Economy of Cyprus

KEY FACTS 2015

GNI: US$21.9 billion

GNI p.c.: US$25,990

GDP growth: 1.7% p.a. 2011–15

Inflation: -2.1% p.a. 2011–15

Despite occupation of the north and the consequent forced movement of population and loss of resources, the economy of the Republic has grown steadily with relatively low inflation, particularly in the tourism and offshore financial services sectors, while the agriculture sector and exports of citrus fruits and potatoes became relatively less important.

From the latter 1990s, the government introduced economic reforms with a view to joining the EU. The economy continued to grow strongly, until it slowed in the tougher international climate after 2000, picking up again from 2004, the year in which the Republic of Cyprus joined the EU, and continuing at about four per cent until 2008, when the impact of the world economic downturn on tourism and trade caused growth to stall in the latter part of that year and go into reverse in 2009 (–1.7 per cent). There was then a return to weak positive growth in 2010–11 before the economy moved into recession again in 2012 (–2.4 per cent), contracting very sharply in 2013 (by about nine per cent).

Cyprus adopted the euro at the beginning of 2008 replacing the Cyprus pound. In March 2013 the European Union (EU) and International Monetary Fund (IMF) offered Cyprus a €10 billion loan to rescue the Cypriot banks, which had incurred heavy losses arising from a very large exposure to Greek debt. This deal required the government to raise a further €5.8 billion. Parliament then voted against the government’s initial proposals for a levy on all the banks’ customers. The banks remained closed while discussions continued between the government, EU and IMF. A deal was agreed on 24 March 2013, under which the banks were to be restructured; the levy paid only by customers with deposits of at least €100,000; and Cyprus was to remain in the eurozone.

In December 2013, the Cypriot government approved a roadmap for the privatisation of semi-governmental organisations and state-owned enterprises. The plan is intended to help secure the €1.4 billion required for the bailout agreement with international lenders, as stipulated in a €10 billion financial assistance package, by the end of 2018. The plan extends to the privatisation of the Cyprus Stock Exchange among other assets and provides for the selling of state-owned real estate. A state spokesperson has told the media that none of the organisations or enterprises will be fully privatised, with the government intending to retain a stake in each, and that there would be no single model for privatisation – instead, each project will be assessed and addressed individually.