2020 Cyprus Country Report

Economy
The small, open economy
of Cyprus is known for its
resilience, having enjoyed
uninterrupted expansion
for more than 30 years
until the global financial
crisis pushed the country
into recession in 2009. The
economy bounced back
swiftly after the banking
crisis in 2013, returning to
growth in 2015, investment
grade rating in 2018 and
recording annual average
real GDP growth of 5.4% in 2016-19. During this
period the banks took the opportunity to consolidate,
boost and diversify their capital base and cut
non-performing loans by over two-thirds. At the
same time, the government reformed its public
finances, brought debt back below 100% of GDP
and paid off its debt to the IMF five years early.
The medium-term focus is on continuing
structural reforms that will encourage investment,
raise the economy’s competitiveness and
leverage the eurozone economy’s highly educated
population. The immediate impact of the Covid-
19 pandemic on the economy has of course been
significant, but the government has marshalled
considerable domestic and eurozone resources to
support business activity. Early signs of returning
confidence suggest that the country’s legendary
resilience will prevail.
KEY SECTORS
The Cyprus economy is dominated by services,
which accounted for 82.7% of gross value added
in 2019, while industry accounted for 8%, construction
7% and agriculture, forestry and fishing
2.3%. Over the past two decades the economy
has diversified. While tourism remains one of the
most significant sectors, especially because of its
wider impact on retail, transport, construction
and employment, its value-added contribution,
when narrowly defined as accommodation and
food services, has now been overtaken by professional
services, financial services and real estate.
Diversification has been made possible by the
growing importance of Cyprus as an international
business centre. Information and communication
services are also expanding rapidly from a
low base, as the country takes advantage of its ge-
In addition to the upheaval it caused to peoples’ lives
and its continued health threat, unavoidably, the Covid
pandemic also has a momentous impact on businesses
and the economy. From the onset of the crisis, maintaining
positive epidemiological conditions was at the cornerstone of
government policy response. Having achieved to contain the
spread of the virus helps us now to enter the recovery phase
with more confidence despite the uncertainty that still lie ahead.
In the economic front we responded with early and frontloaded
economic measures to address the effects of the pandemic, adopting a generous fiscal stimulus
package mainly based on short term income support and liquidity measures for the employees
and the businesses affected by the pandemic. Those measures have delivered and we can
now focus on the broader recovery strategy for the medium and long term. A strategy which
includes the use of the medium-term budget and the EU recovery fund to achieve two main
recovery goals: to strengthen the resilience of the Cypriot economy and to give a new impetus
to its transformation. A transformation through structural reforms, into the era of a digital,
green and sustainable economy. Taking into consideration the demonstrated flexibility of the
Cypriot economy, I am confident that by following the correct policies through the necessary
political consensus, we will also emerge strong from this crisis as we did in the near past.
Constantinos Petrides
Minister of Finance
20 Country Report CYPRUS 2020