The area of the Republic of Cyprus under government control has a market economy dominated by the service sector, which accounts for four-fifths of GDP. Tourism, financial services, and real estate are the most important sectors. The economy in the area under government control has grown at a rate well above the EU average since 2000. The economy of Cyprus was once classified by the World Bank as a high-income economy, and was included by the International Monetary Fund in its list of advanced economies in 2001.
The economy came under pressure in 2009, as construction and tourism slowed in the face of reduced foreign demand triggered by the ongoing global financial crisis. Although Cyprus lagged behind its EU peers in showing signs of stress from the global crisis, the economy tipped into recession in 2009, contracting by 1.7%, and has been slow to bounce back since.
Serious problems surfaced in the Cypriot financial sector in early 2011 as the Greek fiscal crisis and euro zone debt crisis deepened. Cyprus's borrowing costs had risen steadily because of its exposure to Greek debt. Two of Cyprus's largest banks are among the largest holders of Greek bonds in Europe. The Cypriot economy contracted in 2012 following the write-down of Greek bonds. In July 2012, Nicosia became the fifth euro zone government to request an economic bailout program from the European Commission, the European Central Bank, and the International Monetary Fund - known collectively as the "Troika".
In March 2013, In return for a €10 billion bailout from the Troika, the Cypriot government agreed to wound down the country's second largest bank, the Cyprus Popular Bank (also known as Laiki Bank), and for this to be absorbed by Bank of Cyprus. Despite the 2 major Cypriot banks being reformed and recapitalized it is business as usual for international banks with branches operating in Cyprus.
Since March, the Cyprus Government has passed many laws introducing financial incentives to boost the main economic industries that will attract foreign investment. To date, this appears to have been successful as there are many foreign entities that are seeking to capitalize on Cyprus’s needs to regain growth in the economy, more specifically in the energy industry.