 
by a number of government support schemes.  

The  performance  of  KEDIPES,  the  state-
owned  vehicle managing  predominantly  non-
performing  assets  which  originated  from 
winding  down  the  Cyprus  Cooperative  Bank, 
the 
has  been  adversely  affected  by 
pandemic, with some improvement registered 
in the course of 2021. In parallel, the authorities 
continue to work on the plan to transform KEDIPES 
into a national asset management company. Such 
an  initiative  should  be  carefully  designed  and 
assessed,  to  mitigate  risks  and  concerns  for  the 
overall  payment  discipline.  A  stable  and  properly 
remains 
functioning 

foreclosure 

framework 

sector 

This  Annex  provides  an  overview  of  key 
developments in Cyprus’ financial sector. The 
banking 
remains  highly 
in  Cyprus 
concentrated  and  dominated  by  domestic 
institutions.  Total  banking  sector  assets  stood  at 
almost  310%  of  GDP  in  2021,  of  which  the  five 
largest banks had a share of 86.5% at the end of 
2020, relatively stable in recent years. The banking 
sector is to a large extent domestically owned. The 
loan-to-deposit ratio has been on a steep declining 
path  since  2017,  reflecting  the  excess  liquidity  in 
the system. The market-funding ratio has recorded 
increases in recent years, but still stood very low in 
2020,  as  bank  loans  remain  the  main  form  of 
external financing for most companies. 

Cypriot  banks’  capital  buffers  are  adequate 
but appear thin in face of the comparatively 
risky 
loan  portfolios  while  profitability 
remains  low.  Supported  by  the  EU  Coronavirus 
banking  package,  which  lowered  capital  charges 
for  SME  exposures,  the  solvency  ratio  rose  to 
20.3%  in  2020  and  remained  flat  in  2021. 
Meanwhile,  banks  are  struggling  to  maintain 
acceptable  levels  of  profitability,  as  they  remain 
reliant on interest income and face high operating 
costs. The cost to income ratio stood at 72.1% in 
2021 which is high compared to the EU average of 
60.0%.  Accordingly,  Cypriot  banks  deliver  low 
returns  on  equity  at  1.6%  in  2021,  while  the  EU 

Table A16.1: Financial Soundness Indicators 

(1) Last data: Q3 2021. 
Source: ECB, Eurostat, Refinitiv 

54 

20172018201920202021Total assets of the banking sector (% of GDP)397.2323.8284.7301.2309.8Share (total assets) of the five largest bank (%)84.286.985.786.5-Share (total assets) of domestic credit institutions (%)180.978.378.378.679.8Financial soundness indicators:1- non-performing loans (% of total loans)30.720.218.111.08.1- capital adequacy ratio (%)16.317.119.920.320.3- return on equity (%)-11.97.13.5-3.31.6NFC credit growth (year-on-year % change)0.33.52.21.91.7HH credit growth (year-on-year % change)0.0-0.2-0.23.02.5Cost-to-income ratio (%)153.662.372.363.272.3Loan-to-deposit ratio (%)171.960.360.056.749.0Central bank liquidity as % of liabilities1.61.50.03.810.6Private sector debt (% of GDP)304.3282.9249.9260.5-Long-term interest rate spread versus Bund (basis points)230.6177.8132.3138.774.2Market funding ratio (%)12.714.718.819.9-Green bond issuance (bn EUR)----- 
 
 
 
 
 
 
  
 
another prerequisite for its success. 

55 

 
ANNEX 17: MACROECONOMIC IMBALANCE PROCEDURE ASSESSMENT MATRIX 
ANNEX 17: MACROECONOMIC IMBALANCE PROCEDURE ASSESSMENT MATRIX 

remains  surrounded  by  uncertainty  related  to  the 
invasion  of  Ukraine  and 
impact  of  Russia’s 
associated  sanctions  in  view  of  relevant  trade  of 
services 
economic 
environment  and  higher  inflation.  Possible  rising 
interest  rates  could  impact  the  debt-servicing 
capacity  of  households  having  mostly  mortgage 
loans with variable interest rates. 

a  weaker 

exposures, 

of 

the 

unwinding 

A  sustained  reform  agenda  is  crucial  to 
facilitate 
Cyprus’ 
macroeconomic imbalances. In response to the 
COVID-19 shock, Cyprus had put support measures 
into  place  which  supported  employment  and 
household  income  and  have  successfully  averted 
an  immediate  wave  of  bankruptcies  and  non-
performing  debt.  While  the  progress  with  policies 
concerned with structural issues has been uneven, 
the Cyprus RRP includes a range of measures that 
aim  to  address  long-standing  issues,  such  as  the 
limit  excess 
diversification  of 
borrowing  by  the  private  sector,  ensure  the 
sustainability  of  government  debt  in  the  medium 
term  and  further  resolve  non-performing  loans  in 
and  outside  the  banking  sector.  Timely  and 
effective  implementation  of  reforms  planned  in 
the RRP and further progress in these areas will be 
crucial  to  correct  Cyprus’  vulnerabilities  in  a 
sustained manner.  

the  economy, 

For  those  reasons,  and  more  generally  on  the 
basis  of  the  elements  of  the  in-depth  review 
undertaken  for  Cyprus  under  Regulation  (EU)  No 
1176/2011  on  the  prevention  and  correction  of 
macroeconomic imbalances as summarised in the 
Staff  Working  Document  (SWD  (2022)628  final), 
the  Commission  has  considered 
its 
Communication  “European  Semester  –  2022 
Spring  Package”  (COM(2022)600  final)  that 
Cyprus  continues  to  experience  excessive 
imbalances. 

in 

The  Macroeconomic 
Imbalance  Procedure 
the  main 
Assessment  matrix  presents 
elements  of  the  in-depth  review  analysis.  It 
reports in  accordance  with  Article  5  of  Regulation 
(EU)  No  1176/2011  on  the  prevention  and 
correction  of  macroeconomic 
imbalances,  as 
summarised in the Staff Working Document (SWD 
(2022) 628 final) (42). For Member States selected 
in  the  2022  Alert  Mechanism  Report  it  presents, 
separately  for  each  source  of  imbalance  and 
adjustment issue, the main findings regarding the 
gravity  and 
identified 
challenges, as well as policy response and gaps. 

the  evolution  of  the 

The  Cypriot  imbalances  comprise  high  levels 
of government and private indebtedness, and 
a  large  current  account  deficit.  The  current 
account deficit deteriorated in 2020 after a sharp 
drop in tourism due to the pandemic and improved 
but remained below prudential levels in 2021. The 
ratios 
government  and  private  debt-to-GDP 
declined  in  2021  due  to  rebounding  GDP  growth, 
but  still  stand  at  an  elevated  level.  Private  debt 
stocks,  however, 
improved  even  despite  the 
pandemic, but much of the debt is concentrated in 
sectors with high non-performing loan (NPL) ratios. 
Strong progress was made in the reduction of the 
stock  of  NPLs  in  the  banking  sector,  achieving  a 
single digit ratio. Despite the clear progress so far, 
the non-performing loan ratio is still above that of 
most other euro area countries.  

is 

by 

forward, 

surrounded 

Going 
the  macroeconomic 
imbalances  are  expected  to  continue  their 
correction,  but  the  sustainability  of  the 
risks, 
adjustment 
particularly  for  the  current  account  deficit 
which is affected by the economic impact  of 
the  Russia’s  invasion  of  Ukraine.  As  a  result, 
the current account deficit is projected to continue 
its decreasing path only in 2023. Government debt 
is  set  to  improve  thanks  to  nominal  GDP  growth 
combined  with  a  lower  deficit  which  profits  from 
the  pandemic-related measures  being  phased  out 
and  the  use  of  excess  cash  reserves  (above  pre-
financing 
nine  months) 
accumulated since the beginning of the pandemic. 
The  private  debt-to-GDP  ratio  is  also  expected  to 
improve. However, the economic outlook for 2022 

needs 

next 

for 

(42)  European Commission (2022), COMMISSION STAFF 

WORKING DOCUMENT In-Depth Review for Cyprus in 
accordance with Article 5 of Regulation (EU) No 1176/2011 
on the prevention and correction of macroeconomic 
imbalances.  

56 

 
 
                                                 
 
Table A17.1: Assessment of Macroeconomic Imbalances matrix 

(Continued on the next page) 

57 

Gravity of the challengeEvolution and prospectsPolicy responseThe net international investment position remains very negative. It stood at–122.8% of GDP in 2021 lower than in 2020 -136.2%). Adjusting for special purpose entities (SPEs) according to Cyprus Central Bank’s data, the net international investment position amounted to -43.3% of GDP in 2021.The current account deficit improved from 10.1% of GDP in 2020 to 7.2% in 2021. However, it is not yet conducive to maintaining the NIIP within prudent levels (CY IDR 2022).The negative net international investment position narrowed in 2021 mainly as a result of the GDP rebound that followed the sharp contraction in 2020. Meanwhile the current account deficit narrowed markedly, but remained elevated. Exports of non-tourism services such as ICT  financial, business and transport expanded in 2021. However, tourism services exports, despite some recovery, remained below the pre-pandemic level. Russia’s invasion of Ukraine is expected to negatively affect exports of services, in particular tourism. This in combination with high oil prices and a high and deteriorating deficit in the primary income account are expected to keep the current account in substantial deficit, in 2022 and 2023 8.8% and 7.2% of GDP, respectively). Post-pandemic phasing out of the government support measures is expected to improve the general government net borrowing position and thus contribute to an improvement in overall external position, provided that the net savings position of other sectors does not deteriorate. Measures to prevent  excessive borrowing by the private sector and increase its net savings are also important.A tourism strategy is under implementation, helped also by the RRP, which aim to diversify the tourist product and to broaden the tourist markets of Cyprus. In addition, the RRP includes measures to boost export-oriented businesses related to services as well as light manufacturing and agriculture, to help diversify the export base and improve the resilience of net exports. The roll-out of renewables also supported by the RRP should alleviate the over-reliance of the economy on oil imports. Albeit decreased since the peak during the pandemic, public debt stood at 103.6% of GDP at the end of 2021.Cyprus’ debt-to-GDP ratio is expected to continue declining and reach 88.8% of GDP by 2023. The decline comes on the back of GDP growth, use of cash reserves and the improved primary balance. The phasing out of the government support measures is expected to improve the general government debt. The RRP includes several measures that can contribute to the reduction of public debt. Improving tax collection and addressing aggressive tax planning is expected to make revenue collection more efficient and sustainable. Two reforms under the RRP also aim at ensuring the fiscal sustainability of the healthcare system, which was implemented in 2019-2020.Private sector debt, standing at 241% of GDP at the end of 2021, is above prudential benchmarks and remains one of the highest debt ratios in the EU, making it vulnerable to shocks. The NFC debt to GDP ratio 154% of GDP in 2021 is high and remains above the prudential benchmark even when correcting for cross-border debt of non-financial SPEs (91% of GDP in 2021) which has reportedly limited impact on the domestic economy. It is concentrated in a few sectors, such as those related to tourism, and real estate.The household debt to GDP ratio (88% of GDP in 2021) remains above the prudential benchmark.Non-performing loans remain elevated, split between the balance sheets of banks and credit acquiring companies.The private sector debt ratio is expected to decline in 2022 mainly due to real GDP growth and inflation, resuming the declining trend observed since 2014. Moratoria for loan payments, implemented in 2020 to address the impact of the Covid-19 crisis, have expired, with default rates remaining low. Credit has been further supported in 2021 by interest rates subsidies to firms and households.Borrowers’ participation in insolvency processes should facilitate debt-workouts, but, so far, there has been limited progress with insolvency proceedings. Examinership and personal insolvency arrangements continue to be scarcely used.The RRP foresees a number of long-standing measures aiming at facilitating the reduction of private sector debt, including a strategy for addressing inadequacies of the property transaction system and two reforms which seek to strengthen the insolvency framework, including a re-organisation of the department of insolvency, and to modernise the Companies Law.Further measures aim at preventing excessive private borrowing, including the creation of a liabilities monitoring system expanding on the available financial data, the creation of a system of exchange of data and credit bureaus expected to improve the assessment of credit risk for new lending, and a strategy to improve financial education within the general population. Private debtImbalances (unsustainable trends, vulnerabilities and associated risks)External positionPublic debt 
 
 
  
 
Table (continued) 

(*) The aggregate NPLs ratios referred to in this matrix are based on ECBs’ data and thus they differ from the ratios referred to in 
the Post-Programme Surveillance Report Cyprus, Spring 2022, that are based on Central Bank of Cyprus’ data. 
Source: European Commission 

58 

There has been a substantial reduction of non-performing loans (NPLs) in the last 2 years, with the ratio of NPLs in November 2021 declining to 8.1% (from 18.1% in 2019) (*). However, there are risks to the debt repayment capacity of the private sector and stage 2 loans have increased since 2019 for the corporate sector.The main driver of the reduction in the NPL ratio in the banking sector continues to be the sales of NPLs to credit acquiring companies, however, banks have also achieved organic reductions. There is less and less scope for further reducing legacy NPL stocks through sales, given the nature of the remaining portfolio.The Cypriot RRP includes an action plan for NPL reduction, including a legislative package for credit acquirers and servicers. However, safeguarding effective foreclosure and enforcement frameworks are also essential.A significant amount of troubled assets remains in the economy.  These are now managed outside the banking sector by credit acquiring and credit servicing companies, including the state asset management company KEDIPES.The supervision of credit acquiring companies has been strengthened but challenges remain.The authorities continue to work on a plan to transform KEDIPES into a national asset management company. This could facilitate the implementation of mortgage to rent schemes to help resolve NPLs collateralised by primary residences. It should be designed carefully to put in place an effective governance, avoid moral hazard and minimise fiscal burden.Foreclosures were suspended for several months, due to the pandemic but have resumed since August 2021. Safeguarding an effective foreclosure framework remains essential for further progress with NPL reduction and improving payment discipline.Reforms in the justice system to accelerate the courts’ proceedings in particular for NPL-related cases will help in the working out of NPLs. However, measures to improve the enforcement of contractual claims and courts’ judgment need to accelerate.   Financial sector 
 
  
 
tax wedge for Cyprus in 2020 was lower than the 
EU average at various income levels, i.e. for single 
people at the average wage (100%) as well as at 
50%,  67%,  and  167%  of  the  average  wage. 
Second  earners  at  a  wage  level  of  67%  of  the 
average  wage,  whose  spouses  earn  the  average 
wage,  also  have  a  lower  tax  wedge  compared  to 
the EU average, although they are not taxed more 
heavily than single people at the same wage level. 
The  low  level  of  taxes  meant  that  in  2020,  the 
tax-benefit 
as 
measured by the GINI coefficient by less than the 
EU  average. In other words, Cyprus’ tax system is 
less distributive and thus has a smaller impact on 
income inequality compared to the EU average. 

inequality 

reduced 

system 

Cyprus  is  committed  to  taking  steps  to  help 
tackle  aggressive  tax  planning  strategies.  In 
November 2020, Cyprus suppressed its citizenship 
by investment regime that could be used to evade 
taxes.  The  high  foreign  direct  investment  flows 
and the high level of dividend, interest and royalty 
payments  as  a  percentage  of  GDP  suggest  that 
Cyprus  is  being  used  by  companies  engaging  in 
aggressive  tax  planning.  In  2021,  Cyprus’  RRP 
provided  for  an  introduction  of  new  legislation  to 
make  outbound  payments  of  dividends,  interest 
and  royalties  to  low  tax  jurisdictions  subject  to 
withholding  taxes  or  non-deductibility  in  order  to 
prevent  double  non-taxation.  This  new  legislation 
will take effect from the end of 2024 at the latest.  

ANNEX 18: TAXATION 
ANNEX 18: TAXATION 

This  Annex  provides  an 
indicator-based 
overview  of  Cyprus’  tax  system.  It  includes 
information  on  the  tax  structure,  i.e.  the  types  of 
tax that Cyprus derives most revenue from, the tax 
burden  for  workers,  and  the  progressivity  and 
redistributive  effect  of  the  tax  system.  It  also 
tax  collection  and 
provides 
compliance  and  on  the  risks  of  aggressive  tax 
planning activity. 

information  on 

Cyprus’ tax revenues are low relative to GDP, 
and  the  tax  system  is  relatively  diversified. 
However,  its  comparatively  low  reliance  on 
labour  taxes  is  increasing.  Cyprus  has  low 
levels  of  tax  revenues  compared  to  GDP,  which 
gives  it  a  competitive  advantage  in  achieving 
sustainable  growth  and  income  convergence  with 
the  EU.  While  the  country’s  reliance  on  labour 
taxes  is  relatively  modest  compared  to  the  EU 
average,  it  appears  to  be  increasing.  Thus,  in  the 
last 10 years, total taxes have increased by almost 
3  percentage  points,  due  entirely  to  increases  in 
labour tax revenues (3.3 percentage points). At the 
same  time,  revenues  from  growth-friendly  taxes 
have  stagnated  or  decreased.  Recurrent  taxes  on 
property  were  around  the  EU  average  10  years 
ago, but are now among the lowest in the EU.  

Cyprus’  labour  tax  burden  is  relatively  low 
across  the  various  income  levels.  The  labour 

Table A18.1: Indicators on taxation 

(1) Forward-looking Effective Tax Rate (OECD). 
(*) EU-27 simple average as there is no aggregated EU-27 value 
Source: European Commission and OECD.  

59 

2010201820192020202120102018201920202021Total taxes (including compulsory actual social contributions) (% of GDP)31.733.334.434.637.940.139.940.1Labour taxes (as % of GDP)11.311.713.514.620.020.720.721.5Consumption taxes (as % of GDP)12.213.212.711.710.811.111.110.8Capital taxes (as % of GDP)8.28.48.28.27.18.28.17.9Total property taxes (as % of GDP)1.20.90.90.81.92.22.22.3Recurrent taxes on immovable property (as % of GDP)1.00.30.30.21.11.21.21.2Environmental taxes as % of GDP2.82.92.52.52.42.42.42.2Tax wedge at 50% of Average Wage (Single person) (*)17.318.118.118.133.932.432.031.531.9Tax wedge at 100% of Average Wage (Single person) (*)17.818.919.019.441.040.240.139.939.7Corporate Income Tax - Effective Average Tax rates (1) (*)10.810.810.819.819.519.3Difference in GINI coefficient before and after taxes and cash social transfers (pensions excluded from social transfers)5.18.26.36.38.47.97.48.3Outstanding tax arrears: Total year-end tax debt (including debt considered not collectable) / total revenue (in %) (*)45.545.031.931.8VAT Gap (% of VTTL)8.62.711.210.5Dividends, Interests and Royalties (paid and received) as a share of GDP (%)115.1194.210.710.5FDI flows through SPEs (Special Purpose Entities), % of total FDI flows (in and out)95.693.592.647.846.236.7Tax structureProgressivity & fairnessTax administration & complianceFinancial Activity RiskCyprusEU-27 
 
 
 
 
  
 
 
tax 

administration 

Cyprus could make improvements in the area 
digitalisation. 
of 
Outstanding tax arrears declined by 0.5 pp. to 45% 
of  total  net  revenue  in  2019,  but  remain  well 
above the EU average of 31.8%. The RRP provides 
tax 
for  measures 
administration.  The  VAT  gap  (an  indicator  of  the 
effectiveness of VAT enforcement and compliance) 
decreased  by  5.9  pps,  falling  to  2.7%  in  2019, 
which  is  significantly  below  the  EU-wide  gap  of 
10.5%.  

further  digitise 

the 

to 

Graph A18.1: Indicators on tax wedge 

(1) The second earner average tax wedge measures how much extra personal income tax (PIT) plus employee and employer social 
security contributions (SSCs) the family will have to pay as a result of the second earner entering employment, as a proportion of 
the second earner’s gross earnings plus the employer SSCs due on the second earner’s income. For a more detailed discussion see 
OECD (2016), “Taxing Wages 2016”, OECD Publishing, Paris. http://dx.doi.org/10.1787/tax_wages-2016-en  
(*) EU-27 simple average as there is no aggregated EU-27 value. 
Source: European Commission 

60 

18.118.119.426.318.1At 50% of Average Wage (Singleperson)At 67% of Average Wage (Singleperson)At 100% of Average Wage (Singleperson)At 167% of Average Wage (Singleperson)For second earner at 67% of AverageWage (Two earner couple, 1st earner100% of AW) (1)Tax wedge 2021 (%)CYEU-27 (*) 
  
ANNEX 19: KEY ECONOMIC AND FINANCIAL INDICATORS 
ANNEX 19: KEY ECONOMIC AND FINANCIAL INDICATORS 

Table A19.1: Key economic and financial indicators 

(1) NIIP excluding direct investment and portfolio equity shares 
(2) domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU foreign-
controlled branches. 
Source: Eurostat and ECB as of 2022-05-02, where available; European Commission for forecast figures (Spring forecast 2022) 

61 

2004-072008-122013-1820192020202120222023Real GDP (y-o-y)4.90.12.15.3-5.05.52.33.5Potential growth (y-o-y)3.72.00.73.32.82.42.62.7Private consumption (y-o-y)6.20.41.83.0-5.03.72.22.0Public consumption (y-o-y)2.72.4-0.912.714.88.03.11.8Gross fixed capital formation (y-o-y)10.0-8.14.82.90.0-6.35.45.8Exports of goods and services (y-o-y)3.51.46.97.5-5.114.01.74.6Imports of goods and services (y-o-y) 5.9-0.16.58.3-2.59.22.53.7Contribution to GDP growth:Domestic demand (y-o-y)6.5-1.11.84.3-0.82.72.92.8Inventories (y-o-y)-0.20.40.01.5-2.3-0.60.00.0Net exports (y-o-y)-1.40.50.2-0.5-1.93.4-0.60.7Contribution to potential GDP growth:Total Labour (hours) (y-o-y)1.30.90.11.10.70.60.90.9Capital accumulation (y-o-y)2.01.40.51.01.00.70.80.9Total factor productivity (y-o-y)0.4-0.40.11.11.11.11.01.0Output gap3.80.4-3.45.6-2.30.60.31.1Unemployment rate4.67.013.37.17.67.57.87.3GDP deflator (y-o-y)3.02.0-0.31.1-1.12.74.53.2Harmonised index of consumer prices (HICP, y-o-y)2.12.7-0.20.5-1.12.35.22.7Nominal compensation per employee (y-o-y)3.72.7-1.44.4-3.24.74.14.5Labour productivity (real, hours worked, y-o-y)2.10.10.91.41.61.6-0.81.6Unit labour costs (ULC, whole economy, y-o-y)2.32.8-2.02.91.40.42.72.8Real unit labour costs (y-o-y)-0.70.7-1.71.82.5-2.3-1.8-0.3Real effective exchange rate (ULC, y-o-y)0.50.6-2.1-0.6....Real effective exchange rate (HICP, y-o-y)-0.1-0.4-0.7-2.20.5-0.3..Net savings rate of households (net saving as percentage of net disposable income)1.5-0.5-6.8-0.31.8...Private credit flow, consolidated (% of GDP)27.918.83.71.7-2.5...Private sector debt, consolidated (% of GDP)244.4308.6325.8249.9259.7...of which household debt, consolidated (% of GDP)88.5117.1117.686.090.7...of which non-financial corporate debt, consolidated (% of GDP)155.9191.5208.2163.8169.0...Gross non-performing debt (% of total debt instruments and total loans and advances) (2).8.931.315.49.1...Corporations, net lending (+) or net borrowing (-) (% of GDP)-9.92.35.1-2.1-1.2-0.7-1.5-1.0Corporations, gross operating surplus (% of GDP)23.720.021.520.021.621.621.022.0Households, net lending (+) or net borrowing (-) (% of GDP)-7.6-5.5-5.1-4.7-3.1-4.8-7.0-6.0Deflated house price index (y-o-y)6.8-4.90.02.60.7...Residential investment (% of GDP)10.98.24.67.67.66.6..Current account balance (% of GDP), balance of payments-6.2-7.7-3.2-5.7-10.1-7.2-8.8-7.2Trade balance (% of GDP), balance of payments-2.2-6.41.30.2-2.51.1..Terms of trade of goods and services (y-o-y)-0.5-0.40.5-0.7-0.90.3-2.6-0.1Capital account balance (% of GDP)0.10.30.40.10.10.7..Net international investment position (% of GDP)-68.2-123.6-145.9-116.1-136.2-122.8..NENDI - NIIP excluding non-defaultable instruments (% of GDP) (1).-69.2-204.3-167.0-169.8-141.2..IIP liabilities excluding non-defaultable instruments (% of GDP) (1).622.7624.5514.5539.2517.4..Export performance vs. advanced countries (% change over 5 years)-13.8-7.52.721.029.1...Export market share, goods and services (y-o-y)-5.8-4.23.83.56.93.7-2.80.4Net FDI flows (% of GDP).9.119.60.4-17.9...General government balance (% of GDP)-0.9-4.1-2.81.3-5.8-1.7-0.3-0.2Structural budget balance (% of GDP)..1.9-0.3-4.6-2.1-0.4-0.7General government gross debt (% of GDP)60.460.5102.491.1115.0103.693.988.8forecast 
 
 
 
 
  
 
ANNEX 20: DEBT SUSTAINABILITY ANALYSIS 
ANNEX 20: DEBT SUSTAINABILITY ANALYSIS 

‘adverse interest-growth rate’ scenario assumes a 
in  the 
less  favourable  snowball  effect  than 
baseline.  In  the  ‘financial  stress’  scenario,  the 
country  temporarily  faces  higher  market  interest 
rates in 2022.  

Graph 2 shows the outcome of the stochastic 
projections.  These  projections  show  the  impact 
on  debt  of  2  000  different  shocks  affecting  the 
government’s 
economic 
growth,  interest  rates  and  exchange  rates.  The 
cone covers 80% of all the simulated debt paths, 
therefore excluding tail events. 

budgetary 

position, 

Table  2  shows  the  S1  and  S2  fiscal 
sustainability 
indicators  and  their  main 
drivers.  S1  measures  the  consolidation  effort 
needed to bring debt to 60% of GDP in 15 years. 
S2  measures  the  consolidation  effort  required  to 
stabilise  debt  over  an  infinite  horizon.  The  initial 
budgetary position measures the effort required to 
cover  future  interest  payments,  the  ageing  costs 
component  accounts  for  the  need  to  absorb  the 
projected 
public 
expenditure  such  as  pensions,  health  care  and 
long-term  care,  and 
requirement 
measures  the  additional  adjustment  needed  to 

in  ageing-related 

the  debt 

change 

This  annex  assesses  fiscal  sustainability 
risks  for  Cyprus  over  the  short, medium and 
long term. It follows the same multi-dimensional 
approach as the 2021 Fiscal Sustainability Report, 
updated  on  the  basis  of  the  Commission  2022 
spring forecast. 

Table  1  presents 
the  baseline  debt 
projections.  It  shows  the  projected  government 
debt  and  its  breakdown  into  the  primary  balance, 
the  snowball  effect  (the  combined  impact  of 
interest payments and nominal GDP growth on the 
debt  dynamics)  and  the  stock-flow  adjustment. 
These projections assume that no new fiscal policy 
measures  are  taken  after  2023,  and  include  the 
expected  positive  impact  of  investments  under 
Next Generation EU.  

Graph  1  shows  four  alternative  scenarios 
around  the  baseline, to  illustrate the  impact 
of changes in assumptions. The ‘historical SPB’ 
scenario  assumes  that  the  structural  primary 
balance (SPB) gradually returns to its past average 
level.  In  the  ‘lower  SPB’  scenario,  the  SPB  is 
permanently  weaker  than  in  the  baseline.  The 

Table A20.1: Debt sustainability analysis for Cyprus 

Source: European Commission 

62 

Table 1. Baseline debt projections20192020202120222023202420252026202720282029203020312032Gross debt ratio (% of GDP)91.1115.0103.693.988.884.780.677.275.172.569.867.565.563.8Change in debt-7.323.9-11.4-9.7-5.1-4.1-4.1-3.3-2.1-2.6-2.7-2.3-2.0-1.7of whichPrimary deficit-3.53.6-0.2-1.3-1.1-1.0-1.0-0.8-0.4-0.3-0.6-0.5-0.4-0.3Snowball effect-3.88.0-7.1-5.1-4.6-3.1-3.1-2.5-1.8-2.3-2.1-1.8-1.6-1.5Stock-flow adjustment0.012.3-4.1-3.30.70.00.00.00.00.00.00.00.00.0Gross financing needs (% of GDP)5.825.84.02.75.85.46.58.89.29.19.08.76.56.4S1S2Overall index (pps. of GDP)-0.41.0of whichInitial budgetary position-2.9-0.1Debt requirement2.2Ageing costs0.31.1of whichPensions0.41.0Health care0.10.3Long-term care0.10.2Others-0.2-0.4                                                                       Table 2. Breakdown of the S1 and S2 sustainability gap indicators4555657585951051151252019202120232025202720292031BaselineHistorical SPB scenarioLower SPB scenarioFinancial stress scenarioAdverse 'r-g' scenarioGraph 1. Deterministic debt projections (% of GDP)p10-p20p20-p40p40-p60p60-p80p80-p9045556575859510511512520192020202120222023202420252026Graph 2. Stochastic debt projections(% of GDP)MedianBaseline 
 
 
 
 
  
 
Table A20.2: Heat map of fiscal sustainability risks for Cyprus 

(1) Debt level in 2032: green: below 60% of GDP, yellow: between 60% and 90%, red: above 90%. (2) The debt peak year 
indicates whether debt is projected to increase overall over the next decade. Green: debt peaks early; yellow: peak towards the 
middle of the projection period; red: late peak. (3) Fiscal consolidation space measures the share of past fiscal positions in the 
country that were more stringent than the one assumed in the baseline. Green: high value, i.e. the assumed fiscal position is 
plausible by historical standards and leaves room for corrective measures if needed; yellow: intermediate; red: low. (4) Probability 
of the debt ratio exceeding in 2026 its 2021 level: green: low probability, yellow: intermediate, red: high (also reflecting the initial 
debt level). (5) The difference between the 90th and 10th percentiles measures uncertainty, based on the debt distribution under 
2000 different shocks. Green, yellow and red cells indicate increasing uncertainty. (6) The strong reduction of GFN in 2021 is 
based on the assumption that GFN would be partly covered by the use of cash deposits. 
Source: European Commission (for further details on the Commission’s multi-dimensional approach, see the 2021 Fiscal 
Sustainability Report) 

reach the 60% of GDP debt target. 

risk 

sustainability 

Finally,  the  heat  map  presents  the  overall 
fiscal 
classification 
(Table A20.2).  The  short-term  risk  category  is 
based  on  the  S0  indicator,  an  early-detection 
indicator of fiscal stress in the upcoming year. The 
medium-term  risk  category  is  derived  from  the 
debt  sustainability  analysis  (DSA)  and  the  S1 
indicator.  The  DSA  assesses  risks to  sustainability 
based  on  several  criteria: the  projected  debt level 
in 10 years’ time, the debt trajectory (‘peak year’), 
the plausibility of fiscal assumptions and room for 
tighter  positions  if  needed  (‘fiscal  consolidation 
space’),  the  probability  of  debt  not  stabilising  in 
the  next  5  years  and  the  size  of  uncertainty.  The 
long-term  risk  category  is  based  on  the  S2 
indicator and the DSA.  

and Ax2). On the other hand, the sustainability gap 
indicator  S1  signals  that  no  additional  fiscal 
consolidation  would  be  needed  to  reach  a  debt 
ratio  of  60%  of  GDP  in  15  years’  time  (Table 2). 
Overall,  the  medium  risk  reflects  notably  the 
currently  high  debt  and  the  vulnerability  to 
adverse shocks. 

Long-term  risks  to  fiscal  sustainability  are 
medium.  Over  the  long  term,  the  sustainability 
gap indicator S2 (at 1.0 pps. of GDP) points to low 
risks,  while 
to  significant 
the  DSA  points 
vulnerabilities,  leading  to  the  overall  medium  risk 
assessment.  The  S2  indicator  suggests  that,  to 
stabilise  debt  over  the  long  term,  it  will  be 
necessary 
to  address  budgetary  pressures 
stemming  from  population  ageing,  especially 
related to pension expenditure (Table 2).  

to 

risks 

short-term 

Overall, 
fiscal 
sustainability are low. The Commission’s early-
detection  indicator  (S0)  does  not  signal  major 
short-term  fiscal  risks  (Table A20.2).  Government 
financing needs are expected to remain low in the 
short term. 

Medium-term  risks  to  fiscal  sustainability 
are  medium.  On  the  one  hand,  the  debt 
sustainability  analysis  (DSA)  points  to  medium 
risks.  It  shows  that  government  debt  is  projected 
to  continue  falling  significantly,  from  93.9%  in 
2022  to  around  64%  of  GDP  in  2032  in  the 
baseline  (Table 1).  This  debt  path  is  sensitive  to 
possible  shocks  to  fiscal,  macroeconomic  and 
financial  variables,  as  illustrated  by  alternative 
scenarios  and  stochastic  simulations  (Graphs  Ax1 

63 

BaselineHistorical SPBLower SPBAdverse 'r-g'Financial stressOverallMEDIUMLOWMEDIUMMEDIUMMEDIUMMEDIUMDebt level (2032), % GDP6459686964Debt peak year20212021202120212021Fiscal consolidation space35%30%37%35%35%Probability of debt ratio exceeding in 2026 its 2021 level6%Difference between 90th and 10th percentiles (pps. GDP)41Short termMedium termLong termOverall                               (S0)Overall     (S1+DSA)S1Debt sustainability analysis (DSA)S2Overall     (S2+DSA)OverallLOWMEDIUMDeterministic scenariosStochastic projectionsLOWMEDIUMLOWMEDIUM