2013 Index of Economic Freedom

Cyprus

overall score69.0
world rank41
Rule of Law

Property Rights70.0

Freedom From Corruption63.0

Limited Government

Government Spending32.7

Fiscal Freedom79.8

Regulatory Efficiency

Business Freedom80.7

Labor Freedom62.8

Monetary Freedom84.1

Open Markets

Trade Freedom81.8

Investment Freedom75.0

Financial Freedom60.0

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Quick Facts
  • Population:
    • 0.8 million
  • GDP (PPP):
    • $23.7 billion
    • 0.5% growth
    • 1.7% 5-year compound annual growth
    • $29,074 per capita
  • Unemployment:
    • 5.6%
  • Inflation (CPI):
    • 3.5%
  • FDI Inflow:
    • $276.3 million
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Cyprus’s economic freedom score is 69, making its economy the 41st freest in the 2013 Index. Its overall score is down by 2.8 points from last year, with significant declines in seven of the 10 economic freedoms including financial freedom, labor freedom, and control of public spending. Cyprus is ranked 19th out of 43 countries in the Europe region.

Cyprus registered the fourth largest score drop in the 2013 Index and fell from its previous status as one of the 20 freest economies primarily because of its worsening fiscal situation and declines in financial freedom. With government spending exceeding 45 percent of GDP, widening fiscal deficits and rising public debt have prompted recent downgrades of Cyprus’s credit standing and placed the country perilously close to its eurozone neighbors in crisis. Shut out of international debt markets, Cyprus needs timely fiscal consolidation and a return to a sustainable level of public spending to restore economic equilibrium and dynamism.

The portion of Cyprus administered by the Republic of Cyprus, however, is a liberalized and open economy with a highly developed legal and trade system. The overall regulatory framework encourages high levels of foreign direct investment and entrepreneurship. Most aspects of the economy are free from state interference, and the judicial system buttresses the protection of property rights.

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Background

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 is a member of the European Union and acts as the island’s internationally recognized administration. Despite deep hostility, Greek and Turkish leaders continue to negotiate on possible reunification through U.N.-brokered talks. Leftist politician Demetris Christofias became president of the Republic of Cyprus in 2008. Tourism and financial services drive the Greek Cypriot economy, and restrictions on foreign investment have been lifted. Cypriot banking is weak after marking down the value of its holdings of Greek government bonds and loans in light of the Greek financial crisis. Cyprus has received loans from Russia and has requested an EU bailout.

Rule of LawView Methodology

Property Rights 70.0 Create a Graph using this measurement

Freedom From Corruption 63.0 Create a Graph using this measurement

Contracts and property rights are generally enforced. The civil judiciary is independent constitutionally but not always in practice. Cypriot law imposes significant restrictions on the foreign ownership of real estate by non-EU residents. Corruption, patronage, and lack of transparency appear to continue in the area administered by Turkish Cypriots. The absence of a political settlement poses inherent risks for foreign investors.

Limited GovernmentView Methodology

The top income tax rate is 35 percent, and the top corporate tax rate is 10 percent. Other taxes include a value-added tax (VAT) and a real estate tax. The overall tax burden amounts to 26.3 percent of total domestic income. Government spending amounts to 47.4 percent of total domestic output. With the deficit growing to 6.5 percent of GDP and public debt at over 70 percent of GDP, the government has sought bailouts from the EU and Russia.

Regulatory EfficiencyView Methodology

The overall freedom to start, operate, or close a business is relatively well maintained within the regulatory framework. It takes six procedures to launch a company, and no minimum capital is required. Relatively flexible labor regulations facilitate employment and productivity growth, although union power is quite strong. The government mandates a minimum wage and controls prices of some agricultural products. Inflation is under control.

Open MarketsView Methodology

Cyprus’s trade policy is similar to that of other members of the European Union, with the common EU weighted average tariff rate standing at 1.6 percent. Additional non-tariff barriers affect some service and biotech industries. The financial system has experienced growing strains and uncertainty. Banks are heavily exposed to Greek debt and the sharp downturn in the housing market, and the number of non-performing loans has risen.

Country's Score Over Time

Bar Graph of Cyprus Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing Cyprus to other economic country groups

Regional Ranking

rank country overall change
1Switzerland81-0.1
2Denmark76.1-0.1
3Ireland75.7-1.2
4Estonia75.32.1
5United Kingdom74.80.7
6Luxembourg74.2-0.3
7Finland741.7
8The Netherlands73.50.2
9Sweden72.91.2
10Germany72.81.8
11Georgia72.22.8
12Lithuania72.10.6
13Iceland72.11.2
14Austria71.81.5
15Czech Republic70.91.0
16Norway70.51.7
17Armenia69.40.6
18Belgium69.20.2
19Cyprus69-2.8
20Slovakia68.71.7
21Macedonia68.2-0.3
22Spain68-1.1
23Malta67.50.5
24Hungary 67.30.2
25Latvia66.51.3
26Poland661.8
27Albania65.20.1
28Romania65.10.7
29Bulgaria650.3
30France64.10.9
31Portugal63.10.1
32Turkey62.90.4
33Montenegro62.60.1
34Slovenia61.7-1.2
35Croatia61.30.4
36Italy60.61.8
37Serbia 58.60.6
38Bosnia and Herzegovina57.30.0
39Moldova55.51.1
40Greece55.40.0
41Russia51.10.6
42Belarus48-1.0
43Ukraine46.30.2
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