Cyprus ranks fourth among 21 countries to feel the full impact of Brexit, according to a Standard & Poor’s Brexit Sensitivity Index 2019.
In the index Cyprus is behind Ireland, Luxemburg and the Netherlands as the four countries most susceptible to the aftershocks from Brexit. Finland, Austria and Italy are least affected countries.
S&P based its i8ndex Index on measurements of goods and services exports to the United Kingdom, bidirectional migrant flows, financial sector claims on UK counterparties on an ultimate risk basis, and foreign direct investment in the UK.
"With its large tourism, auditing and financial sectors, and historical connections to the UK, Cyprus remains close to the top three economies most exposed to Brexit," S&P said.
“Cyprus hosts a large population of U.K. pensioners, as well as two military bases, technically a British Overseas Territory that accounts for 3% of Cyprus,” it added.
The United Kingdom is Cyprus' number one tourist market, accounting for over a third of the nearly 4 million tourists visiting annually.
Cyprus is home to about 60,000 British expats who live, work and spend their income on the island. It also hosts two military bases with around 2,500 people deriving their income directly from working there.
S&P also pointed to large numbers of Cypriots who live and work in the UK, “their remittances amount to 0.2% of Cyprus' GDP”.
“This is a substantial figure, albeit below that for Hungary (0.3% of GDP), Lithuania (0.4% of GDP), and Latvia (0.6% of GDP).”
Cyprus is no stranger to external shocks, having managed to retain much of its business services sector and to recover economically from the 2012-2013 financial crisis and sovereign default, S&P noted.
“Even so, Brexit could create headwinds for its economy, given the importance of migratory, export and financial links between the two countries.”
The rating agency also warned that Brexit could compound an already unstable situation with the government challenged over its austerity cuts in the public sector.
“In parallel to the Brexit-related dangers, the Cypriot economy is currently facing a possible big drain on its government's finances in the form of a restitution of salary and pension cuts and other pecuniary measures taken as a way to deal with the 2013 crisis.”
