2018 Index of Economic Freedom

Cyprus

overall score67.8
world rank48
Rule of Law

Property Rights71.2

Government Integrity41.3

Judicial Effectiveness56.7

Government Size

Government Spending52.9

Tax Burden75.2

Fiscal Health79.3

Regulatory Efficiency

Business Freedom77.0

Labor Freedom55.7

Monetary Freedom83.0

Open Markets

Trade Freedom86.9

Investment Freedom75.0

Financial Freedom60.0

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Quick Facts
  • Population:
    • 0.8 million
  • GDP (PPP):
    • $29.7 billion
    • 1.6% growth
    • -1.2% 5-year compound annual growth
    • $34,970 per capita
  • Unemployment:
    • 11.7%
  • Inflation (CPI):
    • -1.2%
  • FDI Inflow:
    • $4.1 billion
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Cyprus’s economic freedom score is 67.8, making its economy the 48th freest in the 2018 Index. Its overall score has decreased by 0.1 point, with a steep decline in the score for government integrity and declines in property rights and judicial effectiveness overwhelming significant improvements in financial freedom, fiscal health, and government spending. Cyprus is ranked 24th among 44 countries in the Europe region, and its overall score is below the regional average but well above the world average.

As Cyprus continues to recover from the financial crisis, the government has committed to improving fiscal discipline and undertaking other structural reforms such as the sale of state assets to improve the efficiency of state-owned enterprises and raise funds to reduce government debt. Cyprus does particularly well in trade freedom and monetary freedom. The regulatory framework is relatively transparent and efficient, and the financial sector has stabilized.

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Background

Cyprus gained independence from the U.K. in 1960. Tensions between the Greek majority and Turkish minority led to repeated episodes of violence. 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. U.N.-brokered reunification talks continue. Center-right Cyprus President Nicos Anastasiades has been head of state and head of government since 2013. In 2016, eight political parties won seats in parliament in a low-turnout election. Services such as tourism, finance, shipping, and real estate account for more than four-fifths of GDP. Developing offshore hydrocarbon resources is a priority.

Rule of LawView Methodology

Property Rights 71.2 Create a Graph using this measurement

Government Integrity 41.3 Create a Graph using this measurement

Judicial Effectiveness 56.7 Create a Graph using this measurement

In exceptional instances, private property may be expropriated for public purposes in a nondiscriminatory manner and in accordance with established principles of international law. The Republic of Cyprus has an independent and impartial judiciary that operates according to the British tradition, upholding due process rights. Corruption, patronage, and a lack of transparency continue to flourish in the Turkish-controlled area.

Government SizeView Methodology

The top personal income tax rate is 35 percent, and the top corporate tax rate is 12.5 percent. Other taxes include value-added and real estate taxes. The overall tax burden equals 33.2 percent of total domestic income. Over the past three years, government spending has amounted to 39.6 percent of total output (GDP), and budget deficits have averaged 0.7 percent of GDP. Public debt is equivalent to 108.0 percent of GDP.

Regulatory EfficiencyView Methodology

A regulatory framework that is generally conducive to entrepreneurship and an excellent infrastructure make Cyprus a business-friendly country. Relatively flexible labor regulations facilitate employment and productivity growth, although union power is quite strong. The government is committed to privatizing state-owned electricity and telecommunications service providers as well as the ports authority.

Open MarketsView Methodology

Trade is extremely important to Cyprus’s economy; the combined value of exports and imports equals 124 percent of GDP. The average applied tariff rate is 1.6 percent. In general, government policies do not significantly interfere with foreign investment. After strains and uncertainty in the financial system, with banks heavily exposed to Greek debt, recapitalization and restructuring enabled a relatively rapid return to international markets.

Country's Score Over Time

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Regional Ranking

rank country overall change
1Switzerland81.70.2
2Ireland80.43.7
3Estonia78.8-0.3
4United Kingdom781.6
5Iceland772.6
6Denmark76.61.5
7Luxembourg76.40.5
8Sweden76.31.4
9Georgia76.20.2
10Netherlands76.20.4
11Lithuania75.3-0.5
12Norway74.30.3
13Czech Republic74.20.9
14Germany74.20.4
15Finland74.10.1
16Latvia73.6-1.2
17Austria71.8-0.5
18Macedonia71.30.6
19Romania69.4-0.3
20Armenia68.7-1.6
21Poland68.50.2
22Malta68.50.8
23Bulgaria68.30.4
24Cyprus67.8-0.1
25Belgium67.5-0.3
26Hungary 66.70.9
27Kosovo66.6-1.3
28Turkey65.40.2
29Slovakia65.3-0.4
30Spain65.11.5
31Slovenia64.85.6
32Albania64.50.1
33Montenegro64.32.3
34France63.90.6
35Portugal63.40.8
36Italy62.50.0
37Serbia 62.53.6
38Bosnia and Herzegovina61.41.2
39Croatia611.6
40Moldova58.40.4
41Russia58.21.1
42Belarus58.1-0.5
43Greece57.32.3
44Ukraine51.93.8
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