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Economic Overview

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

Cyprus is an open, free-market economy, mainly based on services. After being severely hit by the global financial crisis and the exposure of the national banking system, the country's economy had recovered in recent years, thanks to domestic demand and tourism. Nevertheless, the outbreak of the COVID-19 pandemic and the restrictive measures that followed prompted a drastic reduction of GDP in 2020 (-5.1). Underpinned by both private and public consumption, the economy rebounded in 2021, marking a 4.8% growth (IMF). The tourism sector also recorded a relatively good performance (tourism revenues more than doubled in January-July 2021 compared to the same period of 2020, but remained at around 35% of the pre-pandemic levels), as well as the construction sector. Over the forecast horizon, government spending is expected to decelerate, whereas internal demand should continue expanding, contributing to forecast growth of 3.6% this year and 3.2% in 2023 according to the IMF.

After reaching a surplus in 2019, the fiscal measures adopted to fight the pandemic (including increased social payments related to the roll-out of the second phase of the National Health System reform, wage subsidisation and liquidity support to businesses), partially offset by an increase in revenues (+9.9%), led to a budget deficit of 3.6% in 2021. The deficit is forecast to decline to 1% of GDP in 2022 and 0.4% in 2023, helped by the continuing economic expansion and the withdrawal of COVID-19 measures. The public debt-to-GDP ratio is expected to follow a similar trend: after reaching 111% in 2021 (from a pre-pandemic level of 94%), it should gradually decrease to 103.7% this year and 99.3% in 2023 (IMF). After experiencing deflation following the outbreak of the crisis, headline inflation returned positive in 2021 (+1.7%), driven by higher prices for energy, services and non-energy industrial goods. The rate is expected to slightly decelerate to 1.1% in 2022 amid the normalization of energy prices.

The impact of the COVID-19-led crisis on the labour market has been mitigated by temporary income support measures, which targeted especially employees in the tourism sector. As a result, unemployment stood at 7.5% in 2021 (from 7.1% before the pandemic), and is expected to gradually decrease this year and in 2023 on the back of the economic expansion and the implementation of the EU’s RRP (to 6.9% and 6.4%, respectively - IMF). In recent years, a strong focus on the service and skilled industry, along with industrial and agricultural growth, has allowed the country to improve its already high standard of living; however, 17.6% of the population is at risk of poverty or social exclusion (below the EU average of 21.9% - Eurostat).

 
Main Indicators 201920202021 (e)2022 (e)2023 (e)
GDP (billions USD) 24.9523.79e26.5528.2930.42
GDP (Constant Prices, Annual % Change) 3.1-5.1e4.83.63.2
GDP per Capita (USD) 28,48826,78529,48630,99632,876
General Government Balance (in % of GDP) -0.0-3.8e-3.6-1.0-0.4
General Government Gross Debt (in % of GDP) 94.0119.1e111.0103.799.3
Inflation Rate (%) 0.6-1.1e1.71.11.2
Unemployment Rate (% of the Labour Force) 7.17.6e7.56.96.4
Current Account (billions USD) -1.57-2.83-2.47-2.10-2.13
Current Account (in % of GDP) -6.3-11.9e-9.3-7.4-7.0

Source: IMF – World Economic Outlook Database , October 2021

Note: (e) Estimated Data

Country Risk

See the country risk analysis provided by La Coface.

 

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Main Sectors of Industry

In the past two decades, the basis of the Cypriot economy has shifted from agriculture to light manufacturing and, most importantly, services. The agricultural sector contributes around 1.9% of the GDP and employs 2.4% of the active population (World Bank, latest data available). The traditional agricultural sector suffers from a very dry climate, whereas only 9% of the land is arable. The main crops are wine grapes, potatoes and fruits. Mineral resources are limited and include mostly copper, pyrites, chrome, asbestos and gypsum. According to the latest data from Eurostat, overall agricultural output grew by 2.8% in 2020.

The manufacturing industry (mainly industrial food-processing, paper, chemical products, textiles, metal products and petroleum refining) accounts for 12.7% of GDP (including construction) and employs 18.4% of the active population. The government aims to double the industry's share of GDP by 2030. The manufacturing sector is not very developed and is estimated to account for only 5.5% of GDP (World Bank, latest data available). The annual average variation of industrial production in the period January-November 2020 stood at an estimated minus 7.6%.

Cyprus’ economy is mostly based on the tertiary sector, which contributes 74.1% of the GDP and employs 79.2% of the active population. Tourism and maritime transportation are considered to be the two pillars of the Cypriot economy. After recording an all-time record for the number of tourists in 2019 (almost 4 million), the number of arrivals was almost halved in 2021 amid the COVID-19 pandemic crisis (Cystat). Cyprus has the eleventh-largest shipping fleet in the world and the third-largest in the European Union. However, offshore activities are often led by foreign-capital companies based in Cyprus, whose commercial activities are executed exclusively outside the country. This system enables them to enjoy substantial tax benefits. Finance and real estate have traditionally been among the most important services. As per the banking sector, there are 30 authorised credit institutions in Cyprus, consisting of seven local institutions, three subsidiaries of EU banks, one subsidiary of a foreign bank from a non-EU country, five branches of banks from EU Member States, 13 branches of banks from non-EU Member States and one representative office (EBF).

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 2.4 18.4 79.2
Value Added (in % of GDP) 1.9 12.5 74.1
Value Added (Annual % Change) -0.4 -6.7 -4.5

Source: World Bank - Latest available data.

 
Monetary Indicators 20162017201820192020
Euro (EUR) - Average Annual Exchange Rate For 1 USD 0.940.890.850.890.88

Source: World Bank - Latest available data.

 

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Foreign Trade

The geographical location of Cyprus (the country being a bridge between West and East), along with its good airlines and telecommunications infrastructure, has enabled the country to turn itself into an important regional and international business centre. The country's foreign trade represents 141.5% of GDP (World Bank, 2020) and is mainly oriented towards the EU. In that same year, Cyprus main exports were cruise ships (23.4%), petroleum oils (14.9 %), medicaments (13.6%), cheese (9.8%), and vessels (4.4%); with imports being led by petroleum oils other than crude (11.5%), yachts (7.7%), cruise ships (6.5%), and motor cars (6%).

The main destinations for Cyprus’ exports in 2020 were Greece (8.4%), Liberia (7.4%), the United Kingdom (6.5%) and Libya (5.9%); while imports came chiefly from Greece (21.6%), the UK (8.4%), Italy (8.2%), Germany (6.6%), and China (5.9% - Comtrade).

Cyprus' trade balance is traditionally in deficit because the country has to import extensively in order to satisfy domestic demand (particularly, for energy supplies). The country’s trade balance was negative by 2.5% of GDP in 2020, according to data from the World Bank. ). In fact, although Cyprus is a net service exporter - with a total value of exports of USD 12.5 billion (mostly travel, shipping and banking) against USD 9.3 billion of imports – such surplus was offset by the trade in goods (USD 8.5 billion of imports against 3 billion of exports). According to the provisional data from CyStat, in the first eleven months of 2021 total goods imports amounted to EUR 7,7 billion (+11.8% vis-à-vis one year earlier), whereas exports totalled EUR 2.9 billion (marking an increase of 15.3%).

 
Foreign Trade Values 20162017201820192020
Imports of Goods (million USD) 6,4919,23110,8159,1278,598
Exports of Goods (million USD) 1,8713,2885,0523,4533,057
Imports of Services (million USD) 5,5426,7488,8689,4749,361
Exports of Services (million USD) 9,83011,29514,48214,27712,563

Source: World Trade Organisation (WTO) ; Latest available data

Foreign Trade Indicators 20162017201820192020
Foreign Trade (in % of GDP) 139.4147.4148.9144.8141.5
Trade Balance (million USD) -4,613-5,633-5,303-5,184-4,797
Trade Balance (Including Service) (million USD) 369-68425-274-1,484
Imports of Goods and Services (Annual % Change) 10.012.94.52.0-4.2
Exports of Goods and Services (Annual % Change) 7.29.98.0-0.4-12.4
Imports of Goods and Services (in % of GDP) 68.873.973.772.973.9
Exports of Goods and Services (in % of GDP) 70.573.575.271.967.7

Source: World Bank ; Latest available data

Foreign Trade Forecasts 20212022 (e)2023 (e)2024 (e)2025 (e)
Volume of exports of goods and services (Annual % change) 6.68.17.46.75.9
Volume of imports of goods and services (Annual % change) 5.37.96.55.85.2

Source: IMF, World Economic Outlook ; Latest available data

Note: (e) Estimated Data

 
International Economic Cooperation
Cyprus is a member of the European Union, the United Nations, the Council of Europe, the World Trade Organization, the World Bank, the Commonwealth and the International Monetary Fund. It is also well represented by diplomatic missions in foreign countries.
 

Main Partner Countries

Main Customers
(% of Exports)
2020
Greece 8.4%
United Kingdom 6.5%
Marshall Islands 5.7%
Netherlands 5.4%
France 4.2%
See More Countries 69.9%
Main Suppliers
(% of Imports)
2020
Greece 21.7%
Italy 8.3%
United Kingdom 8.1%
Germany 6.6%
China 6.0%
See More Countries 49.3%

Source: Comtrade, Latest Available Data

 

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Political Outline

Current Political Leaders
Chief of State and head of government: President Nicos ANASTASIADIS (since 28 February 2013; reelected on 4 February 2018)
Next Election Dates
Presidential: February 2023
Legislative: 2026 (2023 for the area administered by Turkish Cypriots)
Main Political Parties
The latest presidential elections have returned incumbent President Nicos Anastasiadis to power for another term.

Following the latest legislative elections, the composition of the Parliament is as follows:
- Democratic Rally (Disy): right-wing, absorbed the Liberals in 1998 (17 seats)
- Progressive Party of the Working People (Akel): left-wing, communist (15 seats)
- Democratic Party (Diko): centrist (9 seats)
- National Popular Front (Elam):  far right, nationalist (4 seats)
- Movement of Social Democrats (Edek): centre-left, formerly known as Social Democratic Movement (Kisos) (3 seats)
- Democratic Front: centre, liberal (4 seats)
- Ecologists Movement (KOSP): centre-left, green (3 seats)
- Citizens' Alliance (SYPOL): centre, centre-left (1 seat).

Executive Power
The President is both the Chief of the State and the Head of the Government. The President is elected by popular vote for a five-year term and holds the executive powers. The Council of Ministers is appointed by the President. Under the 1960 Constitution, the position of Vice-President is reserved for a Turkish Cypriot. However, this position has remained vacant since 1973.
Legislative Power
The legislative power of the Republic of Cyprus is unicameral. The parliament consists of the House of Representatives, whose 80 members are directly elected by elected by proportional representation and preferential vote for five years. 24 seats are allocated to the Turkish Cypriot community, but have been vacant since 1974, so that the parliament is formed solely by the 56 Greek Cypriots.
The area administered by Turkish Cypriots has a separate unicameral Parliament (the Assembly of the Republic), formed by 50 members directly elected by proportional representation system to serve a 5-year term.
Cypriots enjoy considerable political rights.
 

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COVID-19 Country Response

COVID-19 epidemic evolution

To find out about the latest status of the COVID-19 pandemic evolution and the most up-to-date statistics on the COVID-19 disease in the country, consult the infographics on the course of the epidemic on the official governmental portal. The website of Daily Cyprus provides daily updates.
For the international outlook you can consult the latest
situation reports published by the World Health Organisation as well as the global daily statistics on the coronavirus pandemic evolution including data on confirmed cases and deaths by country.

Sanitary measures

To find out about the latest public health situation in Cyprus and the current sanitary measures in vigour, please consult the official governmental portal on COVID-19, including the up-to-date information on the containment measures put in place and public health recommendations. The portal also provides the guidelines for citizens (in Greek). The latest guidelines and instructions on movement restrictions and exemptions can be downloaded here.

Travel restrictions

The COVID-19 situation, including the spread of new variants, evolves rapidly and differs from country to country. All travelers need to pay close attention to the conditions at their destination before traveling. Regularly updated information for all countries with regards to Covid-19 related travel restrictions in place including entry regulations, flight bans, test requirements and quarantine is available on TravelDoc Infopage.
It is also highly recommended to consult COVID-19 Travel Regulations Map provided and updated on the daily basis by IATA.
The US government website of Centers of Disease Control and Prevention provides COVID-19 Travel Recommendations by Destination.

The UK Foreign travel advice also provides travelling abroad advice for all countries, including the latest information on coronavirus, safety and security, entry requirements and travel warnings.

Import & export restrictions

The export of all medicines from Cyprus to any other country has been banned. An export license is required to export personal protective equipment outside of the European Union.
For a general overview of trade restrictions due to COVID-19 pandemic, please consult the section dedicated to Cyprus on the
International Trade Centre's COVID-19 Temporary Trade Measures webpage.

Economic recovery plan

To know about the economic measures taken by the Cypriot government to address the impact of the COVID-19 pandemic on the national economy, please visit the website of the Ministry of Labour, Welfare and Social Insurance (MLWSI). A list of the financial measures adopted can be found on the official portal Covid-19.cy (in Greek).
For an overview of the measures, refer to the KPMG website.
The information on the EU’s economic response to COVID-19 and the actions to minimise the fallout on the EU member states’ economies of the COVID-19 outbreak is available on the website of the
European Council.
For the general overview of the key economic policy responses to the COVID-19 outbreak (fiscal, monetary and macroeconomic) taken by the
Cypriot government to limit the socio-economic impact of the COVID-19 pandemic, please consult the section dedicated to Cyprus in the IMF’s Policy Tracker platform.

Support plan for businesses

For the information on the local business support scheme and taxation measures established by the Cypriot government to help businesses to deal with the economic impacts of the COVID-19 epidemic on their activity, please consult the website of the Ministry of Labour, Welfare and Social Insurance (MLWSI), which provides info on the special schemes for the complete and partial suspension of business, as well as for self-employed workers .
Further information on the business support measures can be found on the official portal Covid-19.cy (in Greek).
For a general overview of international SME support policy responses to the COVID-19 outbreak refer to the World Bank's Map of SME-Support Measures in Response to COVID-19.

Support plan for exporters

At the moment the official government sources do not provide any information on the specific programs for Cypriot exporting companies put in place by the national government following the COVID-19 epidemic outbreak. For updated information please consult the website of the Ministry of Finance.
The European Commission adopted a Temporary Framework for State aid measures to support the economy in the COVID-19 outbreak, which enables short-term export credit insurance to be provided by the State where needed.

 

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