Cyprus faces the risk of losing tens of millions from the European Union’s recovery and resilience fund, with the audit office warning on Thursday that deficiencies in planning and delayed implementation have placed funding at risk and left the country lagging most member states.

In a detailed assessment of the country’s €1.02 billion recovery and resilience plan, auditors found that only 56 per cent of available grant funding had been absorbed by August 2025, equivalent to €567.7 million, including €151.67 million in pre-financing.

The recovery and resilience fund, with a total value of €723.8 billion across the EU, was designed to support member states in addressing the economic impact of the pandemic and advancing green and digital transitions.

Based on EU monitoring data, Cyprus ranks 20th out of 27 member states in terms of absorption of non-repayable financial support, placing it among the lowest performers despite the approaching August 2026 deadline for completion.

The report identifies a direct risk of financial loss, with up to €50 million in grants potentially subject to suspension by the European Commission due to delays in implementing green taxation reform.

The commission has indicated that failure to meet the specific milestone would result in a permanent reduction of funding and could damage Cyprus’ credibility.

The audit office warns that such an outcome would “create a negative image for Cyprus as a partner in fulfilling its obligations towards the EU”.

At the core of the findings is the conclusion that the plan’s original design in 2021 was “overly optimistic and rife with weaknesses”.

Cyprus committed to implementing 133 measures, including 75 investments and 58 reforms, a volume described as disproportionately large relative to the country’s size and administrative capacity.

The audit office stated that the milestones and targets were highly detailed and, in many cases, excessively specific, complicating implementation.

“Taking into account the fact that several projects were included in the plan while they were not mature and the risks of untimely implementation were not properly assessed, it became necessary to repeatedly amend the plan,” the report states.

In total, five revisions were required to adjust timelines and reduce the risk of failing to meet targets, shifting a significant number of milestones to the final stages of the programme.

The audit office found that the selection of projects was not based on comprehensive prioritisation.

Instead, investments were included without sufficient evaluation of their economic and social impact or their readiness to proceed.

The inclusion of immature projects emerged as a central issue behind delays.

Several measures faced setbacks due to unrealistic initial schedules, complications in public procurement procedures and legal challenges before the tender review authority.

Additional factors included increased equipment delivery times and rising costs linked to the war in Ukraine, as well as delays in securing permits and preparing necessary studies.

Administrative capacity constraints also played a role, with some implementing bodies lacking sufficient staffing to manage the volume and complexity of the projects.

This contributed to coordination problems and slower execution, further undermining the plan’s progress.

A significant development highlighted in the report is the decision not to utilise the €200.32 million loan component of the recovery mechanism.

The loan facility had been linked to seven measures, six of which were ultimately removed from the plan following revisions.

Among them was the electricity interconnection project known as the Great Sea Interconnector, which, if completed, will link the energy grids of Cyprus, Greece, and Israel, had been allocated €100 million from the funds.

The project was initially assessed as low risk, with auditors pointing out that it was included “with a list of 13 indicative risks” but classified as unlikely to fail.

Despite this, it has not progressed and is no longer considered feasible within the programme’s timeframe.

As a result, Cyprus did not submit any request to draw on the loan facility, effectively abandoning access to cheaper financing.

The audit office argues that borrowing under the mechanism, which offers more favourable terms than market financing or European Investment Bank loans, should have been pursued.

The report also highlights that €26.04 million already disbursed as pre-financing for the interconnection project will be offset against future grant payments, reducing the overall funding available.

Despite multiple revisions, auditors warn that the risk of failing to absorb the full allocation by the August 2026 deadline “has not been completely eliminated”.

The mechanism operates on a performance basis, with payments tied to the achievement of specific milestones and targets rather than expenditure alone.

This increases the likelihood of funding suspensions if implementation falls short.

Beyond financial risks, the audit office has identified structural weaknesses in governance, including the absence of a comprehensive national framework for public consultation during the plan’s preparation.

Although technical discussions were held with relevant bodies, broader stakeholder participation was limited, potentially reducing the plan’s overall socio-economic impact.

“The fifth amendment reinforces the view that the initial design contained weaknesses and was overly optimistic,” the report states, calling for improved procedures in future planning to ensure realistic timelines, stronger risk assessment and better coordination.

While the finance ministry maintains that a high absorption rate can still be achieved by the end of the year, the audit office stresses that lessons must be drawn from the current shortcomings.