Cyprus climbs in competitiveness rankings

Challenges remain despite gains across a number of categoriesCyprus improved its standing in the IMD World Competitiveness Yearbook 2026, climbing to 42nd place among 70 economies, up from 44th place in 2025. The country’s rise was primarily driven by stronger economic performance, improvements in its business environment, as well as better infrastructure. The latest findings from the IMD World Competitiveness Yearbook 2026, which evaluates 70 economies using 341 criteria, showed that Cyprus reversed part of the decline recorded in previous years by advancing two positions overall. The report found that the country ranked 30th in economic performance, 30th in government efficiency, 46th in business efficiency, and 42nd in infrastructure. Compared with 2025, the most significant progress was recorded in economic performance, where Cyprus climbed six places. A similarly strong improvement was registered in the business environment, where the country also gained six positions. According to the report, the stronger economic picture was mainly linked to low unemployment, rising employment levels, slowing inflation and the maintenance of robust performances in services exports. Cyprus also continued to demonstrate strengths in terms of foreign direct investment and economic resilience. Among the most important positive developments highlighted in the report were the reduction in long-term unemployment and improved assessments regarding the country’s image abroad. The report also pointed to improvements in business flexibility and efforts aimed at reducing tax evasion. Significant progress was recorded in the business environment category, where Cyprus improved its performance in management practices and business values, areas in which the country has traditionally lagged behind. According to the report, this progress stemmed from businesses becoming more capable of responding to opportunities and risks. It also reflected more effective functioning of boards of directors. The improved international image of Cyprus and the economy’s greater openness to new ideas and reforms also contributed to the better performance. Despite the overall rise, the report highlighted a number of challenges that continue to constrain the competitiveness of the Cypriot economy. In the area of government efficiency, Cyprus dropped four positions. This decline was mainly attributed to weaker indicators relating to the legislative framework affecting businesses. The report identified shortcomings in access to capital markets. It also pointed to weaknesses regarding investment incentives for artificial intelligence, regulatory burdens, the time required to establish businesses and efforts to combat the shadow economy. Nevertheless, the country’s strong fiscal performance helped limit the losses. According to the report, continued budget surpluses, falling public debt and improvements in creditworthiness all contributed to mitigating the decline. Particular emphasis was placed on infrastructure, where structural weaknesses continue to persist despite the country’s improved ranking. The gains in this category were primarily driven by stronger scientific infrastructure. The report highlighted better performances in patents, intellectual property rights, and the transfer of knowledge between universities and businesses. However, Cyprus still recorded the sixth-lowest performance among the 70 economies in basic infrastructure. Water resource management was identified as one of the country’s long-standing weaknesses. The report also referred to shortcomings in energy infrastructure. Energy production and the high cost of electricity were likewise described as persistent factors weighing heavily on the country’s competitiveness. In addition, Cyprus continues to lag behind in areas linked to artificial intelligence skills. Weaknesses were also identified in relation to ecological balance and the preservation of forest areas. The report further pointed to problems associated with air pollution caused by particulate matter and food waste. Among the indicators that deteriorated in 2026 were lower levels of fixed capital investment. The report also cited slower long-term growth in the labour force. Perceptions regarding the existence of the shadow economy, corruption and environmental problems also worsened during the year. The accompanying survey of business executives identified the competitive tax framework as one of the five most important factors making Cyprus an attractive destination for business activity. Respondents also highlighted the country’s business-friendly environment. Other factors included the high level of education, while the dynamism of the economy was also viewed positively. Moreover, executives pointed to Cyprus’ open and positive approach to business. By contrast, the report found that the country continued to record relatively weak performances in research and development, the quality of corporate governance, and government effectiveness.