ranking 109, World Bank 2015)
||1.17mn (World ranking 158, World
|Form of state
- Strong and stable business environment
- Attractive fiscal system for corporates (12.5%
corporate tax rate, the lowest in the EU along with
- Potentially large deposits of natural
- Highly skilled workforce
- Overreliance in the services sector, especially
financial sector (i.e. 80% of GDP mostly rely on
tourism, financial services and real
- Very high gross external debt due to still
significant non-resident bank deposits
- Consolidated assets held by the banking sector
reduced, but stand above 500% of GDP
- High public debt
- High level of “shadow economy” (26% of GDP in
- Still fragile banking sector due to the high
share of non-performing loans (around 60% of
A successful exit from the
Cyprus concluded the 3-year long bailout program ahead of schedule. It
exited the EUR10bn scheme in March 2016, two months before it was due
to run its course. The move has proven sustainable. Since the beginning
of the year, Cyprus has issued medium to long-term bonds three times.
Demand for the 2-yr, 7-yr and 10-yr bonds has been strong. The country
is subject to post-program surveillance (PPS) by the European
Commission and the ECB. Semi-annual economic reviews will continue
until at least 75% of the financial aid received has been repaid.
Estimated completion: 2029.
GDP growth above the eurozone average
The economy returned to growth in 2015 after three consecutive years of
recession and is expected to grow by +2.5% in 2016 and +2.6% in 2017.
These figures stand well above the eurozone average of +1.6%. Consumer
spending and investment were key contributors. Yet export performance
has also been boosted by the lower euro: non-eurozone countries
represent more than 70% of Cyprus’s total exports. Nominal GDP growth
remains below 1% but has recovered over the past quarters.
Vulnerabilities: non-performing loans and high
public and private debt
Non-financial corporations and households service debts among the
highest in the EU: 130% and 140% of GDP respectively. Households’
debt-to-income ratio is around 150%, the second-highest in the eurozone
Credit to private sector continues to contract. Why? Because as much as
60% of the banks’ portfolio of loans to households and non-financial
corporations are non-performing loans (NPLs). For the latter, the
highest NPLs are concentrated in sectors such as construction, trade
and tourism, and real estate.
The fiscal balance will register a slight surplus in 2016, the first in
eight years. Interest expenditures on public debt should moderate yet
remain at a relatively high level.
Carrying out the privatization plan, which includes prize assets such
as the port of Limassol, Electricity Authority of Cyprus, Cyprus
Telecommunications Authority, State Lottery, would help reduce the
fiscal deficit and public debt.
The current account has improved significantly over the past years. It
is up from about -15.6% in 2008 to -4.5% in 2014. The oil trade deficit
represented about 6% of GDP in 2014. The fall in energy prices has
helped to reduce the energy bill and supported the current account
Last review: 09/27/2016