Recommendation for a COUNCIL RECOMMENDATION endorsing the national medium-term fiscal-structural plan of Cyprus
Date: 2024-11-26
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Cyprus, budget deficit, coordination of EMU policies, economic reform, fiscal policy, investment, macroeconomics, national planning, public debt, structural adjustment

EN 

  EN 

   EUROPEAN COMMISSION  Strasbourg, 26.11.2024  COM(2024) 710 final  Recommendation for a COUNCIL RECOMMENDATION endorsing the national medium-term fiscal-structural plan of Cyprus  
 
Recommendation for a 

COUNCIL RECOMMENDATION 

endorsing the national medium-term fiscal-structural plan of Cyprus 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 121 thereof, 

Having regard to Regulation (EU) 2024/1263, and in particular Article 17 thereof, 

Having regard to the recommendation from the Commission, 

Whereas: 

GENERAL CONSIDERATIONS 

(1) 

(2) 

1 

2 

3 

4 

A reformed EU economic governance framework entered into force on 30 April 2024. 
Regulation  (EU)  2024/1263  of  the  European  Parliament  and  of  the  Council  on  the 
effective  coordination  of  economic  policies  and  on  multilateral  budgetary 
surveillance1,  together  with  the  amended  Regulation  (EC)  No  1467/97  on  the 
implementation  of  the  excessive  deficit  procedure2,  and  the  amended  Council 
Directive  2011/85/EU  on  the  budgetary  frameworks  of  Member  States3  are  the  core 
elements of the reformed EU economic governance framework. The framework aims 
at  ensuring  public  debt  sustainability  and  sustainable  and  inclusive  growth  through 
reforms  and  investments.  It  promotes  national  ownership  and  has  a  medium-term 
focus, combined with an effective and coherent enforcement of the rules.  

The  national  medium-term  fiscal-structural  plans  that  Member  States  submit  to  the 
Council  and  to  the  Commission,  are  at  the  centre  of  the  new  economic  governance 
framework. The plans are to deliver on two objectives: i) ensuring that, by the end of 
the adjustment period, general government debt is on a plausibly downward trajectory, 
or stays at  prudent  levels,  and that the government  deficit is  brought and maintained 
below the reference value of 3% of GDP over the medium term, and ii) ensuring the 
delivery  of  reforms  and  investments  responding  to  the  main  challenges  identified  in 
the context of the European Semester and addressing the common priorities of the EU. 
To that end, each plan is to present a medium-term commitment to a net expenditure4 

L, 

(OJ 

1466/97 

Regulation 

(EC)  No 

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 
ELI: 
Council 
http://data.europa.eu/eli/reg/2024/1263/oj). 
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). 
Council Directive (EU) 2024/1265 of 29 April 2024 amending Directive 2011/85/EU on requirements 
for  budgetary 
(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 Regulation (EU) 2024/1263, namely government expenditure 
net  of  (i)  interest  expenditure,  (ii)  discretionary  revenue  measures,  (iii)  expenditure  on  Union 
programmes fully matched by revenue from Union funds,  (iv) national expenditure on co-financing of 

the  Member  States 

frameworks  of 

2024/1263, 

30.4.2024, 

EN 

1 

  EN 

 
 
path, which effectively establishes a budgetary constraint for the duration of the plan, 
covering four or five years (depending on the regular term of legislature in a Member 
State).  In  addition,  the  plan  is  to  explain  how  the  Member  State  will  ensure  the 
delivery  of  reforms  and  investments  responding  to  the  main  challenges  identified  in 
the  context  of  the  European  Semester,  in  particular  in  the  country-specific 
recommendations  (including  those  pertaining  to  the  macroeconomic  imbalances 
procedure (MIP), if applicable), and how the Member State will address the common 
priorities of the Union. The period for fiscal adjustment covers a period of four years, 
which  may  be  extended  by  up  to  three  years  if  the  Member  State  commits  to 
delivering a set of relevant reforms and investments that satisfies the criteria set out in 
Regulation (EU) 2024/1263 

(3) 

(4) 

Following the submission of the plan, the Commission is to assess whether it complies 
with the requirements of Regulation (EU) 2024/1263. 

Upon  a  recommendation  from  the  Commission,  the  Council  is  to  then  adopt  a 
recommendation to set the net  expenditure path  of the Member State concerned and, 
investment  commitments 
the  set  of  reform  and 
where  applicable,  endorse 
underpinning an extension of the fiscal adjustment period. 

CONSIDERATIONS  CONCERNING  THE  NATIONAL  MEDIUM-TERM  FISCAL-
STRUCTURAL PLAN OF CYPRUS 

(5) 

On 15 October 2024, Cyprus submitted its national medium-term fiscal-structural plan 
to  the  Council  and  to  the  Commission.  The  submission  took  place  following  an 
extension  of  the  deadline  set  out  in  Article  36  of  Regulation  (EU)  2024/1263,  as 
agreed  with  the  Commission  in  view  of  the  reasons  provided  by  Cyprus.  On  15 
November 2024, Cyprus submitted an addendum to revise the net expenditure growth 
path to reflect more recent data. This revision was necessary in view of  a change on 
the  statistical  recording  of  a  significant  transaction  that  became  available  after  the 
submission of the plan and had a  major impact on the expenditure level of 2023 and 
subsequently  on  the  intended  expenditure  growth  rates  and  levels  of  2024  and  the 
adjustment period 2025-2028. 

Process prior to the submission of the plan  

(6) 

On  21  June  2024,  the  Commission  sent,  according  to  Article  9  of  Regulation  (EU) 
2024/1263,  the  reference  trajectory5  to  Cyprus.  The  Commission  published  the 
reference  trajectory  on  15  October  20246.  The  reference  trajectory  is  risk-based  and 
ensures that, by the end of the fiscal  adjustment period and in the absence of further 

5 

6 

programmes funded by the Union, (v) cyclical elements of unemployment benefit expenditure and (vi) 
one-offs and other temporary measures.  
Prior  guidance  transmitted  to  the  Member  States  and  Economic  and  Financial  Committee  includes 
trajectories  with  and  without  an  extension  of  the  adjustment  period  (covering  4  and  7  years, 
respectively).  It  also  includes  the  main  initial  conditions  and  underlying  assumptions  used  in  the 
European Commission’s medium-term government debt projection framework. The reference trajectory 
was  calculated  on  the  basis  of  the  methodology  described  in  the  European  Commission’s  Debt 
Sustainability  Monitor  2023  (https://economy-finance.ec.europa.eu/publications/debt-sustainability-
monitor-2023_en). It is based on the European Commission 2024 spring forecast and its medium-term 
extension up to 2033, and long-term GDP growth and ageing costs are in line with the joint European 
Commission-Council  2024  Ageing  Report  (https://economy-finance.ec.europa.eu/publications/2024-
ageing-report-economic-and-budgetary-projections-eu-member-states-2022-2070_en). 
https://economy-finance.ec.europa.eu/document/download/20a00b2c-4847-446b-a103-
192958a1e11a_en?filename=Commission_prior_guidance-cyprus_en.pdf 

EN 

2 

  EN 

 
budgetary  measures  beyond  the  adjustment  period,  general  government  debt  is  on  a 
plausibly  downward  trajectory  or  stays  at  prudent  levels  over  the  medium  term,  and 
the  general  government  deficit  is  brought  below  3%  of  GDP  over  the  adjustment 
period and maintained below that reference value over the medium term. The medium 
term  is  defined  as  the  ten-year  period  after  the  end  of  the  adjustment  period.  In 
accordance  with  Articles  7  and  8  of  Regulation  (EU)  2024/1263,  the  reference 
trajectory  is  also  consistent  with  the  debt  sustainability  safeguard  and  the  deficit 
resilience  safeguard.  The  reference  trajectory  of  Cyprus  sets  out  that,  based  on  the 
Commission’s assumptions and assuming a 4-year adjustment period, net expenditure 
should  not  grow  by  more  than  the  values  provided  in  Table  1.  This  corresponds  to 
average net expenditure growth of 4.9% over the adjustment period (2025-2028).  

Table 1: Reference trajectory provided by the Commission to Cyprus on 21 June 2024 

2025 

2026 

2027 

2028 

Average 2025-
2028 

5.9 

5.0 

4.5 

4.3 

4.9 

Maximum net 
expenditure growth 
(annual, %) 

Source: Commission’s calculations. 

(7) 

(8) 

(9) 

In  line  with  Article  12  of  Regulation  (EU)  2024/1263,  Cyprus  and  the  Commission 
engaged in a technical dialogue from July to September 2024. The dialogue centred on 
the  net  expenditure  path  envisaged  by  Cyprus  and  its  underlying  macroeconomic 
assumptions,  particularly  concerning  potential  output  and  output  gap.  Additionally, 
technical  dialogues  examined  the  envisaged  delivery  of  reforms  and  investments 
responding to the main challenges identified in the context of the European Semester 
and the common priorities of the Union in fair green and digital transition, social and 
economic resilience, energy security and the build-up of defence capabilities. 

According  to  the  information  provided  by  Cyprus  in  its  plan,  a  consultation  process 
with  relevant  national  stakeholders  (including  social  partners)  prior  to  submission  as 
foreseen in Article 11(3) of Regulation (EU) 2024/1263 did not take place, in line with 
the  transitional  provisions  foreseen  in  Article  36(1),  point  (c),  of  Regulation  (EU) 
2024/1263. 

The Cypriot Fiscal Council delivered an opinion on the macroeconomic forecast  and 
the macroeconomic assumptions underpinning the draft budget for 2025 and the 2025-
2027 medium-term budgetary framework in the context of the 2025 budgetary process. 
The  Council  considers  the  assumptions  plausible  and  the  net  primary  expenditure 
growth respecting the obligations of Cyprus under the new EU economic governance 
framework. 

Other related processes  

(10)  On  15  October  2024,  Cyprus  submitted  its  Draft  Budgetary  Plan  for  the  year  2025. 
The Commission adopted an opinion on this Draft Budgetary Plan on  [26 November 
2024]7.  

(11)  On  19  June  2024,  the  Commission  concluded  that  Cyprus  is  experiencing 
macroeconomic  imbalances.  In  particular,  Cyprus  faces  vulnerabilities  related  to 

7 

Commission Opinion on the Draft Budgetary Plan of Cyprus, 26.11.2024, C(2024)9050 final. 

EN 

3 

  EN 

 
 
private,  government  and  external  debt,  which  have  overall  receded  but  remain 
relevant, while the large current account deficit has widened further. 

(12)  On  21  October  2024,  the  Council  addressed  to  Cyprus  a  series  of  country-specific 

recommendations (CSRs) in the context of the European Semester8. 

SUMMARY  OF  THE  PLAN  AND  THE  COMMISSION’S  ASSESSMENT  OF 
THEREOF 

(13) 

In  line  with  Article  16  of  Regulation  (EU)  2024/1263,  the  Commission  assessed  the 
plan as follows: 

Context: macroeconomic and fiscal situation and outlook  

(14)  Economic  activity  in  Cyprus  grew  by  2.6%  in  2023,  driven  by  domestic  demand, 
notably  private  consumption  supported  by  recovering  real  wages.  According  to  the 
European  Commission  Autumn  2024  Forecast,  the  economy  is  expected  to  grow  by 
3.6%  in  2024,  thanks  to  investment  and  robust  exports,  particularly  due  to  tourism, 
and in the ICT and shipping services sectors. Household spending is also expected to 
contribute to growth, albeit at a slower pace. For 2025 and 2026, real GDP growth is 
set  to  remain  dynamic  at  2.8%  and  2.5%  respectively,  supported  by  similar  factors. 
Potential GDP growth is also expected to remain solid over the same years, driven by 
capital  deepening  and  favourable  labour  market  dynamics.  The  unemployment  rate 
stood  at  5.9%  in  2023,  and  is  projected  by  the  Commission  to  decrease  to  4.9%  in 
2024, 4.7% in 2025 and 4.5% in 2026. Inflation (GDP deflator growth) is projected to 
decrease slightly from 3.8% in 2023 to 3.5% in 2024, and to reach 2.3% in 2025 and 
2.2% in 2026. 

(15)  Regarding  fiscal  developments,  in  2023  Cyprus’s  general  government  surplus 
amounted  to  2.0%  of  GDP.  According  to  the  European  Commission  Autumn  2024 
Forecast,  it  is  set  to  reach  3.5%  of  GDP  in  2024  and  to  decline  to  2.7%  of  GDP  in 
2025 and, on a no-policy change basis, to  remain at 2.7% in 2026. The  Commission 
Autumn  2024  Forecast  includes  Cyprus’s  draft  budget  for  2025  that  the  government 
adopted in October 2024 and the national parliament is expected to vote in December 
2024.  General  government  debt  was  73.6%  of  GDP  at  end-2023.  According  to  the 
European Commission Autumn 2024 Forecast, the debt ratio is expected to decline to 
66.4%  of  GDP  at  end-2024.  It  is  projected  to  decline  to  61.4%  of  GDP  at  end-2025 
and 56.7% at end-2026. The fiscal forecast by the Commission does not consider the 
policy commitments in the medium-term plans as such until they are underpinned by 
credibly announced and sufficiently specified concrete policy measures. 

Net expenditure path and main macroeconomic assumptions in the plan  

(16)  Cyprus’s national medium-term fiscal-structural plan covers the period 2025-2028 and 

presents a fiscal adjustment over four years. 

(17)  The  plan  contains  all  information  required  by  Article  13  of  Regulation  (EU) 

2024/1263. 

(18)  The  plan commits  to the net  expenditure path  indicated in  Table  2, corresponding  to 
average  net  expenditure  growth  of  5.2%  over  the  years  2025-2028.  The  average  net 
expenditure  growth  reported  in  the  plan  over  the  adjustment  period  (2025-2028)  is 
above  the  reference  trajectory  transmitted  by  the  Commission  on  21 June  2024.  The 

8 

Council Recommendation on economic, budgetary, employment and structural policies of Cyprus, not 
yet published. 

EN 

4 

  EN 

 
plan assumes potential GDP growth to decrease gradually, from 3.9% in 2024 to 3.1% 
by 2028. In addition, the plan expects the growth rate of the GDP deflator to remain 
elevated in 2024, mostly due to the projected high general government deflator, which 
reflects the expected full implementation of the automatic indexation mechanism. For 
the subsequent years, the GDP deflator is expected to gradually converge towards 2%. 

Table 2: Net expenditure path and main assumptions in Cyprus’s plan  

2024 

2025 

2026 

2027 

2028 

Average over the 
period of validity of 
the plan 

2025-2028 

2.7 

6.0 

5.0 

5.4 

4.3 

5.2 

2.7 

8.9 

14.3 

20.5 

25.7 

n.a. 

3.9 

3.8 

3.6 

2.4 

3.3 

2.0 

3.3 

2.0 

3.1 

2.0 

3.3 

2.1 

Net expenditure 
growth 
(annual, %) 

Net expenditure 
growth 
(cumulative, from 
base year 2023, %) 

Potential GDP 
growth (%) 

Inflation (GDP 
deflator growth) 
(%) 

Source: Medium-term fiscal-structural plan of Cyprus and Commission calculations.  
Implications of the plan’s net expenditure commitments for general government debt  

(19) 

If the net  expenditure path  committed to  in  the plan and the underlying assumptions 
materialise, general government debt would, according to the plan, gradually decrease 
from 66% in 2024 to 47.4% of GDP at the end of the adjustment period (2028), as per 
the  following  table.  The  debt  ratio  is  projected  to  decrease  by  almost  19  percentage 
points of GDP during the adjustment period, up to 2028. After the adjustment, over the 
medium  term  (i.e.  until  2038),  the  general  government  debt  ratio  is  projected  to 
continue to decrease according to the plan, reaching 27.9% of GDP by 20389. 

9 

The  plan  was  submitted  on  15  October  2024,  but  takes  into  account  –  through  its  addendum  –  the 
change  in  the  statistical  treatment  of  the  payment  of  EUR  360  million  by  the  State  to  the  new  civil 
servants’ pension scheme, which was released on 22 October 2024 as it had a major impact on the net 
expenditure growth path. 

EN 

5 

  EN 

 
 
Table 3: General government debt and balance developments in Cyprus’ plan  

2023 

2024 

2025 

2026 

2027 

2028 

2038 

Government debt 

77.4 

68.9 

64.2 

58.8 

53.3 

47.4 

27.9 

(% of GDP) 

Government balance 

3.3 

3.9 

2.7 

2.6 

2.1 

2.1 

0.8 

(% of GDP) 

Source: Medium-term fiscal-structural plan of Cyprus 

Thus,  according  to  the  plan  and  its  addendum,  general  government  debt  would  be 
brought  below  the  Treaty  reference  value  of  60%  of  GDP  by  end-2026.  This  is 
plausible based on the plan’s assumptions, and debt is projected to stand below 60% 
of  GDP  by  2038  under all  deterministic  stress  tests  of  the  European  Commission’s 
Debt Sustainability Analysis. Therefore, based on the plan’s policy commitments and 
macroeconomic  assumptions,  the  net  expenditure  path  put  forward  in  the  plan  is 
consistent with the requirement for debt as set out in Articles 6, point (a), and 16(2) 
of Regulation (EU) 2024/1263. 

Implications  of  the  plan’s  net  expenditure  commitments  for  the  general  government 
balance 

(20)  Based  on  the  plan’s  net  expenditure  path  and  assumptions,  the  general  government 
surplus  would  be  2.7%  of  GDP  in  2025,  2.6%  in  2026  and  2.1%  in  2027  and  2028. 
Thus, according to the plan, the general government balance would not exceed the 3% 
of GDP reference value at the end of the adjustment period (2028). In addition, in the 
ten  years  following  the  adjustment  period  (i.e.  until  2038),  the  government  deficit 
would not exceed 3% of GDP. Therefore, based on the plan’s policy commitments and 
macroeconomic  assumptions,  the  net  expenditure  path  put  forward  in  the  plan  is 
consistent  with  the  requirement  for  the  deficit  as  set  out  in  Article  6,  point  (b),  and 
16(2) of Regulation (EU) 2024/1263. 

Consistency of the plan with the deficit resilience safeguard 

(21) 

If  the  plan’s  assumptions  and  commitments  materialise,  the  structural  deficit  would 
remain below 1.5% of GDP throughout the adjustment period. Therefore, based on the 
plan’s  policy  commitments  and  macroeconomic  assumptions,  the  common  resilience 
margin  referred  to  in  Article  8(1)  of  Regulation  (EU)  2024/1263  will  continue  to  be 
respected, and therefore the additional improvement in the structural primary balance 
referred to in Article 8(2) of Regulation (EU) 2024/1263 is not required. 

Consistency of the plan with the debt sustainability safeguard 

(22) 

In  accordance  with  Article  7  of  Regulation  (EU)  2024/1263,  as  general  government 
debt will be between 60% and 90% of GDP in 2024 and 2025 according to the plan, 
the  debt  ratio  is  required  to  decline  by  at  least  0.5  percentage  points  on  average  per 
year until it falls below 60%. This average decline is calculated over the period 2024-
2026  and  amounts  to  5.1 percentage  points  (see  Table  3).  Therefore,  based  on  the 
plan’s policy commitments and macroeconomic assumptions, the net expenditure path 
put forward in the plan is consistent with the debt sustainability safeguard. 

Macroeconomic assumptions of the plan 

EN 

6 

  EN 

 
(23)  The  plan  is  based  on  a  set  of  assumptions  which  differs  from  the  Commission’s 
assumptions  transmitted  to  Cyprus  on  21  June  2024.  In  particular,  the  plan  uses 
different  assumptions  for  six  variables,  such  as  the  starting  point  of  the  structural 
primary balance in 2024, the revenue elasticity to GDP, and the growth  assumptions 
(in  terms  of  real  and  potential  growth,  as  well  as  the  closure  of  the  output  gap).  An 
assessment of these differences in assumptions is provided below. The differences in 
assumptions  with  the  most  significant  impact  on  average  net  expenditure  growth  are 
listed below, together with an assessment of each assumption considered in isolation. 

• 

• 

• 

The starting point is more favourable as the structural primary balance in 2024 
in the plan is significantly higher than in the Commission’s assumptions. The 
plan  uses  more  up-to-date  data  and  projects  the  structural  primary  surplus  at 
4.2%  of  GDP  in  2024,  compared  to  a  projected  3.5%  of  GDP  surplus  in  the 
prior guidance. This  is  due  to  significantly  higher-than-expected tax revenues 
based  on  outturn  data.  Consequently,  this  assumption  is  deemed  to  be  duly 
justified.  

The  plan  implies  a  different  elasticity  of  revenue  to  GDP  from  the 
Commission,  which  assumes  a  unit  structural  revenue  elasticity  to  potential 
GDP.  The  lower  revenue  as  a  percentage  of  GDP  in  the  plan  follows  a more 
prudent  assumption,  with  revenue  growing  in  line  with  price  and  income 
developments.  It  also  assumes  no  additional  revenue  from  the  settlement  of 
backlog  of  tax  cases  and  possible  improvements  in  tax  administration. 
Consequently, this assumption is deemed to be duly justified. This contributes 
to lower average net expenditure growth over the adjustment period in the plan 
than according to the Commission’s assumptions. 

The plan assumes real GDP growth to ease from an estimated 3.7% in 2024 to 
3.1%  in  2025,  and  to  further  accelerate  thereafter,  peaking  at  3.3%  in  2027. 
The Commission’s prior guidance projects lower growth, starting from 2.8% in 
2024  and  peaking  at  3.0%  in  2025,  before  gradually  easing  to  1.5%  in  2027. 
Overall,  the  real  GDP  growth  profile  assumed  in  the  plan  is  more  favourable 
than the Commission’s assumption over the adjustment period. It also shows a 
more volatile profile. Beyond the adjustment period, the plan assumes a similar 
profile to  the  Commission’s  prior guidance. The plan assumes  potential  GDP 
growth to remain above 3% throughout the adjustment period, which is higher 
than  average  potential  growth  of  around  2%  assumed  in  the  Commission’s 
prior guidance. Additionally, the plan does not align with the assumption of a 
potential  growth  path  that  closes  the  output  gap  by  2028,  which  is  not 
consistent with the DSA framework.  

The  remaining  differences  in  assumptions  do  not  have  a  significant  impact  on 
average net expenditure growth compared to the Commission’s assumptions. Overall, 
all  the  differences  in  assumptions  taken  together  could  lead  to  an  average  net 
expenditure growth higher than in the reference trajectory, without impact on plan’s 
compliance  with  the  requirement  of  Regulation  (EU)  2024/1263.  Cyprus  has 
however  opted  for  an  expenditure  path  in  line  with  the  reference  trajectory 
transmitted  by  the  European  Commission  on  21  June  2024  adjusted  only  for  the 
impact  of the change  in  the statistical  treatment  of  a significant  transaction,  State’s 
payment  to  the  new  civil  servants’  pension  scheme.  This  led  to  an  average  net 
expenditure growth which is higher by around 0.3 pp than the Commission reference 
trajectory  due  to  the  new  starting  point  of  2024.  The  Commission  will  take  into 

EN 

7 

  EN 

account  the  above  assessment  of  the  plan’s  assumptions  in  future  assessments  of 
compliance with this recommendation. 

Fiscal strategy of the plan  

(24)  According  to  the  indicative  fiscal  strategy  in  the  plan,  the  commitments  on  net 
expenditure  will  be  delivered  mainly  through  existing  policies.  The  plan  takes  into 
account the impact of adopted revenue and expenditure measures such as public sector 
wage  increases  approved  in  2024,  measures  to  support  housing  needs  of  vulnerable 
households,  the  phasing  out  of  tax  rates  reductions  and  the  non-indexation  of  the 
personal income tax brackets. The plan does not assume any additional revenue from 
the  backlog  of  tax  cases,  which  may  continue  contributing  positively  to  revenue 
growth  in  line with  the  developments  in  the  recent  years. The plan  also  includes the 
impact of a retroactive payment of the state to the civil servants' pension fund with an 
impact on both revenues and expenditures in in 2024. The plan highlights that the set 
targets  will  be  achieved  without  requiring  additional  budgetary  measures.  The  Draft 
Budgetary Plan for 2025 reaffirms this position and confirms that the net expenditure 
commitment  for  2025  will  be  achieved  without  requiring  additional  budgetary 
measures10. 

Reform  and  investment  intentions  in  the  plan  responding  to  the  main  challenges 
identified in the context of the European Semester and addressing the common priorities 
of the Union  

(25)  The plan describes policy intentions concerning reforms and investments to respond to 
the main challenges identified in the context of the European Semester (especially the 
CSRs, including those pertaining to the macroeconomic imbalances procedure) and to 
address the common priorities of the EU. The plan includes an extensive list of around 
50 reforms and investments addressing the common priorities of the EU, of which 26 
are financially supported by the RRF and 24 by the Cohesion policy funds. 

(26)  Concerning  the  common  priority  of  a  fair  green  and  digital  transition,  including  the 
climate  objectives  set  out  in  Regulation  (EU)  2021/1119,  the  plan  includes  reforms 
and investments funded by national and EU funds. The majority of the green transition 
measures outlined  in  the plan are  also  incorporated into  the  Cyprus  National  Energy 
and  Climate  Plan.  To  address  the  2024  CSR  related  to  strengthening  climate 
adaptation,  the  plan  includes  a  reform  that  revises  and  updates  the  Cyprus  National 
Strategy  on  Climate  Change  Adaptation.  To  address  the  2023  CSR  related  to 
accelerating the roll-out of renewable energy and improving energy infrastructure and 
networks, the plan includes the digitalisation of the electricity grid to enhance further 
penetration of renewables (Cohesion policy funds) and the ‘Great Sea Interconnector’ 
(included in the recovery and resilience plan (RRP)). To address the 2023 CSR related 
to energy efficiency, the plan includes investments to improve the energy efficiency of 
schools  (Cohesion  policy  funds)  and  the  promotion  of  renewables  and  individual 
energy efficiency measures in  dwellings  (included in  the RRP). To address  the 2023 
CSR related to shifting towards sustainable transport, the plan includes the support of 
the purchase of Electric Vehicles (included in the RRP) and infrastructure projects on 
Sustainable Urban Mobility  Plans (included in  the RRP and  Cohesion  policy funds). 
To address the 2020 CSR related to improving water and waste management, the plan 
includes a nationwide system for the separate collection of municipal waste (Cohesion 
policy  funds)  and  the  National  Circular  Economy  Action  Plan  (included  in  the  RRP 

10 

See Commission Opinion on the Draft Budgetary Plan of Cyprus, 26.11.2024, C(2024)9050 final. 

EN 

8 

  EN 

 
and  Cohesion  policy  funds).  To  address  the  2019  CSR  related  to  facilitating  the 
enhancement of digital skills, the plan includes an E-Skills action plan (included in the 
RRP).  To  address  the  2020  CSR  related  to  digitalising  the  public  sector  the  plan 
includes the digitalisation of public services (included in the RRP and Cohesion policy 
funds) and the introduction of the Electronic Identity. To address the 2020 CSR related 
to  improving  research  and  innovation,  the  plan  includes  the  operation  of  the  Cyprus 
Equity  Fund  (included  in  the  RRP),  which  increases  the  availability  of  alternative 
financing sources, particularly for innovative companies and start-ups. The plan does 
not include any measures to address the 2019 CSR related to facilitating the reduction 
of Non-Performing Loans, as Cyprus has passed a package of legislative amendments 
in December 2023. 

(27)  Concerning  the  common  priority  of  social  and  economic  resilience,  including  the 
European Pillar of Social Rights, the plan includes reforms and investments funded by 
national and EU funds. To address the 2024 CSR related to improving the governance 
of  the  state-owned  entities  in  line  with  international  standards,  the  plan  includes  an 
action  plan  setting  out  four  pillars  of  action.  To  address  the  2019  and  2020  CSRs 
related to improving business environment and access to finance, the plan includes the 
simplification  of  the  procedures  for  strategic  development  projects  (included  in  the 
RRP), the establishment of a National Promotional Agency (included in the RRP) and 
the operation of the Cyprus Equity Fund (included in the RRP). To address the 2020 
CSR related to increasing the effectiveness, efficiency and fairness of the tax system, 
the plan includes a set  of reforms  related to  aggressive tax planning (included in  the 
RRP). To address  the 2020 CSR related to  frontloading  of mature public investment 
projects,  the  plan  includes  infrastructure  projects  on  sustainable  urban  mobility,  the 
refurbishment  of  water  treatment  plants  and  the  installation  and  operation  of  smart 
metering  infrastructure  (included  in  the  RRP).  To  address  the  2024  CSR  related  to 
strengthening education, vocational education and training and adult learning, the plan 
includes  a  new  system  of  Evaluation  of  the  Education  Work  and  the  Educators 
(included in the RRP), the reform of the Curricula in Secondary Technical and General 
Education  (included  in  the  RRP),  development  actions  of  Technical  Vocational 
Education  and  Training  (Cohesion  policy  funds),  the  digitalization  and  improvement 
of the effectiveness of the services of the Public Employment Service (included in the 
RRP),  the  implementation  of  the  Cyprus  Lifelong  Learning  Strategy  2021-2027  and 
the development of Individual Learning Accounts (ILAs) (Cohesion policy funds). To 
address  the  2020  CSR  related  to  promoting  flexible  working  arrangements,  the  plan 
also incorporates various schemes (Cohesion policy funds). To address the 2019 and 
2020 CSRs related to providing affordable childhood education and care and adequate 
income replacement and access to social protection for all, the plan includes measures 
such  as  a  reform  in  Pre-primary  Education,  Actions  for  School  and  Social  Inclusion 
(DRA.S.E.+)  and  the  Establishment  of  Home  Structures  for  Children,  Adolescents 
with  Conduct  Disorders,  Persons  with  Disabilities  and  People  in  Need  of  Long-term 
Care  (included  in  the  RRP  and  the  Cohesion  policy  funds)  and  the  Minimum 
Guaranteed  Income  (Cohesion  policy  funds).  To  address  the  2020  CSR  related  to 
enhancing  the  resilience  and  capacity  of  the  healthcare  system,  the  plan  includes 
investments in expanding, upgrading, or constructing hospitals (included in the RRP). 
The plan does not include measures to address the 2019 CSRs related to accelerating 
anti-corruption  reforms,  improving  payment  discipline,  strengthening  supervision 
capacities  in  the  non-bank  financial  sector  and  improving  the  efficiency  and 
digitalisation of the judicial system. 

EN 

9 

  EN 

(28)  Concerning  the  common  priority  of  energy  security,  the  plan  includes  measures  to 
upgrade  and  expand  the  grid  and  storage  to  accommodate  an  increasing  share  of 
renewables,  to  reduce  reliance  on  fossil  fuels,  to  extend  and  accelerate  energy 
efficiency measures. To develop energy interconnections with neighbouring countries, 
the plan includes the ‘Great Sea Interconnector’, an energy infrastructure project that 
aims to connect the electrical grid of Cyprus and Greece and at a later stage Israel. 

(29)  Concerning the common priority of defence capabilities, the plan does not include any 

measures. 

(30)  The plan provides an overview of the public investment needs of Cyprus related to the 
common  priorities  of  the  EU.  Concerning  the  common  priority  of  a  fair  green  and 
digital  transition,  including  the  climate  objectives  set  out  in  Regulation  (EU) 
2021/1119, the plan includes public and private investments needs amounting to EUR 
21.6 billion as identified in the Cyprus National Energy and Climate Plan to achieve 
the new emission reduction targets, energy efficiency upgrades in public hospitals and 
the introduction of a new e-Procurement System. Concerning the common priority of 
social  and  economic  resilience,  the  plan  includes  investments  needs  to  improve  the 
healthcare system such as the development of a single databank of electronic files by 
the  National  e-health  Authority.  Concerning  the  common  priority  of  defence 
capabilities,  the  plan  includes  investment  needs  to  expand  and  upgrade  the  existing 
infrastructure  units,  to  co-fund  Research  and  Development  Joint  European  Projects 
and to fund National Research and Development Projects in the defence domain. 

Conclusion of the Commission’s assessment 

Overall, the Commission is of the view that Cyprus’s plan fulfils the requirements of 
Regulation (EU) 2024/1263. 

OVERALL CONCLUSION 

(31) 

In accordance with Article 17 of Regulation (EU) 2024/1263, the net expenditure path 
as set in the plan should be recommended by the Council to Cyprus. 

HEREBY RECOMMENDS that CYPRUS 

(1) 

Ensure  that  net  expenditure  growth  does  not  exceed  the  maxima  established  in 
Annex I to this Recommendation. 

In  addition,  the  Council  invites  Cyprus  to  ensure  the  delivery  of  reforms  and 
investments  responding  to  the  main  challenges  identified  in  the  context  of  the 
European  Semester,  in  particular  in  the  country-specific  recommendations,  and 
addressing the common priorities of the Union. 

EN 

10 

  EN 

ANNEX I 
Maximum growth rates of net expenditure 
(annual and cumulative growth rates, in nominal terms) 
Cyprus 

Years 

2025 

2026 

2027 

2028 

Growth 
rates 
(%) 

Annual 

Cumulative (*) 

6.0 

8.9 

5.0 

5.4 

4.3 

14.3 

20.5 

25.7 

(*) The cumulative growth rates are calculated by reference to the base year of 2023. 

Done at Strasbourg, 

For the Council 
The President 

EN 

11 

  EN