COMMISSION STAFF WORKING DOCUMENT 2023 Country Report – Cyprus Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on the 2023 National Reform Programme of Cyprus and delivering a Council opinion on the 2023 Stability Programme of Cyprus
Date: 2023-05-24
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, 24.5.2023  SWD(2023) 613 final  COMMISSION STAFF WORKING DOCUMENT 2023 Country Report – Cyprus Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on the 2023 National Reform Programme of Cyprus and delivering a Council opinion on the 2023 Stability Programme of Cyprus {COM(2023) 613 final}  
 
 
 
 
 
ECONOMIC AND EMPLOYMENT SNAPSHOT 

The Cypriot economy is proving 
resilient throughout the crises, but 
challenges remain. 

so 
spending 

In 2022, the Cypriot economy grew solidly 
and  with  continued  momentum.  Real  GDP 
increased by 5.6% in 2022 following growth of 
6.6%  in  2021,  outperforming  the  EU  average 
in  both  years.  Despite  the  links  with  the 
Russian  economy,  the  negative  impact  of  the 
Russian  aggression  of  Ukraine  on  Cyprus' 
contained. 
economy  has 
far  been 
Household 
resilient, 
proved 
increased  employment  and 
supported  by 
to 
higher  wages, 
targeted  measures 
compensate 
and 
accumulated  savings  from  the  pandemic. 
Tourism  performed  well,  reaching  about  90% 
of  pre-pandemic  revenue  and  80%  of  pre-
pandemic  arrivals.  This  reflects  a  successful 
strategy  to  diversify  tourist  markets.  Going 
forward,  economic  activity  is  expected  to 
remain  positive  though  growth  is  expected  to 
slow  to  2.3%  in  2023  and  to  2.7%  in  2024. 
This  reflects  the  anticipated  global  slowdown, 
high prices and tightening monetary policy.  

energy 

prices, 

high 

Ongoing  implementation  of  the  recovery  and 
resilience  plan  and  Cyprus'  new  long-term 
strategy  for  the  sustainable  and  inclusive 
growth (1)  are  key  to  further  diversifying  and 
redirecting the economy to higher value-added 
In  addition  to  support  from  the 
sectors. 
Recovery  and  Resilience  Facility  (see  Section 
2), Cyprus receives a significant volume of EU 
Cohesion  Funds  (EUR 1.5  billion  from  2021-
2027, representing 5.5% of GDP in 2022) (see 
Annex 4). 

for 

levels 

investment 

Investments  are  skewed  mainly 
to 
sectors that do not enhance productivity. 
At  20%  of  GDP  in  2022  (against  the  EU 
average  of  23.2%), 
in 
Cyprus are not only below the EU average, but 
they  are  also  concentrated 
in  housing, 
machinery  and  equipment  (mainly  transport 
equipment, 
and 
the 
deregistration  of  ships).  By  contrast,  the  level 
of 
investment, 
including  research  and  development,  is  still 
low.  The  same  applies  to  labour  productivity, 
which is only 85.8% of the EU average (Annex 
12).  The  flow  of  investment  in  green  and 
digital  sectors  is  still  limited  and  the  rise  in 
interest  rates  pose  further  challenges  to  the 
investment level.  

productivity-enhancing 

registration 

Non-tourism  service  sectors  are  gaining 
the 
momentum  and  help  diversify 
economy. The share of gross value added by 
services  excluding  sectors  related  to  tourism 
and public services increased from an average 
of  almost  60%  from  2016-2019  to  around 
65%  in  2022.  ICT  and  professional  services 
have  played  a  significant 
this 
development.  These  sectors,  together  with 
investment  funds,  are  mainly  export-oriented 
and  their  share  in  total  exports  of  services 
increased from 51% in 2016-2019 to 64% in 
2022.  As  a  result,  the  economy  has  become 
less dependent on tourism.  

role 

in 

(1)  A long-term strategy for sustainable growth for Cyprus, 
Cyprus Economic and Competitiveness Council, adopted 
by the Council of Ministers on July 6th, 2022.  

2 

 
 
 
                                                 
Box 1: 

Energy policy response in Cyprus 

Cyprus adopted several support measures to cushion the impact of energy price inflation 
on  households  and  businesses.  The  Commission's  2023  spring  forecast  projects  the 
gross  budgetary  costs  of  these  measures  to  amount  to  0.4  %  of  GDP  in  2023.  Most 
measures do not preserve the price signal to consume less energy and are not targeted 
to the most vulnerable households to energy price hikes. Most measures started in mid-
2022 and were phased out at the end of the year. 

One  of  the  most  prominent  measures  is  to  subsidise  the  increase  in  the  electricity 
tariffs, covering 50% to 100% of the increase for the period September 2022 to  June 
2023. For the implementation of this measure, the government is providing payments to 
the  Electricity  Authority  of  Cyprus,  a  fully  State-owned  entity.  The  government  also 
reduced excise duty on fuel products (petrol and diesel by 7 cents per liter and heating 
fuel  by  5.37  cents per  liter)  for  all  consumers,  and  reduced the  VAT  rate  on electricity 
consumption for households, from 19% to 9% (with a further reduction for vulnerable 
households  to  5%).  Moreover,  the  Electricity  Authority  of  Cyprus  subsidised  electricity 
bills  of  all  consumer  tariffs  (for  both  households  and  businesses)  by  10%  from 
November 2021 to February 2022. It also brought in several other measures, including 
targeted measures to support vulnerable households. Notably, the government provided 
a  one-off  grant  to  support  disadvantaged  population  groups  in  a  form  of  a  lump-sum 
payment  for  family  units  with  dependent  children  under  the  age  of  18  whose  annual 
gross  income  was  under  a  certain  threshold.  The  government  provided  support  to 
beneficiaries  investing  in  renewables  and  energy  efficiency  measures,  and  targeted 
support for companies in the agricultural sector to offset part of the increased costs due 
to  high  energy  prices.  The  energy  market  regulator  (CERA)  took  several  decisions, 
including a cap on the price of renewable energy of EUR 110/MWh (a historical average) 
and a discount of 65% on the network charges for four months. 

Cyprus  is  also  preparing  a  new  draft  bill  to  apply  the  EU  solidarity  contribution  in 
application  of  Council  Regulation  (EU)  2022/1854 (*),  which  was  published  for  public 
consultation in December 2022. 

Cyprus  does  not  use  gas  in  its  energy  mix  but  has  taken  action  to  improve  its  overall 
security of energy supply and to reduce its reliance on fossil fuels. Specifically, Cyprus 
has  taken  measures  to  accelerate  the  roll-out  of  renewable  energy  (photovoltaics, 
promoting 
in  agriculture,  accelerating/simplifying  permitting 
procedures for renewable energy installations), it promoted energy storage systems and 
launched  energy  efficiency  programmes.  Cyprus  has  run  information  campaigns  to 
promote  energy  saving, providing information  to  households  and  businesses on  simple 
energy saving measures that have zero or minimal cost. 

renewable  energy 

(*)  I.e.  applying  a  mandatory  temporary  solidarity  contribution  of  at  least  33%  to  the  extraordinary  and 
unexpected  profits  of  businesses  active  in  the  extraction  of  crude  petroleum,  natural  gas,  coal,  and  refinery 
sectors. This is calculated on taxable profits, as determined under national tax rules in the fiscal year starting in 
2022 and/or in 2023, which are above a 20% increase of the average yearly taxable profits in 2018-2021. 

3 

 
 
 
 
 
level  of  debt  and  contingent  liabilities.  
Following the challenging years of the COVID-
19  pandemic,  Cyprus’  budget  balance 
recovered quickly and turned positive in 2022, 
recording  a  general  government  surplus  of 
2.1%  of  GDP.  Debt  has  been  falling  steeply 
since it peaked at 113.5% of GDP in 2020 and 
is expected to fall below 75% of GDP in 2024. 
Healthcare  costs  and  ageing  are  expected  to 
be  a  drag  on  public  finances  in  future  years 
(see Annex 16). 

The  current  account  deficit  has  widened, 
mainly  as  a  result  of  demand  for 
imported  goods  remaining  resilient  and 
prices high. The sharp increase in the current 
the  persisting 
account  deficit  highlights 
economic  vulnerabilities, 
in  particular  the 
dependency  on  imports  of  oil,  raw  materials 
and  consumer  goods.  It  is  essential  to  reduce 
Cyprus' dependence on imports, in particular of 
oil,  to  ensure  that  external  debt  remains 
sustainable  in  the  future.  The  large  current 
account deficit is related to resilient household 
spending,  contributing  to  the  historically  low 
savings  rate  in  Cypriot  households.  Going 
forward,  the  deficit  is  expected  to  gradually 
fall,  but  not  yet to  reach  a  level  conducive  to 
further 
international 
the 
investment position.    

reducing 

net 

The banking sector has proved resilient to 
recent  shocks,  but  vulnerabilities  remain 
linked  to  non-performing  loans  and  the 
foreclosure  framework.  Banks  have  an 
adequate  level  of  capitalisation,  high  liquidity, 
and  they  have  seen  profitability  started  to 
rebound.  The  capital  ratio  was  21.2%  in  the 
third  quarter  of  2022,  above  the  EU  average 
of 18.6% (see Annex 18). However, this ratio is 
commensurate  with  the  credit  risk  on  the 
balance sheet of Cypriot banks. There is ample 
liquidity,  with  deposits  growing  last  year.  The 
banking  sector’s  profitability  improved  in  the 
course  of  2022,  from  making  a  very  small 
profit in 2021 and making losses in 2020. The 
suspension 
government 
of foreclosures throughout  2022  up  until  31 
January 2023, which had a negative impact on 
resolving  non-performing  loans.  Cyprus  still 
has  one  of  the  highest  ratios  of  non-
performing  loans  in  the  EU,  while  private 

extended 

the 

inflation 

to  wage 

in  2022, 

is 
After  peaking 
slowing. It reached  8.1% in 2022 as a result 
of high energy and food prices and supply-side 
disruptions.  It  is  expected  to  slow  to  3.8%  in 
2023 and to 2.5% in 2024 as pressures from 
energy  inflation  and  supply  disruptions  abate. 
However,  core  inflation  is  expected  to  remain 
relatively  high  due 
indexation. 
Nominal  wages  rose  by  6.5%  in  2022,  and 
they  are  expected  to  pick  up  in  2023.  Due  to 
high  inflation,  real  wages  contracted  by  1.8% 
in  2022  but  are  expected  to  partially  recover 
in 2023. High energy prices have put pressure 
on  vulnerable  households.  Already  in  2021, 
19.4%  of  the  total  population  was  unable  to 
keep their homes adequately warm, compared 
to  6.9%  in the  EU  (see  Annex  14),  one  of  the 
highest shares in the EU. The government has 
rolled  out  several  measures  to  tackle  high 
energy  prices, 
vulnerable 
including 
households. 

for 

of 

Despite  challenging  economic  conditions, 
Cyprus  is  in  the  process  of  a  gradual 
correction 
macroeconomic 
vulnerabilities,  which  relate  to  private, 
public  and  external  indebtedness.  These 
vulnerabilities  are  assessed  in  the  In-depth 
Review.  (2)  The  net  international  investment 
position  has  improved  but  remains  highly 
negative. Private and public debt decreased in 
2021  and  2022,  and  they  are  projected  to 
continue  on  a  downward  path.  Furthermore, 
the  stock  of  non-performing  loans  in  the 
banking  sector  continued  to  decline.  Going 
the  country’s  vulnerabilities  are 
forward, 
projected 
correction 
supported by economic growth (see Annex 22). 

continue 

their 

to 

Long-term economic 
vulnerabilities are mostly back on 
the path of recovery, except for a 
widened current account deficit. 

Public  finances  continue  to 
improve, 
although  risks  remain  due  to  still  high 

(2) European Commission (2023), In-Depth Review for 
Cyprus, Commission staff working document 
(COM(2023) 635 final). 

4 

 
                                                 
indebtedness  also  remains  high  and  poses 
risks to asset quality going forward. 

Cyprus performs well on labour 
market and social protection, but 
key skills gaps remain. 

(science, 

The  labour  market  continues  to  improve, 
although  challenges 
remain,  notably 
skills  mismatches.  At  77.9%  in  2022,  the 
employment  rate  (for  people  aged  20-64)  is 
well  above  the  EU  average,  with  employment 
up by 2.9% in 2022. This puts Cyprus on track 
to meet its national 2030 employment target. 
The  unemployment  rate  (for  people  aged  15-
74)  fell  to  6.8%  in  2022  and  is  set  to  fall  to 
6.4% in 2024. Labour shortages are becoming 
increasingly  prevalent,  especially  in  higher 
skilled labour. This is reflected in the low share 
of  STEM  graduates 
technology, 
engineering  and  mathematics),  and  of 
employed  people  in  high-skilled  jobs  (40%  of 
the  working-age  population)  (3).  This  limits 
Cyprus’  capacity  to  generate  new  knowledge 
and  innovation.  The  employment  rate  for  the 
high-skilled  was  86.9%  in  2022,  24 pp  above 
the rate for low-skilled workers. There are also 
widespread  labour  shortages  for  lower  and 
medium-skilled  jobs  in  certain  sectors  of  the 
economy,  such  as  the  hospitality  industry, 
trade, 
transport  and  manufacturing.  This 
includes sectors that require specific skills for 
the green transition. The influx of migrants has 
partially  helped,  but  challenges  remain  in 
enabling  migrants  to  acquire  relevant  skills, 
integrating migrants in the labour market and 
in  strengthening  the  capacity  of  the  Public 
Employment Service (see Annex 15).  

(3)  “Data on labour demand over the period 2022-2032 

show that overall employment needs in the professions 
of STEM make up around 40 % of the total needs in the 
higher-level occupations. Comparing these data with 
labour supply … significant labour shortages emerge in 
these occupations… In addition, demand forecasts for 
higher-level occupations requiring higher education 
make up around 40% of total needs, while labour 
supply with tertiary education will reach around 55% by 
2032. As a result, a comparatively high share of tertiary 
graduates in lower-skilled jobs will continue to be 
observed.” Supply and demand forecasts of labour force 
in the Cypriot economy 2022 – 2032, Human Resource 
Development Authority of Cyprus 2022. 

remain 

challenges. 

challenges 

Although Cyprus  performs  relatively  well 
in  implementing  the  principles  of  the 
European Pillar of Social Rights on social 
protection  and  health-related  policy 
regarding 
areas, 
employment  and  poverty  of  women  and 
disadvantaged  groups,  as  well  as  in  on 
education  and  training  (see  Annex  14).  In 
particular,  women,  young  people  and  third-
country  nationals  still  experience  significant 
labour  market 
The  gender 
employment  gap  (12.1  pp  in  2022)  is  above 
the  EU  average  (10.7  pp)  and  still  increasing. 
While  the  share  of  young  people  neither  in 
employment  nor  in  education  and  training 
decreased  in  2022,  it  remains  above  the  EU 
average. The youth unemployment rate (15-24 
years  old)  remains  high  and  the  employment 
gap  between  people  with  and  without 
disabilities widened. Furthermore, low levels of 
adult  learning  and  weak  digital  literacy  pose 
challenges  in  addressing  the  persistent  skills 
mismatch in the labour market. Digital literacy 
remains  low:  50%  of  the  population  had  at 
least  basic  digital  skills  in  2021,  which  is 
below the EU average and could both hamper 
the  digital  transition  and  the  achievement  of 
the  national  2030  skills  target.  The  early 
school-leaving rate in Cyprus decreased, but it 
remained  above  the  EU  average  in  2022.  In 
general, the risk of poverty or social exclusion 
is  low,  but  it  is  higher  for  disadvantaged 
groups,  such  as  people  with  disabilities  and 
people born outside the EU. The introduction of 
statutory  minimum  wage  as  of  1  January 
2023  is  expected  to  reduce  in-work  poverty 
rates  and  the  number  of  people  at  risk  of 
poverty  or  social  exclusion.  Real  gross 
disposable  household  income  per  person  has 
grown  at  one  of  the  slowest  rates  in  the  EU 
over  the  medium-term.  On  the  positive  side, 
income  inequality  and  self-reported  unmet 
needs  for  health  care  are  relatively  low  in 
Cyprus.  

Cyprus  still  has progress  to make  on the 
digital  transition.  It  ranks  among  the  lower 
half  of  countries  in  the  Commission’s  Digital 
Economy and Society Index for 2022 and lags 
behind  in  particular  on  the  basic  digital  skills 
of  the  population  and  on  the  share  of 
information 
technology 
communication 
specialists  in  the  workforce.  However,  Cyprus 

5 

 
                                                 
is  achieving  good  results  on  connectivity, 
thanks  to  investment  in  5G  (with  the  full 
coverage  already  achieved)  and  in  the  fixed 
network  (with  a  coverage  rate  above  the  EU 
average). The use of cloud computing services 
by  businesses  is  above  the  EU  average  in 
Cyprus, but companies do not make full use of 
other  advanced  digital  technologies  available. 
instance,  the  application  of  artificial 
For 
intelligence  and  big  data  is  below  the  EU 
average (see Annex 10).  

Green and sustainable growth is 
increasing only slowly. 

a 

growth 

remains 

Achieving  environmentally  sustainable 
economic 
key 
challenge.  In  2021,  Cyprus’  greenhouse  gas 
emissions  in  the  sectors  not  covered  by  the 
Emission  Trading  Scheme  far  exceeded  its 
annual emission allocations (see Annex 6). The 
existing  and  additional  measures  planned  by 
Cyprus  are  not  sufficient  to  reach  the  effort 
sharing  target  of  reducing  emissions  by  32% 
by  2030  compared  to  the  2005  level,  in  line 
with  the  EU’s  Fit  for  55  objectives.  Under 
current  policy,  Cyprus  would  only  reduce  its 
emissions  by  7%  and  17%  with  additional 
measures. 

Cyprus’  green  transition  has  been  slow 
and  its  potential  to  expand  renewable 
energy  is  so  far  untapped.  The  share  of 
solar  energy  reached  26%  in  heating,  but  in 
the  electricity  mix,  oil  still  accounts  for  85% 
and  renewable  energy  for  only  15%.  A  more 
ambitious and faster roll-out of renewables in 
energy  production  can  help  remedy  the  fossil 
fuel  dependence  of  the  Cypriot  economy. 
Investments  in  large-scale  renewable  energy 
production  are  not  happening  due  to  the 
limited capacity  of the network (due to a lack 
of 
in  grid  upgrades  and 
modernisation),  the  lack  of  storage  facilities, 
and the slow process of opening the electricity 
market to competition.  

investment 

improve  energy 
Efforts  continue  to 
efficiency  with  action  planned  for  the 
coming  years.  Several  support  schemes 

in  2021  to  help  citizens,  public 
started 
authorities  and  businesses  save  energy,  for 
instance by insulating buildings and producing 
energy from photovoltaics. The schemes have 
been  successful  in  attracting  a  sufficient 
number  of  applications  and  as  a  result, many 
energy saving investments are planned for the 
coming months. 

given 

Cyprus  has  a  long  way  to  go  to  achieve 
sustainable 
its 
transport, 
overreliance  on  conventional  private 
vehicles.  Reliance  on  private  transport  leads 
to  high  and  steadily  growing  emissions  from 
the  transport  sector  (21%  of  Cyprus’  overall 
greenhouse  gas  emissions).  It  is  coupled  with 
the  lowest  market  share  of  electric  vehicles 
and the lowest number of charging points per 
vehicle in the EU. 

is  expected 

Cyprus  has  a  medium,  and  increasing, 
level of vulnerability to climate disasters 
coupled with one of the highest levels of 
water  stress  in  the  EU  due  to  its  semi-
arid  climate  and  few  natural  surface 
to 
water  bodies.  Cyprus 
experience  higher 
less 
is 
rainfall  over 
projected to increase the risk of desertification 
and  climate-change-related  disasters  such  as 
sudden  droughts  and  wildfires (4).  Tackling 
over-abstraction  of  water  is  key  to  mitigating 
the  negative  impact  of  water  scarcity  on 
agriculture,  tourism,  industry,  biodiversity  and 
public health (see Annex 6). 

the  coming  years.  This 

temperatures  and 

on 

the 

indicators 

Overall,  Cyprus  performs  well  and  is 
improving  on  most  of 
the  UN’s 
Sustainable  Development  Goals  (SDGs). 
Notably, 
tracking 
environmental  sustainability,  Cyprus  performs 
above  the  EU  average  on  SDG  15  (life  on 
improving  on  SDGs  11 
land),  and 
(sustainable  cities  and  communities)  and  13 
(climate action). It needs to catch up with the 
EU  average  on  affordable  and  clean  energy 
(SDG  7)  and  on  responsible  consumption  and 
production  (SDG  12).  Moreover,  it  performs 
above  the  EU  average  on  SDGs  1  and  3  on 

is 

(4)  AVLI (2022) Climate Change in Cyprus. 

https://avli.org/resources/climate-change-in-cyprus-
report/ 

6 

 
                                                 
poverty  and  health  but  below  the  EU  average 
on several indicators assessing the fairness of 
society  and  the  economy  especially  with 
regard  to  gender  equality  (SDG  5)  and  on 
indicators  related  to  migration  and  social 
inclusion.  On  productivity  and  macroeconomic 
stability,  Cyprus  is  improving  on  all  the  SDGs 
but  it  is  still  below  the  EU  average,  in 
particular  in  the  field  of  industry,  innovation 
and  infrastructure  (SDG  9),  where  a  key 
indicator  such  as  R&D  expenditure  as  a 
proportion  of  GDP  is  one  of  the  lowest  in  the 
EU  (see  Annex  11).  Lastly,  Cyprus  is  pulling 
away  on  four  targets,  SDG  10  on  reduced 
inequalities, where it is  slightly below  the EU 
average,  SDGs  5  (gender  equality)  and  16 
(peace, justice and strong institutiotns), where 
it is well below EU average, and SDG 14 on life 
below water, where it still performs above the 
EU average (see Annex 1). 

7 

 
THE RECOVERY AND RESILIENCE PLAN IS UNDERWAY 

Cyprus’  recovery  and  resilience  plan  (RRP) 
aims to address the key challenges related to 
the twin (green and digital) transition, to public 
health  and  civil  protection,  and  to  boost  its 
economic,  social  and  institutional  resilience.  It 
consists  of  75  reforms  and  58  investments 
that  are  supported  by  EUR 916  million  in 
grants  and  EUR 200  million 
loans, 
representing  4.1%  of  2022  GDP  after  the 
financial 
update 
contribution (5) (see Annex 3 for more details). 

the  maximum 

of 

in 

The  implementation  of  Cyprus’  recovery 
and  resilience plan is underway, however 
with risk of some delays. Cyprus submitted 
one  payment  request  on  28  July  2022, 
corresponding  to  14  milestones  in  the  plan 
and  resulting  in  an  overall  disbursement  of 
EUR 85 million  on  2  December  2022.  The 
Cypriot 
is 
relatively large  and  complex  in  nature.  Strong 
governance  and  continuous  monitoring  of  the 
recovery  and  resilience  plan  are  essential  to 
minimise the risk of delays. The more detailed 
review of measures being implemented under 
the RRP in the following sub-chapter in no way 
implies 
formal  Commission  approval  or 
rejection of any payment requests.  

resilience  plan 

recovery  and 

the 

The  Cypriot  recovery  and  resilience  plan 
is  expected  to  be  revised  to  include 
REPowerEU  measures  and  take 
into 
decreased  maximum 
account 
financial  contribution.  Cyprus  has  not 
formally  submitted  its  amendment  proposals 
to  its  recovery  and  resilience  plan.  Once 
submitted,  they  will  need  to  be  assessed  by 
the  Commission  and  approved  by  the  Council 
before 
effective.  Amendment 
proposals  are  expected  to  relate  to  objective 
circumstances  that  have  caused  delays in  the 

becoming 

(5)  The maximum financial contribution for Cyprus was 

updated on 30 June 2022 to an amount of EUR 0.916 
billion in grants, in line with Article 11(2) of the RRF 
Regulation (Regulation (EU) 2021/241). 

8 

implementation of corresponding measures. In 
addition, given the reduced financial allocation, 
a  few  measures  in  the  Cypriot  recovery  and 
resilience plan are expected to be removed on 
the  condition  that  the  overall  ambition  of  the 
plan remains high, and the green tracking and 
digital tagging threshold are still be met.  

Supporting the green transition  

on 

role 

policies 

focusing 

recommendations 
investment 

The recovery and resilience plan played a 
the  green 
key 
in  supporting 
transition.  A  number  of 
implemented 
measures  have  contributed  to  addressing  the 
that 
country-specific 
recommend 
and 
investment-related 
energy 
efficiency  and  renewable  energy.  By  2021, 
increase 
Cyprus  adopted 
competition  in  the  electricity  market,  which 
were  followed  up  by 
regulatory 
decisions.  These  reforms  will  create  the 
conditions  in  the  energy  market  for  new 
investors  to  participate  in  the  generation, 
storage  and  supply  of  electricity  and  will 
promote the participation of electricity storage 
facilities  and  demand 
the 
electricity market.  

response 

related 

laws 

that 

two 

in 

The  recovery  and  resilience  plan,  also 
includes  measures  that  encourage  the 
transition of local communities to climate 
mitigation  and 
facilitate  adaptation 
action.  It  includes  calls  for  proposals  for 
investments  promoting  energy  efficiency  in 
buildings  for  small  and  medium  enterprises, 
communities  and  the  public  sector,  together 
with  calls  for  investment  in  the  use  of 
renewables  and  energy  savings  by  public 
authorities  and  NGOs.    These  measures  will 
final  energy 
reduce  both  primary  and 
consumption  and 
the  greenhouse  gas 
emissions generated by buildings. They should 
encourage  the  use  of  renewable  energy 

 
 
                                                 
sources  in  old  dwellings,  including  in  energy 
poor  households,  in  households  with  people 
with disabilities and in old infrastructure used 
by local authorities.  

Cyprus  also  published  a  comprehensive 
national action plan for the enhancement 
of  the  circular  economy.  The  plan  includes 
action  to  raise  awareness,  offer  consulting 
services  to  businesses  and  consumers,  and 
provide  incentives  for  investing  in  the  circular 
economy via a grant scheme.  

energy 
energy 

Further measures contributing to climate 
and 
neutrality, 
renewable 
are 
underway.  Cyprus  also  plans  improvements 
to  water  resource  management  and  to  boost 
the  capacity  of  the  authorities  in  Cyprus  to 
tackle fire hazards. 

efficiency 
penetration 

Supporting the digital transition 

policy 

address 

economic 

The recovery and resilience plan includes 
reforms  and  investments  contributing  to 
the  digital  transition.  These  measures  aim 
to 
country-specific 
the 
recommendations  to  sharpen  the  focus  of 
on 
investment-related 
research  and  innovation.  Cyprus  adopted  a 
national  e-skills  action  plan  that  aims  to 
develop  and  upgrade  digital  skills  across  the 
Cypriot society. It also purchased and installed 
specialised  equipment 
to  use  blockchain 
technologies  to  authenticate  at  least  three 
categories  of  traditional  Cypriot  products 
(dairy,  honey  and  spirits)  particularly  affected 
by  food  adulteration  and  fraud.  This  is  in  line 
with the Cyprus Industrial Strategy recognising 
the importance of the digital transformation of 
the  industry,  by  accelerating  the  rollout  of 
cutting-edge  technologies 
industry  and 
services.  

in 

Several  other  measures  set  out  in  the 
plan  also put  aspects of  digitalisation  at 
their  core  and  will  make  a  significant 
digital 
towards 
contribution 
transformation. 
important 
measures  aiming  to  digitalise  government 

Notably, 

the 

services  and  the  judicial  system  are  yet  to 
come, along with measures to boost the digital 
skills across all population groups. 

Boosting economic, social and 
institutional resilience 

and 

related 

resilience 

improving 

to 
social 

recovery  and 

plan  
The 
Cyprus' 
contributes 
institutional 
economic, 
resilience.  The  country  implemented  several 
measures over the period 2021-2022 to make 
justice  more  efficient  and  to  fight  corruption, 
country-specific 
addressing 
recommendations.  It  extended  the  Famagusta 
District  Court  building  by  five  additional  court 
rooms to try both criminal and civil cases. The 
government passed two laws on transparency 
in  decision-making  and  on  the  protection  of 
whistle-blowers.  The  entry  into  force  of  a  law 
establishing the Independent Authority against 
Corruption  should 
legal  and 
institutional framework for fighting corruption.  

improve  the 

The  government  also  approved  a  reform 
to  improve  the  functioning  of  the  public 
service. Cyprus reviewed the recruitment and 
promotion  framework  and  the  performance 
appraisal system in the public sector, adopting 
new  criteria  and  methods  based  on  objective 
assessment  and  merit.,  which  marks  some 
progress 
country-specific 
the 
recommendations  on  improving  efficiency  in 
the public sector.  

on 

in  Cyprus 

A reform that aims to reduce the level of 
is 
loans 
non-performing 
expected  to  boost  financial  stability.  To 
this end, two amending laws entered into force 
in July 2022, putting credit servicers under the 
Central Bank’s regulation and supervision, and 
giving  digital  access  to  credit  servicers  and 
credit  acquiring  companies 
the  Land 
Registry.  This  contributed  to  addressing  the 
related  country-specific  recommendations  for 
Cyprus.  

to 

9 

 
 
Other  measures  included  in  the  recovery 
and  resilience  plan  but  are  still  pending, 
will  further  contribute  to  enhancing  the 
economic resilience. These include a reform 
aiming  to  remedy  inefficiencies in  the  system 
of  issuing  and  transferring  title  deeds  and  a 
legislation  to  simplify  the  procedures  for 
strategic  investors  to  obtain  permits  and 
that  should 
licences 
stimulate 
In 
addition,  the  recovery  and  resilience  plan 
contains  numerous 
that  are 
expected to enhance business competitiveness 
and  promote 
the 
economy. 

the  diversification  of 

to  start  operations 

the  country. 

investments 

investment 

in 

Box 2: 

Key deliverables under the recovery and resilience plan in 2023 and 2024   

  Enhancement,  modernisation  and  upgrade  of  Cyprus  State  Hospitals,  including  the 

construction of new buildings, energy efficiency renovations and digitalisation  

  The  development  of  the  EuroAsia  interconnector  project  to  end  Cyprus'  energy 

isolation 

  The  development  of  renewable  energy,  by  streamlining  renewable  energy  project 
permitting and schemes to install small-scale renewable energy for businesses and citizens 

  Energy  efficiency  measures,  enabling  the  active  participation  of  customers  in  the 
electricity  market,  self-consumption  based  on  RES  and  energy  efficiency,  notably  installing 
and operating smart metering infrastructure  

  Sustainable  transport  measures,  notably  promoting  the  widespread  use  of  electric 

vehicles 

  Developing a funding scheme to boost growth and the competitiveness of start-ups and 

innovative companies 

  Designing  and  establishing  a  national  promotional  agency  to  improve  access  to 

finance for small and medium enterprises 

  Measures  improving  tax  collection  and  expanding  the  tax  base,  by  setting  up  an 
integrated tax administration system and adopting a law to tackle aggressive tax planning  

 

 

Improving  the  financial  stability  framework  via  full  implementation  and  operation  of 
the legal and institutional framework for insolvency 

Improving digitalisation by expanding very high-capacity networks in underserved areas  

  Schemes  to  support  the  digital  transformation  of  schools  with  the  aim  of  boosting 

digital skills 

10 

 
 
 
FURTHER PRIORITIES AHEAD 

improving 

faces  additional 

Cyprus 
challenges 
beyond those addressed by the RRP. These 
include  the  need  for  additional  action  on  the 
green  transition,  in  particular  to  tap  the 
island's  full  potential  for  renewable  energy 
to  enhance  energy  efficiency  and 
and 
sustainable  transport  solutions.  Cyprus  would 
its 
also  greatly  benefit  from 
business  environment,  notably  by 
taking 
measures  on  state-owned  entities,  to  further 
reduce  non-performing  debt  and  measures  to 
correct 
imbalances.  
Addressing  these  challenges  will  also  help 
Cyprus make further progress in achieving the 
UN  Sustainable  Development  Goals  (SDGs) 
where Cyprus currently shows room for further 
improvement,  namely  ‘Affordable  and  clean 
energy’  (SDG  7),  ‘Decent  work  and  economic 
‘Sustainable  cities  and 
growth’ 
communities 
‘Responsible 
consumption  and  production’  (SDG  12)  and 
‘Climate Action’ (SDG 13). 

macroeconomic 

(SDG  8), 

(SDG 

11)’, 

Action to achieve the green 
transition in Cyprus is progressing 
only slowly; further measures are 
merited 

Despite  some  action  taken  by  Cyprus, 
more would be needed to reach its green 
objectives  set  under  the  Fit  for  55 
package.  The  green  transition  has  been  slow 
and  needs  a  boost.  In  particular,  action  is 
needed  to  tap  the 
island's  potential  to 
generate renewable energy, to improve energy 
efficiency, to upgrade the workforce's skills for 
the  green  economy,  and  to  roll  out  more 
sustainable transport solutions.  

Cyprus  remains  highly  dependent  on 
is 
imported  oil  products,  though 
reducing  its  dependency.  This  makes  its 
economy very vulnerable to fluctuations in the 

it 

11 

fuel  oil 

oil  price  on  international  markets  and  creates 
a  dependency  on imports (see  Annexes  6  and 
12).  Cyprus  relies  on  imported  energy  in  the 
form  of  heavy 
for  electricity 
production, generating significant costs related 
to  the  greenhouse  gas  emission  allowances 
cost  passed  on  to  electricity  consumers, 
compounded by its isolated island location and 
a  highly  concentrated  electricity  market.  Also, 
reducing  its  reliance  on  fossil  fuels  is  an 
essential  part  of  ensuring  security  of  supply. 
As  a  result,  Cyprus  has  one  of  the  highest 
electricity  prices  in  the  EU.  Cyprus  is  taking 
steps  to  end  this  energy  isolation  by  building 
the  EuroAsia  interconnector  as  planned  in  the 
recovery  and  resilience  plan.  This  will  help 
achieve  strategic  autonomy  in  energy,  reduce 
electricity  prices  and  enable  Cyprus 
to 
incorporate more renewables in its energy mix. 
The  reforms  set  out  in  the  recovery  and 
resilience  plan  on  liberalising  the  electricity 
market  and  amending  the  energy  storage 
regulatory  framework  are  steps  in  the  right 
direction.  Implementing  these  reforms  swiftly 
will  support  the  green  transition  in  Cyprus 
though additional action is also needed. 

Increasing  the  production  of  sustainable 
energy  requires  continued  action  to  roll 
out  renewable  energy  and  reduce  the 
dependency  on  imported  fossil  fuels.  The 
island  has  untapped  potential  to  generate 
renewable  energy,  in  particular  solar  energy. 
Though  it  has  made  some  improvements 
recently,  there  is  scope  to  further  streamline 
the  permitting  framework  for 
renewable 
energy and identify go-to areas. Cyprus would 
need  to  raise  its  overall  level  of  ambition  to 
roll  out  renewable  energy,  in  line  with  the 
European  Green  Deal  and  RePowerEU 
proposals,  taking  into  account  its  untapped 
potential.  It  can  meet  the  new  proposed 
sectoral  targets  in  the  Renewable  Energy 
taking 
Directive 
measures to accelerate progress of renewable 
energy deployment in end-use sectors such as 

negotiation 

under 

by 

 
 
heating  and  cooling,  buildings,  transport  and 
industry.  Power  purchase  agreements  and 
contracts  for  difference  can  be  suitable 
economic instruments to accelerate the rollout 
of  renewables.  Rolling  out  more  renewable 
energy  is  intrinsically  linked  with  significant 
grid 
to 
improvements  and  modernisation 
ensure that this additional renewable capacity 
can  be  integrated  in  the  network  without 
creating  grid  stability  issues.  Lastly,  this  will 
require grid-scale energy storage facilities and 
the  coupling  of  small-scale  renewable  energy 
production  (e.g.  rooftop  solar  panels)  with 
small-scale 
such  as 
batteries. 

solutions 

storage 

is  another 
Reducing  energy  demand 
fundamental  aspect  of 
the  green 
transition  of  the  Cypriot  economy.  This 
can  be  achieved  by  swiftly 
rolling  out 
ambitious  energy  efficiency  measures  and 
sustainable 
that 
purpose, 
the  energy  efficiency  schemes 
introduced  by  the  government  in  2021  could 
be  extended to cover a larger segment of the 
population,  including  vulnerable  households. 
This  would  both  reduce  energy  consumption 
and the risk of energy poverty (see Annex 8).  

transport  solutions.  For 

transition.  The 

In  Cyprus,  as  the  green  transition  starts, 
labour  shortages  in  key  sectors  have 
increased  in  recent  years,  linked  to  the 
lack  of  relevant  skills  and  creating 
bottlenecks in the transition to a net-zero 
economy.  In  2022,  labour  shortages  were 
reported  in  Cyprus  in  11  occupations  that 
required  specific  skills  or  knowledge  for  the 
green 
rate 
increased  across  key  sectors,  such  as 
construction  (from  0.6%  in  2015  to  1.3%  in 
2021) and manufacturing (from 0.6% in 2015 
to  3.1%  in  2021),  with  only  manufacturing 
above  the  EU  average  (1.9%)  in  2021 (6). 
Upskilling  and 
the  green 
reskilling 
transition,  including  the  people  who  will  be 
most affected, and promoting inclusive labour 
markets  are  essential  ways  to  accelerate  the 
transition  to  net  zero  and  to  ensure  the 
transition is socially fair (see Annex 8). 

job  vacancy 

for 

(6)  Eurostat (JVS_A_RATE_R2) 

to 

reduce 

is  struggling 

its 
Cyprus 
greenhouse gas emissions in line with its 
EU  obligations  and  transport  is  a  prime 
contributor.  It  is  the  most  energy-intensive 
sector in the economy, accounting for 40% of 
final  energy  demand  and  the  fastest  growing 
sector 
in  all  the  effort  sharing  sectors 
(transport,  buildings  and  agriculture).  The 
rollout  of  electric  vehicles  lags  behind  the  EU 
average,  with  the  lowest  share  of  electric 
vehicles  sales  in  the  EU (7).  In  these  sectors, 
there  is  an  urgent  need  to  bring  in  additional 
measures and to accelerate implementation of 
existing  measures  to  achieve  the  Fit  for  55 
targets  (see  Annex  6).  The  swift  and  decisive 
implementation  of  the  green  taxation  reform 
planned in the recovery and resilience plan can 
help  reduce  emissions  from  those  sectors. 
Cyprus would also benefit from further energy 
efficiency measures to be identified as part of 
the  ongoing  process  to  revise  its  national 
energy and climate plan. 

a 

the 

island 

location 

sustainable 

in 
Cyprus 

water 
Expediting 
management  system  would  benefit  both 
the environment and the economy. Due to 
eastern 
its 
experiences 
Mediterranean, 
comparatively 
low  precipitation  and  high 
temperatures,  which  contribute  to  the  highest 
water  stress  levels  in  the  EU.  Water  scarcity 
and over-abstraction has a negative impact on 
important  economic  sectors  such  as  tourism 
and agriculture. Agriculture is the most water-
consuming industry in Cyprus, with the effects 
to 
of 
additional degradation and desertification with 
Creating 
resulting 
crop 
sustainable 
and 
implementing  the  measures  in  the  recovery 
and  resilience  plan  efficiently  would  help 
reduce the high water stress and the negative 
impact  on  water-dependent  sectors.  It  would 
also help protect biodiversity and public health, 
and  limit  the  need  for  expensive  desalination 
of  water  and  water  imports  in  the  future. 
Between  1980  and  2020,  only  around  2% (8) 

change  subjecting  soils 

water  management 

climate 

yields. 

lower 

(7)  Report From The Commission to the European 
Parliament and the Council, Progress on 
competitiveness of clean energy technologies, 
COM(2022) 643 final. 

(8)  Disaster Risk Financing: Limiting the Fiscal Cost of 

Climate-Related Disasters (Radu, 2022) 

12 

 
                                                 
                                                 
of  disaster  losses  were  insured  in  Cyprus. 
Cyprus appears to be particularly vulnerable to 
wildfires.  The  current  protection  gap (9)  for 
wildfires suggests that the insurance coverage 
remains  low  compared  to  projected  risk,  and 
this could result in losses to be covered by the 
public sector, thereby potentially posing a risk 
to public finances. 

It  is  still  a  long  way  towards  a  real 
circular economy in Cyprus; more could be 
done.  Cypriots  generate  more  waste  per 
capita  than  the  EU  average  and  the  recycling 
rate  was  14.9%  in  2021,  far  below  the  EU 
average  of  48.5%  (see  Annex  9).  It  thereby 
missed the EU target of 50% by 2020 clearly 
and,  despite  the  envisaged  implementation  of 
measures towards separate collection, has yet 
to  achieve  the  2025  target.  Landfilling  much 
of  municipal  waste  remains  a  concern  (62% 
against  the  EU  average  of  23%).  For  the 
period  2014-2020,  Cyprus  covered  around 
47% 
environmental 
estimated 
investment  needs.  More  could  be  done  with 
additional  funds  from  the  Recovery  and 
Resilience  Facility  and  the  European  Regional 
Development  Fund  to  tackle  the  issues  of 
the 
sustainable  water  management  and 
circular economy. 

its 

of 

Improving the business 
environment, with measures 
including state-owned entities 

Cyprus  continues  to  perform  poorly  on  a 
number  of  aspects  of  the  business 
undermine 
environment, 
productivity. 
and 
competitive business environment is crucial to 

A  well-functioning 

which 

(9)  The climate protection gap refers to the share of non-
insured economic losses caused by climate-related 
disasters. This indicator is based on the modelling of the 
current risk from floods, wildfires, and windstorms as 
well as earthquakes, and the estimation of the current 
insurance penetration. The indicator does not provide 
information on the split private/public cost of climate 
related disasters. A score of 0 means no protection gap, 
while a score of 4 corresponds to a very high gap. 
EIOPA considers that a score below 3 is not a relevant 
protection gap but that countries with a score of 2.5 
need to be monitored (EIOPA, 2022). 

13 

in 

The 

level 

indicators (10). 

economic  efficiency  and  growth.  Cyprus  lags 
behind 
several  aspects,  with  poor 
performance (around the 20th percentile level) 
or  below  median  performance  in  the  EU  on 
firm  entry,  access  to  markets  and  trade, 
access  to  finance,  regulatory  burden  and 
related 
of 
restrictiveness in the regulation of professions 
is greatly above the EU average for a number 
of  key  professions (11),  and  firms’  financing  is 
hampered  by  frequent  issues  of  payment 
delays,  with  negative  effects  especially  on 
small and medium enterprises (see also Annex 
12). In addition, the frequency of direct awards 
and price-only award criteria signal insufficient 
level  of  competition,  resulting  potentially  in 
public 
low 
procurement sector.  

value-for-money 

the 

in 

One  of  the  areas  that  undermines  the 
business  environment  in  Cyprus  is  the 
governance  of  state-owned  entities  (see 
also  Annex  13  and  the  2022  Cyprus  Country 
Report).  It  shows  there  are  major  gaps  with 
respect  to  international  standards (12).  While 

(10)  See the following sources: for firm entry, the OECD 

Product Market Regulation indicators. On administrative 
requirements for limited liability companies and 
personally-owned enterprises, complexity of regulatory 
procedures and licences and permits. For access to 
markets and trade: the proportion of firms that directly 
exported goods and services to another country per EIB 
Investment Survey, question 43, percentage gap 
between the number of Single Market directives 
adopted by the EU and those transposed in Cyprus 
according to Single Market Scoreboard. On the extent of 
market dominance, see a survey in WEF Global 
Competitiveness Report. For access to finance, see the 
cost of credit, ECB, on factors impacting long-term 
investment decisions in the EIB Investment Survey. On 
the regulatory burden and factors impacting long-term 
investment decisions, see business regulations in the 
EIB Investment Survey and the share of high-growth 
firms, Eurostat. 

(11)  They include lawyers, patent/trademark agents, real 

estate agents, civil engineers and tourist guides, though 
improvements have recently been made for architects. 

(12)  International standards on the governance of state-

owned entities typically focus on enterprises defined as 
any corporate entity recognised by national law as an 
enterprise and in which the state exercises ownership, if 
their purpose and activities, or parts of their activities, 
are of a largely economic nature. However, some 
measures such as board member appointments could 
be extended to cover all semi-public organisations, 
including those operating in the regulatory field in 
Cyprus.  

 
                                                 
 
                                                 
action  under  the  recovery  and  resilience  plan 
tackles  some  business  environment  aspects 
such  as  access  to  finance  and  research  and 
innovation, governance of state-owned entities 
is  not.  State-owned  entities  in  the  energy 
sector  in  particular  have  a  large  share  of  the 
market, which impedes competition and trade. 
This  undermines  the  business  environment  by 
lowering  the  quality  of  services  used  by 
businesses  and/or  their  pricing.  For  instance, 
electricity (see below) was indicated as one of 
the  main  business  environment  concerns  in 
Cyprus. (13) 

Pending  a  more  fundamental  reform,  the 
state-owned  entities 
governance  of 
board 
better 
from 
benefit 
would 
appointment 
board 
processes, 
performance  evaluation  and  central 
monitoring.  The  Cypriot  authorities  sought 
technical  assistance  from  the  IMF  for  the 
proposals for the reform of state-owned entity 
governance, which may take up the entire year 
of 2023. While awaiting the results and before 
proposals  are  formulated,  some  measures 
could  be  beneficial  in  the  short  term.  For 
instance, establishing a centralised monitoring 
unit in the Ministry of Finance would help steer 
the  financial,  operational  and  non-financial 
performance  of  state-owned  entities  against 
key  performance  indicators.  It  could  also  be 
tasked  with  drawing  up  an  annual  aggregate 
report on state-owned entity performance that 
could improve transparency and accountability 
to  the  general  public.  Board  performance 
evaluation  could  be  shifted  to  the  centralised 
body  in  the  Ministry  of  Finance  from  the 
current  practice  of  mainly  self-assessment. 
The  appointment  of  state-owned  entity  board 
members  could  be  revised  to  achieve  a  more 
open and merit-based selection of candidates. 

Weak governance of state-owned entities 
is  curbing  the  green  transition.  Improving 
governance  would  help  ensure  key  public 
investment  projects  are  completed  in  time, 
notably in the electricity sector. The incumbent 
electricity operator (the Electricity Authority of 
Cyprus (EAC), with a market share of 83.2% in 

(13)  See 

https://www.enterprisesurveys.org/en/data/exploreecono
mies/2019/cyprus. 

by 

using 

electricity generation and 96.4% in supply) (14), 
is  a  state-owned  organisation  that  could  play 
a  significant  role  in  achieving  the  green 
transition.  To  do  so  it  could  invest  in  the 
modernisation  and  improvement  of  the  grid 
and  grid-scale  energy  storage 
facilities; 
increase  the  share  of  renewable  energy 
production 
obtained 
operating permits (15) and speed up the rollout 
of  smart  metering  infrastructure.  Accelerating 
the transition to less polluting fuels and more 
renewables  would  help 
the  high 
electricity  cost  (see  Annex  7).  Also,  one  of 
EAC’s power plants (the Dhekelia steam plant) 
continues  operating  even  though  it  is  already 
in breach of the Industrial Emissions Directive. 
Currently  there  is  no  replacement  capacity  in 
operation to replace it.   

already 

tackle 

Safeguarding financial stability by 
reducing the risks stemming from 
non-performing assets 

Cyprus  continues  to  have  one  of  the 
highest ratios of non-performing loans in 
the  EU,  despite  a  significant  reduction  in 
recent  years.  It  achieved  a  first  significant 
reduction  in  2018,  followed  by  other  sizable 
declines in 2020 and 2021. So far, the banking 
sector  has  proven  to  be  resilient  to  recent 
shocks, the COVID-19 pandemic and the war in 
Ukraine,  while  managing  to  further  offload 
loans.  Write-offs,  debt-to-
non-performing 
asset  swaps,  curing 
(moving  non-
performing  loans  into  performing  categories) 
and  cash  repayments  all  played  an  important 

loans 

(14)  The EAC is also the owner of the Cyprus Transmission 
System Operator (TSOC), recently unbundled from it. 
Hence, the EAC executes projects included in TSOC’s 
ten-year network development plan as approved by the 
regulator, CERA. As instructed by CERA, the plan is 
subject to update, due by end 2024, to ultimately 
accommodate a very large share of renewables, up to 
100%. 

(15)  The CERA draft regulatory decision (Regulatory 

Treatment of the development of RES-E by EAC) 
prevents the EAC from obtaining further licences to 
operate renewables. However, it still has the capacity to 
build/install them under current licences/permits, which 
would increase its current electricity generation capacity 
in renewables more than 17 times. 

14 

 
                                                 
                                                 
the  key  driver  behind 

role in achieving the reduction in recent years. 
Nevertheless, 
the 
reduction  were  the  asset  sales  by  systemic 
banks  to  credit-acquiring  companies  and  the 
transfer  of  distressed  assets  of  the  Cyprus 
Cooperative  Bank  to  the  state-owned  asset 
management company KEDIPES in 2018. As of 
September  2022,  the  ratio  of  non-performing 
loans  reached  5.2%,  well below  the  38.6%  at 
the  end  of  2014.  Nevertheless,  the  ratio  of 
non-performing  loans  in  Cyprus  remains  high 
compared  to  other  EU  countries  and  the  EU 
average of 1.8%. 

in 

loans 

September 

the  economy  due 

The  foreclosure  framework  is  key  to 
reduce the stock of non-performing loans 
in  the  economy,  with  credit-acquiring 
companies  now  holding  the  majority  of 
bad  loans.  Non-performing  loans  transferred 
to credit-acquiring companies remain a burden 
on 
to  high  private 
indebtedness and fewer business opportunities 
for  banks  in  the  domestic  market.  At  the  end 
credit-acquiring 
2022, 
of 
companies held a portfolio of about 87% of all 
non-performing 
the  economy, 
whereas  banks  had  about  13%.  Therefore, 
to 
credit-acquiring  companies  are  critical 
reduce  the  high  shares  of  non-performing 
loans  among  households  and  non-financial 
corporations.  Foreclosure  proceedings  have 
been  suspended  several  times  since  March 
2020, continuing throughout 2022. The recent 
suspensions  were  more  limited  in  scope,  but 
the  frequency  and  length  of  suspensions  of 
foreclosures  have  restricted  banks’  ability  to 
organically deleverage their portfolios of non-
performing loans and reduced the capacity of 
loan  servicers  and  credit-acquiring  companies 
to resolve non-performing loans. KEDIPES, the 
state-owned  asset  company  (and  also  the 
biggest  credit-acquiring  company)  had  also 
been  adversely  impacted,  facing  significant 
in  the  planned  resolution  of  the 
delays 
residential  segment.  The 
last  foreclosure 
suspension expired on 31 January 2023, which 
was  welcome.  An  operational  and  effective 
foreclosure  framework  is  key  to  encourage 
borrowers  to  restructure  their  loans,  address 
strategic  defaulters,  further  reduce  the  stock 
of  non-performing  loans  in  the  economy  and 
improve payment discipline in Cyprus.  

Remaining  inefficiencies  in  the  justice 
system  weaken  the  enforcement  of 
claims,  which  are  also  key  to  improving 
payment  discipline.  The  adoption  of  the 
is 
amended  Civil  Procedure  Law,  which 
expected  to  facilitate  the  execution  of  court 
orders  for  the  seizure  of  movable  property, 
would  improve  the  legal  framework  for  the 
and 
court 
enforcement 
contractual claims. The adoption of this law by 
Parliament  has  been  pending  since  March 
2020.  To  improve  payment  discipline,  it  is 
essential  to  shorten  court  proceedings  of 
cases  relating  to  financial  disputes.  Progress 
at the Department of Insolvency also remains 
slow. 

decisions 

of 

15 

 
 
  ensuring a well-functioning and competitive 
in  particular  by 
business  environment, 
improving  the  governance  of  state-owned 
entities,  including  in  the  energy  sector,  in 
line  with  international  standards,  which 
the  green 
would  also  help  achieve 
transition; 

  making  significant  improvements  to  and 
modernising  the  grid  (including  grid-scale 
energy storage facilities) to tap the island's 
full potential to generate renewable energy 
and reduce its reliance on fossil fuels; 

  accelerating 

the 

roll-out  of 

energy 
efficiency  measures  and  the  development 
of  sustainable  transport  solutions,  to  help 
reduce  Cyprus’  greenhouse  gas  emissions 
and meet its EU obligations; 

  swiftly  setting  up  a  sustainable  water 
management system to reduce pressure on 
water-dependent  sectors  and  on 
the 
environment; 

  further promoting the skills needed for the 

green transition; 

  maintaining  an  operational  and  effective 
foreclosure  framework  in  order  to  reduce 
the  stock  of  non-performing  loans  in  the 
economy  and 
improve  payment 
discipline in Cyprus; 

to 

  strengthening 

the 

legal  framework 

to 
enforce  court  decisions  and  contractual 
claims and expediting court proceedings for 
cases relating to financial disputes.    

KEY FINDINGS 

Cyprus’  recovery  and  resilience  plan 
includes measures to address a series of 
structural challenges through: 

  improving access to quality healthcare and 
achieving the digital health transition;  

  making  ongoing 

investments 

in  energy 
efficiency  and  digitalising  several  central 
government  services,  as  well  as  adopting 
laws 
increase 
regulations 
competition in the electricity market; 

and 

to 

  contributing 

to 

to 

improvements 

the 
operating  environment  for  non-performing 
loan management, including by introducing 
the  operating 
improve 
provisions 
environment  of  credit  acquiring  companies 
and credit servicers (in July 2022); 

that 

  improving  the  business  environment  by 
fostering  access  to  finance,  research  and 
innovation; 

  making  justice  more  efficient  and  fighting 
on 
corruption 
transparency 
(in 
February 2022) and laws on the protection 
of whistle-blowers (in January 2022); 

laws 
decision-making 

adopting 

by 

in 

  increasing  the  quality  and  labour-market 
relevance  of  education  and  training  at  all 
levels, including digital and green skills, and 
fostering youth employment. 

Cyprus  should  accelerate  the  implementation 
of  the  recovery  and  resilience  plan,  also  by 
ensuring  an  adequate  administrative  capacity, 
and  swiftly  finalise  the  addendum  and  the 
REPowerEU  chapter  with  a  view  to  rapidly 
starting its implementation.  

to 

the 

In  addition 
reforms  and 
investments  set  out  in  the  recovery  and 
resilience  plan,  Cyprus  would  benefit 
from: 

16 

 
 
ANNEXES 

 
 
 
 
LIST OF ANNEXES 

Cross-cutting indicators 

A1.  Sustainable Development Goals 

A2.  Progress in the implementation of country-specific recommendations 

A3.  Recovery and resilience plan - overview 

A4.  Other EU instruments for recovery and growth 

A5.  Resilience 

Environmental sustainability 

A6.  European Green Deal 

A7.  Energy security and affordability 

A8.  Fair transition to climate neutrality 

Productivity 

A9.  Resource productivity, efficiency and circularity 

A10.  Digital transformation 

A11.  Innovation 

A12.  Industry and single market 

A13.  Public administration 

Fairness 

A14.  Employment, skills and social policy challenges in light of the European Pillar of Social Rights 

A15.  Education and training 

A16.  Health and health systems 

A17.  Economic and social performance at regional level 

Macroeconomic stability 

A18.  Key financial sector developments 

A19.  Taxation 

A20.  Table with economic and financial indicators 

A21.  Debt sustainability analysis 

A22.  Macroeconomic imbalance procedure assessment matrix 

19 

22 

22 

24 

28 

30 

33 

34 

34 

38 

42 

45 

45 

47 

49 

51 

55 

57 

57 

59 

61 

63 

65 

65 

67 

69 

70 

73 

 
 
 
LIST OF TABLES 

A2.1. 
Summary table on 2019-2022 CSRs 
A3.1. 
Key elements of the Cypriot RRP('s) 
A5.1. 
Resilience indices summarising the situation across RDB dimensions and areas 
A6.1. 
Indicators tracking progress on the European Green Deal from a macroeconomic perspective 
A7.1. 
Key Energy Indicators 
A8.1. 
Key indicators for a fair transition in Cyprus 
A9.1. 
Overall and systemic indicators on circularity 
A10.1.  Key Digital Decade targets monitored by DESI indicators 
A11.1.  Key innovation indicators 
A12.1. 
Industry and the single market 
A13.1.  Public administration indicators 
A14.1.  Social Scoreboard for Cyprus 
A14.2.  Situation of Cyprus on 2030 employment, skills and poverty reduction targets 
A15.1.  EU-level targets and other contextual indicators under the European Education Area strategic framework 
A16.1.  Key health indicators 
A17.1.  Main socio-economic indicators by degree of urbanisation, Cyprus, 2021 
A18.1.  Financial soundness indicators 
A19.1.  Taxation indicators 
A20.1.  Key economic and financial indicators 
A21.1.  Debt sustainability analysis – Cyprus 
A21.2.  Heat map of fiscal sustainability risks – Cyprus 
A22.1.  Assessment of macroeconomic imbalances matrix 

LIST OF GRAPHS 

A1.1. 
Progress towards the SDGs in Cyprus in the last 5 years 
A2.1. 
Cyprus’ progress on the 2019-2022 CSRs (2023 European Semester) 
A3.1. 
Fulfilment status of milestones and targets 
A3.2. 
Total grants disbursed under the RRF 
A3.3. 
Total loans disbursed under the RRF 
A3.4. 
Disbursements per pillar 
A4.1. 
Cohesion policy funds 2021-2027 in Cyprus: budget by fund 
A4.2. 
Synergies between cohesion policy funds and the RRF with its six pillars in Cyprus 
A4.3. 
Cohesion policy funds contribution to the SDGs in 2014-2020 and 2021-2027 in Cyprus 
A6.1. 
Thematic – greenhouse gas emissions from the effort sharing sectors in Mt CO2eq, 2005-2021 
A6.2. 
Energy mix (top) and Electricity mix (bottom), 2021 
A6.3. 
Thematic – environmental investment needs and current investment, p.a. 2014-2020 
A8.1. 
Fair transition challenges in Cyprus 
A8.2. 
Distributional impacts of energy prices due to rising energy expenditure (2021-2023) 
A9.1. 
Trend in material use 
A9.2. 
Treatment of municipal waste 
A11.1.  R&D expenditure as % of GDP, 2021 
A12.1.  Labour productivity [% of EU-27] 
A12.2.  Labour productivity by sector [2015=100] 
A12.3.  Business environment and productivity drivers 
A13.1.  Cyprus. a) Regulatory impact assessment, b) Stakeholder engagement and c) Ex post evaluation of legislation 
A15.1.  Early leavers from education and training (18-24) by sex and country of birth in 2022 
A16.1.  Life expectancy at birth, years 
A16.2.  Projected increase in public expenditure on healthcare over 2019-2070 
A17.1.  Labour productivity, EU-27, Cyprus, 2000-2020 
A18.1.  Evolution of credit activity 
A19.1.  Tax wedge for single and second earners as a % of total labour costs, 2022 
A19.2.  Share of net inward and outward foreign direct investment (FDI) stock held through special purpose entities (SPEs) as a % 

of total inward and outward stock, 2021 

25 
28 
33 
34 
38 
42 
46 
47 
49 
51 
55 
57 
58 
60 
61 
63 
66 
67 
69 
70 
72 
73 

23 
24 
28 
29 
29 
29 
30 
30 
31 
34 
35 
36 
42 
44 
45 
45 
49 
51 
51 
53 
55 
59 
61 
62 
63 
66 
68 

68 

20 

 
 
 
21 

 
 
CROSS-CUTTING INDICATORS 
ANNEX 1: SUSTAINABLE DEVELOPMENT GOALS 

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  and  the 
environmental crisis, 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  the  SDGs  in  an 
EU context. 

While Cyprus is improving on most SDG indicators 
is 
related  to  environmental  sustainability, 
moving  away  from  SDG  14  (Life  below  water).  It 
needs  to  catch  up  with  the  EU  average  on  SDG 7 
energy),  SDG  12 
(Affordable 

clean 

and 

it 

final 

energy 

in  gross 

(Responsible  consumption  and  production)  and 
SDG  13 
(climate  action).  Per  capita  energy 
consumption  in  Cyprus  is  below  the  EU  average, 
and  the  country  has  made  progress  on  energy 
consumption  indicators,  including  the  share  of 
renewable 
energy 
consumption (SDG 7 and 13), from 9.8% in 2016 
to 18.4% in 2021. However, it still remains below 
the  EU  average  of  21.8%.  On  affordable  energy 
(SDG  7),  the percentage  of  the  Cypriot population 
unable to keep their homes adequately warm was 
much  higher  than  the  EU  average  in  2021,  at 
the  high 
19.4% 
concentration 
groundwater 
nitrate 
(41mg/litre vs EU 22.6mg/litre in 2020), combined 
with  a  low  recycling  rate  of  municipal  waste 
(14.9% vs EU 48.5% in 2021) and a high material 
footprint  (23.2  tonnes  per  inhabitant  vs  EU  13.7 
tonnes),  pose  considerable  challenges  for  the 
environment.  The  average  CO2  emissions  per  km 
from new passenger cars (SDG 13)  was at 125 g 
CO2  per  km  well  above  the  EU  average  108.2. 

(EU  6.9%).  Furthermore, 

of 

in 

Graph A1.1: Progress towards the SDGs in Cyprus in the last 5 years 

For detailed datasets on the various SDGs, see the annual Eurostat report ‘Sustainable development in the European Union’; for 
details on extensive country-specific data on the short-term progress of Member States: Key findings – Sustainable development 
indicators – Eurostat (europa.eu). The status of each SDG in a country is the aggregation of all indicators for the specific goal 
compared to the EU average. A high status does not mean that a country is close to reaching a specific SDG, but signals that it is 
doing better than the EU on average. The progress score is an absolute measure based on the indicator trends over the past 5 
years. The calculation does not take into account any target values as most EU policy targets are only valid for the aggregate EU 
level. Depending on data availability for each goal, not all 17 SDGs are shown for each country. 
Source: Eurostat,  latest update of early April 2023, except for the EU Labour Force Survey (LFS) indicators released on 27 April 
2023. Data mainly refer to 2016-2021 or 2017-2022. 

22 

 
 
 
 
 
 
still  needs  to  catch  up  on  investments  as  their 
share  of  GDP,  at  19.5%,  was  below  the  EU 
average  of  22.4%  in  2021.  On  SDG  9  (Industry, 
innovation  and  infrastructure),  the  country  needs 
to  catch  up  on  R&D  expenditure,  which  remains 
low at 0.89% of GDP in 2021 – one of the lowest 
in the EU (2.27% average). Furthermore, the share 
of  households  with  a  high-speed 
internet 
connection  in  Cyprus  was  41.4%  in  2021,  well 
below  the  EU  average  of  70.2%.  The  RRP  is 
targeting  bottlenecks,  especially  in  digitalisation 
and  the  diversification  of  the  economy,  and 
investing  in  R&D  to  facilitate  further  progress  on 
these SDGs.  

is 

improving  on  several 

Cyprus 
  SDG 
indicators related to macroeconomic stability 
(SDGs  8,  16,  17),  but  still  needs  to  catch  up 
compared  to  the  EU.  Real  GDP  per  capita  is 
below the EU average (EUR 25 480 vs EU average 
EUR  27 800  in  2021).  Cyprus  is  improving  on 
many indicators related to  SDG 16 (Peace, justice 
and  strong  institutions),  with  a  lower  share  of 
people  reporting  crime,  violence  or  vandalism  in 
2020  (10.4%  compared  to  12%  in  2015  and  the 
EU average of 11.4% in 2021). However, Cyprus is 
moving away from this SDG, as the country needs 
to  catch  up  on  government  expenditure  on  law 
courts,  which  is  well  below  the  EU  average  (EUR 
36.8  per  capita  vs  EUR  107  for  the  EU  in  2020). 
Furthermore,  the  perceived  independence  of  the 
justice system (very good and fairly good) is lower 
in Cyprus (50% of the population vs EU 53%). The 
Corruption  Perceptions  Index  scores  worse  in 
Cyprus  (53  compared  to  64  in  the  EU,  with  0 
highly  corrupt  and  100  very  clean).  The  RRP 
includes 
under 
and 
Component  3.4  (Modernising  public  and  local 
authorities,  making  justice  more  efficient  and 
long-standing 
fighting  corruption)  to  address 
challenges  in  the  areas  of  justice  and  the  fight 
against corruption. 

investments 

reforms 

As the SDGs form an overarching framework, any 
links  to  relevant  SDGs  are  either  explained  or 
depicted with icons in the other Annexes. 

Measures in the recovery and resilience plan (RRP) 
under  Policy  Axis  2,  such  as  energy  efficiency 
renovations  of  public  and  private  buildings  and 
investments  in  sustainable  water  management 
and transport, will help achieve further progress on 
these SDGs. 

While  Cyprus  is  improving  on  several  SDG 
indicators related to fairness, it still needs to 
catch  up  on  SDGs  4,  5,  7,  8 (16).  Cyprus 
outperforms  the  EU  average  in  most  indicators 
related to poverty and health (SDGs 1 and 3). It is 
moving away,  while performing slightly below the 
EU  average,  on  SDG  10  (Reduced  inequalities).  In 
particular, it is moving away from the EU average 
on  indicators  related  to  migration  and  social 
inclusion.  The  EU/non-EU  citizenship  gap  for  early 
leavers  from  education  and  training  was  29.9 
percentage points (pps) vs the EU average of 17.6 
pps  in  2021.  Furthermore,  on  SDG  4  (Quality 
education),  the  high  rate  of  early  school  leavers 
(10.2%  vs  EU  9.7%  in  2021),  combined  with  low 
basic skills (43.7% of 15-year-old low achievers in 
reading  vs  EU  22.5%),  pose  challenges  to  the 
is  also 
opportunities  for  young  people.  This 
reflected  in  the  higher  numbers  of  young  people 
aged  15-29  not  in  education,  employment  or 
training (15.4% vs EU 13.1% in 2021). On gender 
equality (SDG 5), the country needs to catch up on 
women’s employment, as the gender gap remains 
above the EU average (12.2 pps vs EU 10.8 pps in 
2021),  and  on  senior  management  positions  held 
by  women  (14.3%  of  seats  in  parliament  and 
government  are  held  by  women  vs  EU  32.5%  in 
2022). Reforms and investments under Policy Axis 
5  of  the  RRP  aim  to  improve  the  quality  of 
education and training, reach out to young people 
not  in  education,  employment  or  training  and 
improve  access  to  early  childhood  education  and 
care  and  to  flexible  working  arrangements.  This 
will provide equal opportunities for all children and 
make  it  easier  for  women  to  participate  in  the 
labour market.  

Cyprus is improving on productivity  (SDGs 4, 
8, 9), but still needs to catch up compared to 
the EU. On digital skills, Cyprus remains below the 
EU  average,  with  50.2%  of  adults  aged  16-74 
having  basic  digital  skills  compared  to  53.9%  in 
the EU. The country is making progress on SDG 8 
(Decent  work  and  economic  growth).  However,  it 

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

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

23 

 
                                                 
 
ANNEX 2: PROGRESS IN THE IMPLEMENTATION OF COUNTRY-SPECIFIC 
RECOMMENDATIONS 

Graph A2.1: Cyprus’ progress on the 2019-2022 
CSRs (2023 European Semester) 

The Commission has assessed the 2019-2022 
country-specific  recommendations  (CSRs) (17) 
addressed to Cyprus as part of the European 
Semester.  These  recommendations  concern  a 
wide  range  of  policy  areas  that  are  related  to  14 
of  the  17  Sustainable  Development  Goals  (see 
Annexes  1  and  3). The  assessment  considers  the 
policy  action  taken  by  Cyprus  to  date (18)  and  the 
commitments  in  its  recovery  and  resilience  plan 
(RRP) (19).  At  this  stage  of  RRP  implementation, 
64%  of  the  CSRs  focusing  on  structural  issues 
from  2019-2022  have  recorded  at  least  ‘some 
progress’,  while  36%  recorded  ‘limited  progress’ 
(see  Graph  A2.1).  As  the  RRP  is  implemented 
further,  considerable  progress 
in  addressing 
structural CSRs is expected in the years to come. 

Source: European Commission 

(17)  2022 CSRs: EUR-Lex - 32022H0901(07) - EN - EUR-Lex 

(europa.eu) 

      2021 CSRs: EUR-Lex - C:2021:304:TOC - EN - EUR-Lex 

(europa.eu) 
2020 CSRs: EUR-Lex - C:2020:282:TOC - EN - EUR-Lex 
(europa.eu) 
2019 CSRs: EUR-Lex - 32019H0905(13) - EN - EUR-Lex 
(europa.eu) 

(18)  Including policy action reported in the national reform 

programme and in Recovery and Resilience Facility (RRF) 
reporting (twice a year reporting on progress in implementing 
milestones and targets and resulting from the payment 
requests assessment). 

(19)  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 considers the 
degree of implementation of the measures included in the 
RRP and of those carried out outside of the RRP at the time 
of assessment. Measures laid down in the Annex of the 
adopted Council Implementing Decision on approving the 
assessment of the RRP, which are not yet adopted or 
implemented but considered 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. 

24 

Limited progress36%Some progress47%Substantial progress8%Full implementation9% 
 
 
                                                 
      
 
       
 
Table A2.1: Summary table on 2019-2022 CSRs 

(Continued on the next page) 

25 

CyprusAssessment in May 2023*RRP coverage of CSRs until 2026**Relevant SDGs2019 CSR 1Limited progressAdopt key legislative reforms to improve efficiency in the public sector, in particular as regards the functioning of the public administrationSome progressRelevant RRP measures being implemented as of 2022.SDG 16 and the governance of State-owned entities Limited progressSDG 9and local governments.Substantial progressRelevant RRP measures planned as of 2024 and 2025.SDG 16Addressfeaturesofthetaxsystemthatmayfacilitateaggressivetaxplanningbyindividualsandmultinationals,inparticularbymeansofoutbound payments by multinationals.Limited progressRelevant RRP measures planned as of 2022.SDG 8, 162019 CSR 2Some 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 being implemented as of 2022.SDG 8taking steps to improve payment discipline Limited progressRelevant RRP being implemented as of 2022.SDG 8and strengthening the supervision of credit-acquiring companies.Full implementationSDG 8Strengthen 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.SDG 82019 CSR 3Some 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.SDG 8Deliver 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 being implemented as of 2021.SDG 4and affordable childhood education and care.Some progressRelevant RRP measures planned as of 2022 and 2024.SDG 4, 5Take measures to ensure that the National Health System becomes operational in 2020, as planned, while preserving its long-term sustainability.Substantial progressRelevant RRP measures planned as of 2022, 2023 and 2024.SDG 32019 CSR 4Limited progressFocus investment-related economic policy on sustainable transport,Limited progressRelevant RRP measures planned as of 2023 and 2024.SDG 10, 11environment, in particular waste and water management, Limited progressRelevant RRP being implemented as of 2021.SDG 6, 10, 11, 12, 15energy efficiency and renewable energy, Some progressRelevant RRP being implemented as of 2021.SDG 7, 9, 10, 11, 13digitalisation, including digital skills, Some progressRelevant RRP being implemented as of 2021.SDG 4, 9, 10, 11andresearchandinnovation,takingintoaccountterritorialdisparities within Cyprus.Some progressRelevant RRP being implemented as of 2021.SDG 9, 10, 11Adoptlegislationtosimplifytheproceduresforstrategicinvestorstoobtain necessary permits and licences.Limited progressRelevant RRP measures planned as of 2022, 2023 and 2024.SDG 8, 9Improve access to finance for SMEs,Some progressRelevant RRP being implemented as of 2022.SDG 8, 9and resume the implementation of privatisation projects.Limited progressRelevant RRP measures planned as of 2024.SDG 92019 CSR 5Some progressStepupeffortstoimprovetheefficiencyofthejudicialsystem,includingthefunctioningofadministrativejusticeandrevisingcivilprocedures,increasingthespecialisationofcourtsandsettingupanoperationale-justicesystem.Takemeasurestostrengthenthelegalenforcement of claimsSome progressRelevant RRP being implemented as of 2022.SDG 9, 16andensurereliableandswiftsystemsfortheissuanceandtransferof title deeds and immovable property rights.Limited progressRelevant RRP measures planned as of 2022.SDG 8, 9Accelerateanti-corruptionreforms,safeguardtheindependenceofthe prosecution and strengthen the capacity of law enforcement.Some progressRelevant RRP being implemented as of 2022.SDG 162020 CSR 1Some progressInlinewiththegeneralescapeclause,takeallnecessarymeasurestoeffectivelyaddressthepandemic,sustaintheeconomyandsupporttheensuingrecovery.Wheneconomicconditionsallow,pursuefiscalpoliciesaimedatachievingprudentmedium-termfiscalpositionsandensuringdebtsustainability,whileenhancinginvestment. Not relevant anymoreNot applicableSDG 8, 16Strengthentheresilienceandcapacityofthehealthsystemtoensurequalityandaffordableservices,includingbyimprovinghealthworkers’ working conditions.Some progressRelevant RRP measures planned as of 2022, 2023 and 2024.SDG 3 
 
 
 
  
 
Table (continued) 

(Continued on the next page) 

26 

2020 CSR 2Some progressProvide adequate income replacement and access to social protection for all. Some progressRelevant RRP measures planned as of 2023.SDG 1, 2, 8, 10Strengthen public employment services, Some progressRelevant RRP measures planned as of 2022.SDG 8promote flexible working arrangements andLimited progressRelevant RRP measures planned as of 2023.SDG 8improve labour market relevance of education and training.Limited progressRelevant RRP being implemented as of 2021.SDG 42020 CSR 3Some progressSecure adequate access to finance and liquidity, especially for small and medium-sized enterprises. Some progressRelevant RRP being implemented as of 2022.SDG 8, 9Front-load mature public investment projects Limited progressRelevant RRP being implemented as of 2022.SDG 8, 16and promote private investment to foster the economic recovery. Some progressRelevant RRP being implemented as of 2021.SDG 8, 9Focusinvestmentonthegreenanddigitaltransition,inparticularonclean and efficient production and use of energy, Some progressRelevant RRP being implemented as of 2021.SDG 7, 9, 13waste and water management,Limited progressRelevant RRP being implemented as of 2021.SDG 6, 12, 15 sustainable transport, Limited progressRelevant RRP measures planned as of 2023 and 2024.SDG 11digitalisation, Some progressRelevant RRP being implemented as of 2021.SDG 9research and innovation.Some progressRelevant RRP being implemented as of 2021.SDG 92020 CSR 4Limited progressStepupactiontoaddressfeaturesofthetaxsystemthatfacilitateaggressive tax planning by individuals and multinationals. Limited progressRelevant RRP measures planned as of 2022.SDG 8, 16Improve the efficiency and digitalisation of the judicial systemSome progressRelevant RRP being implemented as of 2022.SDG 9, 16and the public sector.Some progressRelevant RRP being implemented as of 2022.SDG 9, 162021 CSR 1Substantial progressIn2022,maintainasupportivefiscalstance,includingtheimpulseprovidedbytheRecoveryandResilienceFacility,andpreservenationally financed investment.Substantial progressNot applicableSDG 8, 16Wheneconomicconditionsallow,pursueafiscalpolicyaimedatachievingprudentmedium-termfiscalpositionsandensuringfiscalsustainability in the medium term.Full implementationNot applicableSDG 8, 16Atthesametime,enhanceinvestmenttoboostgrowthpotential.Payparticularattentiontothecompositionofpublicfinances,onboththerevenueandexpendituresidesofthenationalbudget,andtothequalityofbudgetarymeasuresinordertoensureasustainableandinclusiverecovery.Prioritisesustainableandgrowth-enhancinginvestment,inparticularinvestmentsupportingthegreenand digital transition. Some progressNot applicableSDG 8, 16Giveprioritytofiscalstructuralreformsthatwillhelpprovidefinancingforpublicpolicyprioritiesandcontributetothelong-termsustainabilityofpublicfinances,including,whererelevant,bystrengtheningthecoverage,adequacyandsustainabilityofhealthand social protection systems for all.Substantial progressNot applicableSDG 8, 162022 CSR 1Full implementationIn2023,ensurethatthegrowthofnationallyfinancedprimarycurrentexpenditureisinlinewithanoverallneutralpolicystance,takingintoaccountcontinuedtemporaryandtargetedsupporttohouseholdsandfirmsmostvulnerabletoenergypricehikesandtopeoplefleeingUkraine.Standreadytoadjustcurrentspendingtothe evolving situation.Full implementationNot applicableSDG 8, 16Expandpublicinvestmentforthegreenanddigitaltransitions,andforenergysecuritytakingintoaccounttheREPowerEUinitiative,includingbymakinguseoftheRecoveryandResilienceFacilityandother Union funds.Full implementationNot applicableSDG 8, 16Fortheperiodbeyond2023,pursueafiscalpolicyaimedatachieving prudent medium-term fiscal positions.Full implementationNot applicableSDG 8, 162022 CSR 2Proceedwiththeimplementationofitsrecoveryandresilienceplan,inlinewiththemilestonesandtargetsincludedintheCouncilImplementing Decision of 28 July 2021.SwiftlyfinalisethenegotiationswiththeCommissionofthe2021-2027cohesionpolicyprogrammingdocumentswithaviewtostarting their implementation.2022 CSR 3Limited progressTakemeasurestoimprovethegovernanceofState-ownedentitiesin line with international standards.Limited progressSDG 8, 9RRP implementation is monitored by assessing RRP payment requests and analysing reports published twice a year on the achievement of the milestones and targets. These are to be reflected in the country reports. Progress on the cohesion policy programming documents is monitored under the EU cohesion policy. 
 
 
  
 
Table (continued) 

Note:  
* See footnote  (18).  
** RRP measures included in this table contribute to the implementation of CSRs. Nevertheless, additional measures outside the 
RRP are necessary to fully implement CSRs and address their underlying challenges. Measures indicated as 'being implemented' 
are only those included in the RRF payment requests submitted and positively assessed by the European Commission.  
Source: European Commission 

27 

2022 CSR 4Some progressReduceoverallrelianceonfossilfuelsandfurtherdiversifyenergysupply.Limited progressRelevant RRP measures being implemented as of 2022.SDG 7, 9, 13Acceleratethedeploymentofrenewables,inparticularbyfurtherstreamlining permitting proceduresSome progressRelevant RRP measures being implemented as of 2022.SDG 7, 8, 9, 13and expanding photovoltaics.Some progressRelevant RRP measures being implemented as of 2022.SDG 7, 9, 13Develop energy interconnections with neighbouring countries,Some progressRelevant RRP measures being planned as of 2023.SDG 7, 9, 13while extending and accelerating energy efficiency measures,Some progressRelevant RRP measures being implemented as of 2022.SDG 7including in the transport sector.Limted progressRelevant RRP measures being planned as of 2023.SDG 11 
 
  
 
ANNEX 3: RECOVERY AND RESILIENCE PLAN - OVERVIEW 

overview  of  the  progress  made  in  implementing 
the RRF as a whole, in a transparent manner. The 
graphs in this Annex show the current state of play 
of  the  milestones  and  targets  to  be  reached  by 
Cyprus 
as 
subsequently 
satisfactorily fulfilled by the Commission. 

assessed 

and 

positively  assessed  by 

EUR 242 million has so far been disbursed to 
Cyprus  under  the  RRF.  The  Commission 
disbursed  EUR 157  million  to  Cyprus  in  pre-
financing  in  September  2021,  equivalent  to  13% 
of  the  financial  allocation.  Cyprus’s  first  payment 
the 
request  was 
Commission, taking into account the opinion of the 
Economic and Financial Committee, leading to EUR 
85 million being disbursed in financial support (net 
of pre-financing) on 2 December 2022. The related 
14  milestones  cover  measures  in  the  financial 
sector and public administration, as well as in the 
areas  of  electricity  market,  energy  efficiency, 
and 
circular 
transparency,  e-skills  and  audit  and  budgetary 
control. 

anti-corruption 

economy, 

Graph A3.1: Fulfilment status of milestones and 
targets 

This graph displays the share of satisfactorily fulfilled 
milestones and targets. A milestone or target is satisfactorily 
fulfilled once a Member State has provided evidence to the 
Commission that it has reached the milestone or target and 
the Commission has assessed it positively in an implementing 
decision. 
Source: RRF Scoreboard 
https://ec.europa.eu/economy_finance/recovery-and-resilience-
scoreboard/country_overview.html 

The  Recovery  and  Resilience  Facility  (RRF)  is 
the centrepiece of the EU’s efforts to help it 
recover  from  the  COVID-19  pandemic,  speed 
up  the  twin  transition  and  strengthen 
resilience  against  future  shocks.  The  RRF 
also  contributes  to  implementation  of  the 
SDGs  and  helps  to  address  the  Country 
Specific  Recommendations  (see  Annex 2). 
recovery  and 
Cyprus  submitted 
resilience  plan 
(RRP)  on  17 May 2021.  The 
Commission’s positive assessment on 8 July 2021 
and Council’s approval on 28 July 2021 paved the 
way for disbursing EUR 1 billion in grants and EUR 
0.2  billion  in  loans  under  the  RRF  over  the  2021-
2026 period.   

its  current 

into  force  of  the  RRF 
Since  the  entry 
Regulation  and  the  assessment  of  the 
national  recovery  and  resilience  plans, 
geopolitical  and  economic  developments 
have caused major disruptions across the EU. 
In  order  to  effectively  address  these  disruptions, 
the  (adjusted)  RRF  Regulation  allows  Member 
States to amend their recovery and resilience plan 
for  a  variety  of  reasons.  In  line  with  article  11(2) 
of the RRF, the maximum financial contribution for 
Cyprus was moreover updated on 30 June 2022 to 
an  amount  of  EUR  916  million  in  grants.  No 
revision  was  submitted  at  the  time  of  publication 
of this country report yet. 

Table A3.1: Key elements of the Cypriot RRP('s) 

Source: RRF Scoreboard 

Cyprus’  progress  in  implementing  its  plan  is 
published  in  the  Recovery  and  Resilience 
Scoreboard (20).  The  Scoreboard  also  gives  an 

(20)  https://ec.europa.eu/economy_finance/recovery-and-

resilience-scoreboard/country_overview.html 

28 

Current RRPScope Initial planCID adoption date (date of submission)28 July 2021Total allocation EUR 1 billion in grants and EUR 0.2 billion in loans (5.2% of 2021 GDP)Investments and reforms 75 investments and 58 reforms Total number of milestones and targets271Satisfactorily fulfilledNot fulfilled 
 
 
   
 
                                                 
 
     
 
 
 
 
Graph A3.2: Total grants disbursed under the RRF 

Graph A3.3: Total loans disbursed under the RRF 

Note: This graph displays the amount of grants disbursed so 
far under the RRF. Grants are non-repayable financial 
contributions. The total amount of grants given to each 
Member State is determined by an allocation key and the 
total estimated cost of the respective RRP. 
Source: RRF Scoreboard  

Note: This graph displays the amount of loans disbursed so 
far under the RRF. Loans are repayable financial contributions. 
The total amount of loans given to each Member State is 
determined by the assessment of its loan request and cannot 
exceet 6.8% of its 2019 GNI.   
Source: RRF Scoreboard 

Graph A3.4: Disbursements per pillar 

Note: Each disbursement reflects progress in the implementation of the RRF, across the six policy pillars. This graph displays how 
disbursements under the RRF (excluding pre-financing) relate to the pillars. The amounts were calculated by linking the milestones 
and targets covered by a given disbursement to the pillar tagging (primary and secondary) of their respective measures. 
Source: RRF Scoreboard 

29 

€ 215.77million€ 26.04million0 mln5 mln10 mln15 mln20 mln25 mln30 mln35 mln40 mlnGreen transitionDigitaltransformationSmart,sustainable andinclusive growthSocial andterritorialcohesionHealth, andeconomic, socialand institutionalresiliencePolicies for thenext generation 
     
 
 
 
 
 
 
     
     
ANNEX 4: OTHER EU INSTRUMENTS FOR RECOVERY AND GROWTH 

The  EU  budget  of  over  EUR  1.2  trillion  for 
2021-2027  is  geared  towards  implementing 
the  EU’s  main  priorities.  Cohesion  policy 
investment amounts to EUR 392 billion across the 
EU and represents almost a third of the overall EU 
budget, including around EUR 48 billion invested in 
line with REPowerEU objectives. 

Graph A4.1: Cohesion policy funds 2021-2027 in 
Cyprus: budget by fund 

(1) million EUR in current prices, % of total; (total amount 
including EU and national co-financing) 
Source: European Commission, Cohesion Open Data 

(ERDF) will  boost  R&D, 

In  2021-2027,  in  Cyprus,  cohesion  policy 
funds (21)  will  invest  EUR  780  million  in  the 
green  transition  and  EUR  90  million  in  the 
digital  transformation  as  part  of  the 
country’s  total  allocation  of  EUR  1.5  billion. 
In  particular,  the  European  Regional  Development 
Fund 
innovation  and 
digitalisation  by  creating  885  new  research  jobs 
and  133 000  additional  users  of  new  and 
upgraded  public  digital  services,  products  and 
processes.  Cyprus’  green 
transition  will  be 
achieved through significant investment in energy 
efficiency  and  reduction  of  carbon  emissions, 
combined  with  renewed  efforts  to  reach  the 
targets  for  waste  and  water  management.  The 
Cypriot Territorial Just Transition Plan will support 
Cyprus’  ambitious  energy  transition  towards  its 
2030  and  2050  targets.  Actions  under  the  plan 
will 
transmission  and 
distribution  system,  support  SMEs  in  their  use  of 
new  technologies  and  renewables.  The  plan  also 
includes education and training measures and the 
creation  of  a  ‘green’  technical  school.    Cohesion 
policy investment is expected to lead to an 18.3% 
increase  in  the  share  of  renewables  in  the 

the  energy 

improve 

(21)  European Regional Development Fund (ERDF), Cohesion Fund 
(CF), European Social Fund+ (ESF+), Just Transition Fund 
(JTF) excluding Interreg programmes. Total amount includes 
national and EU contributions. Data source: Cohesion Open 
Data.  

30 

country’s  energy  mix,  a  reduction  of  271 160 
MWh/year  in  primary  energy  consumption  and  a 
reduction  of  108 900  tonnes  CO2  eq.  /year  in 
estimated  greenhouse  gas  emissions.  The 
European  Social  Fund  Plus 
(ESF+)  allocates 
EUR 75.6 million (22)  to  education  and  training,  
technical  and  vocational  education  and  the  up- 
and  reskilling  of  workers,  to  align  education  and 
training  with  labour  market  needs,  especially  in 
light of the green and digital economy. 

Of  the  investments  mentioned  above,  EUR 
177  million  will  be  invested  in  line  with 
REPowerEU objectives. This is on top of the EUR 
46  million  dedicated  to  REPowerEU  under  the 
2014-2020 budget. EUR 150 million (2021-2027) 
and  EUR  45  million  (2014-2020)  is  for  improving 
energy efficiency; and EUR 27 million (2021-2027) 
and  EUR  1  million  (2014-2020)  is  for  renewable 
energy and low-carbon R&I. 

Graph A4.2: Synergies between cohesion policy 
funds and the RRF with its six pillars in Cyprus 

(1) million EUR in current prices (total amount, including EU 
and national co-financing)   
Source: European Commission  

In  2014-2020,  cohesion  policy  funds  made 
EUR  0.9  billion  available  to  Cyprus (23). 
Including  national  financing,  the  total  investment 
amounts  to  EUR  1  billion  -    around  0.7%  of  GDP 
for 2014-2020.  

flexibility 

Cyprus  continues  to  benefit  from  cohesion 
support  economic 
to 
policy 
recovery,  step  up  convergence  and  provide 
vital support to regions following the COVID-
19  pandemic.  The  Recovery  Assistance  for 

(22)  This includes the national contribution. 

(23)  Cohesion policy funds include the ERDF, CF, ESF and the 
Youth Employment Initiative (YEI). ETC programmes are 
excluded here. According to the ‘N+3 rule’, the funds 
committed for 2014-2020 must be spent by 2023. REACT-
EU is included in all figures. Data source: Cohesion Open 
Data. 

21014%77852%35524%14410%CFERDFESF+JTF34822214205169780901622411170100200300400500600700800900Green transitionDigitaltransformationSmart, sustainableand inclusivegrowthSocial andterritorialcohesionHealth, economic,social andinstitutionalresiliencePolicies for thenext generationEU CP 2014-2020 (million EUR)EU CP 2021-2027 (million EUR) 
 
  
                                                 
   
                                                 
 
 
for 

Fund 

Agricultural 

(European  Agricultural  Guarantee  Fund  and 
Rural 
European 
Development),  contribute  to  the  European  Green 
Deal while ensuring long-term food security. They 
promote  social,  environmental  and  economic 
sustainability  and  innovation  in  agriculture  and 
rural  areas,  in  coordination  with  other  EU  funds. 
The  European  Maritime  and  Fisheries  Fund  made 
EUR  40  million  available  to  Cyprus  in  2014-2020 
the  European  Maritime,  Fisheries  and 
and 
Aquaculture  Fund  allocates  EUR  38  million  in 
2021-2027.  

Cyprus  also  benefits 
from  other  EU 
programmes,  notably  the  Connecting  Europe 
Facility,  which  under  CEF  2  (2021-2027)  has  so 
far  allocated  EU  funding  of  EUR  5.73  million  to 
two  projects  on  strategic  transport  networks. 
Similarly,  Horizon  Europe  has  so  far  allocated 
nearly  EUR 66 million to Cypriot R&I actors, while 
in the previous programming period, Horizon 2020 
earmarked  EUR  320  million.  The  Public  Sector 
Loan Facility established under the Just Transition 
Mechanism  makes  EUR  7.67  million  of  grant 
support  from  the  Commission  available  in  2021-
2027, which will be combined with loans from the 
EIB  to  support  investments  by  public  sector 
entities in just transition regions.   

for 

risks 

temporary 

unemployment 

support 
in 

Cyprus  received  support  under  the  European 
to 
instrument 
an 
mitigate 
emergency  (SURE)  to  finance  short-time  work 
schemes  and  similar  measures  to  mitigate  the 
impact of COVID-19. The Council granted financial 
assistance  to  Cyprus  of  EUR  632  million  in  loans, 
which supported around 40% of workers and 25% 
of firms in 2020, and around 21% of workers and 
12% of firms in 2021. 

Cyprus 

Instrument 
designing 

(TSI) 
The  Technical  Support 
and 
supports 
in 
implementing  growth-enhancing 
reforms, 
including  the  implementation  of  its  recovery 
and  resilience  plan  (RRP).  Cyprus  has  received 
significant  support  since  2015, 
to 
improve  the  digital  skills  of  adults,  and  to 
transition from a cash public accounting system to 
an  accrual  system.  The  TSI  is  also  helping  Cyprus 
implement  specific 
investments 
included  in  its  RRP,  e.g.  support  for  its  national 
strategy for the enhancement of financial literacy, 

reforms  and 

including 

Cohesion and the Territories of Europe instrument 
(REACT-EU) (24)  under  NextGenerationEU  provides 
EUR  132  million  on  top  of  the  2014-2020 
cohesion  policy  allocation  for  Cyprus.  Of  this,  the 
Cypriot authorities used EUR 57 million on COVID-
19-related  support  (giving  18  500  firms  non-
repayable  financial  support  for  working  capital), 
and  EUR  65 million  to support  workers  as  part  of 
its  short-term  employment  support  plans.  EUR  10 
million 
for  climate  change 
adaptation  measures  and  the  prevention  and 
management  of  climate-related  risks.  With  SAFE 
(Supporting  Affordable  Energy),  the  2014-2020 
cohesion  policy  funds  may  also  be  mobilised  by 
Cyprus to support vulnerable households, jobs and 
companies  particularly  affected  by  high  energy 
prices. 

is  being  used 

Graph A4.3: Cohesion policy funds contribution to 
the SDGs in 2014-2020 and 2021-2027 in Cyprus 

(1) 5 largest contributions to SDGs in million (EUR) current 
prices 
Source: European Commission  

In both 2014-2020 and 2021-2027, cohesion 
policy  funds  have  contributed  substantially 
to 
the  Sustainable  Development  Goals 
(SDGs).  These  funds  support  11  of  the  17  SDGs, 
notably  SDG  9 
innovation  and 
‘industry, 
infrastructure’  and  SDG  7  ‘affordable  and  clean 
energy’ (25).  

Other  EU  funds  make  significant  resources 
available  for  Cyprus.  The  common  agricultural 
policy  (CAP)  made  EUR  0.7  billion  available  in 
2014-2022,  and  will  keep  supporting  Cyprus  with 
EUR 0.4 billion in 2023-2027. The two CAP Funds 

(24)  REACT-EU allocation on Cohesion Open Data. 

(25)  Other EU funds contribute to the implementation of the 
SDGs. In 2014-2022, this includes both the European 
Agricultural Fund for Rural Development (EARDF) and the 
European Maritime and Fisheries Fund (EMFF). 

31 

6,17010,9892,2684,7355,07111,48511,1884,5663,7043,08302,0004,0006,0008,00010,00012,00014,000SDG 9 Industry,innovation,infrastructureSDG 8 Decentwork andeconomic growthSDG 7 Affordableand clean energySDG 4 QualityeducationSDG 1 No povertyEU CP 2014-2020 (millions EUR)EU CP 2021-2027 (millions EUR) 
   
                                                 
and  for  its  one-stop-shop  for  building  renovation 
and renewable energy sources permitting. (26) 

(26)  Country factsheets on reform support are available here. 

32 

 
                                                 
resilience  capacities  in the  digital  and  geopolitical 
dimensions,  medium  capacities  in  the  social  and 
economic  dimension,  and  medium-low  capacities 
in  the  green  dimension.  Cyprus  shows  stronger 
capacities  than  the  EU  average  in  the  areas  of 
and 
financial 
‘economic 
sustainability’,  ‘raw  material  and  energy  supply’, 
‘security  and 
‘value  chains  and 
demography’.  There 
room  for 
improving  capacities  compared  to  the  EU  in 
‘climate change mitigation and adaptation’ and the 
‘digitalisation of the public space’. 

trade’  and 
is  significant 

stability 

and 

Table A5.1: Resilience indices summarising the 
situation across RDB dimensions and areas 

ANNEX 5: RESILIENCE 

illustrates  Cyprus’ 

This  Annex 
relative 
resilience capacities and vulnerabilities using 
the  Commission’s 
resilience  dashboards 
(RDB) (27).  Comprising  a  set  of  124  quantitative 
indicators,  the  RDB  provide  broad  indications  of 
Member  States’  ability  to  make  progress  across 
four interrelated dimensions: social and economic, 
green, digital, and geopolitical. The indicators show 
vulnerabilities (28)  and  capacities (29)  that  can 
become  increasingly  relevant,  both  to  navigate 
ongoing  transitions  and  to  cope  with  potential 
future shocks. To this end, the RDB help to identify 
areas  that  need  further  efforts  to  build  stronger 
and  more  resilient  economies  and  societies.  They 
in  Table  A5.1  as  synthetic 
are  summarised 
resilience 
illustrate  the  overall 
relative  situation  for  each  of  the  four  dimensions 
and their underlying areas for Cyprus and the EU-
27 (30). 

indices,  which 

in 

According  to  the  set  of  resilience  indicators 
under  the  RDB,  Cyprus  generally  displays  a 
similar  level  of  vulnerabilities  compared  to 
the  EU  average.  Cyprus  shows  medium-high 
the  green  and  geopolitical 
vulnerabilities 
dimensions  of 
the  RDB,  and  medium-low 
vulnerabilities  in  the  social  and  economic  and 
digital  dimensions.  It  has  higher  vulnerabilities 
than the EU average in the areas of ‘economic and 
financial  stability  and  sustainability’,  all  areas  of 
the  green  dimension,  as  well  as  in  ‘raw  material 
and  energy  supply’  and  ‘financial  globalisation’. 
Cyprus has relatively low vulnerabilities in relation 
to 
the 
transitions’, 
and  work’, 
‘digitalisation of industry and the public space’ and 
‘cybersecurity’. 

‘inequalities  and  social 
‘health, 

impact  of 

education 

Data are for 2021, and EU-27 refers to the value for the EU 
as a whole. Data underlying EU-27 vulnerabilities in the area 
‘value chains and trade’ are not available as they comprise 
partner concentration measures that are not comparable with 
Member States’ level values  
Source: JRC Resilience Dashboards - European Commission 

Compared  to  the  EU  average,  Cyprus  shows 
an  overall  slightly  lower  level  of  capacities 
across  all  RDB  indicators.  It  has  medium-high 

(27)  For details see https://ec.europa.eu/info/strategy/strategic-
planning/strategic-foresight/2020-strategic-foresight-
report/resilience-dashboards_en; see also 2020 Strategic 
Foresight Report (COM(2020) 493). 

(28)  Vulnerabilities describe features that can exacerbate the 

negative impact of crises and transitions, or obstacles that 
may hinder the achievement of long-term strategic goals. 

(29)  Capacities refer to enablers or abilities to cope with crises 
and structural changes and to manage the transitions.  

(30)  This Annex is linked to Annex 1 on SDGs, Annex 6 on the 
green deal, Annex 8 on the fair transition to climate 
neutrality, Annex 9 on resource productivity, efficiency and 
circularity, Annex 10 on the digital transition and Annex 14 
on the European pillar of social rights. 

33 

CYEU-27CYEU-27Vulnerabilities IndexHighMedium-highMediumMedium-lowLowNot availableCapacities IndexHighMedium-highMediumMedium-lowLowNot availableDimension/AreaVulnerabilitiesCapacitiesSocial and economicHealth, education and workInequalities and social impact of the transitionsGreenEconomic & financial stability and sustainabilitySustainable use of resourcesClimate change mitigation & adaptationDigitalEcosystems, biodiversity, sustainable agricultureDigital for industryDigital for personal spaceCybersecurityDigital for public spaceRaw material and energy supplyGeopoliticalValue chains and tradeFinancial globalisationSecurity and demography 
 
                                                 
 
  
 
 
 
ENVIRONMENTAL SUSTAINABILITY 
ANNEX 6: EUROPEAN GREEN DEAL 

Cyprus’  green  transition  requires  continued 
action  on  several  aspects  including  rolling 
out  renewable  energy,  reducing  transport 
adaptation. 
emissions, 
Implementation  of  the  European  Green  Deal  is 
underway 
in  Cyprus;  this  Annex  provides  a 
snapshot of the key areas involved (31). 

climate 

and 

investments 

Recovery  and  Resilience  Facility  allocation  to  key 
reforms  and 
to  attain  climate 
objectives (35).  Cyprus  has  set  a  greenhouse  gas 
emissions  reduction  target  for  its  effort  sharing 
sectors  of  21%  to  be  achieved  with  domestic 
measures  by  2030, 
to  2005 
emissions (36). 

compared 

target  for 

Cyprus  has  not  yet  defined  all  the  climate 
policy  measures  it  needs  to  reach  its  2030 
the  effort  sharing 
climate 
sectors (32). Data for 2021 on Cyprus’ greenhouse 
gas  emissions  in  the  effort  sharing  sectors  are 
expected  to  show  the  country  far  exceeded  its 
annual emission allocations (33). Current policies in 
Cyprus are projected to reduce these emissions by 
7% relative to 2005 levels in 2030. The additional 
measures  planned  would  bring  the  emission 
reductions  to  17%.  This  is  not  sufficient  to  reach 
the effort sharing target set before it was raised in 
line with the EU’s 55% objective, let alone the new 
target  to  reduce  by  32% (34).  In  its  recovery  and 
resilience  plan,  Cyprus  has  attributed  41 %  of  its 

(31)  The overview in this Annex is complemented by Annex 7 on 
energy security and affordability, Annex 8 on the fair 
transition to climate neutrality and environmental 
sustainability, Annex 9 on resource productivity, efficiency 
and circularity, Annex 11 on innovation, and Annex 19 on 
taxation. 

(32)  Member States’ greenhouse gas emission targets for 2030 
(‘effort sharing targets’) were increased by Regulation (EU) 
2023/857 (the Effort Sharing Regulation) amending 
Regulation (EU) 2018/842, aligning the action in the 
concerned sectors with the objective to reach EU-level, 
economy-wide greenhouse gas emission reductions of at 
least 55% relative to 1990 levels. The Regulation sets 
national targets for sectors outside the current EU Emissions 
Trading System, notably: buildings (heating and cooling), road 
transport, agriculture, waste, and small industry. Emissions 
covered by the EU ETS and the Effort Sharing Regulation are 
complemented by net removals in the land use sector, 
regulated by Regulation (EU) 2018/841 (the Land Use, Land 
Use Change and Forestry (LULUCF) Regulation) amended by 
Regulation (EU) 2023/839. 

(33)  Cyprus’ annual emission allocations for 2021 were some 
4.0 Mt CO2eq, and its approximated 2021 emissions were 
4.6 Mt (see European Commission, Accelerating the transition 
to climate neutrality for Europe’s security and prosperity: EU 
Climate Action Progress Report 2022, SWD (2022)343). 
Greenhouse gas emissions in the effort sharing sectors 
above the annual emission allocations do not imply non-
compliance with the Effort Sharing Regulation, as it contains 
specific flexibility provisions that may be used for 
compliance. 

(34)  See the information on the distance to the 2030 climate 

policy target in Table A6.1. Existing and additional measures 
as of 15 March 2021. 

Graph A6.1: Thematic – greenhouse gas emissions 
from the effort sharing sectors in Mt CO2eq, 
2005-2021 

Source: European Environmental Agency. 

Continued forest fire prevention policies and 
better  cropland  and  grassland  management 
would  help  preserve  the  capacity  of  Cyprus’ 
land use sector to remove carbon. Cyprus’ land 
use, land use change and forestry (LULUCF) sector 
is  a  net  carbon  sink,  although  the  volume  of 
carbon  removed  has  dropped  significantly  since 
2021.  For  2030,  Cyprus’  target  for  the  land  use 
sector  implies  net  removals  of  352  kt CO2eq  (see 
Table A6.1) (37).  

Fossil fuels still make up the bulk of Cyprus’ 
energy  mix  and  are  set  to  remain  with  the 
future  use  of  natural  gas.  A  more  ambitious 
and  faster  rollout  of  renewables 
in  energy 
production  can  help  remedy  this.  In  2021,  oil 
accounted  for 84% of the energy mix. Renewable 
energy  sources  play  an  important  role  in  the 
energy mix of Cyprus, especially in heating, due to 
the  extensive  use  of  solar  thermal  systems.  Their 

(35)  For example, green taxation (introducing a carbon tax for 

fuels), a gradual phase-in of a levy on water, and a charge 
on landfill waste.  

(36)  According to Cyprus’ national energy and climate plan 

(NECP). An update of the plan, mandated by Regulation (EU) 
2018/1999 (the Governance Regulation), is underway. 

(37)  This value is indicative and will be updated in 2025 (as 

mandated by Regulation (EU) 2023/839). 

34 

0.00.51.01.52.02.53.03.54.04.55.020052021Domestic transport (excl. aviation)Buildings (under ESR)AgricultureSmall industryWaste 
 
 
                                                 
     
                                                 
 
 
share kept stable in 2021 at 14%, while the share 
of  coal  remained  low  at  only  2%  of  the  energy 
mix. There is a similar breakdown in the electricity 
mix,  with  oil  accounting  for  85%  and  renewables 
for 15%. Cyprus is one of the few Member States 
that  does  not  use  natural  gas  in  its  energy  mix. 
However,  it  plans  to  integrate  gas  in  its  energy 
system  by  mid-2024,  after 
needed 
infrastructure  (liquified  natural  gas  terminal  and 
pipes to bring the gas on shore) is completed. 

the 

Graph A6.2: Energy mix (top) and Electricity mix 
(bottom), 2021 

competitive  wholesale  electricity  prices  in  Cyprus 
(see Annex 7). Other green investments under the 
plan  include  several  support  schemes  worth  EUR 
89  million,  promoting 
improving 
energy efficiency and combating energy poverty. It 
includes several reforms to bring in green taxation, 
reform  the  electricity  market  and  facilitate  the 
take-up of electric vehicles. 

renewables, 

Cyprus’ recovery and resilience plan contains 
in  energy  efficiency (39)  and 
investments 
smartening  the  electricity  grid,  which  would 
benefit  from  swifter  implementation.  Energy 
efficiency  investments  in  both  the  public  and 
private  sector  and  the  mass  installation  of  smart 
metering  infrastructure  are  key  measures  with 
important implementation steps planned for 2023. 
Action to reduce CO2 emissions (at least 345 566 
tonnes  of  CO2eq)  in  industries,  businesses  and 
organisations  is  another  important  investment 
planned in Cyprus’ recovery and resilience plan. 

for 

Cyprus’  market 

Cyprus  has  a  long  way  to  go  to  achieve 
sustainable  mobility. 
Transport  emissions 
constitute 21% of Cyprus’ overall greenhouse gas 
emissions,  and  they  are  rising  steadily.  Individual 
transport  is  the  main  form  of  transport  on  the 
island. 
zero-emission 
passenger  cars  is  still  in  its  infancy;  it  has  the 
lowest  market  share  of  electric  vehicles  and  the 
lowest  number  of  charging  points  in  the  EU  in 
2022. (40)  Cyprus’  recovery  and  resilience  plan 
contains EUR 87 million of investments to promote 
sustainable  mobility,  notably  for  public  transport, 
to  promote  the  use  of  electric  vehicles  and 
reforms  to  facilitate  their  take-up.  Cyprus  is 
largely  on  track  to meet  EU  air  quality  standards, 
although  health-related  external  costs  from  air 
pollution exceed EUR 549 million per year. 

(39)  After the conclusion of the negotiations for a recast EED, the 
ambition of both the EU and national targets as well as of 
the national measures for energy efficiency to meet these 
targets is expected to increase 

(40)  Source: European Alternative Fuels Observatory. 

35 

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 

The  recovery  and  resilience  plan  contains 
significant  green  investments  focused  on 
renewable  energy  production (38),  addressing 
the  security  of  supply,  and  tackling  the 
isolation  of  Cyprus.  The  EuroAsia 
energy 
Interconnector  project  will  allow  a  better 
integration  of  renewable  energy  production  and it 
aims  to  ensure  secure  energy  supplies  and  more 

(38)  Cyprus will need to increase its renewable energy target in 
the updated NECP to reflect the more ambitious EU climate 
and energy targets in the Fit for 55 Package and in the 
REPowerEU Plan 

85%15%OilRenewables2%84%14%Solid fossil fuels, peatand oil shaleOilRenewables 
  
                                                 
                                                 
Graph A6.3: Thematic – environmental investment 
needs and current investment, p.a. 2014-2020 

Source: European Commission. 

Cyprus would benefit from investing more in 
environmental  and  biodiversity  protection 
and  in  measures  to  tackle  pollution.  Between 
2014  and  2020,  the  environmental  investment 
needs (41)  were  estimated  to  be  at least  EUR  408 
million  per  year  while  investment  was  at  about 
EUR 198 million, leaving a gap of at least EUR 209 
million  per  year  (see  Graph  A6.3) (42).  Cyprus’  EU 
Natura  2000  network  covers  29%  of  land  under 
the effective control of the government (43). Cyprus 
has  yet  to  allocate  sufficient  resources  to  the 
protection and management of these sites, and to 
completing  designations  for  the  marine  network. 
Cyprus’  recovery  and  resilience  plan  has  element 
of green tax reform, in line with the polluter pays 
principle  and  to make  more  use  of environmental 
taxation 
Initial  results  are 
expected in 2023. 

(see  Annex  19). 

Cyprus’  vulnerability  to  climate  change  is 
growing;  adaptation  challenges  relate  to 
in 
sustainable 

management 

water 

(41)  Environmental objectives include pollution prevention and 

control, water management and industries, circular economy 
and waste, biodiversity and ecosystems (European 
Commission, 2022, Environmental Implementation Review, 
country report Cyprus). 

(42)  When also accounting for needs estimated at EU level only 

(e.g., water protection, higher circularity, biodiversity 
strategy).  

(43)  In 2021, Cyprus had 37.7% terrestrial protected areas 

(Natura 2000 and nationally designated areas), against the 
EU average of 26.4% (European Environment Agency, 2023, 
Natura 2000 Barometer). 

36 

particular (44).  Cyprus  has  among  the  highest 
levels  of  water  stress  in  the  EU  due  to  its  semi-
arid climate and few natural surface water bodies. 
Cyprus is set to face higher temperatures and less 
precipitation,  promoting  desertification (45).  Water 
resources,  agriculture,  coastal  zones,  tourism, 
biodiversity,  energy,  fisheries  and  aquaculture, 
soils,  forests,  public  health,  and infrastructure  are 
all  affected  by  climate  change.  These  sectors  all 
depend  on  water,  which  is  becoming  increasingly 
scarce (46).  Wildfires  could  pose  risks  to  public 
finances  if  insurance  penetration  remains  low. 
Cyprus  is  implementing  its  national  adaptation 
strategy through a national action plan. To support 
the  strategy  and  the  action  plan,  Cyprus  intends 
coordinate  climate  adaptation 
in  the  eastern 
Mediterranean  and  the  Middle  East.  Cyprus’ 
recovery  and  resilience  plan  has  measures  to 
protect against and prevent forest fires and floods.  

Cyprus  provides  fossil  fuel  and  other 
environmentally harmful subsidies that could 
be  considered  for  reform,  while  ensuring 
food  and  energy  security  and  mitigating 
social effects. Environmentally harmful subsidies 
have  been  identified,  via  an  initial  assessment,  in 
the  agriculture,  forestry  and  fishing,  electricity, 
gas,  steam  and  air  conditioning,  professional, 
scientific,  and 
technical  activities  and  other 
services  activities.  Examples  of  such  subsidies 
include  the  reduced  VAT  rate  for  fertilisers  and 
pesticides (47).  A  mapping  of  all  environmentally 
harmful  subsidies  by  Cyprus  would  help  prioritise 
candidates for reform. 

(44)  JRC map of vulnerability to disasters in Europe. 

(45)  AVLI (2022) Climate Change in Cyprus: 

https://avli.org/resources/climate-change-in-cyprus-report/ 

(46)  According to the 6th IPCC climate adaptation report, in 

southern Europe, more than a third of the population will be 
exposed to water scarcity at global warming of 2°C.  

(47)  Fossil fuel figures in EUR of 2021 from the 2022 State of 

the Energy Union report. Initial assessment of 
environmentally harmful subsidies done by the Commission 
in the 2022 toolbox for reforming environmentally harmful 
subsidies in Europe, using OECD definitions, and based on the 
following datasets: OECD Agriculture Policy Monitoring and 
Evaluations; OECD Policy Instruments for the Environment 
(PINE) Database; OECD Statistical Database for Fossil Fuels 
Support; IMF country-level energy subsidy estimates. Annex 4 
of the toolbox contains detailed examples of subsidies on 
the candidates for reform. 

109748358761169711180.020.040.060.080.0100.0120.0140.0Pollutionprevention andcontrolWater (industries,excl. protection)Circular economy(incl. waste)Biodiversity andecosystemsR&I&D and otherEUR million (at current prices)Current investmentTotal need 
      
                                                 
                                                 
Table A6.1: Indicators tracking progress on the European Green Deal from a macroeconomic perspective 

Sources: (1) Historical and projected emissions, as well as Member States’ climate policy targets and 2005 base year emissions 
under the Effort Sharing Decision (for 2020) are measured in global warming potential (GWP) values from the 4th Assessment 
Report (AR4) of the Intergovernmental Panel on Climate Change (IPCC). Member States’ climate policy targets and 2005 base 
year emissions under the Effort Sharing Regulation (for 2030) are in GWP values from the 5th Assessment Report (AR5). The 
table above shows the base year emissions 2005 under the Effort Sharing Decision, using AR4 GWP values. Emissions for 2017-
2021 are expressed in percentage change from 2005 base year emissions, with AR4 GWP values. 2021 data are preliminary. The 
table shows the 2030 target under Regulation (EU) 2023/857 that aligns it with the EU’s 55% objective, in percentage change 
from 2005 base year emissions (AR5 GWP). Distance to target is the gap between Member States’ 2030 target (with AR5 GWP 
values) and projected emissions with existing measures (WEM) and with additional measures (WAM) (with AR4 GWP values), in 
percentage change from the 2005 base year emissions. Due to the difference in global warming potential values, the distance to 
target is only illustrative. The measures included reflect the state of play as of 15 March 2021.  
(2) Net removals are expressed in negative figures, net emissions in positive figures. Reported data are from the 2023 
greenhouse gas inventory submission. 2030 value of net greenhouse gas removals as in Regulation (EU) 2023/839 
amending Regulation (EU) 2018/841 (LULUCF Regulation) – Annex IIa, kilotons of CO2 equivalent, based on 2020 submissions. 
(3) Renewable energy and energy efficiency targets and national contributions are in line with the methodology established under 
Regulation (EU) 2018/1999 (Governance Regulation).  
(4) Percentage of total revenue from taxes and social contributions (excluding imputed social contributions). Revenue from the EU 
Emissions Trading System is included in environmental tax revenue.  
(5) Expenditure on gross fixed capital formation for the production of environmental protection services (abatement and 
prevention of pollution) covering government, industry, and specialised providers.  
(6) European Commission, Study on energy subsidies and other government interventions in the European Union, 2022 edition.  
(7) The climate protection gap refers to the share of non-insured economic losses caused by climate-related disasters. This 
indicator is based on modelling of the current risk from floods, wildfires and windstorms as well as earthquakes, and an 
estimation of the current insurance penetration rate. The indicator does not provide information on the split between the 
private/public costs of climate-related disasters. A score of 0 means no protection gap, while a score of 4 corresponds to a very 
high gap (EIOPA, 2022).  
(8) Sulphur oxides (SO2 equivalent), ammonia, particulates < 10 µm, nitrogen oxides in total economy (divided by GDP).  
(9) Battery electric vehicles (BEV) and fuel cell electric vehicles (FCEV). 

37 

2030200520172018201920202021target/valueWEMWAMGreenhouse gas emission reductions in effort sharing sectors (1)Mt CO2eq; %; pp4.22%-1%5%1%--32%-25-15Net carbon removals from LULUCF (2)kt CO2eq-221-307-302-297-299-235-352n/an/a200520172018201920202021Share of energy from renewable sources in gross final consumption of energy (3)%3%10%14%14%17%18%23%Energy efficiency: primary energy consumption (3)Mtoe2.52.52.52.52.22.32.4Energy efficiency: final energy consumption (3)Mtoe1.81.91.91.91.61.72.0201620172018201920202021201920202021Environmental taxes (% of GDP)% of GDP2.93.02.82.52.42.32.352.232.24Environmental taxes (% of total taxation) (4)% of taxation 9.19.08.67.47.06.55.895.575.52Government expenditure on environmental protection% of total exp.0.70.80.60.70.80.91.701.611.6Investment in environmental protection (5) % of GDP0.30.30.20.4--0.40.40.4Fossil fuel subsidies (6)EUR2021bn0.10.20.20.20.30.253.050.0-Climate protection gap (7) score 1-41.91.61.5Net greenhouse gas emissions1990 = 100157.0158.0157.0157.0135.0147.076.069.072.0Greenhouse gas emission intensity of the economykg/EUR'100.460.450.430.400.41-0.310.300.26Energy intensity of the economykgoe/EUR'100.130.130.120.120.11-0.110.11-Final energy consumption (FEC)2015=100106.011.4111.4113.294.0101.2102.994.6-FEC in residential building sector2015=100103.0105.7103.4111.0112.2109.6101.3101.3106.8FEC in services building sector2015=100106.6110.7130.1135.8113.7124.2100.194.4100.7Smog-precursor emission intensity (to GDP) (8)tonne/EUR'101.31.21.21.11.0-0.90.9-Years of life lost due to air pollution by PM2.5per 100.000 inh.695.1735.4667.8703.5685.1-581.6544.5-Years of life lost due to air pollution by NO2per 100.000 inh.258.6184.8256.3215.7223.3-309.6218.8-Nitrates in ground watermg NO3/litre------21.020.8-Land protected areas% of total37.537.5-37.637.637.726.226.426.4Marine protected areas% of total0.1--8.6-8.610.7-12.1Organic farming% of total utilised agricultural area4.94.64.65.04.66.38.59.1-201720182019202020212022202020212022Share of zero-emission vehicles (9)% in new registrations0.30.30.60.40.83.15.48.910.7Number of AC/DC recharging points (AFIR categorisation)---496268188626330028432518Share of electrified railways%------56.6n/a56.6Hours of congestion per commuting driver per year35.737.337.738.4n/an/a28.7n/an/aMobility'Fit for 55'DistanceProgress to policy targetsNational contribution to 2030 EU targetCyprusEUFiscal and financialindicatorsEnergyPollutionBiodiversityClimate 
 
     
 
ANNEX 7: ENERGY SECURITY AND AFFORDABILITY 

While  Cyprus  does  not  use  gas  in  its  energy 
mix,  is  highly  dependent  on  imported  fossil 
fuels, which can be mitigated by accelerating 
the clean energy transition. This Annex (48) sets 
out  actions  carried  out  by  Cyprus  to  achieve  the 
REPowerEU  objectives, 
the 
implementation of its recovery and resilience plan, 
in  order 
improve  energy  security  and 
affordability  while  accelerating  the  clean  energy 
transition,  and  contributing  to  enhancing  the  EU’s 
competitiveness in the clean energy sector (49).   

including 

through 

to 

includes  pipelines 

The  development  of  gas  infrastructure  in 
Cyprus  to  allow  using  gas  for  electricity 
production  could  strengthen  security  of 
supply,  as 
it  will  make  available  an 
additional  energy  supply.  Cyprus  plans  to 
develop  a  liquefied  natural  gas  (LNG)  terminal  at 
Vassilikos  Area  which 
to 
transport the gas to new gas-fired facilities to be 
constructed,  as  well  as  to  the  near  Electricity 
Authority  of  Cyprus  (EAC)  generation  plant.  The 
project  was initially  scheduled  to  be  completed  in 
2022,  but  is  delayed  and  is  expected  to  be 
operational  in  mid-2024.  Completing  the  project 
will  allow  the  country  to  switch  a  part  of  its 
electricity  generation  to  combined  cycle  gas 
turbines  replacing  older  and  less  efficient  steam 
turbines. 

Gas  discoveries 
in  Cyprus,  by  making 
available an endogenous energy source, have 
the  potential  to  the  country  to 
less 
dependent  on  imported  fossil  fuels  supplies. 
In  2022,  two  significant  gas  discoveries  were 
made  in  offshore  Cyprus  (Block  6),  and  there  is 
strong  interest  from  companies  to  commercialise 
these  gas  resources.  In  the  long  term,  these 
discoveries  have  the  potential  to  end  Cyprus’ 
dependence  on  imported  fossil  fuels  by  replacing 
them  with  domestic  sources  with  a 
limited 
contribution  to  the  green  transition  of  the  Cypriot 
economy.  The  EastMed  pipeline,  a  Project  of 

(48)  It is complemented by Annex 6 as the European Green Deal 
focuses on the clean energy transition, by Annex 8 on the 
actions taken to mitigate energy poverty and protect the 
most vulnerable ones, by Annex 9 as the transition to a 
circular economy will unlock significant energy and resource 
savings, further strengthening energy security and 
affordability, and by Annex 12 on industry and single market 
complementing ongoing efforts under the European Green 
Deal and REPowerEU. 

(49)  In line with the Green Deal Industrial Plan COM(2023) 62 
final, and the proposed Net-Zero Industry Act COM(2023) 
161 final 

38 

Common  Interest,  remains  one  of  the  options  to 
transport  gas  from  Cypriot  and  Israeli  fields  to 
Greece and the EU as long as it is future-proof and 
adapted  to  transporting  also  hydrogen  to  avoid 
carbon lock-in of assets.  

Completion  of 
the  planned  electricity 
interconnections  will  have  a  positive  impact 
on  the  share  of  renewable  energy  in  power 
generation  in  Cyprus,  accelerate  the  green 
transition,  reduce  energy  prices  and  end  its 
energy isolation. The EuroAsia interconnector (50) 
works  were  inaugurated  in  October  2022 and  the 
project received the second largest grant from the 
Connecting  Europe  Facility  (EUR  657  million  in 
total)  and  is  also  funded  by  the  Recovery  and 
Resilience  Facility  (EUR  100  million).  This  is  a 
crucial  project  that  will  link  Cyprus  to  the  energy 
network of the rest of the EU and contribute to the 
completion  of  the  EU  internal  energy  market. 
Timely  implementation  of  the  interconnector  will 
greatly  benefit  both  the  Cypriot  and  European 
electricity  markets,  will  help  Cyprus  and 
neighbouring countries achieve strategic autonomy 
in energy, will boost their green transition and will 
reduce  energy  prices  for  consumers  by  allowing 
them  to  switch  to  cleaner,  cheaper  and  safer 
energy  sources  compared  to  fossil  fuels.  This 
interconnector  will  play  a  crucial  role  in  enabling 
the grid to take on more renewables. 

Given  Cyprus’  dependence  on  fossil  fuel-
based  electricity  production  and  its  isolated 
system,  electricity  prices  have  been  mainly 
driven  by  the  prices  of  oil  product  and  the 
cost  of  purchasing  greenhouse  gas  emission 
allowances for the electricity produced using 
imported  fuel  oil.  Retail  electricity  prices  for 
households  increased  in  the  second  half  of  2022 
by  76%  compared  with  the  second  half  of  2021 
and  were  above  the  EU  average (51).  Prices  for 
industrial  consumers  were  among  the  highest  in 
the  EU.    Cyprus  has  taken  fiscal  measures  to 
reduce  energy  bills,  including  those  targeting  the 
most  vulnerable 
(the  measures 
consumers 
included  reducing  the  VAT  rate  on  household 
for 
electricity  bills,  with  higher 
vulnerable households, reducing the excise duty on 
petroleum  products  and  subsidising  electricity 
rates  for  consumers).  The  government  also 

reductions 

(50)  Commissioner Simson attends Energy Transition Conference 

and EuroAsia Interconnector ceremony (europa.eu)  

(51)  Statistics | Eurostat (europa.eu) 

 
 
                                                 
                                                 
 
 
subsidized  energy  efficiency  grant  schemes  to 
encourage consumers to save electricity. 

Graph A7.1: Cyprus´s retail electricity prices for 
industry (top) and households (bottom) 

(1) On electricity, the band consumption is DC for households 
and ID for industry 
(2) On gas, the band consumption is D2 for households and I4 
for industry " 

Source: Eurostat 

Cyprus has made progress in the deployment 
of  renewable  energy.  The  overall 
installed 
electricity  capacity,  including  fossil  fuels,  came  to 
2  GW  in  2021,  with  the  renewables  share  being 
25% (52).  The  share  of  renewables  in  electricity 
generation  was  14.9%,  in  an  overall  5.12  TWh  in 
2021 (53).  In  2022,  it  is  estimated  that  the  total 
renewable  energy  capacity  installed  increased  to 
635  MW  from  485  MW  in  2021.  Solar  energy 
capacity  increased  from 315  MW in  2021 to  464 
MW  in  2022  (47.3%  increase)  while  wind  energy 
remained stable (54).  In 2021, Cyprus introduced a 
support  scheme 
the  use  of 
renewable  energy  sources  and  energy  savings  in 
households (roof insulation, fitting solar panels or 
a  combination  of  both).  Guarantees  of  Origin  in 
Cyprus  are  issued  independent  of  any  support 

to  encourage 

received,  e.g.  investment  support  or  feed  in  tariff 
premiums.  Revenues  from  Guarantees  of  Origin 
are 
to 
producers (55). 

additional 

therefore 

benefit 

an 

To  speed  up  the  deployment  of  renewable 
energy,  Cyprus  approved  new  legislation (56) 
setting shorter maximum timeframes for the 
completion  of  the  licensing  process  for  RES 
projects. As part of the RRP, Cyprus will  create a 
‘Digital  One-Stop  Shop’  to  streamline  renewable 
energy  source  projects  and  facilitate  energy 
renovation  in  buildings  by  providing  guidance  and 
support throughout the entire process. These one-
stop shops will also act as a single point of contact 
for  all  applicants  for  the  permitting  of  RES 
projects. The contract for the IT platform required 
for the one-stop shop was signed in 2022.  

(the 

residential 

The  RRP  helps  Cyprus  achieve  its  energy 
efficiency  commitments.  The  building  sector  in 
Cyprus  represents  a  big  part  of  the  final  energy 
consumption 
sector  alone 
represented  approximately  22%  of  final  energy 
consumption  in  the  country  in  2021,  according  to 
Eurostat data). As a result, the building sector has 
an important role to play in the energy  transition. 
Energy  efficiency  in  buildings  will  remain  a  key 
priority  for  Cyprus,  particularly  with  regard  to 
worst-performing  buildings.  The  country  must 
increase its renovation ambition in line with global 
energy  saving  objectives,  also  continuing  to 
address  energy  poverty.  Further  actions 
to 
mobilise investment, especially private investment, 
in  buildings  energy  efficiency,  including  for  the 
the  energy  and 
development  of  skills 
construction  sectors  and  for  technical  assistance 
(e.g., 
the 
renovation  rate  in  the  country.  Cyprus  is  not 
carrying  out  in-depth  checks  of  compliance  on 
products  covered  by  ecodesign  and  energy 
labelling (source: ICSMS database). This generates 
serious  concerns  with  respect  to  the  level  playing 
field  among  economic  operators  and  uncertainty 
as  to  the  compliance  levels  of  the  concerned 
products,  and  therefore  possible  missed  energy 
and CO2 savings. 

one-stop-shops), 

increase 

could 

in 

Cyprus 
the 
implementation  of  smart  meters.  Until  2022 

behind 

lags 

still 

in 

(52)  Eurostat - SHARES 

(53)  Eurostat - SHARES 

(54)  IRENA, Renewable capacity statistics 2023 

(55)  https://data.europa.eu/doi/10.2833/12592 

(56)  Law on the Promotion and Encouragement of the Use of 
Renewable Energy Sources Law of 2022 (L.107(I)/2022), 
replacing the old 2013 Law 

39 

 
  
 
 
                                                 
                                                 
only  a  few  thousand  smart  meters  have  been 
installed  while  the  RRP  foresees  the  delivery  and 
installation  of  400  000  meters  by  2026.  Smart 
meters  will  allow  better  electricity  management, 
resulting 
lower  consumption  and  better 
integration  of  a  growing  share  of  renewable 
energy sources and improved quality of the service 
for consumers. 

in 

Despite  the  steady  increase  in  its  R&D 
spending, particularly from 2015 (more than 
doubled)  Cyprus  has  one  of  the  EU’s  lowest 
scores  in  R&D  intensity,  according  to  Eurostat, 
0.89%  in  2021  (provisional  data).  It  also  invests 
far less in the Energy Union R&I priorities than the 
EU average.  Nevertheless, according to the NECP, 
targets  for 
national  objectives  and  funding 
research, innovation and competitiveness will triple 
annual  spending  in  research  and  development  on 
energy and climate leading to overall R&D of 1.5% 
of  GDP.  The  diversification  of  the  energy  mix 
requires  a  parallel  endeavour  to  strengthen  the 
effectiveness of the renewable energy value chain 
and  of  clean  energy  carriers  while  increasing 
energy  efficiency.   Cyprus  is  considered  a  strong 
innovator  in  the  European  Innovation  Scoreboard 
2022. However,  between  2015  and  2020,  Cyprus 
showed  an  important  percentage  increase,  (+81 
%) in clean energy technology related publications. 

40 

 
Table A7.1: Key Energy Indicators 

(1) The ranking of the main supliers is based on the latest available figures (for 2021) 
(2) FSRU included 
(3) Venture Capital investments include Venture Capital deals (all stages) and Private Equity Growth/Expansion deals (for 
companies that have previously been part of the portfolio of a VC investment firm). 
Source: Eurostat, Gas Infrastructure Europe (Storage and LNG Transparency Platform), JRC SETIS (2022), JRC elaboration based 
on PitchBook data (06/2022) 

41 

EU20182019202020212018201920202021Import Dependency [%] 92%93%93%90%58%61%57%56%of Solid fossil fuels 98%117%105%98%44%44%36%37%of Oil and petroleum products 99%100%102%98%95%97%97%92%of Natural Gas 0%0%0%0%83%90%84%83%Dependency from Russian Fossil Fuels [%]of Hard Coal50%100%100%100%40%44%49%47%of Crude Oil n.an.an.an.a30%27%26%25%of Natural Gas n.an.an.an.a40%40%38%41%20152016201720182019202020212022*Gross Electricity Production (GWh)4535488850045061514148495119Combustible Fuels4186451546214640468543134405Nuclear0000000Hydro0000000Wind222227211221239240246Solar 127146172199218296468Geothermal 0000000Other Sources0000000Net Imports of Electricity (GWh)0000000   As a % of electricity available for final consumption 0%0%0%0%0%0%0% -Electricity Interconnection (%)0%0%0%0%0%0%0%20152016201720182019202020212022*Gas Consumption (in bcm)Gas Imports - by type (in bcm)Gas imports - pipelineGas imports - LNGGas Imports - by main source supplier (in bcm)2019202020212022LNG TerminalsNumber of LNG Terminals (FSRU1)0000LNG Storage capacity (m3 LNG)0000Underground StorageNumber of storage facilities0000Operational Storage Capacity (bcm)00002019202020212022VC investments in climate tech start-ups and scale-ups (EUR Mln)n.an.an.an.aas a % of total VC investments in Cyprusn.an.an.an.aResearch & Innovation spending in Energy Union R&i priorites (2)Public R&I (EUR mln)0,70,40,2n.aPublic R&I (% GDP)0,003%0,002%0,001%n.aPrivate R&I (EUR mln)5,7n.an.an.aPrivate R&I (% GDP)0,03%n.an.an.aELECTRICITYCYPRUSENERGY DEPENDENCECLEAN ENERGYDIVERSIFICATION OF GAS SUPPLIES 
 
     
 
ANNEX 8: FAIR TRANSITION TO CLIMATE NEUTRALITY 

in 

transition 

line  with 

This  Annex  monitors  Cyprus’  progress  in 
ensuring  a  fair  transition  towards  climate 
neutrality  and  environmental  sustainability, 
notably  for  workers  and  households 
in 
vulnerable situations. The number of jobs in the 
green economy has risen quickly. To ensure a fair 
green 
the  Council 
Recommendation (57)  and  to  further  support  the 
implementation of REPowerEU, up- and reskilling is 
key.  Cyprus’  recovery  and  resilience  plan  (RRP) 
outlines  measures  for  a  fair  green  transition (58), 
such  as  the  construction  of  technical  schools  and 
related training schemes rolled out by the Human 
Resource Development Authority of Cyprus (HRDA). 
The  territorial  just  transition  plans  and  action 
supported by the European Social Fund Plus (ESF+) 
contribute  to  creating  jobs,  with  a  focus  on  skills 
for the green transition. 

Employment in Cyprus’ sectors that are most 
affected  by  the  green  transition  remains 
stable,  but  workers  in  declining  activities 
need active support. The greenhouse gas (GHG) 
emissions  intensity  of  Cyprus’  workforce  declined 
from  17.5  to  15.4  tonnes  per  worker  between 
2015  and  2021,  but  it  was  still  above  the  EU 
average  of  13.7  tonnes  in  2021  (see  Graph A8.1 
and  Table A8.1).  Employment  in  Cyprus’  energy-
intensive  industries  (EII)  represented  a  stable 
share  of  0.9%  of  total  employment  in  2021  (in 
2020:  0.9%  vs  3.0%  in  the  EU).  The  job  vacancy 
rate  in  construction,  which  is  one  of  the  key 
sectors  for  the  green  transition,  is  lower  than  the 
EU  average  (1.0% vs  4.0%  in  EU  in  2021) (59).  As 
part  of  the  RRP,  training  programmes  will  be 
implemented  by  the  HRDA  to  strengthen  and 
upgrade  the  knowledge  and  skills  of  people 
employed in the sectors of the green economy, or 
the unemployed who wish to enter these sectors.  

sectors 

is  necessary 

Upskilling  and  reskilling  in  declining  and 
transforming 
to 
contribute  to  the  green  transition.  Skills  are 
key  for  smooth  labour  market  transitions  and 
preserving jobs in transforming sectors. In Cyprus, 
28%  of  citizens  believe  they  do  not  have  the 
necessary  skills  to  contribute  to  the  green 

(57)  Council Recommendation of 16 June 2022 on ensuring a fair 
transition towards climate neutrality (2022/C 243/04) covers 
employment, skills, tax-benefit and social protection 
systems, essential services and housing. 

(58)  See also 2022 Country Report (Annex 6). 

(59)  Eurostat (JVS_A_RATE_R2) 

42 

transition  (EU:  38%) (60)  (see  Annex  15).  Specific 
investment under the RRP, and the Just Transition 
Mechanism provides training for reskilling workers 
affected by the transition, together with a broader 
training  offer  at  national  level  and  flexibility 
mechanisms to encourage in-company training. In 
Cyprus,  the  Just  Transition  Fund  will  provide 
support  for  upgrading  the  skills  of  the  workforce 
in  green 
through 
professions, creating a Green Technical School and 
providing specialised training in related sectors. 

training  and  education 

Graph A8.1: Fair transition challenges in Cyprus 

Source: Eurostat, EMPL-JRC GD-AMEDI/AMEDI+ projects and 
World Inequality Database (see Table A8.1). 

While  energy  poverty  indicators  improved  in 
recent  years,  Cyprus  remains  among  the 
worst  performers  in  the  EU,  and  the  current 
spike  in  energy  prices  can  be  expected  to 
worsen  the  situation.  The  share  of 
the 
population unable to keep their homes adequately 
warm  declined  from  28.3%  in  2015  to  19.4%  in 
2021 (61).  In  particular,  50%  of  the  population  at 
risk  of  poverty  (AROP)  in  2021  (EU:  16.4%  in 
2021)  and  20.2%  of 
lower  middle-income 
households (in deciles 4-5) were affected in 2021 
(EU: 8.2% in 2021). Before the energy price hikes, 
an  estimated  8%  of  the  total  population  and 
25.8% of the (expenditure-based) AROP population 
had residential expenditure on electricity, gas, and 
other  fuels (62)  above  10%  of  their  household 

(60)  Special Eurobarometer 527. Fairness perceptions of the 

green transition (May – June 2022). 

(61)  Energy poverty is a multi-dimensional concept. The indicator 
used focuses on an outcome of energy poverty. Further 
indicators are available at the Energy Poverty Advisory Hub.   

(62)  Products defined according to the European Classification of 
Individual Consumption according to Purpose (ECOICOP): 
CP045, including electricity, natural gas and town gas as well 
as liquefied hydrocarbons (butane, propane, etc.). Related 
expenditures include also cost of use e.g., storage containers, 
metering, and handling. 

00.511.522.533.544.5GHG per workerEmployment EIIEnergy povertyTransportpoverty(proxy)CarboninequalityEU LatestCY Latest (vs EU Latest)CY 2015 (vs EU Latest) 
 
                                                 
   
                                                 
 
Table A8.1: Key indicators for a fair transition in Cyprus 

Source: Eurostat (env_ac_ainah_r2, nama_10_a64_e, ilc_mdes01), EU Labour Force Survey (break in time series in 2021), EMPL-
JRC GD-AMEDI/AMEDI+ projects and World Inequality Database (WID). 

“Thalia” 

includes 

investment 

(55%,  54%,  and  60%,  respectively).  As  regards 
these  perceptions,  rural  areas  in  Cyprus  perform 
better  than  urban  areas, and  better  only in  terms 
of  affordability  when  compared  to  rural  areas  in 
the  EU (65).  Cyprus’  RRP  and  the  Cohesion  Policy 
programme 
in 
sustainable  urban  and  rural  transport  projects, 
promoting public and non-motorised transport, and 
accessibility-enhancing  measures  which  will 
improve  urban  transport  for  all  users,  including 
people  with  disabilities.  The  Department  of  Road 
Transport  has  also  implemented  an  incentive 
scheme with subsidies for buying electric vehicles, 
including  taxis  and  buses.  Carbon  inequality,  as 
measured  by  the  average  carbon  footprint  of  the 
top 10% emitters among the population in Cyprus 
is about 5.1 times higher than that of the bottom 
50%  (see  Graph  A8.1),  which  is  almost  the  same 
level  as  the  EU  average  (5.0).  In  Cyprus,  the 
average levels of air pollution in 2020 stood above 
the EU average (14 vs 11.2 µg/m PM2.5), with all 
regions  being  exposed  to  critical  levels  of  air 
pollution (66), leading to significant health impacts, 
in  particular  on  vulnerable  groups,  and  565 
premature deaths annually (67). 

budget (below the estimated EU average of 26.9% 
and 48.2%, respectively). There are also significant 
energy  costs  related  to  cooling  houses,  which  are 
amongst  the  highest  in  the  EU.  In  2020,  space 
cooling  constituted  10.2%  of  the  final  energy 
consumption  of  households  compared  to  the  EU 
average  of  0.4%.  Cyprus’  RRP  includes  targeted 
investment  to  improve  the  energy  efficiency  of 
residential  buildings,  especially  for  vulnerable 
households. 

the 

The  increased  energy  prices  in  2021-2023 
negatively  affect  household  budgets, 
in 
particular those on lower incomes. As a result 
of energy price changes during the August 2021 to 
January  2023  period  relative  to  the  18  months 
prior (cf. Annex 7), in the absence of policy support 
and  behavioural 
share  of 
responses, 
individuals living in households which spend more 
than  10%  of  their  budget  on  energy  would  have 
increased  by  13.4  pps  for  the  whole  population 
and  by  24.5 pps  among  the  (expenditure-based) 
AROP population, more than the EU-level increases 
for 
19.1 pps, 
(16.4 pps 
respectively) (63).  Expenditure  shares  of  low  and 
lower-middle income groups would have increased 
the  most,  in  particular  for  electricity  but  also  for 
gas  (Graph A8.2).  Among  the  (expenditure-based) 
AROP population, the share of individuals living in 
households  with  budget  shares 
for  private 
fuels (64)  above  6%  would  have 
transport 
increased  more  than  the  EU  average  (7.5 pps  vs 
5.3 pps),  reaching  62.7%  in  January  2023  (EU: 
37.1%) due to the increase in transport fuel prices. 

latter 

and 

the 

Access to public transport is perceived to be 
worse  than  in  the  EU  overall,  albeit  slightly 
better  in  rural  areas.  The  share  of  people 
perceiving public transport as available, affordable 
and  of  good  quality  (40%,  48%,  and  45%, 
respectively)  is  lower  in  Cyprus  than  in  the  EU 

(65)  EU (rural): 46%, 48% and 56% respectively. Special 

Eurobarometer 527. 

(63)  EMPL-JRC GD-AMEDI/AMEDI+ ; see details in the related 

(66)  Two times higher than the recommendations in the WHO Air 

technical brief.  

(64)  ECOICOP: CP0722. 

Quality Guidelines (annual exposure of 5µg/m3) 

(67)  EEA- Air Quality Health Risk Assessment 

43 

IndicatorDescriptionCY 2015CY LatestEU LatestGHG per workerGreenhouse gas emissions per worker - CO2 equivalent tonnes17.515.4 (2021)13.7 (2021)Employment EIIEmployment share in energy-intensive industries, including mining and quarrying (NACE B), chemicals (C20), minerals (C23), metals (C24), automotive (C29) - %0.90.9 (2020)3 (2020)Energy povertyShare of the total population living in a household unable to keep its home adequately warm - %28.319.4 (2021)6.9 (2021)Transport poverty (proxy)Estimated share of the AROP population that spends over 6% of expenditure on fuels for personal transport - %55.162.7 (2023)37.1 (2023)Carbon inequalityAverage emissions per capita of top 10% of emitters vs bottom 50% of emitters5.15.1 (2020)5 (2020) 
                                                 
                                                 
 
   
 
Graph A8.2: Distributional impacts of energy prices 
due to rising energy expenditure (2021-2023) 

Mean change of energy expenditure as a percentage (%) of 
total expenditure per income decile (D) due to observed price 
changes (August 2021 – January 2023 relative to the 18 
months prior), excl. policy support and behavioural responses. 
Source: EMPL-JRC GD-AMEDI/AMEDI+ projects, based on 
Household Budget Survey 2015 and Eurostat inflation data 
for CP0451 and CP0452. 

44 

0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%ElectricityGasElectricityGasElectricityGasElectricityGasElectricityGasElectricityGasElectricityGasElectricityGasElectricityGasElectricityGasD1D2D3D4D5D6D7D8D9D10CY GasCY ElectricityEU GasEU Electricity 
   
PRODUCTIVITY 
ANNEX 9: RESOURCE PRODUCTIVITY, EFFICIENCY AND CIRCULARITY 

The  circular  economy  transition  is  key  to 
climate  and 
delivering  on 
the  EU’s 
environmental  goals  and  provides 
large 
socio-economic  benefits. It  spurs  job  growth, 
innovation  and  competitiveness  and 
fosters 
resilience  and  resource  security.  The  circularity 
transition  of  industry,  the  built  environment  and 
agri-food  can  generate  significant  environmental 
improvements (see Annex 6), as they rank among 
the most resource-intensive systems. 

landfilling 

Sub-standard 
is  still  widespread, 
diverting  materials  and  resources  that  could  be 
reused,  remanufactured  or  recycled.  Cyprus  will 
need  to  make  considerable  efforts  to  meet  the 
EU’s  recycling  targets  for  the  period  up  to  2035 
through  improvements  in  separate  collection  and 
treatment  of  waste,  in  particular  biowaste,  and 
improve  its  data  management  system  in  order  to 
present  coherent  and  verifiable  data  sets 
(especially on packaging waste). 

Cyprus’  circular  economy  transition  has  a 
long way to go to meet EU’s circular economy 
goals. The EU 2020 circular economy action plan 
(CEAP)  aims  at  doubling  the  circular  material  use 
rate between 2020 and 2030. Cyprus’ circular use 
of  material  slightly  increased  from  2.4%  in  2016 
to  2.8%  in  2021.  However,  this  rate  is  still  well 
below  the  EU  2021  average  of  11.7%.  The  CEAP 
also  aims  to  significantly  decrease  the  EU’s 
material  footprint.  Cyprus’  material  footprint 
(22%)  was  significantly  above  the  2020  EU-27 
average  (13.7%),  confirming  the  upward  trend 
since 2016.  

Cyprus  recently  adopted  new  policies  to 
address  circular  economy  challenges,  but 
more  effort  might  be  warranted.  In  2021, 
Cyprus’  2021-2027  action  plan  for  the  circular 
economy  was  adopted,  funded  primarily  by  the 
recovery  and  resilience  plan.  The  plan  is  built 
around four pillars: (i) cultural change for a circular 
economy  (including  a  grant  scheme  for  SMEs  to 
move into a circular economy model); (ii) providing 
incentives for investments in the circular economy; 
(iii)  developing  circular  economy  infrastructures; 
and (iv) managing municipal waste.  

The  treatment  of  municipal  waste  has  been 
stagnating  for  several  years  and  is  well 
below  the  EU’s  average  performance  level. 
With a municipal waste recycling rate of 15.3% in 
2021, Cyprus has largely missed the EU target for 
recycling  of  50%  by  2020.  Cyprus  is  at  risk  of 
missing  the  EU’s  municipal  waste  recycling  target 
for 2025 and is at a significant distance from the 
landfill  reduction  target  for  2035.  Some  62%  of 
Cyprus’  municipal  waste  was  still  landfilled  in 
2021,  which  is  significantly  higher than  the  2021 
EU average (23%), although in a downward trend 
over  the  years.  Moreover,  a  significant  amount 
(20%  in  2021)  of  the  total  generated  waste  in 
Cyprus  is  unaccounted  for  in  terms  of  treatment. 

Graph A9.1: Trend in material use 

Source: Eurostat 

Graph A9.2: Treatment of municipal waste 

Source: Eurostat 

45 

0.050.0100.0150.0200.0250.00.05.010.015.020.025.0201620172018201920202021kg/capitatonnes/capitaMaterial footprint Cyprus (tonnes/capita)Material footprint EU-27 (tonnes/capita)Trade in recyclable raw materials Cyprus (imports extra EU, kg/capita)Trade in recyclable raw materials EU-27 (imports extra EU, kg/capita)6336256466486096330100200300400500600700201620172018201920202021Kg per capita Difference waste generated/treatmentLandfill/disposalTotal incineration (including energy recovery)Composting and digestionMaterial recyclingEU-27 
 
 
      
 
        
 
 
The  built  environment  system  continues  to 
to  nature  deterioration.  The 
contribute 
recovery rate of construction and demolition waste 
has 
increased  considerably  since  2016  but 
remains below the EU average (79% vs 89%). Soil 
sealing  progressed  between  2015  and  2018  and 
remains higher than the EU average.  The effective 
protection  of  Natura  2000  areas  –  especially 
coastal  zones  –  from  adverse  developments  can 
be  reinforced  by  the  effective  implementation  of 
management 
environmental 
assessments.  

plans 

and 

The  agri-food  system  has  yet  to  design  out 
food  waste.  Cyprus’  composting  and  anaerobic 
digestion  per  head  has  been  decreasing  since 
2016, significantly below the EU average in 2021 
at  8 kg  per  head  vs  100  kg.  Increasing  anaerobic 
digestion 
strategic 
autonomy  by  generating  biomethane  and/or 
producing organic fertilisers.  

enhance  Cyprus’ 

could 

wastewater and waste management infrastructure 
could  significantly  accelerate  this  transition  –  the 
additional  cumulative  investment  need  for  Cyprus 
was estimated at EUR 217 million (around EUR 22 
million  per  year)  over  baselines,  of  which  around 
95% relates to wastewater. An additional  EUR 74 
million  (around  EUR  10.6  million  per  year)  of 
investments in 2021-2027 on collection, recycling 
reprocessors,  biowaste  treatment,  waste  sorting 
facilities  and  digitalising  waste  registries  would 
significantly  facilitate  Cyprus’  effort  to  meet  the 
recycling 
for  municipal  waste  and 
packaging  waste.  Cyprus  is  already  using  funds 
from 
the  RRF,  but  further 
investments  could  further  address  the  needs  of 
the country. 

the  ERDF  and 

targets 

investments  could  close  the 
Additional 
remaining  financing  gap 
in  the  circular 
economy,  including  waste  management.  The 
financing gap was estimated at EUR 48 million per 
year  between  2014  and  2020.  Over  this  period, 
investment  needs  were  estimated  to  be  at  least 
EUR  97  million  per  year  while 
investment 
baselines were EUR 48 million per year (see Annex 
6).  Investing  in  the  circular  economy  is  key  to 
achieving the transition. Additional investments for 

Table A9.1: Overall and systemic indicators on circularity 

(1) Persons employed in the circular economy only tracks direct jobs in selected sub-sectors of NACE codes E, C, G and S; (2) the 
circular material use rate measures the share of material recovered and fed back into the economy in overall material use; (3) the 
recovery rate of construction and demolition waste includes waste which is prepared for reuse, recycled or subject to material 
recovery, including through backfilling operations; (4) soil sealing: 2016 column refers to 2015 data; (5) food waste includes 
primary production, processing and manufacturing, retail and distribution, restaurants and food services, and households.  
Source: Eurostat, European Environment Agency 

46 

AREA201620172018201920202021EU-27 Latest year EU-27Overall state of the circular economyMaterial footprint (tonnes/capita)18.221.420.222.022.0-13.72020YoY growth in persons employed in the circular economy (%)14.20.0--0.5--2.92019Water exploitation index plus (WEI+) (%)102.1101.192.5113.0--3.62019IndustryResource productivity (purchasing power standard (PPS) per kilogram)1.61.41.51.51.41.62.32021Circular material use rate (%)22.42.42.82.93.72.811.72021Recycling rate (% of municipal waste)16.116.016.716.616.615.349.62021Built environmentRecovery rate from construction and demolition waste (%)357.0-64.0-79.0-89.02020Soil sealing index (base year = 2006)4113.7-122.9---108.32018Agri-foodFood waste (kg per capita)5----397.0-131.02020Composting and digestion (kg per capita)19.09.011.09.06.08.0100.02021 
 
          
 
ANNEX 10: DIGITAL TRANSFORMATION 

transformation  by  2030, 

Digital  transformation  is  key  to  ensuring  a 
resilient and competitive economy. In line with 
the  Digital  Decade  Policy  Programme,  and  in 
particular  with  the  targets  in  that  Programme  for 
digital 
this  Annex 
describes  Cyprus’  performance  on  digital  skills, 
digital 
the 
digitalisation  of  businesses  and  public  services. 
Where relevant, it makes reference to progress on 
implementing  the  Recovery  and  Resilience  Plan 
(RRP).  Cyprus  allocates  23%  of  its  total  RRP 
budget to digital (EUR 0.3 billion) (68). 

infrastructure/connectivity 

and 

The  Digital  Decade  Policy  Programme  sets 
out a pathway for Europe’s successful digital 
transformation  by  2030.  The  Programme 
provides  a  framework  for  assessing  the  EU’s  and 
Member States’ digital transformation, notably via 
the  Digital  Economy  and  Society  Index  (DESI).  It 
also  provides  a  way  for  the  EU  and  its  Member 
States  to  work  together,  including  via  multi-
country  projects,  to  accelerate  progress  towards 
the  Digital  Decade  digital  targets  and  general 
objectives (69).  More  generally,  several  aspects  of 
digital  transformation  are  particularly  relevant  in 
the current context. In 2023, the European Year of 
Skills, building the appropriate skillset to make full 
use of the opportunities that digital transformation 
offers  is  a  priority.  A  digitally  skilled  population 
increases the development and adoption of digital 
technologies  and  leads  to  productivity  gains (70). 
Digital  technologies,  infrastructure  and  tools  all 
play  a  role  in  the  fundamental  transformation 
needed to adapt the energy system to the current 
structural challenges (71). 

Cyprus  performs  relatively  poorly  on  digital 
skills.  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 

(68)  The share of financial allocations that contribute to digital 
objectives has been calculated using Annex VII of the RRF 
Regulation. 

(69)  The Digital Decade targets as measured by DESI indicators 
and complementary data sources are integrated to the 
extent currently available and/or considered particularly 
relevant in the MS-specific context.  

(70)  See for example OECD (2019): OECD Economic Outlook, 

Digitalisation and productivity: A story of complementarities, 
OECD Economic Outlook, Volume 2019 Issue 1 | OECD 
iLibrary (oecd-ilibrary.org). 

(71)  The need and possible actions for a digitalisation of the 
energy system are laid out in the Communication 
‘Digitalisation the energy system – EU action plan’ 
(COM(2022)552. 

47 

specialists in Cyprus is in line with the EU average. 
In December 2021, Cyprus adopted a 2021-2025 
National  Action  Plan  for  Digital  Skills  ('e-skills 
Action Plan’) to improve digital skills of everyone in 
Cyprus,  including  vulnerable  groups.  This  plan  is 
being  implemented  as  an  RRP  measure  and 
includes,  among  others,  training  programmes  for 
the  labour  force  in  the  private  and  public  sector 
the  general  population,  as  well  as  a 
and 
lifelong 
communication  strategy 
learning.  

to  promote 

Cyprus  performs  moderately  well  on  digital 
infrastructure/connectivity.    Cyprus  is  one  of 
the few Member States that have reached a 100% 
of the overall 5G coverage. It also made progress 
in the deployment of the 5G coverage on the 3.4-
3.8  GHz  spectrum  band,  which  is  essential  for 
enabling  advanced  applications  requiring  large 
spectrum  bandwidth,  while  remaining  below  the 
EU  average.  However,  despite  recent  significant 
improvements in fixed very  high capacity  network 
(VHCN)  coverage,  Cyprus  still  ranks  below  the  EU 
average.  Cyprus  envisages  to  set  up  a  voucher 
scheme to further improve fixed VHCN connectivity 
by  encouraging  the  building  of  fibre  cabling  in 
private premises.  

Cyprus  has  a  mixed  performance  on  the 
digitalisation of businesses. The percentage of 
SMEs with at least a basic level of digital intensity 
is  around  the  EU  average.  However,  Cyprus  is 
doing  well  on  cloud  computing  services,  and  is 
above the EU  average (42% vs an EU  average of 
34%).  A  key  challenge  is  that  Cypriot  companies 
do not yet make full use of all of the state-of-the-
art  digital  technologies  available.  Their  use,  for 
example,  of  big  data  and  artificial  intelligence  is 
below  the  EU  average.  In  the  context  of  its  RRP, 
Cyprus implemented a measure that supports the 
use  of  blockchain  to  verify  the  authentity  of 
Cypriot traditional foods and drinks. 

Digital  public  services  is  one  area  in  which 
Cyprus  performs  well,  though  it  still  has 
room  for  improvement.  The  country  scores 
slightly  above  the  EU  average  on  digital  public 
services  for  business  (85  versus  84)  but  is  still 
below  the  EU  average  in  providing  digital  public 
services for citizens (64 versus 77) but the level of 
e-Government  users  is  very  high  (99%  compared 
to  74%  at  EU  level) (72).  Cyprus'  RRP  includes 

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

Economy and Society Index 2022. 

 
 
                                                 
                                                 
 
Table A10.1: Key Digital Decade targets monitored by DESI indicators 

(1) The 20 million target represents about 10% of total employment. 
(2) The Fibre to the Premises coverage indicator is included separately as its evaluation will also be monitored separately and 
taken into consideration when interpreting VHCN coverage data in the Digital Decade. 
(3) At least 75 % of Union enterprises have taken up one or more of the following, in line with their business operations: (i) cloud 
computing services; (ii) big data; (iii) artificial intelligence. 

Source: Digital Economy and Society Index 

measures  to  provide  with  high-quality  and  user-
friendly digital services, such as the reform ‘Digital 
Services  Factory’.  When  it  comes  to  electronic 
identification 
introduced  a 
(eID),  Cyprus  has 
national eID scheme that is expected to be notified 
under the eIDAS Regulation in 2023. 

48 

EUDigital Decade target by 2030 DESI 2021DESI 2022DESI 2023DESI 2023(EU)Digital skillsAt least basic digital skillsNA50%50%54%80%% individuals2021202120212030ICT specialists (1)3.1%3.9%3.9%4.5%20 million% individuals in employment aged 15-7420202021202120212030Digital infrastructure/connectivityFixed Very High Capacity Network (VHCN) coverage26%41%60%73%100%% households20202021202220222030Fibre to the Premises (FTTP) coverage (2)26%41%60%56%-% households20202021202220222030Overall 5G coverage0%75%100%81%100%% populated areas202020212022202220305G coverage on the 3.4-3.8 GHz spectrum bandNANA25%41%-% populated areas202220222030Digitalisation of businessesSMEs with at least a basic level of digital intensityNANA70%69%90%% SMEs202220222030Big data (3)6%6%6%14%75%% enterprises20202020202020202030Cloud (3)NA42%42%34%75%% enterprises2021202120212030Artificial Intelligence (3)NA3%3%8%75%% enterprises2021202120212030Digitalisation of public servicesDigital public services for citizensNA566477100Score (0 to 100)2021202220222030Digital public services for businessesNA868584100Score (0 to 100)2021202220222030Access to e-health recordsNANA7071100Score (0 to 100)202320232030Cyprus 
 
  
 
 
 
 
 
 
 
 
ANNEX 11: INNOVATION 

This  Annex  provides  a  general  overview  of  the 
performance  of  Cyprus’  research  and  innovation 
system,  which  is  essential  for  delivering  the  twin 
green and digital transition. 

Cyprus is a ‘strong innovation performer’ and 
its  performance  has  been  improving  over 
time.  According  to  the  2022  edition  of  the 
Innovation  Scoreboard (73),  Cyprus 
European 
performs  at  107%  of  the  EU  average  and  has 
been 
innovation 
performance of the business sector. 

improving 

thanks 

the 

to 

Cyprus’  R&D  intensity  has  been  gradually 
improving,  but  it  still  remains  far  below  the 
European  average.  In  2021,  R&D  investment 
increased  from  the  previous  year  and  reached 
0.87%  of  GDP.  However,  the  country  still  fares 
amongst the lowest in the EU (2.26%). While both 
public  expenditure  on  R&D  (at  0.34%  of  GDP  in 
2021) and business enterprise expenditure on R&D 
(0.41%  of  GDP  in  2021)  are  on  the  rise,  they 
remain  below  the  EU  average  (0.76%  and  1.49% 
respectively)  and  hinder  the  country’s  ability  to 
innovation-led 
diversify 
activities. 

its  economy  towards 

Graph A11.1: R&D expenditure as % of GDP, 2021 

Source: Eurostat,2022 

While the private sector contributes more to 
R&D  spending,  the  available  Cyprus  venture 
capital  market  continues  to  decrease  and  it 
is  below  the  European  average.  Between 

the  venture  capital  started 

2019-2021, 
to 
decrease from 0.049% in 2019 to 0.028% of GDP 
in 2021, compared with the EU average of 0.07%. 
The  Cypriot  recovery  and  resilience  plan  (RRP) 
seeks to support an increase in public and private 
investments. 
research  and 
Nevertheless,  this  increased  investment  would 
benefit  from  further  policies  capable  of  further 
strengthening 
R&I 
system (74). 

innovation 

country’s 

national 

(R&I) 

the 

lowest 

(0.006% 

in  Europe 

Academia-business  linkages  remain  a  major 
bottleneck  hampering  the  valorisation  of 
research  results.  The  number  of  public-private 
co-publications  is  increasing  as  a  proportion  of 
total R&D publications (8.3% in 2021), and is now 
above  the  EU  average  (7.1%).  However,  business 
sector involvement in financing public R&D  is one 
of  the 
in  2019 
compared  to  an  EU  average  of  0.054%).  Findings 
from  a  recent  Policy  Support  Facility  study 
(2020) (75)  highlighted  that  businesses  are  not 
properly  benefiting  from  the  research,  laboratory 
and  consulting  services  that  universities  and 
research  institutes  could  offer.  The  RRP  contains 
measures to facilitate and support the optimal use 
of research infrastructure by opening up access to 
other research institutions and the business sector. 
For  example,  policies  and  incentives  are  to  be 
introduced  to  facilitate  and  foster  access  to 
publicly 
infrastructure  and 
laboratories.  Moreover,  a  central  Knowledge 
Transfer  Office  was  to  be  set  up  to  support 
effective 
the 
collaboration 
commercialisation of research results. 

facilitate 

research 

funded 

and 

in 

capital 

Weak  human 
science  and 
technology  is  limiting  Cyprus’  capacity  to 
create  new  knowledge  and  generate  further 
innovations.  The  share  of  new  graduates  in 
science  &  engineering  per  thousand  population 
aged  25-34  ranks  amongst  the  lowest  in  Europe 
(7.2%  in  2020,  compared  to  the  EU  average  of 
16%).  The  low  rate  of  scientific  talent  integration 
is evidenced by the very low share of researchers 
amongst  public-sector  employees  per  thousand 
active  population  (1.9%  in  2020)  and  amongst 
in  2020), 
private-sector 

employees 

(1.3% 

(73)  2022 European Innovation Scoreboard, Country profile: 

Cyprus. Web page: 
https://ec.europa.eu/assets/rtd/eis/2022/ec_rtd_eis-country-
profile-cy.pdf. The EIS provides a comparative analysis of 
innovation performance in EU countries, including the relative 
strengths and weaknesses of their national innovation 
systems (also compared to the EU average). 

(74)  Particularly considering that the total RRF funding for R&I 
equals to 115% of the public R&D expenditure of Cyprus 
2020. 

(75)  https://ec.europa.eu/research-and-

innovation/en/statistics/policy-support-facility/specific-
support-cyprus. 

49 

00.511.522.5R&D IntensityPublic expenditurePrivate expenditureCYEU 
 
 
   
                                                 
                                                 
 
Table A11.1: Key innovation indicators 

(1) EU average for the latest available year or the year with the highest number of country data 
Source: Eurostat, OECD, DG JRC, Science-Metrix (Scopus database and EPO’s Patent Statistical database), Invest Europe 

compared  with  the  EU  averages  (4.0%  and  5.1% 
respectively).  The  RRP  includes  a  targeted  reform 
to  encourage  and  attract  human  capital  in  R&I. 
Also,  it  includes  a  reform  to  digitally  transform 
school units with the aim of enhancing digital skills 
to  Science,  Technology, 
and  skills 
Engineering  and  Math  education.  Notwithstanding 
these  measures,  addressing  this  challenge  is  key 
to  building  critical  mass,  equipping  the  population 
with  the  skills  needed  for  the  digital  and  green 
transition and building a stronger, more diversified, 
innovation-based economy. 

related 

50 

R&D intensity (GERD as % of GDP)0.440. 480.710.840.872.26Public expenditure on R&D as % of GDP0.310.30.320.360.340.76Business enterprise expenditure on R&D (BERD) as % of GDP0.080.110.30.370.411.49Scientific publications of the country within the top 10% most cited publications worldwide as % of total publications of the country 8.68.68.2::9.8PCT patent applications per billion GDP (in PPS)0.30.50.7::3.3Public-private scientific co-publications as % of total publications10.86.88.18.08.37.1Public expenditure on R&D financed by business enterprise (national) as % of GDP0.0040.0020.006::0.054New graduates in science & engineering per thousand pop. aged 25-345.28.27.57.2:16Total public sector support for BERD as % of GDP0.0220.0140.041::0.194Business enterprise expenditure on R&D (BERD) financed by the public sector (national and abroad) as % of GDP0.0220.0140.0410.056:0.104Green innovation Share of environment-related patents in total patent applications filed under PCT (%)119.712.4: :13.3Venture capital (market statistics) as % of GDP0.0130.00.0490.0330.0280.074Employment in fast-growing enterprises in 50% most innovative sectors1.30.11.6::5.52021EU average(1)Finance for innovation and economic renewal2020Cyprus201020152019Key indicators Quality of the R&I systemAcademia-business cooperationHuman capital and skills availabilityPublic support for business enterprise expenditure on R&D (BERD) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
ANNEX 12: INDUSTRY AND SINGLE MARKET 

Graph A12.2: Labour productivity by sector 
[2015=100] 

labour 

In  2022,  Cyprus’ 
productivity 
recovered  faster than the EU average, but a 
significant gap in productivity levels remains 
vis-à-vis the EU. Aggregate labour productivity in 
Cyprus grew by 2.7% in 2022 (compared to an EU 
average  of  1.5%).   Nevertheless,  Cyprus’  labour 
productivity  still  only  makes  up  85.8%  of  the  EU 
average,  thereby  placing  the  country  in  the  lower 
tail  of  the  productivity  distribution,  as  shown  in 
Graph A12.1. 

Graph A12.1: Labour productivity [% of EU-27] 

Source: Eurostat. 

As  shown  in  Graph  A12.2,  however,  sectoral 
differences in productivity are noticeable, with ICT 
and financial services being almost unaffected by 
the  pandemic  and  performing  significantly  better 
than industry or construction. 

Source: Eurostat. 

Given  the  service-based  nature  of 
its 
economy,  Cyprus  was  less  affected  than 
other  member  states  by  the  shortages  and 
disruptions  that  have  characterised  the 
global  post-pandemic  conjuncture.  In  2022, 
material  shortages  were  reported  by  4%  of  firms 
compared to an EU average of 47%, while import 
concentration  for  raw  materials  also  remained 
below average. Moreover, Cyprus is less dependent 
than  the  EU  average  on  non-food  materials 
exported by Russia and Ukraine, whose supply and 
availability  have  been  severely  impacted  after 
Russia’s  military  aggression.  For  instance,  while 
the EU as a whole is dependent on Russia for 9.4% 
of  its  extra-EU  imports  of  metals  and  5%  of 
minerals,  Cyprus’  dependency  amounts  to  2.5% 
and 0% respectively (76). 

Nevertheless, the Cypriot economy maintains 
important  strategic  dependencies,  due  inter 
alia to its peculiar energy mix and pattern of 
sectoral  diversification.  While  Cyprus  does  not 
rely on gas for energy generation (see Annex 6 for 
the  details  on  Cyprus’  energy  mix),  and  as  such 
does not suffer from the over-reliance on Russian 
gas that affects other member states, the country 
is still very largely dependent on oil imports, which 
are fundamental for its electricity generation. This 
constitutes  an  important  and  structural  strategic 

(76)  European Commission, JRC Technical Report - Russian trade 

in non-food raw materials (2022), and European 
Commission, JRC Technical Report – Ukraine’s trade in non-
food raw materials (2022). 

51 

60708090100110120EU-27Euro areaGreeceCyprusMalta85951051152015201620172018201920202021Industry (except construction)ConstructionWholesale and retail trade, transport, accommodationand food service activitiesInformation and communicationFinancial and insurance activitiesProfessional, scientific and technical activities;administrative and support service activities 
 
   
   
                                                 
 
 
(94% in 2022, vs. an EEA average of 56%), as well 
as  the  increasing  use  of  negotiated  procedures 
without  a call  for tenders (39% in 2022, up from 
28%  in  2021).  Moreover,  health  procurement  is 
challenging, as over the past few years the sector 
has gathered the highest number of overall single 
in  the 
bidder  procedures  and  direct  awards 
country.  Aggregating  procurement  e.g. 
in  the 
health  sector  could  help  attract  more  competition 
and further professionalise public buyers. 

In 

architects. 

Whilst  Cyprus  is  well  integrated  into  the 
single  market,  in  particular  for  services, 
barriers  remain.  According  to  the  Single  Market 
Scoreboard,  Cyprus’  trade  integration  for  services 
is among the highest in the EU, while for goods it 
is  below  the  average.  However,  the  level  of 
restrictiveness  in  the  regulation  of  professions 
remains  well  above  the  EU  average  in  numerous 
cases,  despite  recent  improvements  with  respect 
lawyers, 
the 
to 
patent/trademark  agents  and  real  estate  agents, 
for  instance,  the  level  of  restrictiveness  is  among 
the  highest  in  the  EU,  with  lawyers  being  subject 
and 
to 
multidisciplinarity that restrict the potential of the 
sector.  Restrictiveness 
is  also  above  the  EU 
average  for  civil  engineers,  architects  and  tourist 
guides (79). 
remain 
comparatively high in the retail sector – especially 
as  regards  the  establishment  of  shops,  where 
Cyprus  ranks  among  the  most  restrictive  Member 
States (80). 

incompatibility 

restrictions 

Similarly, 

rules 

case 

e.g. 

on 

of 

dependency  for  the  Cypriot  economy  and  its 
businesses,  as  it  exposes  them  not  only  to  the 
fluctuation  of  oil  prices  on  international  markets, 
but also to one of the highest prices for electricity 
in  the  EU,  even  before  the  energy  crisis (77).  This 
scenario  has  clear  consequences  for  firms’  cost 
competitiveness,  and  has  a  disproportionate 
impact  on  SMEs,  which  have  more 
limited 
resources  to  cope  with  high  energy  prices. 
Moreover,  despite  its  potential,  Cyprus  still  lags 
substantially  behind  in  the  uptake  of  renewable 
energy.  Although 
recent 
improvements,  notably  with  the  simplifications  of 
permitting  procedures  included  inter  alia  in  the 
Recovery  and  Resilience  Plan  (RRP),  there  is  still 
ample  room  for  improvement  to  exploit  the  full 
potential of renewables while opening up business 
opportunities  for  innovative  firms  and  reducing 
electricity costs for businesses and households. 

there  have  been 

to 

Finance 

composite 

For what concerns the business environment, 
room  for  improvement  remains,  as  long-
standing  challenges  including  in  access  to 
finance  continue  to  hinder  Cypriot  firms’ 
potential. The area of access to finance remains 
problematic for businesses, and particularly SMEs, 
with  largely  below-average  scores  in  the  EIF  SME 
index,  and 
Access 
particularly  low  results  in  the  equity  subindex 
(0.06  compared  to  an  EU  average  of  0.23). 
Moreover, the availability of non-traditional forms 
of finance, such as venture capital, equity funding 
and business angels, is also comparatively scarce, 
while 
is  also 
hampered by the practice of late payments, which 
according  to  the  SAFE  survey  affected  over  60% 
of  Cypriot  SMEs  in  2022  (compared  to  an  EU 
average of 43%). Similarly, other challenges in the 
Cypriot  business  environment  relate  to  contract 
enforcement,  with  76%  of  surveyed  investors 
mentioning that they are fairly or very unconfident 
that  their  investments  are  protected  by  the  law 
and courts (11 p.p. more than last year) (78). 

liquidity  management 

firms’ 

For  what  concerns  public  procurement,  over 
the  last  years  Cyprus  has  made  important 
efforts  to  open  it  up  and  attract  more 
important 
competition,  although 
weaknesses  continue  raising  concerns.  The 
latter  include  a  very  high  share  of  contracts 
awarded  exclusively  based  on  the  lowest  price 

some 

(77)  2021 Cyprus competitiveness report. 

(79)  European Commission, COM(2021) 385 final. 

(80)  European Commission, Retail Restrictiveness Indicator (2022 

(78)  European Commission, EU Justice Scoreboard. 

update), forthcoming. 

52 

 
                                                 
                                                 
Graph A12.3: Business environment and 
productivity drivers 

Source: 1) % of GDP, 2021 Eurostat;  
2) composite indicator, 2021 European Investment Fund 
access to finance index;  
3) average payment delay in number of days, 2022 Intrum;  
4) % of firms in manufacturing facing constraints, 2022 
European Commission business consumer survey;  
5) proportion of contracts awarded with a single bidder, 2022 
Single Market Scoreboard. 

53 

1) Businessinvestments2) EIF access tofinance index4) Materialshortage4) Labourshortage5) Single bidsEuropean UnionCyprus 
   
 
Table A12.1: Industry and the single market 

(*) last available year 
Source: (1) AMECO, (2) Eurostat, (3) ECFIN BCS, (4) Eurostat, (5) COMEXT and Commission calculations, (6) Eurostat, (7) Eurostat, 
(8) OECD, (9) Single Market Scoreboard, (10) EIB survey, (11) Eurostat: (12) Intrum, (13) SAFE Survey, (14) EIF SME Access to 
Finance Index. 

54 

POLICY AREAINDICATOR NAME20182019202020212022EU27 average (*)Net private investment, level of private capital stock, net of depreciation, % GDP (1)4.37.28.37.27.73.7Net public investment, level of public capital stock, net of depreciation, % GDP (1)2.70.50.60.60.80.4Real labour productivity per person in industry (% yoy)(2)53.8-2.27.1-0.21.4Cost competitive-nessNominal unit labour cost in industry (% yoy)(2)-2.5-0.10-3.11.92.9Material shortage (industry), firms facing constraints, % (3)2132447Labour shortage using survey data (industry), firms facing constraints, % (3)2321228Vacancy rate (business economy)(4)1.71.91.62.52.83.1Concentration in selected raw materials, Import concentration index based on a basket of critical raw materials (5)0.150.140.130.140.150.18Installed renewables electricity capacity, % of total electricity produced (6)13.714.216.618.9n.a.50.9Single Market integrationEU trade integration, % (7)29.131.532.535.838.345.8RestrictionsEEA Services Trade Restrictiveness Index (8)n.a.n.a.n.a.n.a.n.a.0.05Public procurement Single bids, % of total contractors (9)372225231629Investment obstaclesImpact of regulation on long-term investment, % of firms reporting business regulation as major obstacle (10)30.6127.525.433.4n.a.28.0Bankruptcies, Index (2015=100)(11)3843.535.964.120.786.8Business registrations, Index (2015=100) (11)n.a.n.a.n.a.n.a.n.a.121.2Payment gap - corporates B2B, difference in days between offered and actual payment (12)n.a.n.a.n.a.n.a.n.a.13Payment gap - public sector, difference in days between offered and actual payment (12)n.a.n.a.n.a.n.a.n.a.15Share of SMEs experiencing late payments in past 6 months, % (13)n.a.51.152.363.663.643EIF Access to finance index - Loan, Composite: SME external financing over last 6 months, index values between 0 and 1 (14)0.320.330.290.19n.a.0.46EIF Access to finance index - Equity, Composite: VC/GDP, IPO/GDP, SMEs using equity, index values between 0 and 1 (14)0.180.070.20.06n.a.0.23BUSINESS ENVIRONMENT - SMEsBusiness demographyLate paymentsAccess to financeHEADLINE INDICATORSEconomic StructureRESILIENCEShortagesStrategic dependenciesSINGLE MARKET 
 
   
 
ANNEX 13: PUBLIC ADMINISTRATION 

consist  of 

This  Annex  outlines  the  performance  of 
is 
Cyprus’  public  administration,  which 
essential for providing services and carrying 
out reforms. Overall, Cyprus ranks below the EU-
27  average  on  government  effectiveness (81). 
Weaknesses 
strategic  planning, 
evidence-based  policymaking  and  problems  in 
coordinating 
of 
government. Cyprus has launched several reforms 
under  its  recovery  and  resilience  plan  (RRP)  to 
address  entrenched  problems,  modernise  the 
management  of  human  resources  in  the  civil 
service  and  improve  the  digital  transformation  of 
the public administration.  

different 

between 

levels 

Cyprus’  civil  service  has  a  good  age  and 
education structure. Recruitment and promotion 
procedures  for  managers  are  being 
revised 
towards  a  merit-based  system.  The  ratio  of  staff 
aged  49  or  below  to  those  aged  50  or  above  is 
higher than the EU-27 average and so is the share 
of  civil  servants  participating  in  adult  learning 
(Table  A13.1).  New  legislation  drafted  under  the 
RRP  on  the  appraisal  and  promotion  of  civil 
servants  was  passed  in  2022  and  will  enter  into 
force  in  2024.  This  aims  to  remove  the  bias 
towards  seniority  over  capability  and  ensure  that 
promotions. 
considered 
performance 
Recruitment  competitions  will  be  run  by  a  new 
examination  centre,  with  selection  based  on 
meritocratic  and  objective  exams  to  be  designed 
with  help  provided  through  the  EU’s  Technical 
Support Instrument.  

in 

is 

Cyprus  faces  challenges  as  regards  the 
quality  of  its  legislation.  Performance  on  the 
OECD  indicators  on  regulatory  governance  and 
policy is well below the EU average (Graph A13.2). 
Regulatory  impact  assessments  and  stakeholder 
consultations are provided for in the law. However, 
consultations do not always take place at an early 
stage.  Other  factors  that  weaken  the  quality  of 
legislation  are  overregulation,  inexistent  ex  post 
evaluation of policies and non-standardised public 
consultation on draft legislation. Certain sectors of 
the  economy  are  overregulated  or  are  subject  to 
legislation  that  is  obsolete  or  has  a  distorting 
effect (82).  Consistency  between  different  policy 
sectors 
indicator  of  government 
effectiveness  and  Cyprus  has  taken  action  to 

is  a  major 

implement  its  better  regulation  agenda,  which  is 
centrally  coordinated  by  the  Ministry  of  Finance. 
Moreover,  under  the  recovery  and  resilience 
facility,  and  supported  by  the  EU’s  Technical 
Support Instrument, Cyprus is undertaking a major 
reform  of  its  legislative  process.  This  includes 
digitalisation  and  the  creation  of  an  open  data 
platform  (e-legislation  platform),  accessible  to 
citizens  and  businesses,  which  will  improve  legal 
certainty  and  transparency  and  give  investors 
access  to  complete  and  credible  information  on 
Cyprus’ legal and regulatory framework.  

The  justice  system  faces  serious  challenges 
as  regards  its  efficiency  and  digitalisation. 
Civil,  commercial  and  administrative 
judicial 
proceedings are still very lengthy. The time needed 
to  resolve  administrative  cases  in  first  instance 
courts (843 days in 2021) is among the longest in 
the  EU.  A  few  measures  in  the  RRP  aim  to 
modernise  how  cases  are  heard  to  deliver  a 
cheaper, more accessible and faster service to the 
parties involved. The goal is to reduce backlogs in 
cases  and  appeals.  Although  certain  digital  tools 
are  used  in  courts,  e-justice  in  general  needs 
improvement.  No  systemic  deficiencies  in  judicial 
independence have been reported. (83) 

Cyprus  accelerated  the  digitalisation  of  its 
public  administration  during  the  COVID-19 
pandemic.  Several  digital  solutions  were  put  in 
place  during  the  crisis  to  make  it  easier  for 
citizens, workers and SMEs to submit applications. 
However,  there  is  still  a  gap  with  the  EU-27 
average in the share of e-government users and in 
the e-government benchmark score (Table A13.1). 
Ongoing  RRP  measures  aim  to 
improve  the 
provision of digital public services, including in the 
health and justice sectors.  

there 

illustrate, 

There are gaps in the quality of State-Owned 
Enterprise  (SOE)  governance  with  respect  to 
best  practice.  To 
is  no 
requirement  for  all  large  SOEs  to  be  subject  to 
external audits by an independent audit firm along 
the 
is  no 
aggregate financial and non-financial reporting on 
the  SOE  sector.  Board  nomination  procedures  do 
not  sufficiently  protect  boards  from  political 
interference and board evaluations consist of self-

listed  companies.  There 

lines  of 

(81)  Worldwide Governance Indicators, 2021 data.  

(82)  European Commission, Public administration and governance: 
Cyprus, Publications Office of the EU, 2023 (forthcoming).  

(83)  For a more detailed analysis of the performance of the 
justice system in Cyprus, see the 2023 EU Justice 
Scoreboard (forthcoming) and the country chapter for Cyprus 
in the 2023 Rule of Law Report (forthcoming). 

55 

 
 
                                                 
                                                 
 
Table A13.1: Public administration indicators 

(1) High values denote a good performance, except for indicator # 6. (2) 2022 value. If not available, the 2021 value is shown. 
(3) 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. (4) Defined as the absolute value of the difference between the 
percentage of men and women in senior civil service positions. 
Flags: (b) break in time series; (d) definition differs; (u) low reliability. 
Source: ICT use survey, Eurostat (# 1); E-government benchmark report (# 2); Open data maturity report (# 3); Labour Force 
Survey, Eurostat (# 4, 5, 7), European Institute for Gender Equality (# 6); Fiscal Governance Database (# 8, 9); OECD Indicators of 
Regulatory Policy and Governance (# 10). 

Graph A13.1: Cyprus. a) Regulatory impact assessment, b) Stakeholder engagement and c) Ex post 
evaluation of legislation 

Source:  Indicators of Regulatory Policy and Governance Surveys 2017 and 2021, (http://oe.cd/ireg). 

evaluations, do not involve external evaluators and 
have  no  visible  implications  for  the  company’s 
board and management. (84)  

(84)  OECD. Database of country practices of the OECD Guidelines 

on Corporate Governance of SOEs (forthcoming).   

56 

CY201720182019202020212022EU-27(2)152.149.258.358.763.0n/a64.82n/an/an/a54.450.253.472.93n/a0.80.80.90.90.90.8457.855.655.660.061.4 (b)58.952.0510.510.39.54.8 (u)12.9 (b)17.416.9618.416.029.227.220.08.411.072.82.12.12.01.9 (b)1.71.580.60.60.60.60.8n/a0.791.11.11.11.11.1n/a1.5100.77n/an/an/a0.83n/a1.7Medium term budgetary framework indexIndicator (1)E-government and open government dataShare of individuals who used the internet within the last year to interact with public authorities (%)E-government benchmark overall score (3) Open data and portal maturity indexEducational attainment level, adult learning, gender parity and ageingShare of public administration employees with tertiary education (levels 5-8, %)Participation rate of public administration employees in adult learning (%)Gender parity in senior civil service positions (4)Ratio of 25-49 to 50-64 year olds in NACE sector OPublic financial management Strength of fiscal rules indexEvidence-based policy makingRegulatory governance0.000.501.001.502.002.503.0000.511.522.53CY2017CY2021CY2017CY2021Primary lawsSecondary lawsb) Stakeholder engagement MethodologyOversightSystematic adoptionTransparencyEU-270.000.501.001.502.002.503.0000.511.522.53CY2017CY2021CY2017CY2021Primary lawsSecondary lawsc) Ex-postevaluation of legislationMethodologyOversightSystematic adoptionTransparencyEU-270.000.501.001.502.002.503.0000.511.522.53CY2017CY2021CY2017CY2021Primary lawsSecondary lawsa) Regulatory impact assessmentMethodologyOversightSystematic adoptionTransparencyEU-27 
 
                                                 
 
   
 
   
FAIRNESS 
ANNEX 14: EMPLOYMENT, SKILLS AND SOCIAL POLICY CHALLENGES IN LIGHT OF 
THE EUROPEAN PILLAR OF SOCIAL RIGHTS  

The  European  Pillar  of  Social  Rights  is  the 
compass  for  upward  convergence  towards 
better  working  and  living  conditions  in  the 
EU.  This  Annex  provides  an  overview  of  Cyprus’ 
progress in implementing the Pillar’s 20 principles 
and EU headline and national targets for 2030 on 
employment, skills and poverty reduction. 

Table A14.1: Social Scoreboard for Cyprus 

Update of 27 April 2023. 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 2023. 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 

Despite  a  relatively  high  employment  rate, 
there  is  still  limited  outreach  to  young 
people  not  in  employment,  education  or 
training (NEETs) and other vulnerable groups 
to increase their labour market participation. 
Amid  solid  GDP  growth  in  the  post-COVID-19 
period, the employment rate in Cyprus at 78.0% in 

57 

increased 

to  19.3% 

Q4-2022  was  well  above  the  EU  average  of 
74.9%.  However,  the  proportion  of  young  NEETs 
(aged  15-29)  stood  at  14.9%  in  Q4-2022  and 
above  the  EU  average  of  11.7%,  with  almost  no 
change  compared  to  2020.  In  addition,  the  youth 
unemployment  rate  (15-24  age  group)  remained 
high  and 
in  Q4-2022, 
4.8 percentage points (pps) above the EU average. 
Meanwhile, the gender employment gap remained 
relatively wide at 12.1 pps in 2022 (vs 10.6 pps in 
the  EU)  after  some  decrease  of  0.1 pps  from 
2021.  The  disability  employment  gap  increased 
considerably  to  27 pps  in  2021  from  23.5 pps  in 
2020, which is above the EU average of 23.1 pps. 
Yet,  there  are  labour  shortages  as  measured  by 
the vacancy rate of 2.3% in 2021 (in line with the 
EU  average),  which  are  mostly  observed  in  the 
trade,  manufacturing,  transport,  tourism  and  ICT 
sectors. Measures under the European Social Fund 
Plus  (ESF+)  in  support  of  active  labour  market 
policies 
for  young  people,  women,  non-EU 
nationals,  and  persons  with  disabilities,  together 
with outreach activities for young people under the 
Cyprus’  recovery  and  resilience  plan  (RRP),  are 
expected 
challenges 
mentioned above. Furthermore, both the ESF+ and 
the  RRP  include  support  measures  to  facilitate 
participation in early childhood education and care 
and  flexible  work  arrangements.  This  is  expected 
to  further  increase  labour  market  participation, 
especially  for  working  mothers.  All  this  will  help 
Cyprus  to  reach  its  national  2030  target  of  at 
least  80%  of  the  population  aged  20-64  in 
employment. 

to  help  address 

the 

the 

Matching 
skills  needs, 
increasing 
including for digital skills, poses a significant 
challenge that needs to be addressed in light 
of  the  green  and  digital  transitions.  Digital 
literacy remains low: 50% of the population had at 
least  basic  digital  skills  in  2021,  which  is  below 
the  EU  average  of  54%.  The  early  school  leaving 
rate in Cyprus decreased sharply by 1.3 pps, but, at 
10.2% in 2021, it is still above the EU average of 
9.7%.  It  is  particularly  high  among  non-EU-born 
people  and  persons  with  disabilities  (see  also 
Annex  15).  Moreover,  the 2018  OECD  Programme 
for 
(PISA) 
results  point  to  pupils’  below-average  skills  in 
reading,  maths,  and  science  (see  also  Annex  15). 
To address these challenges, training schemes are 
being  implemented  that  promote  acquiring  basic 

International  Student  Assessment 

8.150.2114.712.14.2377.96.82.398.4117.319.237.56272.528.80.1Critical situationTo watchWeak but improvingGood but to monitorOn averageHousing cost overburden(% of total population, 2021)Children aged less than 3 years in formal childcare(% of population under 3-years-old, 2021)Self-reported unmet need for medical care(% of population 16+, 2021)Better than averageBest performersDynamic labour markets and fair working conditionsEmployment rate(% of population aged 20-64, 2022)Unemployment rate(% of active population aged 15-74, 2022)Long term unemployment(% of active population aged 15-74, 2022)GDHI per capita growth                                                              (2008=100, 2021)Social protection and inclusionAt risk of poverty or social exclusion rate                                            (% of total population, 2021)At risk of poverty or social exclusion rate for children                       (% of population aged 0-17, 2021)Impact of social transfers (other than pensions) on poverty reduction (% reduction of AROP, 2021)Disability employment gap(percentage points, 2021)Policy areaHeadline indicatorEqual opportunities and access to the labour marketEarly leavers from education and training(% of population aged 18-24, 2022)Share of individuals who have basic or above basic overall digital skills (% of population aged 16-74, 2021)Youth NEET rate(% of population aged 15-29, 2022)Gender employment gap(percentage points, 2022)Income quintile ratio(S80/S20, 2021) 
 
 
 
   
 
 
in 

in  2021 

education 

vocational 

engineering, 

knowledge and skills (for example, literacy, maths 
technological  skills,  and 
skills,  digital  and 
interpersonal skills), and they focus particularly on 
NEETs.  The  share  of  people  with  a  tertiary 
education in Cyprus is well  above the EU average 
(58.3%  vs  41.2%  in  2021).  However,  the  country 
still  has  one  of the lowest  proportions  of  science, 
technology, 
and  mathematics 
graduates  (see  also  Annex  15),  and  only  40%  of 
the working age population are employed in high-
skilled jobs. The share of upper secondary students 
enrolled 
training 
programmes continued to be the lowest in the EU 
at  16.8%  in  2020,  well  below  the  EU  average  of 
48.4%.  The  share  of  adults  participating 
in 
learning (over the past 4 weeks) was below the EU 
(9.7%  vs  10.8%),  having 
average 
increased by 5 pps from 2020 and up from 7.5% 
in  2015.  In  response  to  these  challenges,  Cyprus 
has  established  the  systematic  forecasting  of 
labour demand and carried out a related study for 
the  2022-2023  period,  including  forecasts  of 
labour  supply  for  the  first  time.  The  ESF+,  the 
Recovery  and  Resilience  Facility  and  the  Just 
for 
Transition 
support  measures 
the  capacity  and  quality  of 
strengthening 
vocational 
training 
programmes for upskilling and reskilling, including 
on  green  and  digital  skills.  These  measures, 
together with the development of a national skills 
strategy  and  the  implementation  of  the  e-skills 
action  plan,  are  expected  to  address  skills  needs, 
improve the labour market relevance of education 
and  training,  and  contribute  towards  achieving 
Cyprus’  national  2030  target  of  at  least  61%  of 
adults participating in learning every year. 

training. 

include 

Fund 

They 

Table A14.2: Situation of Cyprus on 2030 
employment, skills and poverty reduction targets 

(1) Adult Education Survey, adults in learning in the past 12 
months 
(2) Number of persons at risk of poverty or social exclusion 
(AROPE), reference year 2019 
Source: Eurostat, DG EMPL 

The  weak  growth  of  household 
real 
disposable  income  and  energy  poverty  are 

58 

still  challenges  for  Cyprus,  along  with  the 
high  share  of  people  at  risk  of  poverty  or 
social  exclusion  in  certain  groups  of  the 
population.  Cyprus’  growth  of 
real  gross 
disposable  household  income  (GDHI)  per  person 
was  one  of  the  slowest  in  the  EU  in  2021.  Its 
growth  was  below  the  EU  average  and  was 
flagged  as  a  ‘critical  situation’  on  the  Social 
Scoreboard.  To  tackle  this,  Cyprus  introduced  a 
universal  statutory  minimum  wage,  which  took 
effect on 1 January 2023. It is set at EUR 940 and 
is expected to have 40 000 direct beneficiaries. In 
particular,  the  minimum  wage  will  help  young 
people  and  female  workers.  This  should  also  help 
alleviate  the  risk  of  poverty  for  beneficiaries, 
especially  of  in-work  poverty,  which  is  one  of  the 
highest  in  the  EU  for  non-EU-born  people.  The 
share  of  people  at  risk  of  poverty  or  social 
exclusion  (AROPE)  in  2021  was  relatively  low  in 
Cyprus at 17.3%, which is below the EU average of 
21.7%.  However,  the  rate  is  higher  for  specific 
groups, such as persons with disabilities at 29.1%, 
although  slightly  lower  than  the  EU  average  of 
29.7%.  Energy  poverty  is  a  continuing  problem 
with  19.4%  of  the  total  population  –  and  50% 
among  those  at  risk  of  poverty  –  unable  to  keep 
their home sufficiently warm in 2021 (against the 
EU  average  of  16.4%)  (see  also  Annex  8).  Self-
employed  people  do  not  have  formal  access  to 
unemployment  benefits  or  benefits  in  respect  to 
accidents  at  work  and  occupational  diseases.  The 
impact of social transfers on reducing poverty for 
self-employed  people  is  rather  limited  at  10.8% 
(25.6%  in  the  EU).  ESF+  measures  to  create  a 
network  of  social  inclusion  services,  including 
home-care  support  for  persons  with  disabilities, 
are  expected  to  strengthen  equal  opportunities 
and  support  social 
in 
vulnerable  situations.  In  2019,  Cyprus  had  one  of 
the  highest  proportions  of  women  aged  65  and 
over with severe difficulties with personal care and 
household  activities  (94.7%  vs  EU  78.1%),  yet 
long-term  care  attracts 
levels  of  public 
funding  (at  0.34%  of  GDP  in  2020).  Furthermore, 
staff  shortages  pose  a  challenge  for  the  health 
system  (the  density  of  nurses  is  5.4  per  1 000 
inhabitants,  well  below  the  EU  average  of  8.3). 
Cyprus’ RRP and ESF+ operational programme will 
help address this problem by supporting long-term 
care  infrastructure  and  services  for  older  people 
and persons with disabilities. These measures will 
also be key in reaching the national 2030 target of 
reducing the number of persons at risk of poverty 
or social exclusion by at least 10 000 compared to 
2019. 

inclusion  for  people 

low 

IndicatorsLatest dataTrend            (2015-2022)National target by 2030EU target by 203077.9(2022)44.8(2016)-8(2021)Adult learning1 (%)6160Employment (%)8078Poverty reduction2 (thousands)-10-15 000 
 
     
 
ANNEX 15: EDUCATION AND TRAINING 

This  Annex  outlines  the  main  challenges  for 
Cyprus’  education  and  training  system  in  light  of 
the  EU-level 
targets  and  other  contextual 
indicators  under  the  European  Education  Area 
strategic framework, based on the 2022 Education 
and Training Monitor. 

Early  leaving  from  education  and  training 
(ELET) has almost doubled since 2015, driven 
by high rates among foreign-born pupils. The 
early  leaving  rate  is much  higher  among  non  EU-
born  young  people,  at  26.1%  (EU:  22.1%),  with  a 
decreasing  trend  (-1.2  percentage  points  (pps) 
since  2020).  By  contrast,  the  rate  of  native-born 
early leavers was 3.4% in 2022 vs the EU average 
of 8.3%. The highest proportion of early leavers in 
2022  were  reported  in  urban  areas.  About  two 
thirds  of  early  leavers  are  boys.  With  one  of  the 
EU’s  highest  ratios  for  asylum  applicants  to 
inhabitants,  integrating  asylum  seekers  into  the 
is  a  key  challenge.  The 
education  system 
proportion  of  young  people 
(18-34)  among 
recently  arrived  asylum  seekers  is  especially  high 
(62%  in  2018).  In  order  to  address  the  problem, 
Cyprus  provides  support  to  students  at  risk  of 
dropping  out  of  secondary  education  under  a 
project  financed  by  the  EU’s  Technical  Support 
Instrument.  Early  warning  systems  are  in  place, 
but  data  collection  is  insufficient  and  the method 
most used relies on school-by-school reporting (85). 

The  entry  of  newly  qualified  teachers  into 
the  profession  is  hindered  by  a  low  success 
rate 
in  the  exams  required  for  their 
appointment.  Teacher  salaries  and  working 
conditions compare favourably with those of their 
European  peers.  However,  a  hiring  system  that 
favours candidate seniority over merit has resulted 
in long waiting times for newly qualified teachers 
to  be  recruited.  In  2017,  Cyprus  implemented 
recruitment based on competitive exams, while the 
old  seniority-based  system  will  continue  until 
2027. So far, the exams resulted in a high failure 
rate. As an indication, the highest success rate was 
achieved  by  pre-primary  candidates  with  only 
42.42%  of  candidates  having  scored  above  the 
pass mark (10 out of 20). 

(85)  Donlevy, V., Day, L., Andriescu, M., Downes, P., ECORYS, 
European Commission 2019, Assessment of the 
implementation of the 2011 Council Recommendation on 
policies to reduce early school leaving, doi 10.2766/599017. 

. 

59 

Graph A15.1: Early leavers from education and 
training (18-24) by sex and country of birth in 
2022 

Source: Eurostat 

professional 

development 

(CPD) 
Continuing 
increasingly responds to the needs of teachers and 
schools,  but  is  insufficiently  linked  to  career 
development  and  evaluation.  The  implementation 
of  teacher  evaluation  is  a  long-lasting  challenge; 
Cyprus  committed  to  this  in  its  recovery  and 
resilience plan. 

(ECEC) 

Accessible  and  affordable  early  childhood 
education  and  care 
remains  a 
challenge  despite  coordinated  efforts.  The 
participation in early childhood education and care 
from  age  3  to  the  starting  age  for  compulsory 
primary  education  is  at  91.1%,  below  the  EU 
average  (93%)  and  the  EU-level  target  for  2030 
(96%).  Disadvantaged  families  often  cannot 
afford  to  pay  for  their  children  to  participate. 
Cyprus  has  committed 
to  expanding 
capacities  and  improving  affordability  of  ECEC 
through  EU  funding.  In  addition,  the  country 
supports  families  on  income  and  social  criteria 
under  the  scheme  “Subsidy  of  Tuition  of  Children 
up to 4 years old”, co-funded by ESF+. 

itself 

Cypriot  pupils  perform  worse  than  their 
European  peers 
in  reading,  maths  and 
science,  and  socio-economic  disparities  are 
strong.  Cyprus  has  a  high  proportion  of  pupils 
performing low in reading, maths and science and 
a low proportion of top performers compared with 
other  EU  countries,  as  measured  by 
the 
Programme  for  International  Student  Assessment 
(PISA)  2018.  Even  in  the  top  socio-economic 
quartile,  one 
low 
performance,  one  of  the  EU’s  highest  rates.  In 
addition,  the  difference  in  the  share  of  low 
achievers  between  low  and  high  socio-economic 
status is high (25.4 pps,  vs EU 19.3 pps). 39% of 
pupils  from  a  low  socio-economic  background 

three  students  show 

in 

0%5%10%15%20%25%30%TotalWomenMenNativebornEU-bornNon EU-bornCYEU 
 
                                                 
  
 
in  all 

underperform 
tested  subjects 
simultaneously.  Curricula have  been  revised  at  all 
education levels to support the acquisition of skills 
and competencies (Donlevy V. et al., 2019). 

three 

(ICT) 

Digital  education  has  been  improved.  The 
country  has  many  16-19-year-olds  with  at  least 
basic digital skills: 82% compared with a 69% EU 
average  (2021).  The  use  of  information  and 
in  education 
communication  technology 
increased.  At  lower  secondary  level,  ICT  is  a 
compulsory  subject;  it  has  one  of  the  highest 
numbers  of  annual  hours  (135)  allocated  to  it  in 
the EU. To boost digital education, Cyprus allocates 
substantial  amounts  of  EU  funding  through  the 
Recovery  and  Resilience  Facility  (see  also  Annex 
10)  and  the  European  Social  Fund  Plus.  The 
relevant projects aim to digitally transform schools 
and  to  enhance  digital  and  science,  technology, 
(STEM)  skills. 
engineering  and  mathematics 

in 

and 

digital 

education 

For  example, it  is  planned  to purchase  tablets  for 
primary  to  lower  secondary  school  students  and 
digital  equipment  for  schools.  The  training  of 
teachers 
the 
transformation  of  curricula,  along  with  new 
educational  material  for  the  development  of 
digital  and  STEM  skills, is also  envisaged.  Tertiary 
educational attainment is one of the highest in the 
EU,  but  the  labour  market  relevance  of  education 
needs  to  be  increased.  The  number  of  STEM 
graduates falls short of labour market demand. In 
2020,  Cyprus 
lowest 
proportion  of  STEM  graduates  among  all  higher 
education graduates in the EU (13.1%). In addition, 
from  2015  to  2020,  the  proportion  of  STEM 
graduates  out  of  all  graduates  in  Cyprus  dropped 
by  4.3  pps.  A  graduate  tracking  system  is  being 
developed  under  the  Recovery  and  Resilience 
Facility  in  order  to  analyse  graduate  pathways 
after  completing  higher  education  and  to  verify 
the  relevance  of  education  and  training  with  the 
labour market. There is a significant gender gap in 
favour of women in tertiary education attainment. 

the  second 

recorded 

Table A15.1: EU-level targets and other contextual indicators under the European Education Area 
strategic framework 

Source: (1,3,4,5,7,8,9,10,11) = Eurostat; 2 = OECD (PISA); 6 = European Commission (Joint Research Centre). Notes: Data is not 
yet available for the remaining EU-level targets under the European Education Area strategic framework, covering 
underachievement in digital skills and participation of adults in learning. The equity indicator shows the gap in the share of 
underachievement in reading, mathematics and science (combined) among 15-year-olds between the lowest and highest quarters 
of socio-economic status. 

60 

96%81.3%91.9%91.1%202093.0%2020Reading< 15%35.6% 20.0%43.7%201822.5%2018Mathematics< 15%42.6% 22.3%36.9%201822.9%2018Science< 15%42.1% 21.1%39.0%201822.3%2018< 9 %5.2%11.0%8.1% 9.6%Men7.7%12.5%9.4%11.1%Women3.1%u9.4%6.9%8.0%Cities3.8%u9.6%8.6%8.6%Rural areas8.5%u12.2%4.8%u10.0%Native3.1%10.0%3.4%8.3%EU-born17.0%u20.7%21.5%u20.3%Non EU-born16.6%u23.4%26.1%22.1%6Equity indicator (percentage points)::25.4201819.320187Exposure of VET graduates to work based learningTotal ≥ 60% (2025) : :41.6%u60.1%45%54.7%36.5%59.2%42.0%Men44.9%31.2%50.7%36.5%Women63.9%41.8%67.1%47.6%Cities60.9%46.2%63.2%52.2%Rural areas45.4%26.9%54.7%30.2%Native62.8%37.7%68.9%43.0%EU-born31.9%32.7%40.2%39.5%Non EU-born34.3%27.0%41.7%35.7%21.7% 38.3%24.3%202039.2%2020Tertiary educational attainment (age 25-34)8Total8By gender9By degree of urbanisation10By country of birth11Share of school teachers (ISCED 1-3) who are 50 years or over1Participation in early childhood education (age 3+)2Low achieving 15-year-olds in:Early leavers from education and training (age 18-24)3Total3By gender4By degree of urbanisation5By country of birth20152022IndicatorTargetCyprusEU27CyprusEU27 
 
  
 
ANNEX 16: HEALTH AND HEALTH SYSTEMS 

A  healthy  population  and  an  effective, 
accessible  and  resilient  health  system  are 
prerequisites  for  a sustainable  economy and 
society.  This  Annex  provides  a  snapshot  of 
population health and the health system in Cyprus.  

life  expectancy, 

Despite  its  recent  decline,  life  expectancy  in 
Cyprus remains among the highest in the EU. 
Before  2020,  and  against  an  overall  EU  trend  of 
increasing 
life  expectancy 
appeared to be plateauing in Cyprus. In 2020, both 
COVID-19 deaths and excess mortality rates were 
low in Cyprus compared to other EU countries, but 
in  2021,  infection  rates  were  much  higher.  Life 
expectancy hence fell in 2021. COVID-19 mortality 
almost quadrupled in 2021 compared to 2020 and  
played a key role in this loss of life expectancy (86). 
Notwithstanding  this,  Cyprus  fares  comparatively 
well  with  respect  to  avoidable  mortality,  which  is 
also  reflected  in  low  cancer  mortality.  Leading 
causes  of  death  are  diseases  of  the  circulatory 
system  (“cardiovascular  diseases”)  followed  by 
cancer.  

Graph A16.1: Life expectancy at birth, years 

Source: Eurostat 

Health  spending  relative  to  GDP  in  Cyprus 
was  below  the  EU  average  in  2020.  The 
extensive  2019-2020  health  system  reform  to 
introduce universal health coverage and to unify a 
previously  fragmented  system  has  reduced  what 
was the highest level of out-of-pocket spending in 
the EU. The reform has rendered healthcare more 
affordable  and  has  drastically  reduced  self-
reported  levels  of  unmet  needs,  placing  Cyprus 
among  the  top  5  performing  countries  in  the  EU 
according to 2021 estimates (also see Annex 14). 
However,  disparities  between  income  groups  and 
waiting  lists  for  certain  services  persist.  Cyprus 
spends  24%  less  per  capita  on  outpatient  care, 
39% less on inpatient care and 87% less on long-

framework 

(as  part  of 

term  care 
reported  healthcare 
expenditure) than the EU overall. The low spending 
on long-term care can be related to the absence of 
a  dedicated 
long-term  care 
provision.  As  regards  quality  of  health  spending, 
under Cyprus’ recovery and resilience plan (RRP), a 
gradual  shift  of  the  healthcare  provision  and 
reimbursement  framework  towards  value-based 
models has already started. 

for 

trends. 

The share of spending on prevention in total 
healthcare  expenditure  remains  far  below 
the EU average. However, a slight increase in the 
share  of  total  spending  on  preventive  care  was 
reported  in  2020  (1.7%,  up  from  1.1%  in  2019), 
reflecting  similar  EU-wide 
In  2020, 
spending  on  prevention  in  Cyprus  amounted  to 
1.7% of total spending on healthcare (compared to 
3.4% for the EU overall). This is comparatively low, 
with six other Member States also reporting a level 
below  2%.  Between  2019  and  2020,  spending  on 
prevention in Cyprus increased by 59% (compared 
to  a  26%  increase  for  the  EU  overall).  Across  the 
EU, this increase was primarily driven by spending 
on  disease  detection,  surveillance,  control  and 
response programmes as part of the public health 
response to COVID-19. Between 2019 and 2020, a 
remarkable  proportional 
reported 
spending  was  noted  for  early  disease  detection 
programmes.  Also 
to  public  health, 
related 
concerns  exist  over  antimicrobial  resistance,  both 
in  hospitals  and  in  animal  husbandry,  also  given 
the 
antibiotics 
reported 
consumption.  Cyprus 
is  among  the  five  EU 
countries with the highest morbidity and mortality 
resistant 
attributable 
bacteria (87). To address this, Cyprus’ RRP contains 
a  measure  that  aims  to  set  up  an  electronic 
platform for the surveillance of hospital antibiotic 
and 
consumption, 
healthcare-associated  infections.  Between  2019 
and  2021,  antibiotic  consumption  in  humans  in 
outpatient  settings  decreased  significantly  across 
the  EU,  with  an  even  more  pronounced  drop  in 
Cyprus.  This  decrease  was  seen  in  most  EU/EEA 
countries, most likely as a result of the COVID-19 
pandemic .  

infections  with 

antimicrobial 

resistance 

increase 

levels 

high 

of 

to 

in 

(86)  Based on data provided directly by Member States to ECDC 
under the European Surveillance System (data current as of 
13 April 2023) 

(87)  See: ECDC/EFSA/EMA third joint report on the integrated 
analysis of the consumption of antimicrobial agents and 
occurrence of antimicrobial resistance in bacteria from 
humans and food-producing animals (JIACRA III) (europa.eu). 

61 

82.782.282.982.382.481.380.980.981.081.380.480.1201620172018201920202021CyprusEU 
 
        
                                                 
                                                 
 
Table A16.1: Key health indicators 

Note: The EU average is weighted for all indicators, except for (*) and (**), for which the EU simple average is used. The simple 
average for (*) uses data for 2020 or most recent year if former not available. Doctors' density data refer to practising doctors in 
all countries except EL, PT (licensed to practice) and SK (professionally active). Nurses' density data refer to practising nurses in all 
countries except FR, PT, SK (professionally active) and EL (nurses working in hospitals only). 
Source: Eurostat; except: ** ECDC 

concise and evidence-based mapping, also looking 
at  specialised  staff,  is  still  needed.  Shortages, 
particularly of nurses, exist in both the healthcare 
and  the  long-term  care  system.  The  increasing 
need for long-term care in particular would benefit 
from  more  comprehensive  measures,  aiming  at 
optimal  service  provision  across  all  aspects  of 
care. Before the pandemic, Cyprus had 3.1 hospital 
beds  per  1 000  people,  below  the  EU  average  of 
3.9  beds  in  2019.  Private hospital  beds  and  staff 
were  requisitioned  as  part  of  the  pandemic 
response. 

Through  its  RRP,  Cyprus  plans  to  allocate 
EUR  69.6  million  (5.8%  of  the  plan’s  total 
value)  to  investments  and  reforms  in  the 
investments  aim  to 
healthcare  sector.  Key 
modernise  and  upgrade  state  hospitals  by 
refurbishing facilities and by procuring equipment. 
Cyprus  is  also  focusing  on  strengthening  the 
performance  of  the  public  health  system,  notably 
through  digitalisation,  to  align  the  infrastructure 
with  standards  for  exchanging  data 
(across 
national  borders  within  the  EU),  and  to  provide 
interoperable e-health services. Historical levels of 
investment in healthcare, measured as gross fixed 
capital formation as share of GDP, are among the 
lowest in the EU. An impetus for higher investment 
may come from Cyprus’ RRP.  

Graph A16.2: Projected increase in public 
expenditure on healthcare over 2019-2070 

AWG reference scenario 
Source: European Commission / EPC (2021) 

Public  expenditure  on  health  is  projected  to 
increase  by  0.3  percentage  points  (pps)  of 
GDP by 2070 (88) (compared to 0.9 pps for the EU 
overall) (Graph A16.2). 

Staff  and  bed  shortages  undermine  the 
health  system’s  long-term  performance.  The 
number  of  doctors  per  1 000  population  is  above 
the  EU  average,  while  the  number  of  nurses  is 
below  it,  and  the  number  of  nursing  graduates  is 
falling. The age profile of active physicians (43.6% 
aged  over  55  vs  an  EU  average  of  35.9%)  raises 
concerns  for  the  long-term  accessibility  of  health 
services.  For  nurses,  the  age  profile  issue  is  less 
acute,  with  only  15.9%  aged  over  45.  In  the  area 
of  long-term  care,  the  Deputy  Ministry  of  Social 
Welfare  has  started  mapping  needs,  yet  more 

(88)  European Commission (ECFIN) and Ageing Working Group 
(EPC), The 2021 Ageing Report: Economic and Budgetary 
Projections for the EU Member States (2019-2070). Note 
that due to limited data availability at the time of the 
projections, this does not factor in the impact of the health 
system reform on expenditure in 2019-2021, which is 
expected to be substantial. 

62 

6.62.90.90.302468EUCyprus% of GDP20192070increase20172018201920202021EU average (latest year) Treatable mortality per 100 000 population (mortality avoidable through optimal quality healthcare)73.978.977.170.5NA91.7 (2020)Cancer mortality per 100 000 population208.5204.6195.4205.6NA242.2 (2020)Current expenditure on health, % GDP 6.66.97.08.1NA10.9 (2020)Public share of health expenditure, % of current health expenditure41.542.055.578.1NA81.2 (2020)Spending on prevention, % of current health expenditure 1.31.31.11.7NA3.4 (2020)Acute care beds per 100 000 population330318311NANA387.4 (2019)Doctors per 1 000 population *3.94.14.3NANA3.9 (2020)Nurses per 1 000 population *5.45.45.4NANA8.3 (2020)Consumption of antibacterials for systemic use in the community, daily defined dose per 1 000 inhabitants per day (total consumption for CZ and CY)**28.928.030.128.925.014.5 (2021) 
        
 
                                                 
 
 
      
 
ANNEX 17: ECONOMIC AND SOCIAL PERFORMANCE AT REGIONAL LEVEL 

although  it  still  scores  below  the  EU  average  in 
most  cases.  The  most  significant  progress  has 
been  made  in  connectivity,  integration  of  digital 
technology and digital public services. 

differences 
socio-economic 
Significant 
persist  in  Cyprus  between  territories.  Cyprus’ 
unemployment  rate  was  7.5%  (of  the  active 
population) in 2021. It was 7.2% in the cities and 
7.1%  in  rural  areas  but  9%  in  the  towns  and 
suburbs. The unemployment rate, which had been 
steadily decreasing since 2016, started to increase 
again in 2020. It stabilised at 7.2% in the cities in 
2021 and started to decrease in rural areas (from 
8.0% in 2020 to 7.1% in 2021) but increased from 
8.0%  in  2020  to  9.0%  in  2021  in  the  towns  and 
suburbs.  

There  are  very  significant  differences  in 
terms  of  educational  attainment,  as  well  as 
poverty  and  social  exclusion  (AROPE).  More 
than 52.7% of the overall population (aged 25-64) 
has  a  tertiary  degree  but  this  drops  to  42.8%  in 
the  towns  and  suburbs  and  33.2%  in  rural  areas. 
In  2021,  the  share  of  early  leavers  from  school 
and training was highest in the towns and suburbs 
at  11.2%  (Table  A17.1).  Poverty  and  social 
exclusion are worryingly high in rural areas, where 
one  in  four  people  (25.1%)  were  at  risk  in  2021, 
compared  with  17.9%  in  the  towns  and  suburbs 
and 14.6% in the cities.  

territorial  dynamics 

This  Annex  showcases  the  economic  and 
in  Cyprus, 
social 
providing  an  update  on  economic,  social  and 
territorial  cohesion  in  the  country  compared 
with  the  EU  as  a  whole  and  the  main 
economic recovery challenges. 

Graph A17.1: Labour productivity, EU-27, Cyprus, 
2000-2020 

Source: EUROSTAT 

In the past decade, Cyprus has not converged 
on the rest of the EU in terms of its GDP per 
capita.  GDP  per  capita  decreased  from  97%  of 
the EU-27 average in 2011 to 91% in 2021. Real 
GDP per capita grew by an average of 0.15% per 
annum in 2011-2020. This was slower than in the 
EU as a whole, which grew by 0.60% per year on 
average.  Cyprus  ranked  155th  in  the  Regional 
Competitiveness  Index  among  all  EU  regions  in 
2022, with a score of 86.6. Labour productivity is 
below  the  EU-27  average  and  this  gap  has 
remained  unchanged  since  2000  (Cyprus’  labour 
productivity  was  85.8%  of  the  EU  average  in 
2021).  

Cyprus  is  a  strong  innovator  and  performed 
at  106.9%  of  the  EU  average,  though  its 
performance was below the 114.5% average 
for  strong  innovators  (European  innovation 
scoreboard  2022).  Performance  is  increasing 
(37.9  percentage  points  (pps))  at  a  much  faster 
rate than for the EU as a whole  (9.9 pps). Cyprus 
has  a  mixed  performance  on  climate  change-
related  indicators  with  a  much  higher  share  of 
material  resources  coming  from  recycled  waste 
materials  but  a  below-average 
score  on 
environmental innovation. 

Cyprus  ranked  20th  (up  from  24th  in  2020) 
among the 27 EU Member States in the 2022 
digital economy and society index (DESI). This 
relative progress indicates that it is converging on 
the  EU  average.  Cyprus  has 
its 
performance  in  almost  all  the  DESI  dimensions, 

improved 

63 

354045505560000102030405060708091011121314151617181920thousands of EUR per  personCapital regionOther NUTS2 regionsEU27National average 
 
   
 
 
Table A17.1: Main socio-economic indicators by degree of urbanisation, Cyprus, 2021 

Source: EUROSTAT 

64 

Unemployment rate (%) in 2021Population (ages 25-64) with tertiary education (%) in 2021Early school leavers (%) in 2021Young People (aged 15-34) neither in employment nor in education and training in 2021At-risk-of-poverty or social exclusion (% of population)European Union 733.41014.321.7Cyprus 847.01015.117.3Cities7.252.710.714.014.6Towns and suburbs919.21119.217.9Rural areas714.4814.425.1 
 
  
 
MACROECONOMIC STABILITY 
ANNEX 18: KEY FINANCIAL SECTOR DEVELOPMENTS 

The  banking  sector 
in  Cyprus  remains 
relatively  concentrated,  while  considerable 
progress  has  been  made  with  deleveraging 
and de-risking bank balance sheets. Following 
the  ‘carve-out’  of  the  distressed  assets  of  the 
Cyprus  Cooperative  Bank  during  its  liquidation  in 
2018,  and  major  recent  sales  of  non-performing 
loans (NPLs) by commercial banks, banking-sector 
assets declined sharply  and accounted for around 
256%  of  GDP  in  2022.  This  is  below  the  EU 
average of 277% and significantly below the peak 
reached in Cyprus of more than 700% before the 
financial  crisis  of  2013.  The  top  five  lenders  hold 
almost  90%  of  total  banking-sector  assets.  The 
banking sector in Cyprus is dominated by domestic 
banks,  which  held  around  78%  of  total  assets  in 
2022, slightly lower than the percentage they held 
pre-pandemic (see Table A18.1).  

ratio 

Overall, the banking sector remains resilient, 
with  adequate  capitalisation  and  elevated 
liquidity,  although  profitability  has  only 
recently  started  to  rebound.  The  system-wide 
capital-adequacy  ratio  was  21.2%  in  the  third 
quarter of 2022, above the EU average of 18.6%. 
the  still-
is  commensurate  with 
This 
meaningful  credit  risk  on  the  balance  sheet  of 
Cypriot  banks.  Liquidity  remains  ample,  with 
deposits growing in 2022. The sector’s profitability 
improved  in  the  course  of  2022,  as  compared  to 
the  very  small  profit  in  2021,  and  a  loss-making 
2020.  Narrowing 
interest  margins  had  been 
weighing on banks’ returns for years and reached 
a low point in March 2022. However, rising interest 

Table A18.1: Financial soundness indicators 

rates should support banks’ interest income in the 
future,  as  an  exceptionally  high  share  of  loans  – 
about  95%  –  are  on  variable  rates.  Banks  have 
made  progress  in  reducing  headcount,  but  staff 
costs remain high.  

future, 

After  considerable  progress  in  the  work-out 
of NPLs in 2021, NPL levels remained broadly 
stable in 2022. The NPL ratio remains relatively 
high,  but  has  been  steadily  decreasing,  including 
during  the  pandemic.  The  overall  NPL  ratio  has 
been  on  a  downward  trend  for  several  years, 
supported by NPL sales and securitisations by the 
leading banks, but at 5.2% in the third quarter of 
2022, it remains one of the highest in the EU, and 
is  well  above  the  EU  average  (1.8%).  Looking  to 
the 
the  worsening  macroeconomic 
environment  may  increase  systemic  risk  in  the 
Cypriot  financial  sector.  Possible  propagation 
mechanisms 
include  a  deterioration  of  asset 
quality  due  to  rising  inflation  and  the  indirect 
repercussions  of  the  war  in  Ukraine.  In  particular, 
energy  prices  are  impacting  household  finances. 
Financially  weaker  households  may  struggle  to 
service their debt. This risk is somewhat mitigated 
by  the  fact  that  low-income  households  account 
for  proportionally  less  bank  lending.  The  risks  for 
non-financial  corporations  are  more  difficult  to 
quantify  as 
capacity  of 
the  debt-service 
enterprises crucially depends on the magnitude of 
the expected slowdown in growth. 

On the policy side, progress with reforms to  

facilitate  the  work-out  of  NPLs  has  been 

(1) Last data: Q3 2022. 
(2) Data is annualized. 
Source: ECB, Eurostat, S&P Global Capital IQ Pro. 

65 

201720182019202020212022EUMedianTotal assets of the banking sector (% of GDP)395.9322.8282.7296.4299.4255.9276.8207.9Share (total assets) of the five largest banks (%)84.286.985.786.587.3--68.7Share (total assets) of domestic credit institutions (%)180.978.378.378.678.677.6-60.2NFC credit growth (year-on-year % change)0.33.52.21.91.70.5-9.1HH credit growth (year-on-year % change)0.0-0.2-0.23.02.57.3-5.4Financial soundness indicators:1        - non-performing loans (% of total loans)30.720.218.111.05.65.21.81.8- capital adequacy ratio (%)16.317.119.920.320.621.218.619.8- return on equity (%)2-11.97.13.5-3.30.62.56.16.6Cost-to-income ratio (%)153.662.372.363.271.982.660.651.8Loan-to-deposit ratio (%)171.960.360.056.746.845.688.678.0Central bank liquidity as % of liabilities1.61.50.03.810.58.7-2.9Private sector debt (% of GDP)303.6281.8265.5269.8248.4--120.7Long-term interest rate spread versus Bund (basis points)230.6177.8132.3138.774.2181.8-93.3Market funding ratio (%)12.714.718.719.820.7-50.840.0Green bonds issued to all bonds (%)------3.92.31-34-1011-1718-2425-27Colours indicate performance ranking among 27 EU Member States. 
 
 
 
 
  
 
as 

non-bank 

financing, 

investment  and  funding 
Diversifying  the 
possibilities  for  corporations 
in  Cyprus 
remains a challenge. Cyprus ranks low in the EU 
non-financial 
for 
corporations  and  households  hold  their  financial 
assets  predominantly  as  cash  and  bank  deposits. 
Cypriot  businesses  are  also  constrained  by  a  lack 
of diversity in sources of investment finance. This 
is because the bulk of external investment finance 
comes  in  the  form  of  bank  loans  (excluding 
subsidised bank loans, overdrafts, and other credit 
lines). The local stock and bond markets are small, 
especially  since  the  crash  in  the  early  2000s  and 
the  subsequent  2013  financial  crisis.  There  have 
not  yet  been  any  issuances  of  green  bonds. 
Alternative  investment  funds  are  an  area  of 
growth  for  the  fund-management  industry  in 
Cyprus, as there is growing interest in authorising 
companies  that  fall  under  the  scope  of  the 
Alternative  Investment  Fund  Managers  Directive. 
At  the  same  time,  the  FinTech  sector  has  been 
growing  strongly.  Although  Cyprus  has  relatively 
few  FinTechs,  they  are  a  high  percentage  of 
overall  start-ups.  Crowdfunding  is  still  a  small 
market in Cyprus, limiting its impact on total retail 
participation.  Nevertheless,  it  is  growing  quite 
rapidly  in  per  capita  terms,  Cyprus  is  one  of  the 
four  EU  countries  making  the  greatest  use  of 
crowdfunding platforms.  

in  Cyprus  remains 
insurance  sector 
The 
overall 
adverse  market 
to 
resilient 
developments,  with  adequate  solvency.  High 
compliance  costs,  low  profitability  and  the  need 
for  consolidation  in  the  sector  constitute  key 
challenges going  forward. The  draft  legislation  on 
the  single  independent  supervisory  authority  was 
submitted  to  Parliament  at  end-2019.  While 
discussions took place in the House of Parliament, 
the  proposal  did  not  gain  support.  For  the  time 
being,  the  two  supervisory  authorities  remain 
staff 
separate 
shortages  and  difficulties  to  recruit  experts  (even 
on a temporary basis). 

experiencing 

continue 

and 

improved 

mixed. In July 2022, a package of amending laws 
on credit-acquiring companies and credit servicers 
was  adopted.  This  package 
the 
governance  and  working  environment  for  the 
management  of  NPLs.  Although  the  foreclosure 
framework  has  been  safeguarded  in  the  face  of 
recurrent  proposals  to  amend  it,  the  frequent 
suspensions  of  foreclosures  have  delayed  loan 
restructurings  and  made  the  conditions  for  NPL 
sales  more  complicated.  These  suspensions  of 
foreclosures  have  also  adversely  affected  efforts 
by  the  State-owned  asset-management  company 
its 
resolution  of 
KEDIPES 
residential  property  portfolio.  Meanwhile, 
the 
government  continues  to work  on  a  mortgage-to-
rent  scheme,  which  will  expand  the  scope  of 
KEDIPES, but in a limited manner. 

to  conclude 

the 

Graph A18.1: Evolution of credit activity 

Source: ECB. 

lending 

in  2022, 

recovered 

New 
in  2022,  with 
mortgage  lending  increasing  beyond  pre-
pandemic levels. In 2022, house prices in Cyprus 
rose less than in other EU countries. The volume of 
new  mortgages  surpassed  2019  levels  in  all 
to  non-financial 
subsequent  years.  Lending 
corporations  was 
reaching 
robust 
EUR 900 bn  in  the  first  half  of  2022,  above  the 
equivalent  values  of  2021  and  2020,  but  below 
the level for 2019. Lending was supported by the 
interest-rate  subsidy  scheme  for  mortgage  and 
corporate loans, which expired at the end of 2021. 
The  Cypriot  government  also  offered  a  loan-
guarantee  scheme,  but  launched  it  relatively  late, 
in  November  2021.  This  means  that  there  was 
limited uptake of the scheme, and it ended up not 
having a meaningful impact on lending. 

66 

-15-10-505101520253035200920102011201220132014201520162017201820192020202120222023Total privateNFCHH% 
 
  
 
 
 
ANNEX 19: TAXATION  

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

information  on 

than 

lower 

Cyprus’  tax  revenues  as  a  percentage  of  its 
GDP  are  slightly 
the  EU 
aggregate,  with  property  taxes  particularly 
low. Table A19.1 shows that Cyprus’ tax revenues 
as a share of GDP were below the EU aggregate in 
2021, even though they were 2 percentage points 
(pps)  higher  than  in  2020.  The  share  of  labour 
taxes  in  total  tax  revenues  was  below  the  EU 
average,  but  revenues  from  consumption  taxes 
and  environmental  taxes  were  slightly  above  the 
EU  average  (as  a  share  of  both  GDP  and  total 
taxation).  Revenues  from  property  taxes  were 
relatively  low  as  a  percentage  of  both  GDP  and 
total  tax  revenue,  while  revenues  from  recurrent 
property  taxes,  which  are  among  the  taxes  least 
detrimental  to  growth,  were  one  of  the  lowest  in 
the  EU  (expressed  as  %  of  GDP).  Tax  revenues 
could  therefore  be  increased  by  making  greater 
use  of  currently  underused  tax  types,  such  as 

property taxes.  

Cyprus’  Recovery  and  Resilience  Plan  (RRP) 
includes  a  green  taxation  reform  to  address 
environmental  challenges  related  to  climate 
change and air pollution, waste management, 
water  pollution  and  water  management.  The 
reform  consists  of  legislative  changes  with  the 
introduction  of  a  carbon  tax,  a  gradual  levy  on 
water  and  a  charge  on  household/landfill  waste.  
An  impact  assessment  on  the  reform's  effect  on 
the  environment  and 
the  economy  will  be 
conducted three years after its entry into force. 

Cyprus’  labour  tax  burden  is  relatively  low 
across the various income levels. Graph A19.1 
shows  that  the  labour  tax  wedge  for  Cyprus  in 
2022  was  much  lower  than  the  EU  average  for 
both  single  and  second  earners,  which  was  the 
case  at  the  lower  as  well  as  higher  wage  levels. 
Overall,  labour  taxation  is  less  progressive  in 
Cyprus than the EU average, in particular for those 
with  a  wage  level  below  the  average  wage.  As  a 
result,  the  tax  and  benefits  system  reduces  in 
2021 income inequality, as expressed by the Gini-
coefficient,  less  than  the  EU  average  (Table 
A19.1).  

Table A19.1: Taxation indicators 

(1) Forward-looking effective tax rate (OECD). 
(2) A higher value indicates a stronger redistributive impact of taxation. 
(*) EU-27 simple average 
For more data on tax revenues as well as the methodology applied, see European Commission, Directorate-General for Taxation 
and Customs Union, Taxation trends in the European Union: data for the EU Member States, Iceland, Norway and United Kingdom: 
2021 edition, Publications Office of the European Union, 2021, https://data.europa.eu/doi/10.2778/843047 and the Data on 
Taxation webpage, https://ec.europa.eu/taxation_customs/taxation-1/economic-analysis-taxation/data-taxation_en. 
For more details on the VAT gap, see European Commission, Directorate-General for Taxation and Customs Union, VAT gap in the 
EU: report 2022, Publications Office of the European Union, 2022, https://data.europa.eu/doi/10.2778/109823. 
Source: European Commission 

67 

2010201920202021202220102019202020212022Total taxes (including compulsory actual social contributions) (% of GDP)31,734,234,036,037,939,940,040,6Labour taxes (as % of GDP)11,313,414,314,620,020,721,320,9Consumption taxes (as % of GDP)12,212,611,512,410,811,110,711,2Capital taxes (as % of GDP)8,28,28,29,07,18,18,08,5Total property taxes (as % of GDP)1,20,80,80,71,92,22,22,2Recurrent taxes on immovable property (as % of GDP)1,00,30,20,21,11,21,21,1Environmental taxes as % of GDP2,72,52,42,32,42,42,22,2Tax wedge at 50% of average wage (Single person) (*)18,118,118,118,133,932,331,932,131,7Tax wedge at 100% of average wage (Single person) (*)18,919,019,520,241,040,139,939,639,7Corporate income tax - effective average tax rates (1) (*)10,310,310,319,519,419,1Difference in Gini coefficient before and after taxes and cash social transfers (pensions excluded from social transfers) (2) (*)5,16,36,36,58,67,78,17,8Outstanding tax arrears: total year-end tax debt (including debt considered not collectable) / total revenue (in %) (*)39,741,531,640,7VAT Gap (% of VAT total tax liability, VTTL)1,46,411,09,1CyprusEU-27 
 
 
 
      
 
 
 
 
 
 
 
 
 
 
 
payments to jurisdictions included in Annex I of the 
EU  list  of  non-cooperative  jurisdictions  for  tax 
purposes;  and  (b)  introducing  an  extra  corporate 
tax  residency test  based on  incorporation.  Cyprus’ 
RRP  also  aims  to  prevent  double  non-taxation  by 
providing for the introduction of new legislation to 
make  outbound  payments  of  dividends,  interest 
and  royalties  to  low-tax  jurisdictions  subject  to 
withholding  taxes  or  non-deductibility.  This  new 
legislation will enter into force by the end of 2024.  

Graph A19.2: Share of net inward and outward 
foreign direct investment (FDI) stock held through 
special purpose entities (SPEs) as a % of total 
inward and outward stock, 2021 

(1) Net stock data used because asset and liabilities data are 
unavailable for Cyprus. 
Source: European Commission 

Graph A19.1: Tax wedge for single and second 
earners as a % of total labour costs, 2022 

Second earner tax wedge assumes first earner at 100% of 
the average wage and no children.  
Source: European Commission 

and 

compliance. 

fairly  well  on 

Cyprus  performs 
tax 
compliance  and  administration.  Outstanding 
tax  arrears  rose  slightly  from  39.7%  in  2020  to 
41.5%  of  total  net  revenue  in  2021.  This  is  just 
above the EU-27 average of 40.7%. The VAT gap 
(the gap  between  revenues  actually  collected  and 
the theoretical tax liability) increased from 1.4% to 
6.4% but remains below the EU-wide gap of 9.1%. 
Further  steps  are  being  taken  to  enhance  tax 
administration 
Tax 
Department  announced  on  17 January 2023  the 
start of the gradual implementation of the Tax For 
All  (TFA)  Portal,  which  will  replace  the  TAXISnet 
platform and other mechanisms. The new Portal is 
a uniform system of tax administration which will 
gradually  replace  the  Tax  Department's  existing 
non-linked  systems  once  it  has  been  confirmed 
that it can be safely substituted. The Portal will be 
adjusted  to  reflect  legislative  changes,  increase 
transparency,  promote  e-services  to  the  taxpayer, 
provide  the  tax  authorities  with  a  uniform  picture 
of  taxpayers  and  enable  the  Tax  Department  to 
monitor, assess and control them better. 

The 

Cyprus  is  taking  steps  to  tackle  aggressive 
tax  planning  strategies,  which  however 
remains  a  challenge.  High 
foreign  direct 
investment  flows  and  the  high  level  of  dividend, 
interest and royalty payments as a percentage of 
is  being  used  by 
GDP  suggest  that  Cyprus 
companies engaged  in aggressive tax planning. In 
November 2020, Cyprus suppressed its citizenship 
by investment regime that could be used to evade 
taxes.  Also,  a  new  law  entered  into  force  on 
31 December 2022  to  partially  address  the  issue 
of  aggressive  tax  planning  by 
imposing 
withholding  tax  on  interest,  dividends  and  royalty 

(a) 

68 

18,118,120,227,118,1152025303540455050100150Tax wedge, % of total labour costsEarnings in % of the average wageSingle earner - CYSingle earner - EU averageSecond earner -  CYSecond earner -  EU average32%88%31%94%68%12%69%6%0%10%20%30%40%50%60%70%80%90%100%EU-27 ( total = EUR14,051Bn)Cyprus (total = €375Bn)EU-27 (total = EUR16,643Bn)Cyprus (total = €367Bn)Net inward FDINet outward FDISPEsnon-SPEs 
      
  
 
 
ANNEX 20: TABLE WITH ECONOMIC AND FINANCIAL INDICATORS 

Table A20.1: Key economic and financial indicators 

(1) Domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU foreign-
controlled branches. 
(2) Net international investment position (NIIP) excluding direct investment and portfolio equity shares.  
Source: Eurostat and ECB as of 2 May 2023, where available; European Commission for forecast figures (Spring forecast 2023). 

69 

2004-072008-122013-1920202021202220232024Real GDP (y-o-y)4.90.12.5-4.46.65.62.32.7Potential growth (y-o-y)3.72.11.23.33.03.53.23.0Private consumption (y-o-y)6.20.42.1-6.84.57.71.92.2Public consumption (y-o-y)2.72.40.811.59.00.11.71.6Gross fixed capital formation (y-o-y)10.0-8.15.14.5-4.26.60.81.7Exports of goods and services (y-o-y)3.51.47.22.213.613.72.83.7Imports of goods and services (y-o-y) 5.9-0.16.93.29.018.82.12.9Contribution to GDP growth:Domestic demand (y-o-y)6.5-1.12.3-1.63.65.91.71.9Inventories (y-o-y)-0.20.40.1-2.0-0.63.70.00.0Net exports (y-o-y)-1.40.60.1-0.73.6-3.90.70.8Contribution to potential GDP growth:Total Labour (hours) (y-o-y)1.30.90.41.00.91.41.41.3Capital accumulation (y-o-y)2.01.40.61.21.11.21.11.1Total factor productivity (y-o-y)0.4-0.30.31.11.10.90.80.7Output gap3.80.3-2.4-2.70.72.71.81.5Unemployment rate4.67.012.47.67.56.86.96.4GDP deflator (y-o-y)3.02.00.0-1.22.96.45.02.8Harmonised index of consumer prices (HICP, y-o-y)2.12.7-0.1-1.12.38.13.82.5HICP excluding energy and unprocessed food (y-o-y)1.01.70.0-0.61.05.34.93.1Nominal compensation per employee (y-o-y)3.72.8-0.6-0.53.83.86.34.0Labour productivity (real, hours worked, y-o-y)2.10.20.92.11.71.5-0.4-0.4Unit labour costs (ULC, whole economy, y-o-y)2.32.8-1.32.8-1.41.05.63.2Real unit labour costs (y-o-y)-0.70.7-1.34.1-4.1-5.10.60.3Real effective exchange rate (ULC, y-o-y)0.70.5-2.1-1.8-1.5-2.10.4-0.2Real effective exchange rate (HICP, y-o-y)0.20.2-0.8-0.30.0-1.8..Net savings rate of households (net saving as percentage of net disposable income)1.5-0.5-5.86.85.0...Private credit flow, consolidated (% of GDP)27.918.73.1-1.24.3...Private sector debt, consolidated (% of GDP)244.4308.0316.3269.7248.4...of which household debt, consolidated (% of GDP)88.5116.9112.889.483.0...of which non-financial corporate debt, consolidated (% of GDP)155.9191.1203.6180.4165.4...Gross non-performing debt (% of total debt instruments and total loans and advances) (1).8.929.09.14.7...Corporations, net lending (+) or net borrowing (-) (% of GDP)-9.92.34.1-3.9-3.2-6.0-5.4-5.8Corporations, gross operating surplus (% of GDP)23.720.021.421.122.221.921.622.0Households, net lending (+) or net borrowing (-) (% of GDP)-7.6-5.5-5.0-0.4-1.5-4.8-3.3-2.6Deflated house price index (y-o-y)6.8-4.90.50.7-4.3-4.4..Residential investment (% of GDP)10.98.25.08.17.67.6..Current account balance (% of GDP), balance of payments-6.2-7.7-3.5-10.1-6.8-9.1-7.3-6.9Trade balance (% of GDP), balance of payments-2.2-6.41.2-1.42.9-0.4..Terms of trade of goods and services (y-o-y)-0.5-0.40.4-2.01.00.61.20.4Capital account balance (% of GDP)0.10.30.3-0.10.40.2..Net international investment position (% of GDP)-68.2-123.4-141.2-134.5-117.8-105.3..NENDI - NIIP excluding non-defaultable instruments (% of GDP) (2).-69.0-196.7-111.4-76.4-21.7..IIP liabilities excluding non-defaultable instruments (% of GDP) (2).621.7604.1465.0435.7350.6..Export performance vs. advanced countries (% change over 5 years)-13.8-7.16.339.730.6...Export market share, goods and services (y-o-y)-5.8-4.24.013.6-2.79.40.2-0.1Net FDI flows (% of GDP).9.016.3-34.0-18.2-30.2..General government balance (% of GDP)-0.9-4.1-2.2-5.8-2.02.11.82.1Structural budget balance (% of GDP)..1.7-4.5-2.40.70.91.3General government gross debt (% of GDP)60.460.4100.5113.8101.286.580.472.5forecast 
 
 
 
   
 
 
 
ANNEX 21: DEBT SUSTAINABILITY ANALYSIS 

This  Annex  assesses  fiscal  sustainability 
risks  for  Cyprus  over  the  short-,  medium- 
It  follows  the  same  multi-
and  long-term. 
dimensional 
European 
Commission’s  2022  Debt  Sustainability  Monitor, 
updated  based  on  the  Commission  2023  spring 
forecast. 

approach 

the 

as 

fiscal 

(Table 

1  -  Short-term  risks  to  fiscal  sustainability 
are 
low  overall.  The  Commission’s  early-
detection  indicator  (S0)  does  not  signal  major 
A21.2). (89) 
short-term 
risks 
Government gross financing needs are expected to 
reach around 5% of GDP in the short term (i.e.  in 
2024)  and  to  decline  compared  with  the  recent 
peak in 2020 (Table A21.1). (90) Financial markets’ 
perceptions  of  Cyprus  are  favourable  as  its  debt 
rating continued to be upgraded in 2023. The main 
credit-rating  agencies  (except  Moody’s)  now  rate 
Cyprus’  sovereign  debt  at  investment  grade  (two 
notches within the investment-grade area). 

2  -  Medium-term  fiscal  sustainability  risks 
appear medium overall (Table A21.1).  

The  DSA  for  Cyprus  shows  that,  under  the 
baseline,  the  government  debt-to-GDP  ratio 
is  expected to  substantially  decline  to a  low 
level over the medium-term (at 40.6% of the 
GDP in 2033) (Table A21.1). (91), (92) The assumed 

(89)  The S0 is a composite indicator of short-term risk of fiscal 
stress. It is based on a wide range of macro-financial and 
fiscal variables that have proven to perform well in the past 
in detecting situations of upcoming fiscal stress.  

(90)  Gross financing needs are determined in line with the 

methodology described in the European Commission’s 2022 
Debt Sustainability Monitor, updated based on the 
Commission 2023 spring forecast. 

(91)  The assumptions underlying the Commission’s ‘no-fiscal 
policy change’ baseline notably comprise: (i) a structural 
primary surplus, before ageing costs, of 2.6% of GDP as of 
2024; (ii) inflation converging linearly towards the 10-year 
forward inflation-linked swap rate 10 years ahead (which 
refers to the 10-year inflation expectations 10 years from 
now); (iii) the nominal short- and long-term interest rates on 
new and rolled over debt converging linearly from current 
values to market-based forward nominal rates by T+10; (iv) 
real GDP growth rates from the Commission 2023 spring 
forecast until 2024, followed by EPC/OGWG ‘T+10 
methodology projections between T+3 and T+10, i.e. for 
2025-2033 (on average 1.7%); (v) ageing costs in line with 
the 2021 Ageing Report (European Commission, Institutional 
Paper 142, November 2020). For information on the 
methodology, see the 2022 Debt Sustainability Monitor. 

(92)  Table 1 shows the baseline debt projections and its 

breakdown into the primary balance, the snowball effect (the 
combined impact of interest payments and nominal GDP 

structural  primary  balance  (a  surplus  of  2.6%  of 
GDP)  supports  these  developments.  It  appears 
relatively  ambitious  compared  with  past  fiscal 
performance.  At  the  same  time,  the  baseline 
projections  up  to  2033 benefit  from  a  favourable 
(although  diminishing)  snowball  effect,  with  real 
GDP  growth  at  around  1.7%  of  GDP  over  2025-
2033.  Government  gross  financing  needs  are 
expected  to  remain  small  over  the  projection 
period, diminishing to around 3% of GDP in 2033, 
below the level forecast for 2024. 

reflected  under 

The  baseline  projections  are  stress-tested 
against  four  alternative  scenarios  to  assess 
the  impact  of  changes  in  key  assumptions 
(Table  A21.2).  For  Cyprus,  reverting  to  historical 
fiscal  trajectories  under  the  ‘historical  structural 
primary  balance  (SPB)’  scenario  would  lead  to  a 
higher government debt ratio. If the SPB gradually 
converged its historical  15-year average (1.5% of 
GDP),  the  projected  debt-to-GDP  ratio  would  be 
about 7 pps. of GDP higher than in the baseline in 
2033.  A  permanent  worsening  of  the  macro-
financial  conditions,  as 
the 
‘adverse interest-growth rate differential’ scenario 
(i.e. 1 pp. higher than the baseline) would result in 
a  persistently  higher  government  debt-to-GDP 
ratio,  by  around  5  pps.  of  GDP  by  2033,  as 
temporary 
compared  with 
worsening  of  financial  conditions,  as  reflected  in 
the  ‘financial  stress  scenario’  (i.e.  temporarily 
increase of interest rates by 1 pp.), would lead to a 
broadly  similar  public  debt-to-GDP  ratio  by  2033 
compared  with  the  baseline.  The  ‘lower  structural 
primary  balance’ 
level 
scenario 
permanently  reduced  by  half  of  the  cumulative 
forecast  change)  would  also  lead  to  a  slightly 
higher  government  debt-to-GDP  ratio  by  2033 
(around  +2  pps.  of  GDP)  compared  with  the 
baseline.  

the  baseline.  A 

(i.e.  SPB 

Stochastic  projections  show  a  medium 
sensitivity  of  these  projections  against 
These 
plausible 
stochastic simulations point to a 4% probability of 
the debt ratio in 2027 being greater than in 2022, 
entailing  medium  risk  given  the  initial  high  debt 

events. (93) 

unforeseen 

growth on the debt dynamics) and the stock-flow 
adjustment.  

(93)  The stochastic projections show the joint impact on debt of 

2000 different shocks affecting the government’s budgetary 
position, economic growth, interest rates and exchange rates. 
The cone covers 80% of all the simulated debt paths, 
therefore excluding tail events. 

70 

 
 
                                                 
                                                                              
 
 
risk-mitigating  factors  include  the  lengthening  of 
debt  maturities  in  recent  years,  relatively  stable 
financing  sources  (with  a  diversified  investor 
base), the currency denomination of debt, and the 
low  share  of  short-term  public  debt.  In  addition, 
the structural reforms under the NGEU/RRF, if fully 
implemented, could have a further positive impact 
on GDP growth in the coming years, and therefore 
help to mitigate debt sustainability risks. 

level. In addition, such shocks point to substantial 
uncertainty  (i.e.  the  difference  between  the  10th 
and 90th debt distribution percentiles) surrounding 
the  government  debt  baseline  projections  (Table 
A21.2).  

3  -  Long-term  fiscal  sustainability  risks  for 
Cyprus appear low overall. (94)  

The S2 indicator (-1.2 pps. of GDP) points to 
low  fiscal  sustainability  risks.  The  indicator 
shows that, relative to the baseline, the SPB would 
not  need  to  improve  to  ensure  debt  stabilisation 
over the long term. This result is underpinned by a 
favourable  initial  budgetary  position  (-2.2  pps.  of 
GDP),  which  more  than  offsets  the  projected 
increase  in  ageing-related  costs  (contribution  of 
1.0  pp.  of  GDP).  Ageing  costs’  developments  are 
primarily driven by the projected increase of public 
pension  expenditure  (contribution  of  0.9  pp.  of 
GDP) (Table A21.1).  

indicator  signals 

The S1 indicator (-2 pps. of GDP) also points 
to  low  fiscal  sustainability  risks,  confirming 
the  overall  long-term  assessment.  The  S1 
sustainability  gap 
that  no 
consolidation  effort  is  needed  to  bring  debt  to 
60% of GDP  by 2070. This result is driven by the 
favourable  initial  budgetary  position  (-2.7  pps.  of 
GDP),  which  is  only  partly  offset  by  ageing  costs 
(0.5 pp. of GDP) and the debt requirement (0.3 pp. 
of GDP) (Table A21.1). 

Finally,  several  additional  risk  factors  need 
to  be  considered  in  the  assessment.  On  the 
one hand, risk-increasing factors are related to the 
recent increase in interest rates, Cyprus’  negative 
net  international  investment  position  and  risks  to 
the  budget  balance  due  to  potential  expansion  of 
KEDIPES, and potential extension of energy-related 
measures  beyond  June  2023.  On  the  other  hand, 

(94) The S2 fiscal sustainability gap indicator measures the 

permanent fiscal effort (SPB adjustment) in 2024 that would 
be required to stabilise public debt over the long term. It is 
complemented by the S1 fiscal sustainability gap indicator, 
which measures the permanent fiscal effort required in 2024 
to bring the debt-to-GDP ratio to 60% in the long term (by 
2070). For both the S1 and S2 indicators, the risk 
assessment depends on the amount of fiscal consolidation 
needed: ‘high risk’ if the required effort exceeds 6 pps. of 
GDP, ‘medium risk’ if it lies between 2 pps. and 6 pps. of 
GDP, and ‘low risk’ if the effort is negative or below 2 pps. of 
GDP. The overall long-term risk classification brings together 
the risk categories derived from S1 and S2. S1 may notch up 
the risk category derived from S2 when it signals a higher 
risk than S2. See the 2022 Debt Sustainability Monitor for 
further details. 

71 

 
                                                 
Table A21.1: Debt sustainability analysis – Cyprus 

Source: Commission services. 

Table A21.2: Heat map of fiscal sustainability risks – Cyprus 

Source: Commission services. 

72 

Table 1. Baseline debt projections20202021202220232024202520262027202820292030203120322033Gross debt ratio (% of GDP)113.8101.286.580.472.567.463.259.656.052.449.146.143.340.6Changes in the ratio23.0-12.6-14.7-6.1-8.0-5.1-4.2-3.6-3.6-3.6-3.3-3.0-2.8-2.7of whichPrimary deficit3.70.2-3.6-3.2-3.4-3.1-2.8-2.5-2.5-2.7-2.6-2.5-2.4-2.3Snowball effect7.4-8.2-9.7-4.7-3.0-2.0-1.5-1.1-1.1-0.9-0.7-0.5-0.4-0.4Stock-flow adjustments11.8-4.6-1.41.7-1.60.00.00.00.00.00.00.00.00.0Gross financing needs (% of GDP)25.46.36.98.65.07.08.28.08.17.46.56.33.53.3S1S2Overall index  (pps. of GDP)-2.0-1.2of which Initial budgetary position-2.7-2.2Debt requirement0.3Ageing costs0.51.0of which    Pensions0.60.9     Health care0.20.3     Long-term care0.10.2Others-0.4-0.4Table 2. Breakdown of the S1 and S2 sustainability gap indicators02040608010012020202021202220232024202520262027202820292030203120322033Graph 1. Deterministic debt projections Historical SPB scenarioLower SPB scenarioFinancial stress scenarioAdverse 'r-g' scenarioBaseline% of GDPp10p20p40p60p80p903040506070809010011012020202021202220232024202520262027% of GDPGraph 2. Stochastic debt projections 2023-2027MedianBaselineBaselineHistorical SPBLower SPBAdverse 'r-g'Financial stressOverallLOWLOWLOWLOWLOWMEDIUMDebt level (2033), % GDP40.647.542.745.140.9Debt peak year20222022202220222022Fiscal consolidation space28%31%29%28%28%Probability of debt ratio exceeding in 2027 its 2022 level4%Difference between 90th and 10th percentiles (pps. GDP)37.3Source: European Commission (for further details on the Commission's multidimensional approach, see the 2022 Debt Sustainability Monitor)(1)Debtlevelin2033.Green:below60%ofGDP.Yellow:between60%and90%.Red:above90%.(2)Thedebtpeakyearindicateswhetherdebtisprojectedtoincreaseoveralloverthenextdecade.Green:debtpeaksearly.Yellow:peaktowardsthemiddleoftheprojectionperiod.Red:latepeak.(3)Fiscalconsolidtationspacemeasurestheshareofpastfiscalpositionsinthecountrythatweremorestringentthantheoneassumedinthebaseline.Green:highvalue,i.e.theassumedfiscalpositionisplausiblebyhistoricalstandardsandleavesroomforcorrectivemeasuresifneeded.Yellow:intermediate.Red:low.(4)Probabilityofdebtratioexceedingin2027its2022level.Green:lowprobability.Yellow:intermediate.Red:high(alsoreflectingtheinitialdebtlevel).(5)thedifference 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.Short termMedium term - Debt sustainability analysis (DSA)Long termOverall                               (S0)Overall Deterministic scenariosStochastic projectionsS2S1Overall(S1 + S2)LOWMEDIUMLOWLOWLOW 
 
 
   
 
 
   
 
ANNEX 22: MACROECONOMIC IMBALANCE PROCEDURE ASSESSMENT MATRIX  

further,  driven  by  economic  growth  and  fiscal 
primary surpluses. 

Policy  progress  has  been  made  as  Cyprus 
started  implementing  measures  from  the 
Recovery  and  Resilience  Plan.  In  particular 
several measures facilitating the digital transition, 
and  thus  strengthening  productivity  growth,  as 
well  as  boosting  export-oriented  sectors  and 
the  economy  are  under 
diversification  of 
implementation.  Grant 
schemes  encouraging 
investments  in  photovoltaics  and  improving  the 
energy  efficiency  of  buildings  are  expected  to 
alleviate  the  over-reliance  of  the  economy  on  oil 
imports.  The  authorities  started  to  work  on 
measures  that  help  address  excessive  private 
indebtedness. Furthermore, Cyprus made progress 
with  reforms  to  facilitate  the  NPL  management. 
Also  as  part  of  the  RRP,  a  package  of  amending 
laws  on  credit-acquiring  companies  and  credit 
servicers  was  adopted  in  July  2022,  improving 
their  working  environment  and  supporting  NPL 
reduction.  As  regards  the  insolvency  field,  the 
transposition  of  the  Directive  (EU)  2019/1023  on 
preventive  restructuring  into  Cypriot  law  was 
completed in December 2022, while in early 2023 
the  Department  of  Insolvency  filled  in  some 
positions  in  its  organisational  structure,  including 
the  new  director.  Following  several  extensions 
since the start of the COVID-19 pandemic in March 
2020,  the  suspension  of  foreclosures  came  to  an 
end  as  of  February  2023.  An  operational  and 
to 
effective 
foreclosure 
encourage  borrowers 
loan 
restructuring,  further  reduce  the  stock  of  NPLs  in 
the  economy,  help  reduce  private  indebtedness 
and enhance payment discipline in Cyprus  

framework 
to  participate 

is  key 
in 

Based  on  this  assessment,  the  Commission 
considered  in  its  communication  European 
Semester – 2023 Spring Package (COM(2023) 
600 
experiences 
final) 
imbalances. 

Cyprus 

that 

The  Macroeconomic 
Imbalance  Procedure 
matrix presents the main elements of the in-
depth  review  undertaken  for  Cyprus. (95)  The 
country was selected for an in-depth review in the 
in-depth 
2023  Alert  Mechanism  Report.  This 
review  on  the  prevention  and  correction  of 
macroeconomic  imbalances  presents  the  main 
findings  on  the  gravity  and  evolution  of  the 
challenges  identified,  as  well  as  policy  responses 
and potential policy needs. Findings cover all areas 
of vulnerability assessed in the in-depth review.  

Cyprus  has  made  progress  in  reducing  high 
levels  of  private,  public  and  external 
indebtedness.  Private  and  government  debt 
ratios  decreased  substantially  in  2021  and  2022, 
levels.  The 
falling  below  their  pre-pandemic 
current  account  deficit  widened  due  mainly  to 
increased  energy  prices  in  2022  and  pent  up 
domestic  demand  after  the  lifting  of  COVID-19 
related  restrictions.  The  current  account  deficit 
remains well above the levels needed to bring the 
large  negative  Net 
Investment 
Position  (NIIP)  to  prudential  levels  in  the  medium 
term. Still, the ratio of the country’s NIIP relative to 
GDP improved, helped by strong economic growth. 
Furthermore,  excluding  special  purpose  entities, 
which  pose  limited  risks  to  the economy,  the  NIIP 
and  private  debt  are  considerably  lower.  GDP 
growth also had a positive effect on driving down 
both  household  and  non-financial  corporations 
debt  ratios  in  2022.  In  addition,  non-performing 
loans held by the banks continued to decrease.  

International 

to  continue 

Going  forward,  the  country’s  imbalances  are 
their  correction. 
projected 
Although  economic  growth  is  forecast  to  weaken 
temporarily in 2023, nominal GDP is still expected 
to  continue  supporting  the  decreasing  trends  of 
debt ratios. In the external sector, the correction in 
energy  prices  and  a  further  increase  in  tourism 
revenues  and  exports  of  other  services  are set  to 
reduce the current account deficit and to improve 
the  NIIP  position.  Household  and  non-financial 
corporations  debt-to-GDP  ratios  are  expected  to 
continue their downward paths in 2023 and 2024.  
Furthermore,  credit  growth 
to 
decelerate  amid  rising  interest  rates.  The  general 
government debt ratio is also forecast to decrease 

is  expected 

(95)  European Commission (2023), In-Depth Review for Cyprus, 

Commission staff working document (COM(2023) 635 final), 
in accordance with Article 5 of Regulation (EU) No 
1176/2011 on the prevention and correction of 
macroeconomic imbalances. 

73 

 
 
                                                 
 
 
 
 
 
 
Table A22.1: Assessment of macroeconomic imbalances matrix 

Source: European Commission 

74 

Gravity of the challengeEvolution and prospectsPolicy responseUnsustainable trends, vulnerabilities and associated risksExternal balanceCyprus maintains a large negative net international investment position. Although the NIIP improved to 105.3% of GDP in 2022 from -114.5% of GDP in 2021, it remains well beyond prudential and fundamental-based benchmarks. Special Purpose Entities in Cyprus contribute significantly to the negative position of the NIIP. When these are excluded, as they are deemed to have limited links with the Cyrus economy, the position hovers around the MIP scoreboard benchmark. The NENDI excluding SPEs is positive at 64% of GDP. The current account deficit has widened because of a resilient domestic demand in combination with higher prices, including for oil, on which Cyprus depends heavily. Since 2016, and especially after 2019, the primary income balance has also been contributing considerably to the deficit of the current account. The reduction of Cyprus's external net debtor position in 2022 was mainly attributed to valuation effects. The current account deficit is expected to narrow as energy and other commodity prices are falling and the exports of services is strengthening. However, it is still not sufficient to bring the net international investment position to prudent levels. The mix of reforms and investments envisaged and being implemented in a number of areas under the recovery and resilience plan (RRP) have the potential to boost the green transition and to reduce the dependency of the country on oil. Moreover, the plan envisages policies to improve competitiveness through 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.Private debtPrivate debt remains high, at 217% of GDP  in 2022. The debt of non-financial corporations  accounted for 142% of GDP and household debt accounted for 75% of GDP. Private indebtedness is inflated by the debt of Special Purpose Entities, which have limited links to the Cypriot economy.The household debt-to-GDP ratio is above the prudential benchmark. The NFC debt ratio is above both the prudential and fundamental-based benchmarks. Nevertheless, without the Special Purpose Entities, the non-financial corporations debt ratio is reduced to 89% of GDP for 2022.The private sector debt ratio declined by 31 pps. in 2022 and is expected to continue decreasing  in 2023 mainly due to real GDP growth and inflation.    Both household and non-financial corporations debt ratios were reduced in 2022.New lending was strong in 2022, but is expected to decelerate in 2023 on the back of increasing interest rates. Rising interest rates increase debt burdens and could present challenges to lower-income households.Under the RRP, the development of a liability monitoring register is under preparation.  In addition,  there is a strategy for improving financial literacy, which ultimately could help improve debt repayment discipline and prevent future unsustainable borrowing. The strategy should be ready by the end of 2023.In 2022, the government worked on recruiting and filling the organisational structure of the Department of Insolvency.The transposition of the Directive (EU) 2019/1023 on preventive restructuring into Cypriot law was completed in December 2022.   An operational foreclosure framework is the core tool that can be used for reducing non-performing loans, encourage debt repayments and strengthen payment culture.Public debtGeneral government debt-to-GDP ratio continued its downward path and stood at 86.5% of GDP in 2022.Cyprus is assessed to face low fiscal sustainability risks in the short and long run, while in the medium term risks are medium.Government debt is forecast to decrease further to 80.4% and 72.5% in 2023 and 2024 respectively, driven by economic growth, and fiscal primary surpluses.The general government balance is expected to remain in surplus of around 2% of GDP in 2023 and 2024.The debt maturity profile is well balanced over the coming years. Government financing needs for 2023 and 2024 are expected to be low, on the back of significant primary surpluses and low redemption needs.The implementation of RRP measures – aiming at improving tax collection, addressing aggressive tax planning practices and shoring up healthcare system sustainability – should facilitate public debt reduction and its long-term sustainability. Financial sectorThe banking sector’s NPL ratio stood at 5.2% at the end of Q3 2022.A majority of the non-performing loans are now held by the credit-acquiring companies (CACs). As of December 2022, CACs held a portfolio of EUR 19.7 bn of non-performing loans, whereas banks had about EUR 2.3 bn of NPLs. The NPL ratio continued its decline in 2022.The stock of non-performing loans held by the banks has been declining significantly in the last years thanks to asset sales write-offs, cash repayments, debt-to-asset swaps and curings.As part of the RRP, a package of amending laws on credit-acquiring companies and credit servicers was adopted in July 2022, improving their working environment and supporting NPL reduction.Foreclosure proceedings resumed in February 2023, following a number of suspensions starting with the pandemic.