Cyprus - Economic development



The first development plan (1962–66), designed to broaden the base of the economy and to raise the standard of living, resulted in an average annual real growth rate of 5.4%. The second development plan (1967–71) called for an annual growth rate of 7% in the GDP; actual growth during this period was nearly 8% annually. The third development plan (1972–76) envisaged an annual economic growth rate of 7.2%, but a drought in 1973 and the war in 1974 badly disrupted development programs. Physical destruction, a massive refugee problem, and a collapse of production, services, and exports made it impossible for Cyprus to reach the targets.

Since 1975, multi-year emergency economic action plans inaugurated by the Republic of Cyprus have provided for increased employment, incentives to reactivate the economy, more capital investment, and measures to maintain economic stability. The 1994–98 Strategic Development Plan emphasized a free-market, private-sector economic approach with a target GDP growth of 4% annually. The plan called for a domestic savings rate of 22.3% of GDP; an increase of labor productivity of 2.8% between 1994–96; an inflation rate of approximately 3%, and unemployment no greater than 2.8%. As of 1996, Cyprus has largely met these goals with the exception of less than target levels of savings and productivity.

While Cyprus used to receive substantial amounts of development aid, due in part to its own improving economy and a recession in the European donor countries, it now receives little direct financial assistance from other nations.

Since its military intervention in 1974, Turkey has provided substantial financial aid to the Turkish Cypriot area. In 1996, this assistance was estimated to be approximately one-third of the area's GDP, or approximately $175 million.

Membership in the European Union (EU) is a major goal of the Republic of Cyprus. As a result, Cyprus is harmonizing its laws in accordance with EU standards. At the December 1999 EU summit in Helsinki, Cyprus joined the list of candidates for entry. The Republic of Cyprus has also offered to allow a Turkish Cypriot delegation in its negotiating group. Turkish Cypriots, however, oppose Greek Cypriot entry into the EU prior to both a political settlement of the island's division and Turkish accession to the EU. Many observers believe it unlikely that the EU will allow the Republic of Cyprus to join prior to the island's reunification. Greece, however, has threatened to veto any EU expansion if Cyprus is denied entry, regardless of the political situation on the island.

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