The package of measures worth more than €200 million announced by the government provides some relief, but it remains unclear whether it will ultimately be sufficient, as uncertainty over developments in the Middle East shows no signs of easing. If the loss of European funding resulting from the non-implementation of green fuel taxation is included, the total cost of the package rises to €246 million.
The measures supporting the incomes of households, businesses – particularly in tourism – and farmers were announced in a televised address by President of the Republic Nikos Christodoulides. The core package amounts to €100 million, with an additional €46 million linked to the loss of resources from the Recovery Fund due to the non-implementation of green taxation on fuels. If other measures are included, income support exceeds €200 million.
The Central Bank, in macroeconomic forecasts for the Cypriot economy published on Tuesday 24 March, stated that “the medium-term effects on the Cypriot economy will depend on the duration and intensity of the war. The baseline scenario assumes that the conflict will last approximately two months with high intensity, followed by gradual de-escalation.”
The measures announced by the government have a short-term horizon of two months, with the reduction of VAT on electricity being the only measure that will remain in force until the first quarter of 2027.
However, these forecasts carry a significant degree of uncertainty.
The rise in refined petroleum products (transport fuels and aviation fuels), which has been greater than the increase in oil prices, has already offset part of the effect of the 8.6-cent reduction in the excise duty on fuels. According to the president of the Cyprus Consumers Association (CCA), Marios Drousiotis, petrol prices increased by 2 cents per litre on Thursday, diesel by 3.5 cents per litre and heating oil by 3.55 cents per litre. Drousiotis told CNA that these increases represent the largest one-day rise in fuel prices recorded in the past three years.
At the same time, the hotel sector would have preferred additional support, as expressed by the Cyprus Employers and Industrialists Federation (OEB) in a statement. A Reuters report described the outlook for tourism in Greece and Cyprus in negative terms due to the ongoing war, noting that European travellers are increasingly choosing destinations in the Western Mediterranean, particularly Spain. Sources from the market told Politis that there have already been cancellations for the upcoming tourist season by tour operators who are returning to renegotiate lower prices.
Deputy Minister of Tourism Kostas Koumis, speaking on Thursday at the annual general meeting of the Cyprus Association of Hotel Managers (PASYDIXE), appeared optimistic. He explained that this year’s tourism season is not easy, but after approximately 20 days of pressure, booking rates have started to increase again.
The survey on the economic climate in Cyprus in March reflects these difficulties. The Economic Sentiment Indicator (ESI) fell by 9.4 points compared with February, reaching its lowest level in the past five years. According to the Economics Research Centre of the University of Cyprus, the decline in the ESI was the result of a weakening in business sentiment – particularly expectations – across all sectors, as well as a significant deterioration in consumer confidence.
The Economic Uncertainty Index recorded a sharp increase in March, reaching its highest level in the past 19 months. Business uncertainty rose in all sectors, with the strongest increase among service-sector companies. Consumer uncertainty also increased across all income groups, with lower-income households being the most affected.
Reactions from political parties and organisations vary. While the need for measures is acknowledged, additional action is being requested.
The balance
In general terms, the government announced measures aligned with the conclusions of the European Council, the recommendations of the Eurogroup and the letter sent to member states by European Commission President Ursula von der Leyen. These measures include temporary tax reductions and state aid. However, the measures are not targeted and it has not been explained where spending cuts will be made to finance the €246 million package.
With regard to green taxation, the reduction in funding from the Recovery Fund due to its non-implementation also results in a decrease in revenue, since EU resources are counted as income in the state budget. It also requires the identification of national resources to finance projects and actions included in the National Recovery and Resilience Plan.
Minister of Finance Makis Keravnos, in remarks delivered on Monday during a ceremony organised by the Cyprus Employers and Industrialists Federation for the awarding of circular economy certificates, lowered expectations regarding the absorption of Recovery Fund resources.
“The absorption of resources from the Mechanism is not an end in itself, but rather the substance, which is the real impact and the chain of benefits resulting from achieving each target and milestone,” he said.
The measures announced
The measures announced by President Christodoulides are as follows:
- Reduction of VAT on electricity for all household consumers to 5% (from 9%) from 1 May 2026 until 31 March 2027.
- Reduction of the excise duty on transport fuels by 8.33 cents per litre for the period April–June 2026.
- Application of a zero VAT rate on meat, poultry and fish from 1 April 2026 until 30 September 2026. These products will be added to the existing items already subject to zero VAT, namely fruit and vegetables.
- Suspension of the green fuel tax, which would have increased fuel costs by an additional 9 cents per litre.
- Subsidy covering 30% of employee wages in the hotel industry for units and tourist accommodations operating throughout the period from 1 April to 30 April 2026.
- Additional support for airlines to ensure uninterrupted connectivity with key tourist markets.
- Subsidy covering 15% of the cost of fertiliser purchases for farmers for the months of April and May.
- Subsidy covering 15% of the cost of agricultural supplies for farmers for the months of April and May.
“The total cost of the measures we are announcing, together with existing measures that remain in force, exceeds €200 million. These are fully costed measures within the fiscal surpluses,” President Christodoulides said.
Nevertheless, the fiscal impact of the measures is significant and will need to be considered in future decisions. The lack of targeting is considered the main weakness of the package, as higher-income groups will also benefit.