The continuous general increase in the prices of goods and services creates the phenomenon of inflation, which reduces the value of the currency and causes a decline in the purchasing power of incomes.
Inflation is one of the most important challenges that almost all European Union member states, including Cyprus, have to face today. In the midst of the war in Ukraine and the energy crisis, economic uncertainty is deepened by continuous price increases, in particular fuel and electricity prices, with inflation in the Eurozone reaching historically high levels.
For more than a year now, both Cyprus and the other countries have been experiencing a significant increase in the prices paid by the consumer. The phenomenon of inflation has multiple negative aspects: it erodes the purchasing power of citizens, causes interest rates to rise and slows down economic growth. These problems highlight even more strongly the urgent need for change and the need to define measures. The Cypriot government has adopted a number of short-term measures to address inflationary trends, as well as to moderate energy prices. Also, with the ultimate aim of addressing high energy prices, EU Member States adopted Council Regulation (EU) 2022/1854 of 6 October 2022 on emergency intervention, which introduces common measures regarding the imposition of a cap on the revenues of those generating electricity with other technologies, the solidarity levy for the fossil fuel sector, electricity demand reduction and the setting of a temporary price for the supply of electricity to small and medium-sized enterprises (according to the Regulation, the application of a temporary price for the supply of electricity to small and medium sized enterprises will be subject to a temporary price cap). The recommendations of the EPA, as presented in this Proposal, complement the short-term measures already taken by the State and the EU measures, and are aligned with both the National Recovery and Resilience Plan and the Long Term Strategy for the Sustainable Development of the Cyprus Economy "Vision 2035":
Improving productivity through digital transformation and innovation
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→ Digitisation of services.
→ Improving broadband.
→ Using new technologies in agriculture. |
The National Recovery and Resilience Plan includes a series of digital transformation and reform measures that have a medium and long-term horizon and aim to invest in innovation and increase productivity. The digitisation of various services will reduce the need to use transport to carry out services in person, as well as the need to charge additional fees to carry them out. Overall, digital transformation and investment in innovation will bring multiple benefits in terms of productivity, economies of scale, lower production costs and lower final consumer prices.
Improved broadband will also provide an innovative environment with advanced infrastructure, which will contribute significantly to reducing costs in the workplace (through more efficient transactions and communications), as well as in household life, e.g. providing opportunities for distance learning and working from home.
In addition, it is important to promote entrepreneurship and the use of new technologies in the agricultural sector, which can bring about improvements in productivity and reduce dependence on imports.
Improving Cyprus' supply chain and connectivity|
→ Upgrading ports and airports through new technologies.
→ Improving air and maritime connectivity. → Upgrading the Trade Service to promote exports. |
Upgrading ports and airports through new technologies and promoting them as regional hubs will help improve the supply chain and reduce transport costs to and from other countries.
Improving air and sea connectivity, which will reduce the cost of transporting goods and people, is very important.
In addition, upgrading the Trade Service (TSS) to promote exports will help firms exporting goods and services to achieve economies of scale, resulting in lower prices in the domestic market as well (e.g.
Use of cheaper energy sources, circular economy and reduction of energy consumption
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→ Upgrading and connecting the network with other countries. → Promote development of affordable housing to support vulnerable groups. |
Upgrading the electricity market, together with upgrading and connecting the grid with other countries and using cheaper energy sources, will help to gradually reduce the price of electricity. The Council's recommendations of 26 May 2022 on "Green Growth - Energy" can contribute in the long term, either directly or indirectly, to reducing energy prices and mitigating the vulnerability of the economy to exogenous shocks from the energy sector.
The promotion of the circular economy will help reduce excessive consumption habits and reduce the use of raw materials resulting in lower production costs and final consumer prices (a number of measures to promote the circular economy in Cyprus are included for implementation in the National Recovery and Resilience Plan).
Also, the promotion of incentives by the state to upgrade buildings for minimum energy consumption will help reduce the cost of living. The state should also help promote the development of affordable housing and other measures to support economically vulnerable population groups most affected in times of high inflation.
Adoption of cheap efficient public transport
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→ Promote the use of existing public transport.
→ Adoption of new and more efficient public transport |
The Long Term Strategy "Vision 2035" includes a recommendation that primarily addresses the need to change the mindset and habits of Cypriot citizens regarding the use of public transport. According to the recommendation, the state should encourage the use of buses and bicycles and promote car-sharing schemes. Increasing the frequency of public transport at universities, hospitals and schools and providing financial incentives for the use of public transport to specific groups (e.g. students, pupils) would help in this effort, while reducing transport costs in the country and increasing productivity.
In addition, the operation of a tram linking areas around the capital and the linear route along the Pediaion River and/or the Limassol seafront can provide an efficient means of public transport for workers, pupils and students. A feasibility study was previously carried out for the operation of a tram and inter-city rail link, which indicated that these projects are not viable under current conditions. In the future, however, the study should be updated as these projects can be efficient means of public transport when the critical parameters change.
(MB/SX)
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