Dorita Yiannakou
Cyprus' economy is showing encouraging progress in competitiveness, ranking 42nd out of 70 economies in this year's IMD World Competitiveness Yearbook. The country improved by two places compared with last year, climbing from 44th in 2025. A favorable, stable, and attractive business environment has helped strengthen Cyprus' competitive position by attracting foreign companies and encouraging investment, creating the conditions for economic growth, new jobs, and higher incomes. At the same time, the country's competitiveness continues to be held back by the government's effectiveness in implementing public policy. Cyprus also recorded a sharp decline in the domestic economy category compared with last year. One of the main challenges facing the country this year is maintaining fiscal discipline while dealing with pressure from external shocks and geopolitical developments.
Singapore claimed the top spot in this year's rankings, overtaking Switzerland, which slipped to third place. Hong Kong ranked second, followed by Taiwan in fourth. The United Arab Emirates rounded out the top five. The IMD results point to the strong performance of Asian economies compared with Europe. Germany and France, the European Union's two largest economies, both fell four places to 19th and 32nd respectively. Within the European Union, only Denmark, Ireland, the Netherlands, and Sweden earned places in this year's global top ten for competitiveness.
Gains and setbacks
Economic performance made a significant contribution to Cyprus' improved competitiveness, with the country climbing to 30th place from 36th in 2025. In 2024, Cyprus ranked 28th in this category.
Economic performance, the business environment, and infrastructure all improved, while government effectiveness in implementing policy declined.
The improvement was driven by low unemployment, rising employment, easing inflation, and strong services exports. Cyprus also maintained excellent ratings for services exports while improving its position in goods exports. On the downside, weaknesses remain in areas such as the current account balance and terms of trade. The country also recorded weaker results in the domestic economy and international investment subcategories.
Demand from both international and domestic investors for a productive and competitive economy helped strengthen the business environment, allowing Cyprus to climb six places this year to 46th. The country's best performance in the business efficiency category came in 2022, when it ranked 44th.
The improvement is mainly linked to stronger ratings for management practices and business values, two areas where Cyprus has traditionally struggled. Better performance in these indicators suggests businesses are becoming more adaptable and effective at managing challenges while taking advantage of new opportunities. A stronger international reputation is also helping attract investment, support business activity, and create better conditions for sustainable economic growth.
Cyprus also improved its infrastructure ranking compared with last year, although important challenges remain.
The country climbed four places in the infrastructure category, returning to 42nd place, the same position it held in 2023 and 2024. Its strongest performance in this category came in 2022, when it ranked 40th.
The report shows that while Cyprus has made meaningful progress in research, innovation, and strengthening cooperation between universities and businesses, major infrastructure challenges remain. Weak water resource management, high energy costs, shortages in artificial intelligence skills, and environmental shortcomings continue to limit the country's ability to improve its competitiveness. These findings point to the need for targeted investment and reform so that progress in innovation is matched by improvements in core infrastructure and sustainable development.
Government effectiveness in implementing policy declined this year. Cyprus fell from 26th to 30th place compared with the previous year, reflecting a weaker assessment of the government's ability to implement public policy efficiently and respond quickly to economic and social challenges. The results point to the need to speed up reforms, improve public administration, and ensure greater consistency in carrying out government decisions. The weaker performance is mainly linked to issues involving the legislative and regulatory environment for businesses, including access to capital markets, incentives for artificial intelligence investment, regulatory burdens, the time required to establish a business, and the shadow economy.
Five key challenges
The government faces several major challenges that will influence both the short-term and long-term direction of the economy. According to the IMD, the conflict in the Middle East is creating greater uncertainty, affecting energy costs, tourism, and investment, all of which are key pillars of the Cypriot economy. Higher energy prices could add to inflationary pressure and increase operating costs for businesses, while geopolitical instability could reduce tourist arrivals and weaken investor confidence. The report also points to the effects of foot-and-mouth disease on the agricultural sector, which is affecting agricultural production, limiting exports, and pushing food prices higher, with direct consequences for both producers and consumers.
Completing pension reform remains a top priority because it is essential to ensuring the long-term sustainability of public finances and adapting the system to demographic changes and future social needs. Addressing challenges related to water and energy security is equally important through targeted investment in infrastructure and projects that strengthen the country's resilience to climate change and changing global energy conditions. Maintaining fiscal discipline is also critical despite pressure from external shocks. Sound management of public finances is essential to preserving economic stability, maintaining Cyprus' credibility in international markets, and creating the right conditions for sustainable growth and stronger competitiveness.
