Reducing dependence on fossil fuels and accelerating the development of renewable energy sources is recommended by the Commission for Cyprus, in the context of the findings of the European Semester for 2022, stressing that it would be good for the country to make its development model more broad-based and environmentally sustainable.
The Commission also recommends improving the governance of government institutions on the basis of international standards, strengthening the supervision of the financial sector and strengthening the legal framework for the enforcement of judicial decisions.
At the same time, according to the assessment carried out for Cyprus through the Alert Mechanism, the country faces excessive macroeconomic imbalances. As added, public and private debt ratios have been reduced thanks to the recovery that took place in 2021 and NPLs have decreased significantly, although they remain high.
However, the invasion of Ukraine also causes uncertainty due to Cyprus' exposures in the provision of services. Therefore, it is added, although the Recovery and Resilience Plan is expected to address many of the problems, there is room for more actions to address the situation.
Presenting the European Semester, Commission Executive Vice President Valdis Dombrovskis underlined that the Recovery and Resilience Fund was one of the elements that ensured that European economies were in good shape before the start of the war, which is why growth should be expected in 2022 and 2023, albeit lower than initially forecast. Dombrovskis also said that the REPowerEU package policies for decoupling from Russian fossil fuels were part of the plans, calling on member states to include a relevant chapter in their national Recovery and Resilience Plans.
For his part, Economic Affairs Commissioner Paolo Gentiloni announced that the activation of the general escape clause of the Stability and Growth Pact continues into 2023, noting that Europe has not entered normal economic conditions, but stressing that the Commission is not proposing a return to unrestrained spending, but a gradual return from general support due to the pandemic to more personalised policies.
Reducing dependence on fossil fuels, sustainable growth model
Beyond the implementation of the recovery plan, the Commission lists the following proposals:
improving the governance of government agencies on the basis of international standards,
reducing overall dependence on fossil fuels and further diversifying energy supply by accelerating the development of renewables, especially by further streamlining licensing procedures and expanding photovoltaic coverage, developing interconnections with neighbouring countries and expanding and accelerating energy efficiency measures, including in the transport sector;
strengthening the legal framework for the enforcement of court decisions and contractual claims;
strengthening the supervision of the financial sector; and
further diversification and environmental sustainability of the country's economic growth model, building on the support provided by the national recovery and resilience plan and through the implementation of a long-term strategy.
The Commission report on Cyprus' National Reform Plan and Stability Programme notes that the Recovery and Resilience Plan contains measures to strengthen economic and financial stability for a more resilient banking sector, reduce risks related to private debt, improve supervision of the non-banking sector and create a more effective, efficient and fair tax system. It also improves access to health care and promotes the transition to digital health systems, increases the quality of education at all levels, including in terms of digital skills and youth employment, increases recycling capacity and infrastructure and infrastructure for wastewater management.
Excessive imbalances, reduction of NDPs, impact due to Ukraine
As reported by Executive Vice President Dombrovskis, the Commission analysed the macroeconomic situation in 12 Member States through the Alert Mechanism. Of these, Greece, Italy and Cyprus are facing excessive imbalances, while France, Germany, Germany, Spain, the Netherlands, Portugal, Romania, the Netherlands, Romania and Sweden still face macroeconomic imbalances. Ireland and Croatia no longer face imbalances as their debt ratios have declined significantly and continue to trend downwards.
More specifically regarding the macroeconomic imbalances in the Cypriot economy, the Commission said in a statement that the weaknesses identified "relate to high government and private debt, large current account deficits and the still high stock of non-performing loans."
"Public and private debt-to-GDP ratios have declined again thanks to the strong economic recovery in 2021. Non-performing loans in the banking sector declined significantly thanks to large sales of such loans to credit acquisition companies, but remain high," the Commission's analysis said.
At the same time, "the current account deficit is large despite the improvement recorded in 2021, and is further expected to widen in 2022 and decline slowly thereafter, thus not ensuring a prudent net international investment position in the medium term."
"Government and private debt-to-GDP ratios are expected to improve further, partly driven by economic growth," it notes."
"However, the economic outlook for 2022 is surrounded by heightened uncertainty related to the impact of Russia's invasion of Ukraine, given the particularly significant openings in trade in services," it adds.
"If implemented in a timely and effective manner, the Recovery and Resilience Plan has the potential to contribute to a significant reduction in vulnerabilities, but additional policy actions may be warranted," it stressed."
Source: CNA
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