Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Cyprus
Date: 2024-06-19
Institutions: European Commission, Secretariat-General
Subjects: Cyprus, budget policy, competitiveness, economic policy, economic recovery, economic reform, employment policy, energy policy, social policy, stability pact

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   EUROPEAN COMMISSION  Brussels, 19.6.2024  COM(2024) 613 final  Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Cyprus   {SWD(2024) 600 final} - {SWD(2024) 613 final}  
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the economic, social, employment, structural and budgetary policies of Cyprus 

THE COUNCIL OF THE EUROPEAN UNION, 

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

Having regard to Regulation (EU) 2024/1263 of the European Parliament and of the Council 
of  29  April  2024  on  the  effective  coordination  of  economic  policies  and  on  multilateral 
budgetary surveillance and repealing Council Regulation (EC) No 1466/971, and in particular 
Article 3(3) thereof, 

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

Having regard to the recommendation of the European Commission, 

Having regard to the resolutions of the European Parliament, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

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

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

(1) 

Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council3,  which 
established  the  Recovery  and  Resilience  Facility,  entered  into  force  on  19  February 
2021. The Recovery and Resilience Facility provides financial support to the Member 
States  for  the  implementation  of  reforms  and  investment,  entailing  a  fiscal  impulse 
financed by the EU. In line with the European Semester priorities, it helps achieve the 
economic  and  social  recovery  and  implement  sustainable  reforms  and  investment,  in 
particular  to  promote  the  green  and  digital  transitions  and  make  the  Member  States’ 
economies  more  resilient.  It  also  helps  strengthen  public  finances  and  boost  growth 
and job creation in the medium and long term, improve territorial cohesion within the 
EU and support the continued implementation of the European Pillar of Social Rights.  

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OJ L 2024/1263, 30.4.2024 ELI: http://data.europa.eu/eli/reg/2023/435/oj 
OJ L 306, 23.11.2011, p. 25 ELI: http://data.europa.eu/eli/reg/2011/1176/oj 
Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council  of  12  February  2021 
(OJ  L  57,  18.2.2021,  p.  17)  ELI: 
establishing 
http://data.europa.eu/eli/reg/2021/241/oj 

the  Recovery  and  Resilience  Facility 

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(2) 

(3) 

(4) 

(5) 

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The  REPowerEU  Regulation4,  adopted  on  27  February  2023,  aims  to  phase  out  the 
EU’s  dependency  on  Russian  fossil  fuel  imports.  This  would  help achieve  energy 
security  and  diversify  the  EU’s  energy  supply,  while  increasing  the  uptake  of 
renewables,  energy  storage  capacities  and  energy  efficiency.  Cyprus  added  a  new 
REPowerEU chapter to its national recovery and resilience plan in order to finance key 
reforms and investments that will help achieve the REPowerEU objectives. 

On  16  March  2023,  the  Commission  issued  a  Communication  on  the  ‘Long-term 
competitiveness of the EU: looking beyond 2030’5, in order to inform policy decisions 
and  create  the  framework  conditions  for  increasing  growth.  The  Communication 
frames competitiveness along nine mutually reinforcing drivers. Among these drivers, 
access to private capital, research and innovation, education and skills, and the single 
market  emerge  as  paramount  policy  priorities  for  reform  and  investment  to  address 
current productivity challenges as well as to build up the long-term competitiveness of 
the EU and its Member States.  On 14 February  2024, the Commission  followed  this 
Communication  with  the  Annual  Single  Market  and  Competitiveness  Report6.  The 
report  details  the  competitive  strengths  and  challenges  of  Europe's  Single  Market, 
tracking yearly developments according to the nine competitiveness drivers identified.     

On 21 November 2023, the Commission adopted the 2024 Annual Sustainable Growth 
Survey7, marking the start of the 2024 cycle of the European Semester for economic 
policy  coordination.  The  European  Council  endorsed  the  priorities  of  the  survey 
around  the  four  dimensions  of  competitive  sustainability  on  22  March  2024.  On  21 
November 2023, on the basis of Regulation (EU) No 1176/2011, the Commission also 
adopted the 2024 Alert Mechanism Report, in which it identified Cyprus as one of the 
Member States that may be affected or may be at risk of being affected by imbalances, 
and for which an in-depth review would be needed. On the same date, the Commission 
also adopted an opinion on the 2024 draft budgetary plan of Cyprus. The Commission 
also adopted a recommendation for a Council recommendation on the economic policy 
of the euro area, which the Council adopted on 12 April 2024, as well as the proposal 
for  the  2024  Joint  Employment  Report  analysing  the  implementation  of  the 
Employment  Guidelines  and  the  principles  of  the  European  Pillar  of  Social  Rights, 
which the Council adopted on 11 March 2024. 

On  30  April  2024,  the  EU’s  new  economic  governance  framework  came  into  force. 
The  framework  includes  the  new  Regulation  of  the  European  Parliament  and  of  the 
Council  (EU)  2024/1263  on  the  effective  coordination  of  economic  policies  and 
multilateral  budgetary  surveillance  and  repealing  Council  Regulation  (EC)  No 
1466/97.  It  also  includes  the  amended  Regulation  (EC)  No  1467/97  on  the 
implementation  of  the  excessive  deficit  procedure  and  the  amended  Directive 
2011/85/EU  on  the  budgetary  frameworks  of  Member  States8.  The  objectives  of  the 

Regulation  (EU)  2023/435  of  the  European  Parliament  and  of  the  Council  of  27  February  2023 
amending Regulation (EU) 2021/241 as regards REPowerEU chapters in recovery and resilience plans 
and  amending  Regulations  (EU)  No  1303/2013,  (EU)  2021/1060  and  (EU)  2021/1755,  and  Directive 
2003/87/EC (OJ L 63, 28.2.2023, p. 1) ELI: http://data.europa.eu/eli/reg/2023/435/oj 
COM(2023) 168 final. 
COM(2024) 77 final 
COM(2023) 901 final. 
Council  Regulation  (EU)  2024/1264  of  29  April  2024  amending  Regulation  (EC)  No  1467/97  on 
speeding  up  and  clarifying  the  implementation  of  the  excessive  deficit  procedure  (OJ  L,  2024/1264, 
30.4.2024,  ELI:  http://data.europa.eu/eli/reg/2024/1264/oj)  and  Council  Directive  (EU)  2024/1265  of 

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new  framework  are  public  debt  sustainability  and  sustainable  and  inclusive  growth 
through gradual  fiscal consolidation  as  well as reforms  and investments.  It  promotes 
national  ownership  and  has  a  greater  medium-term  focus,  combined  with  more 
effective and coherent enforcement. Each Member State should submit to the Council 
and  to  the  Commission  a  national  medium-term  fiscal-structural  plan.  National 
medium-term  fiscal-structural  plans  contain  the  fiscal,  reform  and  investment 
commitments  of  a  Member  State,  covering  a  planning  horizon  of  4  years  or  5  years 
depending on the regular length of the national legislature. The net expenditure 9path 
in  the  national  medium-term  fiscal-structural  plans  should  comply  with  the 
requirements of Regulation (EU) 2024/1263, including the requirements to put or keep 
general government debt on a plausibly downward path by the end of the adjustment 
period  at  the  latest,  or  for  it  to  remain  at  prudent  levels  below  60%  of  GDP,  and  to 
bring  and/or  maintain  the  government  deficit  below  the  3%  of  GDP  reference  value 
over  the  medium  term.  Where  a  Member  State  commits  to  a  relevant  set  of  reforms 
and investments in accordance with the criteria set out in Regulation (EU) 2024/1263, 
the  adjustment  period  may  be  extended  by  3  years  at  most.  Member  States  should 
ensure  the  involvement  of  their  national  parliaments,  and  the  consultation  of 
independent  fiscal  institutions,  of  social  partners  and  other  national  stakeholders,  as 
appropriate. For the purpose of supporting the preparation of those plans, on [21 June] 
2024, the Commission is set to provide Member States with guidance on the content of 
the plans and the subsequent annual progress reports that they will need to submit and, 
in  accordance  with  Article  5  of  Regulation  (EU)  2024/1263,  will  transmit  to  them 
technical  guidance  on  the  fiscal  adjustments  (reference  trajectories  and  technical 
information  where  applicable).  Member  States  should  submit  their  medium-term 
fiscal-structural  plans  by  20  September  2024,  unless  the  Member  State  and  the 
Commission agree to extend the deadline by a reasonable period of time. 

In 2024, the European Semester for economic policy coordination continues to evolve 
in  line  with  the  implementation  of  the  Recovery  and  Resilience  Facility.  The  full 
implementation  of  the  recovery  and  resilience  plans  remains  essential  for  delivering 
the policy priorities under the European Semester, as the plans help effectively address 
all  or  a  significant  subset  of  challenges  identified  in  the  relevant  country-specific 
recommendations  issued  in  recent  years.  The  2019,  2020,  2022  and  2023  country-
specific  recommendations  remain  equally  relevant  also  for  recovery  and  resilience 
plans  revised,  updated  or  amended  in  accordance  with  Articles  14,  18  and  21  of 
Regulation (EU) 2021/241.  

On  17  May  2021,  Cyprus  submitted  its  national  recovery  and  resilience  plan  to  the 
Commission, in accordance with Article 18(1) of Regulation (EU) 2021/241. Pursuant 
to  Article  19  of  Regulation  (EU)  2021/241,  the  Commission  assessed  the  relevance, 
effectiveness,  efficiency  and  coherence  of  the  recovery  and  resilience  plan,  in 
accordance with the assessment guidelines of Annex V to that Regulation. On 28 July 
2021,  the  Council  adopted  its  Decision  on  the  approval  of  the  assessment  of  the 

29  April  2024  amending  Directive  2011/85/EU  on  requirements  for  budgetary  frameworks  of  the 
Member States (OJ L, 2024/1265, 30.4.2024, ELI: http://data.europa.eu/eli/dir/2024/1265/oj). 
Net expenditure as defined in Article 2 of Council Regulation (EU) 2024/1263 of 29 April 2024 (OJ L 
2024/1263,  30.4.2024.  ELI:  http://data.europa.eu/eli/reg/2024/1263/oj).  Net  expenditure  means 
government  expenditure  net  of  (i)  interest  expenditure,  (ii)  discretionary  revenue  measures,  (iii) 
expenditure  on  programmes  of  the  Union  fully  matched  by  Union  funds  revenue,  (iv)  national 
expenditure  on  co-financing  of  programmes  funded  by  the  Union,  (v)  cyclical  elements  of 
unemployment benefit expenditure, and (vi) one-offs and other temporary measures. 

(6) 

(7) 

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(8) 

(9) 

recovery and resilience  plan for  Cyprus10, which was amended on  8 December 2023 
following Article 18(2) of Regulation (EU) 2021/241 to update the maximum financial 
contribution for non-repayable financial support, as well as to include the REPowerEU 
chapter11. The release of instalments is conditional on a decision by the Commission, 
taken in accordance with Article 24(5) of Regulation (EU) 2021/241, that Cyprus has 
satisfactorily  fulfilled  the  relevant  milestones  and  targets  set  out  in  the  Council 
Implementing  Decision.  Satisfactory  fulfilment  presupposes  that  the  achievement  of 
preceding milestones and targets has not been reversed. 

On  30  April  2024,  Cyprus  submitted  its  2024  National  Reform  Programme  and  its 
2024 Stability Programme, in line with Article 4(1) of Regulation (EC) No 1466/97. In 
accordance with  Article  27 of Regulation  (EU) 2021/241,  the  2024 National  Reform 
Programme  also  reflects  Cyprus’s  biannual  reporting  on  the  progress  made  in 
achieving its recovery and resilience plan.  
The Commission published the 2024 country report for Cyprus12 on 19 June 2024. It 
assessed  Cyprus’ 
country-specific 
addressing 
recommendations  adopted by the Council  between 2019  and  2023 and  took stock of 
Cyprus’  implementation  of  the  recovery  and  resilience  plan.  Based  on  this  analysis, 
the  country  report  identified  gaps  with  respect  to  those  challenges  that  are  not 
addressed  or  only  partially  addressed  by  the  recovery  and  resilience  plan,  as  well  as 
new and emerging challenges. It also assessed Cyprus’ progress on implementing the 
European  Pillar  of  Social  Rights  and  on  achieving  the  EU  headline  targets  on 
employment, skills and poverty reduction, as well as progress in  achieving the UN’s 
Sustainable Development Goals.  

progress 

relevant 

the 

in 

(10)  The  Commission  carried  out  an  in-depth  review  under  Article  5  of  Regulation  (EU) 
No 1176/2011 for Cyprus. The main findings of the Commission’s staff assessment of 
macroeconomic  vulnerabilities  for  Cyprus  for  the  purposes  of  that  Regulation  were 
published in March 202413. On 19 June 2024, the Commission concluded that Cyprus 
is experiencing macroeconomic imbalances. In particular, Cyprus faces vulnerabilities 
related  to  private,  government  and  external  debt,  which  have  overall  receded  but 
remain  relevant,  while  the  large  current  account  deficit  has  widened  further.  Both 
household and non-financial corporate debt-to-GDP ratios have continued to decline, 
while remaining high. However, corporate and external debt is inflated by the debt of 
special purpose entities, which pose limited risks to the domestic economy. The large 
stock of non-performing loans held by banks has declined significantly in recent years, 
including in 2023, and non-performing loans resolution by credit acquiring companies 
is expected to support further private debt reduction. Nonetheless, the tighter financial 
conditions  are  likely  to  increase  pressure  on  highly  indebted  households  and 
companies.  The  government  debt-to-GDP  ratio  is  decreasing  rapidly,  and  Cyprus  is 
forecast  to  sustain  budgetary  surpluses  this  year  and  next,  which  will  drive  further 
reductions in the debt ratio. The large current account deficit widened further in 2023 
much due to the continued robust domestic demand and the repatriation of profits. It is 
expected  to  remain  large  this  year  and  next.  The  highly  negative  net  international 

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Council Implementing Decision of 20 July 2021 on the approval of the assessment of the recovery and 
resilience plan for Cyprus (10686/2021). 
Council Implementing Decision of 8 December 2023 amending the Implementing Decision of 20 July 
2021 on the approval of the assessment of the recovery and resilience plan for Cyprus (15571/2023). 
SWD(2024) 613 final. 
SWD(2024) 81 final. 

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investment  position  did  not  improve  last  year  and  is  set  to  deteriorate  unless  the 
current  account  improves  markedly.  Extensive  policy  efforts  have  been  made  to 
address the identified vulnerabilities. The full and timely implementation of RRP and 
further  measures  are  expected  to  help  expand  exports  and  alleviate  the  over-reliance 
on oil imports.  

(11)  Based on data validated by Eurostat14, Cyprus’s general government surplus increased 
from 2.7% of GDP in 2022 to 3.1% in 2023, while the general government debt fell 
from 85.6% of GDP at the end of 2022 to 77.3% at the end of 2023.  

(12)  On  12  July  2022,  the  Council  recommended15  that  Cyprus  take  action  to  ensure  in 
2023 that the growth of nationally financed primary current expenditure is in line with 
an  overall  neutral  policy  stance16,  taking  into  account  continued  temporary  and 
targeted support to households and firms most vulnerable to energy price hikes and to 
people  fleeing  Ukraine.  Cyprus  was  recommended  to  adjust  current  spending  to  the 
evolving situation. Cyprus was also recommended to expand public investment for the 
green  and  digital  transitions,  and  for  energy  security  taking  into  account  the 
REPowerEU  initiative,  including  by  making  use  of  the  Recovery  and  Resilience 
Facility and other Union funds. In 2023, according to the Commission estimates, the 
fiscal  stance17was  expansionary,  by  1%  of  GDP,  in  a  context  of  high  inflation.  The 
growth  in  nationally  financed  primary  current  expenditure  (net  of  discretionary 
revenue measures) in 2023 provided a broadly neutral contribution to the fiscal stance 
of  0.2%  of  GDP.  This  includes  the  reduced  cost  of  the  targeted  emergency  support 
measures to  households  and firms  most vulnerable to  energy price hikes  by 0.1% of 
GDP.  This  also  includes  higher  costs  to  offer  temporary  protection  to  displaced 
persons from Ukraine (by 0.2% of GDP). The growth of nationally financed primary 
current  expenditure  in  2023  was  in  line  with  the  Council  recommendation. 
Expenditure financed by Recovery and Resilience Facility grants and other EU funds 
amounted to 1.3% of GDP in 2023. Nationally financed investment amounted to 3.2 % 
of  GDP  in  2023,  representing  an  increase  of  1.3  percentage  points  as  compared  to 
2022.  Cyprus  financed  additional  investment  through  the  Recovery  and  Resilience 
Facility  and  other  EU  funds.  It  financed  public  investment  for  the  green  and  digital 
transitions,  and  for  energy  security,  such  as  installation  of  thermal  insulation  and 
photovoltaic  systems  in public  buildings,  energy  upgrades  in  a  number  of  urban  and 
rural fire stations, upgrade of the capabilities of relevant authorities in Cyprus to cope 
with  fire hazards  and to  strengthen the protection against the risks faced  by citizens, 
infrastructure  and  forests,  digitalisation  of  key  workflows  in  a  number  of  ministries 
and central government  services, and the expansion of the e-application environment 

14 
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16 

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Eurostat-Euro Indicators, 22.4.2024 
Council  Recommendation  of  12  July  2022  on  the  2022  National  Reform  Programme  of  Cyprus  and 
delivering a Council opinion on the 2022 Stability Programme of Cyprus, OJ C 334, 1.9.2022, p. 104. 
Based on the Commission Spring 2024 Forecast, the medium-term potential output growth of Cyprus in 
2023, which is used to measure the fiscal stance,  is estimated at 8.5% in nominal terms, based on the 
10-year average real potential growth rate and the 2023 GDP deflator. 
The fiscal stance is defined as a measure of the annual change in the underlying budgetary position of 
the  general  government.  It  aims  to  assess  the  economic  impulse  stemming  from  fiscal  policies,  both 
those  that  are  nationally  financed  and  those  that  are  financed  by  the  EU  budget.  The  fiscal  stance  is 
measured as the difference between (i) the medium-term potential growth and (ii) the change in primary 
expenditure  net  of  discretionary  revenue  measures  (and  excluding  temporary  emergency  measures 
related to the COVID-19 crisis) and including expenditure financed by non-repayable support (grants) 
from the Recovery and Resilience Facility and other Union funds. 

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for  planning  and  building  permitting  purposes,  which  are  partly  funded  by  the 
Recovery and Resilience Facility and other EU funds. 

(13)  The key projections in the 2024  Stability Programme can be summarised as follows. 
The  macroeconomic  scenario  underpinning  the  budgetary  projections  foresees  real 
GDP to grow by 2.9% in 2024 and 3.1% in 2025, while it projects HICP inflation at 
2.5%  in  2024  and  2.0%  in  2025.  The  general  government  surplus  is  expected  to 
decrease  to  2.9%  of  GDP  in  2024  and  2.8%  of  GDP  in  2025,  while  the  general 
government  debt-to-GDP  ratio  is  set  to  decrease  to  70.6%  by  the  end  of  2024  and 
65.5% by the end of 2025. After 2025, the general government surplus is projected to 
decrease  to  2.6%  of  GDP  in  2026  and  to  2.1%  in  2027.  Therefore,  the  general 
government balance is planned to remain below the 3% of GDP deficit reference value 
over the programme horizon. In turn, after 2025, the general government debt-to-GDP 
ratio is projected to decrease to 59.2% of GDP in 2026 and 54.2% of GDP in 2027.  

(14)  The  Commission  Spring  2024  Forecast  projects  real  GDP  to  grow  by  2.8%  in  2024 
and 2.9% in 2025, and HICP inflation to stand at 2.4% in 2024 and 2.1% in 2025. 

(15)  The Commission Spring 2024 Forecast projects a government surplus of 2.9% of GDP 
in 2024, while the general government debt-to-GDP ratio is set to decrease to 70.6% 
by  the  end  of  2024.  Based  on  the  Commission’s  estimates,  the  fiscal  stance  is 
projected to be neutral at 0.0% of GDP in 2024. 

(16)  Expenditure amounting to 0.7% of GDP is expected to be financed by non-repayable 
support  (“grants”)  from  the  Recovery  and  Resilience  Facility  in  2024,  compared  to 
0.3%  of  GDP  in  2023,  according  to  the  Commission  Spring  2024  Forecast. 
Expenditure  financed  by  Recovery  and  Resilience  Facility  grants  will  enable  high-
quality investment and productivity-enhancing reforms without a direct impact on the 
general  government  balance  and  debt  of  Cyprus.  Expenditure  amounting  to  0.2%  of 
GDP is expected to be backed by loans from the Recovery and Resilience Facility in 
2024, compared to 0.0% of GDP in 2023, according to the Commission 2024 spring 
forecast. 

(17)  On  14  July  2023,  the  Council  recommended18  that  Cyprus  maintain  a  sound  fiscal 
position  in  2024.  When  executing  their  2023  budgets  and  preparing  their  Draft 
Budgetary  Plans  for  2024,  Member  States  were  invited  to  take  into  account  that  the 
Commission would propose to the Council the opening of the deficit-based excessive 
deficit procedures based on the outturn data for 2023. According to  the Commission 
Spring 2024 Forecast, Cyprus’ structural balance is projected at 2.1% of GDP in 2024, 
from  1.8%  in  2023,  thereby  above  the  country’s  medium-term  budgetary  objective 
(MTO)  of  a  structural  balance  of  0%  of  GDP.  This  is  in  line  with  what  was 
recommended by the Council. 

(18)  Moreover,  the  Council  recommended  that  Cyprus  take  action  to  wind  down  the 
emergency  energy  support  measures  in  force  as  soon  as  possible  in  2023  and  2024. 
The Council further specified that, should renewed energy price  increases necessitate 
new or continued support measures, Cyprus should ensure that these were targeted at 
protecting  vulnerable  households  and  firms,  fiscally  affordable,  and  preserve 
incentives for energy savings. According to the Commission Spring 2024 Forecast, the 

18 

Council  Recommendation  of  14  July  2023  on  the  2023  National  Reform  Programme  of  Cyprus  and 
delivering a Council opinion on the 2023 Stability Programme of Cyprus, OJ C 312, 1.9.2023, p. 116. 

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(19) 

net  budgetary  cost19  of  emergency  energy  support  measures  is  estimated  at  0.4%  of 
GDP in 2023 and projected at 0.3% in 2024 and 0.0% in 2025. In particular, the lower 
excise  duties  on  oil  products  and  the  subsidies  on  electricity  bills  are  assumed  to 
remain  in  force  in  2024  but  are  expected  to  be  phased  out  by  2025.  The  emergency 
energy support measures are not  projected to  be  wound down as soon  as possible in 
2023  and  2024.  This  risks  being  not  in  line  with  what  was  recommended  by  the 
Council.  The  budgetary  cost  of  emergency  energy  support  measures  targeted  at 
protecting  vulnerable  households  and  firms  is  estimated  at  0.0%  of  GDP  in  2024 
(0.0% in 2023). 

In  addition,  the  Council  also  recommended  that  Cyprus  preserve  nationally  financed 
public  investment  and  ensure  the  effective  absorption  of  Recovery  and  Resilience 
Facility  grants  and  other  EU  funds,  in  particular,  to  foster  the  green  and  digital 
transitions.  According  to  the  Commission  Spring  2024  Forecast,  nationally  financed 
public investment is projected to remain broadly stable at 3.1% of GDP in 2024 from 
3.2%  of  GDP  in  2023.  This  is  in  line  with  what  was  recommended  by  the  Council. 
Furthermore,  public  expenditure  financed  from  revenues  from  EU  funds,  including 
Recovery and Resilience Facility grants, is expected to remain stable at 1.3% of GDP 
in  2024.  This  is  driven  by  a  higher  spending  financed  by  Recovery  and  Resilience 
Facility  grants  following  a  drop  on  other  EU  grants  after  the  end  of  the  2014-2020 
programming  period  of  EU  structural  funds,  for  which  funds  were  available  until 
2023. 

(20)  Based on policy measures known at the cut-off date of the forecast and on a no-policy-
change  assumption,  the  Commission  Spring  2024  Forecast  projects  a  government 
surplus of 2.9% of GDP in 2025. The general government debt-to-GDP ratio is set to 
decrease  to  65.4%  by  the  end  of  2025.  Prudent  fiscal  policy  should  contribute  to 
strengthening the external position too. 

(21) 

In accordance with Article 19(3), point (b), and Annex V, criterion 2.2 of Regulation 
(EU) 2021/241, the recovery and resilience plan includes an extensive set of mutually 
reinforcing reforms and investments to be implemented by 2026. These are expected 
to  help  effectively  address  all  or  a  significant  subset  of  challenges  identified  in  the 
relevant  country-specific  recommendations.  Within  this  tight  timeframe,  proceeding 
swiftly  with  the  effective  implementation  of  the  plan,  including  the  REPowerEU 
chapter, is essential to boost Cyprus’ long-term competitiveness through the green and 
digital transition, while ensuring social fairness. To deliver on the commitments of the 
plan  by  August  2026,  it  is  essential  for  Cyprus  to  continue  the  implementation  of 
reforms  and to  accelerate investments  by addressing emerging  delays while ensuring 
strong administrative capacity.  

(22)  As  part  of  the  mid-term  review  of  the  cohesion  policy  funds,  in  accordance  with 
Article  18  of  Regulation  2021/1060,  Cyprus  is  required  to  review  its  programme  by 
March 2025, taking into account, among other things, the challenges identified in the 
2024  country-specific  recommendations,  as  well  as  its  national  energy  and  climate 
plan.  This  review  forms  the  basis  for  the  definitive  allocation  of  the  EU  funding 
included  in  the  programme.  While  Cyprus  has  made  progress  in  implementing 
cohesion policy and the European Pillar of Social Rights, challenges remain and socio-
economic  disparities  persist  between  urban  and  non-urban  areas.  Accelerating  the 

19 

The figure represents the level of  the annual budgetary cost of those measures, including revenue and 
expenditure and, where applicable, net of the revenue from taxes on windfall profits of energy suppliers. 

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7 

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implementation  of  the  cohesion  policy  programme,  is  crucial.  Furthermore,  it  is 
important  to  ensure  the  administrative  capacity  of  local  government  authorities  in 
anticipation  of  Cyprus’s  legislative  reform  in  local  government,  scheduled  for  June 
2024. The priorities agreed in the ‘Thalia’ programme remain relevant. Increasing the 
use  of  renewable  energy,  storage  solutions,  enhancing  energy  efficiency  and  urban 
transport  are  all  key  to  achieving  green  transition.  Improving  water  management, 
especially  wastewater  treatment,  is  needed  to  comply  with  the  Urban  Wastewater 
Treatment  Directive.  Progress  towards  a  circular  economy  in  waste  management 
remains  critical  and  requires  improvements  in  recycling  and  waste  reduction. 
Investments in labour market activation and the social integration of vulnerable groups 
should  continue  to  be  implemented.  The  implementation  of  individual  learning 
accounts  and  implementing  the  European  Child  Guarantee  remain  important. 
Furthermore,  investment  in  good  quality  and  affordable  long-term  care  services  and 
social  housing  remains  a  priority.  In  addition,  efforts  to  address  energy  poverty  and 
develop  the  social  economy  should  be  continued.  As  part  of  the  mid-term  review  of 
the cohesion policy programme, Thalia, the increasingly compelling needs in the field 
of  prevention  and  preparedness  against  climate  change-related  risks  merit  further 
attention.  Cyprus  could  also  make  use  of  the  Strategic  Technologies  for  Europe 
Platform initiative to support its energy transition through clean and resource-efficient 
technologies, including net-zero technologies. 

(23)  Beyond the economic and social challenges addressed by the recovery and resilience 
plan  and  other  EU  funds,  Cyprus  faces  several  additional  challenges  related  to  the 
governance  of  state-owned  enterprises,  educational  outcomes  and  skills  mismatches, 
the roll-out of renewable energy sources, the expansion and upgrade of the electricity 
grid, and climate change adaptation. 

(24)  A  well-functioning  and  competitive  business  environment  is  crucial  to  economic 
efficiency and growth. In this respect, the governance of state-owned enterprises is not 
fully  up  to  international  standards.  In  recent  years,  some  policy  measures  have  been 
introduced to  improve  the financial oversight  of  public entities, but  the absence of  a 
complete  inventory  and  regular  reporting  obligation  limits  the  effective  performance 
monitoring  and  planning  of  state-owned  enterprises.  Moreover,  important  aspects  of 
corporate  governance  practices,  such  as  the  merit-based  nomination  of  boards, 
ownership policy, performance-based management, transparency and accountability of 
financial  performance,  remain  insufficient.  Against  this  background,  there  are 
concerns about the quality and prices of services in sectors dominated by state-owned 
enterprises, such as the electricity sector.   

(25)  Cyprus'  very  weak  performance  in  the  2022  Programme  for  International  Student 
Assessment  (PISA)  shows  that  underachievement  in  basic  skills  (i.e.,  literacy, 
numeracy  and  science)  poses  a  major  challenge.  Despite  the  adequate  formal 
qualifications  of  teaching  staff,  the  continuous  training  of  teachers  (including 
competency-based  teaching  and  learning  methods)  is  insufficient.  In  2021,  most 
teacher candidates failed the exam needed to be appointed. The education system has 
not  sufficiently  assessed  and  adapted  educational  resources  to  the  needs  of  students, 
which is required to develop key competences. In the labour market, skills mismatches 
are  becoming  increasingly  prevalent,  while  participation  in  vocational  education  and 
training (VET) programmes remains significantly lower than the EU average. The low 
participation  rate  in  VET  programmes  is  linked  to  both  capacity  and  attractiveness 
constraints  as  most  VET  schools  are  situated  in  urban  areas  (making  it  difficult  for 
students living in rural areas to enroll), while most students have a strong preference 

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8 

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for entering tertiary education instead. Adult learning has a limited potential to correct 
this  situation  as  the  share  of  adults  (aged  25-64)  participating  in  learning  in  the 
previous 12 months was 28.3% in 2022 (vs EU 39.5%). This is a substantial decrease 
from  44.8%  in  2016  which  undermine  Cyprus’  potential  to  improve  its  economic 
competitiveness. 

(26)  Despite  considerable  steps  taken  towards  accelerating  the  roll-out  of  renewables, 
significant  challenges  remain.  Renewable  energy  accounted  for  just  17%  of  Cyprus’ 
electricity mix in 2022. This is still significantly below the goal  of 31.5% renewable 
electricity generation by 2030, as indicated by Cyprus in its draft national energy and 
climate  plan.  Due  to  Cyprus’  reliance  on  petroleum  products,  which  are  imported  in 
their  entirety  and  serve  to  meet  over  80%  of  its  energy  needs,  Cyprus  remains 
vulnerable  to  fluctuations  in  global  energy  prices.  Considerable  challenges  persist  in 
upgrading and expanding the existing electricity grid to accommodate the deployment 
of  renewable  energy  sources.  Cyprus  is  grappling  with  significant  obstacles  in  its 
short-term  power  grid  capacity  to  accommodate  an  increase  in  renewables,  which 
results in recurring shortages. This phenomenon is evident when looking at the official 
data from  Cyprus’ Energy Regulatory Authority. By the end of November 2023, the 
Cypriot  system  had  a  total  of  782.57  MW  of  operational  renewable  energy  plants 
(including  157.50  MW  of  wind,  625.93  MW  of  photovoltaics,  and  9.15  MW  of 
biomass). At the same time, the authority has approved construction permits for a total 
of  2  383  MW  in  renewable  energy  projects.  An  overarching  strategy  for  energy 
storage  could  increase  flexibility  and  supply  stability,  and  decrease  the  costs  of 
ramping up and down conventional power plants.  

(27)  Cyprus faces several challenges in its efforts to address climate change resilience, such 
as  a  weak  institutional  framework  for  climate  change  adaptation,  and  the  lack  of 
sustainable water management practices to support resilient agriculture. The country’s 
vulnerability to climate change is pronounced, and its national adaptation policies and 
measures  are  not  sufficiently  developed.  Cyprus  suffers  from  low  rainfall  levels  and 
high temperatures, contributing to the highest level of water stress in the EU. Although 
the  Cypriot  agriculture  sector  benefits  from  increasingly  water-efficient  irrigation 
systems,  it  still  has  the  highest  water  consumption  rate  due  to  a  significant  loss  of 
water  resources  in  insufficient  distribution  and  storage  networks.  Furthermore,  the 
Cypriot  agriculture  sector  is  already  grappling  with  the  effects  of  climate  change, 
including soil degradation and desertification, leading to reduced crop yields. Effective 
water  management  and  storage,  as  well  as  adopting  water-efficient  crops,  become 
paramount. Anthropogenic pressure on habitats and ecosystems, particularly in coastal 
zones, is exacerbating the situation. The country’s current approach to climate change 
adaptation  remains  largely  non-binding.  This  calls  for  improved  institutional 
arrangements to bolster climate resilience and long-term competitiveness.  

(28) 

In view of the close interlinkages between the economies of euro area Member States 
and of their collective contribution to the functioning of the Economic and Monetary 
Union,  in  2024  the  Council  recommended  that  the  euro  area  Member  States  take 
action,  including  through  their  recovery  and  resilience  plans,  to  implement  the 
the  euro  area.  For  Cyprus, 
recommendation  on 
recommendations  (1),  (2),  (3)  and  (4)  contribute  to  the  implementation  of  the  first, 
second, third and fourth euro area recommendations. 

the  economic  policy  of 

(29) 

In  light  of  the  Commission’s  in-depth  review  and  its  conclusion  on  the  existence  of 
imbalances,  recommendations under Article 6 of Regulation  (EU) No 1176/2011  are 
reflected  in  recommendation  (1)  below.  Policies  referred  to  in  recommendation  (1) 

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help to address vulnerabilities linked to public and external debt. Policies referred to in 
recommendation (4) contribute to addressing recommendation (1) by reducing demand 
for  energy  imports  and  by  extension  helping  to  strengthen  the  external  balance. 
Recommendation (1) contributes to both addressing imbalances and implementing the 
recommendation for the euro area, in line with recital 28. 

HEREBY RECOMMENDS that Cyprus take action in 2024 and 2025 to:  

1. 

2. 

3. 

4. 

Submit  the  medium-term  fiscal-structural  plan  in  a  timely  manner.  In  line  with  the 
requirements  of  the  reformed  Stability  and  Growth  Pact,  limit  the  growth  in  net 
expenditure20 in 2025 to a rate consistent with putting the general government  debt 
on a plausibly downward trajectory over the medium term and respecting the 3% of 
GDP deficit Treaty reference value.  

Strengthen  administrative  capacity  to  manage  the  recovery  and  resilience  plan, 
accelerate  investments  and  maintain  momentum  in  the  implementation  of  reforms. 
Address emerging delays to allow for continued, swift and effective implementation 
of  the  recovery  and  resilience  plan,  including  the  REPowerEU  chapter,  ensuring 
completion  of  reforms  and 
the 
implementation  of  the  cohesion  policy  programme.  In  the  context  of  its  mid-term 
review, continue focusing on the agreed priorities, taking action to better address the 
needs  in  the  area  of  prevention  and  preparedness  against  climate  change-related 
risks, while considering the opportunities provided by the Strategic Technologies for 
Europe Platform initiative to improve competitiveness.     

investments  by  August  2026.  Accelerate 

Strengthen the competitiveness of the economy by accelerating efforts to improve the 
governance of state-owned enterprises in line with international standards and further 
improving  skill  levels  and  educational  outcomes.  Strengthen  continuous  teacher 
training  and  address  the  imbalances  between  labour  supply  and  demand  by  further 
increasing  the  capacity  and  attractiveness  of  Vocational  Education  and  Training 
programmes as well as fostering adult learning.  

Upgrade  and  expand  the  grid  and  storage  to  accommodate  an  increasing  share  of 
renewables. Improve the implementation of climate adaptation measures, by focusing 
on  fostering 
institutional  framework  governing  climate  adaptation  and 
implementing sustainable water management practices in agriculture.  

the 

Done at Brussels, 

For the Council 
The President 

20 

According  to  Article  2(2)  of  Regulation  (EU)  2024/1263,  ‘net  expenditure’  means  government 
expenditure net of interest expenditure, discretionary revenue measures, expenditure on programmes of 
the  Union  fully  matched  by  revenue  from  Union  funds,  national  expenditure  on  co-financing  of 
programmes funded by the Union, cyclical elements of unemployment benefit expenditure, and one-offs 
and other temporary measures. 

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