Nicosia: Cyprus is no longer classified as a country with macroeconomic imbalances according to the Spring Package of the European Semester 2025. This change is attributed to limited vulnerabilities related to external and private debt, alongside robust economic growth.
According to Cyprus News Agency, an EU official briefing highlights five positive aspects of the Cypriot economy. The European Commission notes that economic growth in Cyprus remains strong despite a fragile international environment. Public finances are recording high surpluses, and public debt is decreasing rapidly. Additionally, weaknesses related to external and private debt are steadily being reduced, leading to Cyprus’s removal from the list of countries with macroeconomic imbalances.
The Commission recognizes Cyprus’s efforts to diversify its economic sectors, which are yielding positive results, and notes improvements in several UN sustainable development indicators. Despite these positive developments, the Commission identifies ten key challenges Cyprus must address. It warns of the risk of increasing public spending and urges Cyprus to adhere to the agreed annual fiscal path for 2025, noting a slight deviation at present.
Significant weaknesses are identified in research and innovation, as investments in this sector remain among the lowest in the EU. The national innovation system is marked by weak links between universities, the financial sector, businesses, and the state. The Commission stresses the need to bolster the research and innovation strategy with clear objectives, indicators, and monitoring mechanisms, as well as to improve the legislative framework for the commercial exploitation of research.
In energy, the transition faces significant obstacles, with coal products still dominating consumption. Cyprus’s high dependence on energy imports makes it vulnerable and energy isolated, and it records some of the highest electricity prices for households in the EU. The environmental sector also shows challenges, with insufficient use of water resources and a lack of investment in this area.
The Commission highlights labour market challenges, noting labour shortages in specific sectors and underutilised human resources. It emphasizes that young people’s basic skills have declined the most in the EU since 2018, while Cyprus has the lowest participation rate in STEM studies.
The Commission makes five recommendations for Cyprus for 2025-2026, including strengthening defense spending while adhering to budgetary rules, accelerating the implementation of the Recovery and Resilience Plan and Cohesion Funds, and emphasizing productive investment and innovation. It calls for increased public and private investment in research and development, promotion of commercialization of results, and enhanced cooperation between academic institutions and businesses.
Moreover, the Commission suggests improving access to alternative financial instruments, promoting financial education, facilitating capital market participation, and developing non-bank sources of financing for businesses. It also recommends simplifying regulations and reducing administrative burdens, particularly regarding investment licensing and new business establishment.
The report advises improving the governance of state-owned enterprises by adopting best practices in boardrooms, ownership, and efficiency. Priorities include reducing dependence on fossil fuels, developing interconnections with neighboring countries, increasing financing for energy efficiency, and promoting sustainable transport. The need to upgrade the electricity grid and energy storage infrastructure to enhance renewable energy penetration and address energy poverty is also stressed.
Cyprus is urged to bolster investments in water supply, sanitation, and waste management infrastructure, promote sustainable water use practices, and strengthen waste prevention and source separation policies. The Commission calls for improved implementation of climate change adaptation policies through an upgraded institutional framework.
The fourth and fifth recommendations focus on labour market and skills development structural challenges. The Commission urges Cyprus to address labour shortages and skills, emphasizing enhancing youth participation in the labour market and vocational training. It underlines the need to promote lifelong learning, enhance green and digital skills, increase early childhood education and care participation, and boost STEM program participation.
Regarding accessibility to long-term care services, Cyprus is called to establish a comprehensive and adequately funded model. Notably, Cyprus can benefit significantly from projects financed by the Recovery and Resilience Fund in these areas, but must expedite resource utilization by the end of 2026.