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- GDP (PPP):
- $22.3 billion
- -6.0% growth
- -1.7% 5-year compound annual growth
- $25,265 per capita
- Inflation (CPI):
- FDI Inflow:
Cyprus’s economic freedom score is 67.9, making its economy the 45th freest in the 2015 Index. Its overall score is up by 0.3 point from last year due to improvements in trade freedom, investment freedom, and monetary freedom that outweigh declines in labor freedom and freedom from corruption. Cyprus is ranked 20th out of 43 countries in the Europe region.
Over the past five years, spurred by government responses to the financial crisis and the difficult external environment, economic freedom in Cyprus has declined by 5.4 points, the second-largest decline in the European region. With scores dropping in nine of the 10 economic freedoms, Cyprus has been rated “moderately free” since 2013.
The eurozone crisis has severely strained Cyprus’s economy. Multiple bailouts to prop up government finances and the financial sector have increased the country’s relative debt load to one of the highest in Europe. To reverse this trend, the government will have to demonstrate that it is willing to reopen its market to free trade and capital flows. A renewed commitment to easing the regulatory environment will be needed to promote entrepreneurial activity and reorient the economy away from offshore financial services.
A U.N. buffer zone has separated the Greek Cypriot Republic of Cyprus from the Turkish Republic of Northern Cyprus since 1974. The Republic of Cyprus joined the European Union in 2004 and acts as the island’s internationally recognized administration. Despite deep mutual hostility, Greek and Turkish leaders continue to negotiate on possible reunification through U.N.-brokered talks. Center-right Cyprus President Nicos Anastasiades took office in February 2013. After the collapse of the banking sector in 2013, Cyprus received a €10 billion bailout plan from the EU. However, draconian measures that include taxing bank deposits were imposed as part of the bailout. The economy remains very weak, and the unemployment rate is one of Europe’s highest.
Despite renewed efforts by the two governments in 2014 to reach a political settlement concerning the Turkish-controlled region, the division of the island continues. Corruption, patronage, and a lack of transparency will continue to flourish in that area and pose inherent risks for foreign investors. The independent judiciary in the Republic of Cyprus operates according to the British tradition, upholding due process rights.
The top individual income tax rate is 35 percent, and the top corporate tax rate is 12.5 percent. Other taxes include a value-added tax and a real estate tax. The overall tax burden amounts to 25.9 percent of gross domestic product. Government expenditures are equal to 45.9 percent of domestic income, and public debt is equivalent to 112 percent of annual domestic production.
Forming and operating a business is relatively straightforward within the regulatory framework. With no minimum capital required, it takes less than a week to launch a company. Relatively flexible labor regulations facilitate employment and productivity growth, although union power remains strong. EU subsidies to Cyprus increased after the 2013 banking crisis, and the government mandated price controls on food staples.
EU members have a 1.0 percent average tariff rate. Although some non-tariff barriers exist, the EU is relatively open to external trade. In most sectors of the Cypriot economy, foreign and domestic investors are treated similarly. Capital controls imposed during the 2013 banking crisis have been lifted. Despite reorganizations following the bailout, the banking sector remains unstable, with a high level of nonperforming loans.