The new European Semester package for Cyprus combines praise for the fiscal picture but also pressure from the Commission on the challenges facing society and the economy regarding the energy transition, the environment, climate change, the labour market, training and skills, the justice system and social welfare.
Especially for the latter, the challenges seen by the Commission are of particular interest, focusing on increased risks of impoverishment for older people, inadequacies in the long-term care system, the housing problem and the lack of affordable and social housing.
For the labour market, the following challenges are recorded: Labour shortages and problems in the integration of women and people with disabilities into the labour market, the need for operational upgrading of the public employment service, the need to further strengthen quality employment, by improving working conditions.
Through its recommendations, the Commission calls on Cyprus to ensure compliance with what has been agreed in terms of net budgetary expenditure – despite the observed fiscal surpluses, to make full use of the funds of the Recovery Fund (absorbed just over 50%), to strengthen research, innovation and the business environment, while for the first time special emphasis is placed on the need to improve the efficiency of the judicial system, but also to the lack of social housing.
The Post-Programme Surveillance Report (PPS) states that Cyprus' economic outlook is overshadowed by significant downside risks, with the impact of the conflict in the Middle East being the dominant element. In addition, vulnerabilities are at stake, particularly in tourism, where arrivals are sensitive to geopolitical developments. Coupled with Cyprus' significant dependence on imports, especially for energy goods, which increases the country's vulnerability to external shocks, it requires close monitoring of its external imbalances.
The Commission sends five messages to the Government:
-Strong growth and prudent fiscal policies have reduced public debt. To continue growth, Cyprus will need to further diversify its economy, towards high value-added sectors, by improving the business environment, facilitating access to finance and strengthening research and innovation.
-A stronger governance framework for state-owned enterprises, especially in the energy, telecommunications and water sectors, will enhance their transparency and efficiency. Independent boards and efficiency indicators for these businesses could improve the services provided and support the green and digital transition, it is pointed out.
-The justice system faces problems and delays that affect businesses and potentially undermine Cyprus' status as a business hub. Courts that will issue decisions in a short period of time (fast track courts), electronic filing systems and reforms in the system of execution of decisions, will work positively in terms of citizens' trust in justice and attracting investment.
-Dependence on imported fossil fuels increases energy costs and pollutants/emissions. The further development of renewables, the upgrading of networks and storage systems, combined with interconnections with neighbouring countries, will limit the costs of businesses and households, reduce emissions and contribute to improving energy security.
-Addressing the problem of scarce water resources will contribute to sustainable development and resilience. Upgrading water supply networks to limit leaks, as well as sewerage and waste management infrastructure, will ensure smooth supply and reduce related costs for businesses and households.
The post-programme surveillance reports (PPS) assess the economic, fiscal and financial situation of Member States that have benefited from financial assistance programmes, focusing on their repayment capacity. The assessments for Ireland, Greece, Cyprus and Portugal conclude that all four member states retain the ability to repay their debt, the Commission says.
