NextGenerationEU: European Commission endorses Cyprus’s €1.2 billion recovery and resilience plan

This article is brought to you in association with the European Commission.

The European Commission has today adopted a positive assessment of Cyprus’s recovery and resilience plan. This is an important step towards the EU disbursing a total of €1.2 billion in grants and loans under the Recovery and Resilience Facility. This financing will support the implementation of the crucial investment and reform measures outlined in Cyprus’s recovery and resilience plan. It will play a key role in enabling Cyprus to emerge stronger from the COVID-19 pandemic.

The RRF is at the heart of NextGenerationEU which will provide up to €800 billion (in current prices) to support investments and reforms across the EU. The Cypriot plan forms part of an unprecedented coordinated EU response to the COVID-19 crisis, to address common European challenges by embracing the green and digital transitions, to strengthen economic and social resilience and the cohesion of the Single Market.

The Commission assessed Cyprus’s plan based on the criteria set out in the RRF Regulation. The Commission’s analysis considered, in particular, whether the investments and reforms set out in Cyprus’s plan support the green and digital transitions; contribute to effectively addressing challenges identified in the European Semester; and strengthen its growth potential, job creation and economic and social resilience.

Securing Cyprus’s green and digital transition  

The Commission’s assessment finds that Cyprus’s plan devotes 41% of the plan’s total allocation to measures that support climate objectives. The plan includes reforms relating to the introduction of green taxation, the liberalisation of the electricity market, facilitating energy renovations in buildings and accelerating electric mobility. The plan further includes a broad range of energy efficiency and renewable energy investments targeting households, enterprises, municipalities and the wider public sector and non-governmental organisations (‘NGOs’). The plan includes investments relating to the mass roll-out of smart meters as well as the EuroAsia Interconnector project, which should aid electricity generation from cleaner sources, in particular renewables.

The Commission’s assessment finds that Cyprus’s plan devotes 23% of its total allocation to measures that support the digital transition. Measures related to the digital transition are spread out throughout the plan. The plan includes considerable investments in connectivity, through a series of measures aiming to ensure coverage with very high-capacity broadband. It promotes digital education and skills by enhancing digital infrastructure and curricula in schools, training teachers, and investing in digital skills training programmes. It also contains projects expected to promote the digitalisation of public services and the digital transformation of the courts system.

Reinforcing Cyprus’s economic and social resilience

The Commission considers that Cyprus’s plan includes an extensive set of mutually reinforcing reforms and investments that contribute to addressing all or a significant subset of the economic and social challenges outlined in the country-specific recommendations addressed to Cyprus.

The plan includes measures to strengthen the public employment services, with a particular focus on youth employment. It provides for measures to increase the quality of education and training. The plan also supports early childhood education and care by extending free compulsory pre-primary education from the age of four, investing in childcare centres accompanied by a national action plan on early childhood education that aims to foster equal opportunities for all children and fulltime labour market participation of carers, notably women. The implementation of the plan is expected to strengthen the capacity, quality and resilience of the health and civil protection systems through measures aiming at upgrading infrastructure and equipment and setting up dedicated information systems, next to promoting investments in communication systems and e-Health. The establishment of a National Promotional Agency and the introduction of funding programmes and schemes are expected to improve access to finance and liquidity, especially for small and medium-sized enterprises. Grant schemes for research and innovation as well as the establishment of a central knowledge transfer office are expected to increase investments in research and innovation. The plan aims to reduce risks in the banking sector related to the legacy non-performing loans through a dedicated action plan as well as through measures to improve the working environment for credit acquirers and credit servicers.

The plan represents a comprehensive and adequately balanced response to Cyprus’s economic and social situation, thereby contributing appropriately to all six pillars referred to in the RRF Regulation.

Supporting flagship investment and reform projects

The Cypriot plan proposes projects in all seven European flagship areas. These are specific investment projects which address issues that are common to all Member States in areas that create jobs and growth and are needed for the twin transition. For instance, Cyprus has proposed to invest €40 million to promoting energy efficiency investments in SMEs, municipalities and the wider public sector and €35 million on the expansion of very high capacity networks in underserved areas.

The assessment also finds that none of the measures included in the plan significantly harm the environment, in line with the requirements laid out in the RRF Regulation.

The control systems put in place by Cyprus are considered adequate to protect the financial interests of the Union. The plan provides sufficient details on how national authorities will prevent, detect and correct instances of conflict of interest, corruption and fraud relating to the use of funds.

Members of the College said:

President Ursula von der Leyen said: “I am delighted to present the European Commission’s positive assessment of Cyprus’s recovery and resilience plan. The plan will have a real, meaningful impact on securing Cyprus’s green and digital transitions. A significant part of the funds will be devoted to fight climate change, including the protection against forest fires. Further measures to promote energy efficiency, sustainable mobility, improve education and training and expand connectivity will leave Cyprus well placed to benefit from the opportunities and face the challenges that the twin transition present. I am proud that NextGenerationEU will provide €1.2 billion to support these crucial projects.”

Valdis Dombrovskis, Executive Vice-President for an Economy that Works for People, said: “Cyprus has submitted a wide-ranging recovery plan. It contains significant reforms and investments to address its main socio-economic challenges and put the country onto a greener and more digital path. Cyprus intends to invest in energy efficiency and renewable energy, improve its water and waste management, and contribute to the ‘EuroAsia Interconnector’ project to link its electricity network with the Greek one in Crete. It will make considerable investments to boost very high-capacity broadband coverage, promote digital education and skills and digitalise its public services and courts. On the economic side, we welcome its focus on addressing risks from non-performing loans held by banks, improving the working environment for credit acquirers and services, and increasing access to finance and liquidity for smaller businesses. The social dimension features strongly with support for early childhood education and care, along with measures to get more young people into jobs and to promote equal opportunities. Once put into full effect, this plan will allow Cyprus to emerge stronger from the crisis.”

Paolo Gentiloni, Commissioner for Economy, said: “With the approval by the Commission of Cyprus’s recovery and resilience plan, the country takes a step closer to accessing €1.2 billion in funding to support the renewal of its economy. Cyprus is seizing the opportunity offered by NextGenerationEU to make important progress with the climate transition and in boosting its digital competitiveness. Particularly beneficial to Cyprus will be the projects connecting the island to the Greek electricity and high-capacity broadband networks. I also welcome the commitments to addressing those features of Cyprus’s tax system that facilitate aggressive tax planning”

Next steps

The Commission has today adopted a proposal for a Council Implementing Decision to provide €1.2 billion in grants and loans to Cyprus under the RRF. The Council will now have, as a rule, four weeks to adopt the Commission’s proposal.

The Council’s approval of the plan would allow for the disbursement of €157 million to Cyprus in pre-financing. This represents 13% of the total allocated amount for Cyprus.

The Commission will authorise further disbursements based on the satisfactory fulfilment of the milestones and targets outlined in the Council Implementing Decision, reflecting progress in the implementation of the investments and reforms.