The area of the Republic of Cyprus under government control has a market economy dominated by the service sector, which accounts for 78% of GDP. Tourism, financial services, and real estate are the most important sectors. Erratic growth rates over the past decade reflect the economy's reliance on tourism, which often fluctuates with political instability in the region and economic conditions in Western Europe. Nevertheless, the economy in the area under government control grew by an average of 3.6% per year during the period of 2000-06, well above the EU average.
Cyprus joined the European Exchange Rate Mechanism (ERM2) in May 2005 and adopted the euro as its national currency on 1 January 2008. An aggressive austerity program in the preceeding years, aimed at paving the way for the euro, helped turn a soaring fiscal deficit (6.3% in 2003) into a surplus of 1.5% in 2007. As in the area administered by Turkish Cypriots, water shortages are a perennial problem; a few desalination plants are now on line. After 10 years of drought, the country received substantial rainfall from 2001-04 alleviating immediate concerns. Rainfall in 2005 and 2006, however, was well below average, making water rationing a necessity in 2007. |
