Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Cyprus
Date: 2026-06-03
Institutions: European Commission, Reform and Investment Task Force
Subjects: Cyprus, budget policy, economic policy, economic recovery, economic reform, employment policy, energy transition, research and development, social policy, stability pact

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   EUROPEAN COMMISSION  Brussels, 3.6.2026  COM(2026) 213 final  Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Cyprus {SWD(2026) 213 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 
Article 121(2) and Article 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  1466/97  (1),  and  in 
particular Article 3(3) thereof, 

Whereas: 

(1) 

(2) 

(3) 

1 

2 

Regulation  (EU)  2024/1263  specifies  the  objectives  of  the  economic  governance 
framework,  which  aims  at  promoting  sound  and  sustainable  public  finances, 
sustainable  and  inclusive  growth  and  resilience  through  reforms  and  investments,  as 
well  as  preventing  excessive  government  deficits.  The  Regulation  stipulates  that  the 
Council  and  the  Commission  conduct  multilateral  surveillance  in  the  context  of  the 
European Semester in accordance with the objectives and requirements set out in the 
Treaty  on  the  Functioning  of  the  European  Union  (TFEU).  The  European  Semester 
includes, in  particular, the formulation and the surveillance of the implementation  of 
country-specific recommendations. 

On  16 July 2025,  the  Commission  adopted  its  proposal  for  a  regulation  establishing 
the European Fund for economic, social and territorial cohesion, agriculture and rural, 
fisheries and maritime, prosperity and security for the period 2028-2034 and amending 
Regulation (EU) 2023/955 and Regulation (EU, Euratom) 2024/2509 (2). The proposal 
aims to increase the effectiveness of Union funding by reducing the fragmentation of 
the  financial  architecture  and  to  support  Member  States  in  the  coordination  of  their 
economic policy in line with Article 175 TFEU.  

On  25 November 2025,  the  Commission  adopted  an  opinion  on  the  2026  draft 
budgetary  plan  of  Cyprus.  On  the  same  date,  on  the  basis  of  Regulation  (EU)  No 
1176/2011,  the  Commission  adopted  the  2026  Alert  Mechanism  Report,  in  which  it 
did  not  identify  Cyprus  as  one  of  the  Member  States  for  which  an  in-depth  review 
would  be  needed.  The  Commission  also  adopted  a  recommendation  for  a  Council 

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 
Council 
ELI: 
http://data.europa.eu/eli/reg/2024/1263/oj)  
Proposal  for  a  Regulation  of  the  European  Parliament  and  of  the  Council  establishing  the  European 
Fund  for  economic,  social  and  territorial  cohesion,  agriculture  and  rural,  fisheries  and  maritime, 
prosperity  and  security  for  the  period  2028-2034  and  amending  Regulation  (EU)  2023/955  and 
Regulation (EU, Euratom) 2024/2509 - COM(2025) 565 final. The proposed Regulation is currently the 
subject of negotiations with the co-legislators.  

2024/1263, 

30.4.2024, 

1466/97 

(OJ 

L, 

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(4) 

(5) 

(6) 

(7) 

recommendation on the economic policy of the euro area (3), a recommendation for a 
Council recommendation on human capital in the European Union, and a proposal for 
the  2026  Joint  Employment  Report,  which  analyses  the  implementation  of  the 
Employment  Guidelines  and  the  principles  of  the  European  Pillar  of  Social  Rights. 
The Council adopted the Recommendation on the economic policy of the euro area on 
21 April 2026 and the Joint Employment Report and the Recommendation on human 
capital on 9 March 2026.  

On  29 January 2025,  the  Commission  published  the  Competitiveness  Compass,  a 
strategic  framework  that  aims  to  boost  the  Union’s  global  competitiveness  over  the 
next  five  years.  It  identifies  the  three  transformational  imperatives  of  innovation, 
decarbonisation  and  competitiveness,  and  security  as  critical  pillars  for  sustainable 
economic  growth.  The  European  Semester  is  aligned  with  the  Competitiveness 
Compass,  ensuring  that  Member  States’  economic  policies  are  consistent  with  the 
Commission’s  strategic  objectives,  creating  a  unified  approach 
to  economic 
governance that fosters sustainable growth, innovation and resilience across the Union. 

In  2026,  the  European  Semester  for  economic  policy  coordination  continues  to 
develop  alongside  the  final  stage  of  the  Recovery  and  Resilience  Facility  (RRF) 
implementation (4). Recovery and resilience plans (RRPs), along with cohesion policy 
funding, have been essential for delivering on the policy priorities under the European 
Semester, as the plans were required to effectively address all or a significant subset of 
challenges identified in the relevant country-specific recommendations issued in recent 
cycles, and programmes funded by the European cohesion policy were required to take 
country-specific recommendations into account. As the RRF approaches the end of its 
lifetime,  it  remains  essential  to  sustain  the  reforms  and  investments  supported  and 
implemented  under  the  RRF,  in  particular  those  that  contribute  to  addressing 
challenges identified in the country-specific recommendations. 

in 

addressing 

On  3 June 2026,  the  Commission  published  the  2026  country  report  for  Cyprus.  It 
assessed  Cyprus’s  progress 
country-specific 
recommendations and took stock of Cyprus’s implementation of the RRP. On the basis 
of  that  analysis,  the  country  report  identified  the  most  pressing  challenges  Cyprus  is 
facing.  It  also  assessed  Cyprus’s  progress  in  implementing  the  European  Pillar  of 
Social Rights and in achieving the Union headline targets on employment, skills and 
poverty  reduction,  as  well  as  progress  in  achieving  the  United  Nations  Sustainable 
Development Goals.  

relevant 

the 

On  21 January 2025,  the  Council,  upon  the  assessment  and  recommendation  of  the 
Commission, adopted a Recommendation endorsing the national medium-term fiscal-
structural  plan  of  Cyprus  (5).  The  plan  covers  the  period  from  2025  until  2028  and 
presents  a  fiscal  adjustment  spread  over  four  years.  The  Council  recommended  the 
following  maximum  growth  rates  of  net  expenditure:  6.0%  in  2025,  5.0%  in  2026, 
5.4%  in  2027  and  4.3%  in  2028,  which  correspond  to  the  maximum  cumulative 
growth rates calculated by reference to the base year of 2023 of 8.9% in 2025, 14.3% 
in 2026, 20.5% in 2027 and 25.7% in 2028. 

3  
4 

5 

OJ C, C/2026/2434, 28.4.2026, ELI: http://data.europa.eu/eli/C/2026/2434/oj  
Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council  of  12 February 2021 
establishing 
(OJ  L  57,  18.2.2021,  p.  17,  ELI: 
http://data.europa.eu/eli/reg/2021/241/oj).  
Council Recommendation of 21 January 2025 endorsing the national medium-term fiscal-structural plan 
of Cyprus (OJ C, C/2025/639, 10.02.2025, ELI: http://data.europa.eu/eli/C/2025/639/oj). 

the  Recovery  and  Resilience  Facility 

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(8) 

(9) 

Russia’s  war  of  aggression  against  Ukraine  and  its  repercussions  constitute  an 
existential challenge for the European Union. The Commission invited Member States 
to request the activation of the national escape clause of the Stability and Growth Pact 
in  a  coordinated  manner  to  support  the  EU  efforts  to  achieve  a  rapid  and  significant 
increase  in  defence  spending  (6)  and  this  proposal  was  welcomed  by  the  European 
Council  of  6 March 2025.  Member  States  may  still  request  the  activation  of  the 
national escape clause at any time until 2028, if they fulfil the criteria set in Article 26 
of Regulation (EU) 2024/1263. 
On 30 April 2026, Cyprus submitted its 2026 Annual Progress Report (7) on adherence 
to 
the 
the  recommended  maximum  growth  rates  of  net  expenditure,  and 
implementation  of  reforms  and  investments  responding  to  the  main  challenges 
identified in the European Semester country-specific recommendations. 

(10)  Real  GDP  growth  in  2025  was  3.8%  and  HICP  inflation  stood  at  0.8%.  The 
Commission  Spring  2026  Forecast  projects  real  GDP  to  grow  by  2.3%  in  2026  and 
2.7% in 2027, and HICP inflation to stand at 3.6% in 2026 and 2.2% in 2027. 
(11)  Based  on  data  provided  by  Eurostat  (8),  Cyprus’s  general  government  surplus 
decreased  from  4.1%  of  GDP  in  2024  to  3.4%  of  GDP  in  2025.  Based  on  policy 
measures  known  by  the  cut-off  date  of  the  forecast,  the  Commission  Spring  2026 
Forecast projects a surplus of 2.1% of GDP in 2026 and 2.5% of GDP in 2027. The 
decrease in the surplus in 2026 mainly reflects the implementation of the general tax 
reform at the beginning of the year. The increase in the surplus in 2027 mainly reflects 
higher tax revenue due to the ending of VAT reductions on electricity and basic goods, 
as well as the overall better growth outlook. 

(12)  Based  on  the  Commission’s  estimates,  the  fiscal  stance  (9),  which  includes  both 
nationally and EU financed expenditure, was expansionary, by 1.8% of GDP, in 2025. 
It  is  projected to  be expansionary, by 0.4% of GDP,  in  2026, and contractionary, by 
1.2% of GDP, in 2027. 

(13)  Based on data provided by Eurostat (10), Cyprus’s general government debt decreased 
from  62.7%  of  GDP  at  the  end  of  2024  to  55.0%  of  GDP  at  the  end  of  2025.  The 
decrease in the debt ratio in 2025 mainly reflects a primary surplus of 4.5% of GDP 
along with nominal GDP growing more than twice as fast as interest payments. Based 
on policy measures known at the cut-off date of the forecast, the Commission Spring 
2026 Forecast projects the debt-to-GDP ratio to decrease to 50.4% by the end of 2026 
and to further decrease to 45.5% by the end of 2027. The decrease in the debt ratio in 
2026 and 2027 mainly reflects a primary surplus of 3.3% of GDP in 2026 and 3.7% of 

6 

7 

8 
9 

10 

Communication  from  the  Commission,  'Accommodating  increased  defence  expenditure  within  the 
Stability and Growth Pact’, Brussels, 19.03.2025, C(2025) 2000 final. 
The  2026  Annual  Progress  Reports  are  available  on:  https://economy-finance.ec.europa.eu/economic-
and-fiscal-governance/stability-and-growth-pact/preventive-arm/annual-progress-reports_en   
Eurostat-Euro Indicators, 22 April 2026. 
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 including expenditure financed by non-repayable 
support (grants) from the Recovery and Resilience Facility and other Union funds. 
Eurostat-Euro Indicators, 22 April 2026. 

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GDP  in  2027.  In  both  years,  nominal  GDP  is  also  expected  to  continue  growing 
around twice as fast as interest payments. 

(14)  Based  on  the  Commission  Spring  2026  Forecast,  total  general  government  defence 
expenditure  in  Cyprus  amounted  to  1.8%  of  GDP  in  2025  and  it  is  projected  at  the 
same level in 2026. 

(15)  The  Union  continues  to  face  risks  of  energy  supply  disruptions  and  elevated  price 
volatility,  exacerbated  by  geopolitical  tensions  which  affect  global  oil  and  gas 
markets.  Experience  from  the  2022–2023  energy  crisis  has  shown  that  broad  and 
untargeted  measures  entail  large  fiscal  costs  and  are  socially  and  economically 
inefficient. Since the outbreak of the war in the Middle East in February 2026, Cyprus 
adopted  fiscal  policy  measures  to  mitigate  the  impact  of  high  energy  prices  on 
households and firms (11). These include untargeted reductions in VAT on electricity 
(until  March  2027)  and  in  excise  duties  on  fuels  (April  to  June 2026),  as  well  as 
targeted subsidies to farmers (April and May 2026), airlines (June to September 2026) 
and  the  tourism  industry  (April 2026).  According  to  the  Commission  Spring 2026 
Forecast,  the  fiscal  cost  of  these  measures  is  projected  to  amount  to  approximately 
0.1% of GDP in 2026. According to Commission estimates, if these measures were to 
remain  in  force  until  end-2026,  their  fiscal  cost  would  amount  to  0.3%  of  GDP  in 
2026. 

(16)  Based on the Commission’s calculations, net expenditure in Cyprus grew by 9.6% in 
2025  and  11.8%  cumulatively  over  2024  and  2025.  The  net  expenditure  growth  in 
2025 is above the recommended maximum growth rate, corresponding to a deviation 
of  1.3%  of  GDP  in  annual  terms.  When  considering  2024  and  2025  together,  the 
cumulative growth rate of net expenditure is also above the recommended maximum 
growth rate, corresponding to a deviation of 1.0% of GDP in cumulative terms. At the 
same  time,  as  noted,  the  budgetary  position  for  2025  was  in  surplus,  and  general 
government debt was below 60% of GDP. 

(17)  Based  on  the  Commission’s  calculations,  net  expenditure  in  Cyprus  is  projected  to 
grow  by  7.4%  in  2026,  and  20.1%  cumulatively  over  2024,  2025  and  2026.  The 
projected  net  expenditure  growth  in  2026  is  above  the  recommended  maximum 
growth  rate,  corresponding  to  a  deviation  of  0.9%  of  GDP  in  annual  terms.  When 
considering 2024, 2025 and 2026 together, the projected cumulative growth rate of net 
expenditure is also above the recommended maximum growth rate, corresponding to a 
deviation  of  1.8%  of  GDP  in  cumulative  terms.  At  the  same  time,  as  noted,  the 
budgetary position for 2026 is projected to be in surplus, and general government debt 
is below 60% of GDP and projected to decrease further. 

(18)  The systematic, meaningful and timely involvement of local and regional authorities, 
social partners, civil society and other relevant stakeholders remains essential in order 
to  ensure broad ownership  for the successful implementation  of the Union’s funding 
instruments, as well as in the context of the European Semester. 

(19)  The  implementation  of cohesion  policy programmes, which encompass support from 
the  European  Regional  Development  Fund  (ERDF),  the  Just  Transition  Fund  (JTF), 
the  European  Social  Fund  Plus  (ESF+)  and  the  Cohesion  Fund  (CF)  in  Cyprus,  is 
above the average pace at EU level, both in terms of project selection and payments. It 
is important to keep current momentum, while maximising the impact of investments 

11 

This reflects the situation at the cut-off date of the Commission Spring 2026 Forecast (4 May 2026). 

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on the ground. Cyprus is already taking action under its cohesion policy programmes 
to  boost  competitiveness  and  growth.  Nevertheless,  some  areas  may  require  further 
strengthening  in  implementation,  including  those  relating  to  waste  management  and 
public urban transport. It is essential to ensure that the new investments identified by 
Cyprus in its mid-term review of the cohesion policy funds, notably those linked to the 
five priorities identified in the Mid-Term Review Regulation (12), are deployed rapidly 
and effectively. 

(20)  Cyprus’s research and innovation ecosystem remains characterised by low investment 
in research and development, weak knowledge valorisation, and limited links between 
research  and  business.  On  the  positive  side,  targeted  funding  initiatives  via  the  RRF 
and cohesion policy have been adopted, and the spin-off legislation has been recently 
the  absence  of  a 
adopted.  Nevertheless,  key  bottlenecks  persist, 
comprehensive  research  and  innovation  long-term  strategy,  which  constrain  the 
effective  commercialisation  of  research  results.  The  rapid  expansion  of  the 
Information  Communication  Technology  (ICT)  sector  presents  an  opportunity  for 
spillovers  to  the  wider  economy,  through  stronger  linkages  with  domestic  firms  and 
research institutions. 

including 

(21)  Access  to  non-bank  financing  in  Cyprus  is  limited,  constraining  business  expansion, 
diversification,  and  productivity  growth.  Bank  lending  continues  to  dominate 
corporate financing, while capital markets are underdeveloped, with one of the lowest 
levels of market-based funding in the Union. Although some initiatives under the RRF 
such as the Cyprus Equity Fund have been launched to support alternative financing, 
the  scale  of  funding  mobilised  is  still  limited.  As  a  result,  many  firms,  in  particular 
young and innovative ones, face difficulties in accessing adequate financing. Financial 
literacy  levels  are  still  low  compared  to  the  EU  average,  constraining  households’ 
ability and motivation to engage in diversified investment strategies. At the same time, 
the  second  pillar  of  the  pension  system  remains  underdeveloped  and  highly 
fragmented, limiting its role in both retirement provision and the supply of long-term 
capital. Strengthening occupational pensions and improving households’ participation 
in capital markets could support the availability of long-term financing and contribute 
to more efficient allocation of savings.  

(22)  Cyprus  faces  several  challenges  related  to  the  regulatory  and  administrative 
framework.  Some  steps  have  been  initiated,  but  obstacles  to  investment  persist. 
Infrastructure  projects  continue  to  face  delays  due  to  lengthy  land  acquisition  and 
procurement procedures, limited administrative capacity and coordination challenges. 
While  measures  to  reduce  administrative  burden  and  improve  investor  services  have 
been adopted, further efforts are needed to enhance efficiency, streamline procedures 
and reduce regulatory fragmentation. 

(23)  Cyprus has scope to improve the governance of state-owned enterprises (SOEs). These 
enterprises play a central role in key sectors of the economy, particularly in industries 
characterised  by  natural  monopolies  (e.g.  electricity,  telecommunications,  water, 
wastewater  management  and  infrastructure).  However,  their  governance  remains 
below 
in  accountability, 
transparency,  board  appointment  procedures  and  the  absence  of  a  clear  ownership 

international  standards,  with  persistent  weaknesses 

12 

Regulation  (EU)  2025/1914  of  the  European  Parliament  and  of  the  Council  of  18 September 2025 
amending  Regulations  (EU)  2021/1058  and  (EU)  2021/1056  as  regards  specific  measures  to  address 
strategic challenges in the context of the mid-term review. 

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policy.  The  effective  implementation  of  the  recently  adopted  action  plan  on  SOEs’ 
governance  could  help  to address  those challenges  and  improve SOEs’ performance, 
support  their  modernisation  and  enhance  their  contribution  to  strategic  policy 
objectives including the green and digital transition. 

(24)  Cyprus experiences challenges related to the efficiency of its justice system, with long 
case  resolution  times,  low  levels  of  digitalisation  and  delays  in  the  enforcement  of 
judgments.  Implementation  of  a  recently  adopted  reform  aiming  to  accelerate  the 
resolution of certain cases through the establishment of the Admiralty and Commercial 
courts is lagging, and neither of the courts is operational yet. Progress in  digitalising 
judicial processes including a comprehensive case system and digital audio recording 
technologies remains limited, and enforcement bottlenecks persist, weighing on legal 
certainty and investment conditions. 

(25)  While  Cyprus  has  made  progress  in  advancing  its  energy  transition,  significant 
challenges  persist.  Cyprus  remains  heavily  reliant  on  fossil  fuels,  with  oil  and 
petroleum  products  accounting  for  85.2%  of  its  gross  energy  consumption  in  2024. 
Furthermore,  Cyprus  has  one  of  the  largest  energy  import  dependencies  in  the  EU 
(87.7% of gross available energy in  2024).  Efforts  to diversify  the  energy supply  by 
including  natural  gas  in  the  energy  mix  are  hindered  by  persistent  administrative 
delays  in  the  construction  of  a  liquified  natural  gas  (LNG)  terminal  in  Vasilikos. 
Similarly, efforts to develop energy interconnections with neighbouring countries have 
stalled. Notably, the Great Sea Interconnector project aimed at ending Cyprus’s energy 
isolation is still beset by delays. High external dependencies make renewable energy 
sources crucial not only to decarbonise Cyprus’s economy, but also to improve energy 
security and resilience in the face of external energy shocks. 

(26)  Cyprus increased its renewable energy production, although further efforts are needed 
to  expand  grid  capacity  and  energy  storage  facilities  in  order  to  facilitate  broader 
renewable  energy  uptake.  The  installed  capacity  for  solar  and  wind  energy  grew 
considerably in 2025, pushing the share of renewables in the electricity mix to 27.4%. 
While  measures  to  ease  and  digitalise  permitting  procedures  were  introduced, 
significant  delays  still  affect  the  connection  of  new  renewable  energy  plants  to  the 
grid.  Cyprus  has  no  operational  fossil-free  electricity  storage  systems.  While  some 
projects  are  being  planned  under  the  transmission  system  development  plan, 
implementation remains at an early stage. The roll-out of energy efficiency renovation 
schemes  for  buildings,  supported  by  the  RRF  and  cohesion  policy,  has  continued  to 
advance, complemented by regulatory measures aimed at leveraging private financing 
for energy efficiency. Sustainable transport remains a pressing challenge, compounded 
by full reliance on road freight. Further efforts are needed to develop public transport, 
expand  charging  infrastructure,  and  provide  financial  incentives  for  sustainable 
mobility. 

(27)  Cyprus  faces  significant  and  persistent  environmental  challenges.  Water  scarcity  has 
reached a critical level, with freshwater exploitation and water productivity indicators 
placing Cyprus among the worst performers in the EU. Despite efforts under the RRF 
and cohesion policy, investments in water infrastructure have so far not been sufficient 
to address systemic vulnerabilities related to drinking water and wastewater treatment. 
Similarly,  waste  management  performance  lags  behind  EU  targets;  for  example, 
Cyprus’s  per  capita  municipal  waste  generation  is  among  the  highest  in  the  EU. 
Several  measures  adopted  under  the  2021  Circular  Economy  Action  Plan  and  under 
cohesion  policy  target  waste  reduction,  improved  waste  sorting  and  increased 
recycling, though their full potential is yet to be realised. Improving the administrative 

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capacity of local and district authorities is also critical to support investment planning 
and coordination in water and waste management across Cyprus. 

(28)  Cyprus  remains  vulnerable  to  various  climate  risks  (for  example,  wildfires,  floods, 
droughts  and  coastal  erosion),  which  threaten  to  harm  the  country’s  biodiversity, 
societal resilience, and economy. The updated national adaptation strategy 2025-2050 
was  finalised  in  2025  but  its  ministerial  adoption  remains  pending,  delaying  critical 
actions.  Moreover,  an  improved  governance  system  included  under  the  national 
strategy  could  bring  coherence  and  effectiveness  in  the  institutional  framework 
governing  climate  adaptation  and  resilience,  but  its  establishment  also  faces  delays. 
Further  actions,  including  some  supported  by  cohesion  policy,  focus  on  developing 
anti-flood  infrastructure  and  fire  and  disaster  risk  management.  However,  Cyprus’s 
investment for climate adaptation falls short of actual needs. 

(29) 

In light of the crucial role of human capital in enhancing the Union’s competitiveness 
and  strategic  autonomy,  in  2026  the  Council  recommended  that  Member  States  take 
action  to  urgently  address  human  capital-related  structural  challenges  in  the  areas  of 
skills  and  education,  which  hamper  competitiveness.  The  2026  country-specific 
recommendations  addressed  to  Cyprus  can  contribute  to  the  implementation  of  the 
Council Recommendation on human capital in the Union. 

(30)  Cyprus faces several challenges related to the labour market integration of women and 
persons  with  disabilities,  as  well  as  in  addressing  skills  mismatches  and  labour 
shortages. Although the labour market in Cyprus remains strong, supported by robust 
economic  growth,  with  the  employment  rate  surpassing  the  national  2030  target  and 
unemployment  declining  further,  targeted  activation  measures  and  active  labour 
market policies remain limited in coverage and effectiveness, particularly for women 
and vulnerable groups. Moreover, the Public Employment Service’s capacity remains 
limited  and  would  benefit  from  stronger  monitoring,  evaluation,  and  proactive 
outreach, supported by upgraded IT systems. 

(31)  Cyprus could further strengthen quality employment. Despite low unemployment and 
a  dynamic  labour  market,  working  conditions,  notably  long  working  hours  and  a 
relatively high share of low-paid jobs compared to the EU average, remain a concern, 
disproportionately  affecting  women.  The 
impact  of  parenthood  on  women’s 
employment  outcomes,  combined  with  limited  access  to  affordable  and  quality  care 
services,  constrains  career  progression  and  contributes  to  gender  pay  and  pension 
gaps.  While  recent  policy  initiatives,  including  hiring  incentives  and  measures 
promoting  flexible  working  arrangements,  are  steps  in  the  right  direction,  their 
effective  implementation,  alongside  supporting  transitions  into  higher-quality  jobs, 
improved  access  to  training  in  high-demand  sectors  and  expanded  care  services,  can 
help to enhance women’s labour market participation and job quality.  

(32)  Cyprus  faces  challenges  related  to  the  strengthening  of  vocational  education  and 
training,  the  low  participation  in  STEM  fields  and  the  weak  performance  in  the 
provision  of  basic  skills.  This  contributes  to  persistent  skills  mismatches  and  labour 
shortages, including in sectors key to the green and digital transitions. Early childhood 
education  and  care  participation  has  increased  under  RRF  measures,  yet  it  remains 
below  the  EU  target,  constraining  both  early  skills  development  and  labour  market 
participation, while inclusive education continues to face significant  challenges, with 
young learners with  disabilities  and  special  educational needs, still facing  barriers to 
effective participation in mainstream education. 

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(33)  Cyprus  has  scope  for  improvement  of  several  its  social  protection  system.  While 
strong economic growth has helped to reduce poverty overall, poverty risks for older 
people  remain  well  above  the  EU  average  due  to  inadequate  pension  income,  in 
particular for those on low incomes during their working lives. At the same time, the 
absence of a comprehensive, adequately funded and integrated long-term care system, 
coupled  with  staff  shortages  and  limited  home-  and  community-based  services, 
constrains access and hampers deinstitutionalisation. Energy poverty is still a concern 
despite some targeted measures, reflecting limited coverage and the lack of systematic 
monitoring.  In  addition,  a  shortage  of  social  housing,  combined  with  high  rates  of 
housing-related arrears, continues to weigh on vulnerable households, notwithstanding 
recent support schemes and planned increases in housing supply. 

(34) 

In view of the close interlinkages between the economies of euro-area Member States 
and  their  collective  contribution  to  the  functioning  of  the  economic  and  monetary 
union,  in  2026  the  Council  recommended  that  the  euro-area  Member  States  take 
action, including through their RRPs, to implement the 2026 Recommendation on the 
economic  policy  of  the  euro  area.  For  Cyprus,  recommendation  (1)  helps  implement 
the first, the second and the third recommendation on the euro area, recommendation 
(2) helps implement the fourth recommendation on the euro area, recommendation (3) 
helps  implement  the  seventh,  ninth  and  eleventh  recommendations  on  the  euro  area, 
recommendation  (4)  helps  implement  the  seventh  recommendation  on  the  euro  area 
and  the  recommendation  (5)  helps  implement  the  fifth  recommendation  on  the  euro 
area. 

HEREBY RECOMMENDS that Cyprus take action in 2026 and 2027 to:  

1. 

2. 

3. 

While  recognising  a  general  government  surplus  in  Cyprus,  in  view  of  the  material 
deviation recorded by 2025 and projected for 2026 by the Commission vis-à-vis the 
recommended  net  expenditure  ceiling,  ensure  that  net  expenditure  respects  the 
maximum growth rates recommended by the Council on 21 January 2025. Reinforce 
defence  spending  and  readiness  while  ensuring  spending  efficiency  and  gradually 
adapting the budget  to  sustain structurally higher defence spending. Ensure that any 
measures  taken  to  mitigate  the  impact  of  the  hike  in  energy  prices  are  temporary, 
targeted  at  protecting  vulnerable  households  or  at  addressing  the  needs  of  energy-
intensive firms, preserve incentives for energy savings while ensuring that their fiscal 
cost is compatible with the commitments under the EU fiscal framework.  

Ensure  continuity  of  reforms  and  investments  implemented  under  the  Recovery  and 
Resilience  Facility.  Sustain  implementation  momentum  under  cohesion  policy 
programmes,  building,  where  appropriate,  on  the  reallocation  to  strategic  priorities 
and flexibilities in the mid-term review of the cohesion policy framework. 

indicators  and  multiannual  funding.  Facilitate 

Strengthen research and innovation by fostering public and private R&D investment, 
enhancing  research-business  synergies,  and  adopting  a  long-term  research  and 
innovation  strategy  with 
the 
diversification of the economy by improving access to alternative saving products and 
capital  market  instruments,  strengthening  the  supplementary  pension  system  and 
increasing  financial  literacy.  Simplify  regulation  and  reduce  administrative  burden. 
Improve  the  governance  of  state-owned  enterprises  through  merit-based  nomination 
of  boards,  ownership  policy  and  performance-based  management.  Enhance  the 
efficiency of the justice system including by further digitalising judicial workflows. 

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4. 

5. 

Reduce overall reliance on fossil fuels and further diversify energy supply, notably by 
developing energy interconnections with  neighbouring countries, scaling-up funding 
for energy efficiency, upgrading the electricity grid and energy storage facilities, and 
expand  sustainable  mobility  and  public  transport.  Improve  water,  waste  water  and 
increasing 
waste  management  by  stepping  up 
administrative capacity of local authorities, promoting sustainable water use practices, 
and expanding the separate collection of municipal and packaging waste. Improve the 
institutional framework governing climate adaptation. 

infrastructure, 

investments 

in 

Address  labour  shortages  and  promote  job  quality  by  strengthening  labour  market 
participation  of  vulnerable  groups,  further  increasing  the  capacity  and  attractiveness 
of vocational education and training, promoting adult learning, enhancing the capacity 
of  the  Public  Employment  Service  and  strengthening  active  labour  market  policies. 
Further  increase  participation  in  early  childhood  education  and  care,  improve  basic 
skills,  and  increase  students’  participation  in  science,  technology,  engineering  and 
mathematics (STEM) fields. Expand the availability and coverage of long-term care 
services, broaden eligibility, and reduce high out-of-pocket payments. Improve social 
protection  for  vulnerable  groups  by  providing  targeted  support  to  energy-poor 
households,  ensuring  adequate  minimum  pensions  and  increasing  the  availability  of 
affordable and social housing. 

Done at Brussels, 

For the Council 
The President 

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