Newsroom
Cyprus is no longer considered a country with macroeconomic imbalances, the European Commission announced Wednesday in its 2025 Spring Package, marking a significant milestone in the nation’s post-crisis economic recovery.
The Commission cited strong economic growth, robust public finances, and a sharp decline in public debt as key factors behind the decision. Vulnerabilities tied to external and private debt are also steadily diminishing. According to an EU official, Cyprus's economic performance remains resilient despite broader global uncertainty, with surpluses in public finances and notable progress in economic diversification.
However, while recognizing these improvements, the European Commission issued a warning: Cyprus still faces substantial structural challenges that must be addressed to ensure sustainable growth. Among the most pressing concerns is the country's underperforming research and innovation sector. Investment in research and development remains among the lowest in the EU, at just 0.29 percent of GDP compared to the EU average of 0.72 percent. The Commission criticized weak connections between universities, businesses, the financial sector, and government institutions, calling for a clearer innovation strategy with measurable targets and improved commercialization of research.
The Commission also raised concerns about regulatory and administrative inefficiencies. A majority of Cypriot businesses report that complex procedures hinder operations. In addition, governance standards at state-owned enterprises remain below international benchmarks.
Energy policy was another critical area of concern. Cyprus continues to rely heavily on fossil fuels and energy imports, resulting in high electricity prices, especially for households. The country’s infrastructure lags in energy efficiency and renewable integration, and recycling rates remain among the lowest in the EU. Cyprus also generates the most food waste per capita in the Union, exceeding its recycling output.
Education and labor challenges were highlighted as well. Basic skills among Cypriot youth have seen the steepest decline in the EU since 2018, and participation in vocational and STEM studies is the lowest in the bloc. Labor shortages in specific sectors and underutilization of human capital are also affecting productivity.
The Commission further pointed to limited access to long-term health care for the elderly, with Cyprus spending less in this area than any other EU member state.
In response to these challenges, Brussels issued five strategic recommendations for the 2025–2026 period. These include maintaining fiscal discipline while increasing defense spending, accelerating the implementation of the EU-funded Recovery and Resilience Plan, and improving conditions for productive investment and innovation. Cyprus is also urged to expand access to alternative financing tools, enhance financial literacy, and streamline administrative processes for businesses.
The Commission stressed the importance of reducing reliance on fossil fuels, improving the energy grid, and expanding sustainable transport options. Investment in water reuse and better coordination on climate adaptation were also identified as necessary priorities.
While Cyprus’s removal from the imbalance list is a clear endorsement of its recent progress, the Commission emphasized that ongoing reform is essential to maintain momentum and secure long-term economic resilience.
