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CYPRUS
TOURISM SECTOR IN CYPRUS
The global pandemic shock has caused an unprecedented shock to the tourism industry, severely
impacting tourism-dependent economies such as Cyprus. This chapter seeks to examine the recent
developments in the tourism sector in Cyprus. It further examines the outlook for recovery prospects
and outlines some policy priorities given the economic vulnerability to the tourism shock and the need
to minimize scarring and protect the vulnerable workers.
A. Recent Trends in the Tourism Sector
1. Global tourism has suffered the worst year on record in 2020 following the
unprecedented fall in demand and widespread travel restrictions. According to UNWTO (2021),
international arrivals dropped by 74 percent in 2020 (1 billion fewer arrivals) than in 2019. The
collapse in international travel represented an estimated loss of USD 1.3 trillion in export revenues,
more than 11 times the loss recorded during the 2009 global economic crisis. The loss in tourism
translated into an economic loss of USD 2 trillion in direct tourism GDP (more than 2 percent of the
world’s GDP). Europe recorded a 70 percent drop in tourist arrivals in 2020, and the region suffered
the largest drop in absolute terms with over 500 million fewer international tourists. By comparison,
during the 2009 global financial crisis, international tourist arrivals fell by 4 percent in the world and
10 percent in Europe, with a much smaller economic impact and swift recovery afterwards. Based on
a simple event analysis, tourism slumps associated with major terrorist attacks, epidemics, and
political crises, showed, on average, 20 to 30 percent declines in tourist arrivals (Salas, et. al, 2020).
For instance, tourist arrivals dropped by 5 to 31 percent after terrorist attacks (USA, France, Belgium,
Turkey, Egypt) and recovered in one to five years. Tourist arrivals dropped, on average, by above
30 percent and recovered in one year or less in the SARS and MERS epidemics (Hong Kong, Taiwan,
Singapore, South Korea).
International Tourist Arrivals
(Percent Change)
Source: UNWTO.
* Provisional Data.
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2. Tourism in Cyprus has been hard hit by the Covid-19 shock, among the most severe in
Europe. Tourist arrivals experienced an unprecedented collapse since the pandemic. In 2020, tourist
arrivals decreased by 84 percent, while tourism revenue decreased by 85 percent, compared to
2019. Travel restrictions led to a significant decrease in tourist demand from the major markets such
as the United Kingdom (UK) and Russia. While travel restrictions were lifted in early June for arrivals
from a limited number of countries, Cyprus still experienced the most severe decline of tourist
arrivals for the year when compared with other European countries.
Cyprus: Tourist Arrivals Cyprus: Tourism Revenue
(Thousand persons) (Millions of euro)
600 600 500 500
2014 2014 2015
450 450
2015 2016 2017
500 500
400 400
2016 2018 2019
2017 350 350
400 400 2020
2018 300 300
300 2019 300 250 250
2020
200 200
200 2021 200
150 150
100 100
100 100
50 50
0 0 0 0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: Statistical Service of Cyprus. Source: Statistical Service of Cyprus.
3. Employment has been largely protected in the tourism sector, but hours worked
declined much more severely than during the previous crises. While tourism employment has
declined more than in the rest of the economy, with the temporary employment support measures,
this decline has been contained so far. The number of workers in Trade, Travel & Food Services
decreased by 13 percent in 2020:Q2 and 9 percent in 2020:H2 compared with the previous year. This
trend also held for self-employed workers. Nonetheless, hours of work in Trade, Travel & Food
Services decreased more significantly in the second, third and fourth quarters of 2020 by 20 percent,
15 percent, and 18 percent, respectively, compared to the previous year.
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Number of Workers: Cyprus Hours Worked: Cyprus
(Year on year growth, percent) (Year on year growth, percent)
15 15 20 20
Employees: Total economy
10 10 15 Self-Employed: Total economy 15
5 5 Employees: Trade, Travel & Food Services
10 10
Self-Employed: Trade, Travel & Food Services
0 0 5 5
-5 -5 0 0
-10 -10 -5 -5
-15 -15 -10 -10
-20 Employees: Total economy -20 -15 -15
Self-Employed: Total economy
-25 Employees: Trade, Travel & Food Services -25 -20 -20
Self-Employed: Trade, Travel & Food Services
-30 -30 -25 -25
2001Q1 2005Q1 2009Q1 2013Q1 2017Q1 2020Q4 2001Q1 2005Q1 2009Q1 2013Q1 2017Q1 2020Q4
Sources: Eurostat, Haver Analytics, and IMF staff calculations. Sources: Eurostat, Haver Analytics, and IMF staff calculations.
4. The pandemic shock has had a The Impact of Covid-19 Pandemic on Tourism
significant impact on exports of services and GDP
10
and on GDP growth. The adverse impact on Export in services growth, 2020 (yoy)
y = 3.0268x - 3.5126
R² = 0.4847 IRL
0
the economy was large since tourism is a key BEL POL
LUX
-10
MLT
sector for Cyprus. Services exports decreased
NLD LTU
CYP DNK
ROMSWE
DEU
EA CZE
AUT
-20
FIN
by around 27 percent in the second and third
FRA
SVN
LVA EST
quarters of 2020 compared to the same
HUN
-30 ITA BGR
periods of 2019, mainly reflecting the fall in
PRT
-40
ESP GRC
demand for tourism. The overall economy also
HRV
-50
showed a deep recession in 2020, with real -15 -10 -5 0 5
GDP growth, 2020 (yoy)
GDP declining by around 8 percent in the Source: Eurostat.
Note: Bubble size corresponds to share of services exports in GDP (percent).
second and third quarters of 2020.
B. Vulnerability of the Cypriot Economy to the Tourism Sector
5. The Cypriot economy has a high dependence on tourism, which makes it more
vulnerable to the impact of the Covid-19 shock. Tourism receipts accounted for more than
18 percent of Cyprus’s total exports in 2019. Tourism expenditure balance (inbound minus
outbound) reached around 8 percent of GDP in 2019. Tourism also has large spillover effects to
related industries outside of hotels (food services, retail, transport, construction, other services).
Cyprus’s economy has a very high dependence on tourism related industries, with the total of direct
and indirect contribution accounting for nearly 14 percent of GDP in 2019, which was higher than in
many other European countries. 1 Tourism and related services also provided a large contribution
(around 13 percent) to total employment.
1
Based on the World Travel and Tourism (WWTC) database, the direct contribution of travel & tourism to GDP is
calculated to be consistent with the output of tourism-characteristic sectors such as hotels, airlines, airports, travel
agents, and leisure & recreation services that deal directly with tourists. The total contribution of travel & tourism
includes its wider impacts on the economy (i.e. the indirect and induced impacts), in addition to the direct impacts.
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Travel Service Exports Contribution of Tourism Related Industries, 2019
(Percent of Total Exports) (Percent of GDP)
40 40 35
2019 Direct Indirect
35 2013 35 30
2008
30 30 25
25 25
20
20 20
15
15 15
10
10 10
5
5 5
0
0 0
ISL
MNE
GRC
PRT
ESP
ITA
EST
HUN
CYP
AUT
TUR
LUX
BGR
SVN
BIH
RUS
IRL
HRV
DEU
GBR
FRA
SWE
LVA
MKD
MDA
BLR
SVK
ROU
UKR
NLD
ISR
BEL
ALB
MLT
NOR
CHE
FIN
DNK
CZE
LTU
POL
SRB
ISL
CYP
BEL
AUT
DEU
TUR
HUN
MLT
FRA
HRV
LTU
SVN
SWE
LVA
SVK
GRC
PRT
POL
NLD
CZE
NOR
LUX
ESP
EST
FIN
BGR
ITA
GBR
ROU
DNK
Sources: Eurostat, Haver Analytics, and IMF Staff Calculations. Sources: World Travel and Tourism Council and IMF staff calculations.
6. High exposure of the Cypriot banking system to the tourism sector also increases the
risk of a macro-financial feedback loop. Loans to accommodation and food services was
46 percent of tier 1 capital, one of the highest in the euro area (IMFa, 2020) 2. The sectors of trade,
hotel, restaurant, and transportation accounted for the largest shares of total loans and non-
performing loans in Cyprus. These sectors were hit harder by the pandemic with more negative
growth rates of gross value added than other sectors. However, the moratorium on loan repayments
have helped alleviate the negative impact of the pandemic on the financial sector. The take-up rate
of the loan repayment moratorium, at over 90 percent, was particularly high for non-financial
corporations involved in tourism related activities, including accommodation and food, arts,
entertainment and recreation, and construction. But with the expiry of the moratorium, there are
risks of loan distress as the repayments become due. A heatmap table capturing these economic
and financial sector exposures placed Cyprus among the highest quintile of countries vulnerable to
the tourism sector in the EU 3.
The indirect contribution includes the GDP and jobs supported by: travel & tourism investment spending;
government 'collective' spending which helps travel & tourism activity; and domestic (non-imported) supply chain
purchases of goods and services by the sectors dealing directly with tourists. The induced contribution measures the
GDP and jobs supported by the spending of those who are directly and indirectly employed by the travel & tourism
sector (WTTC/Oxford Economics 2020).
2
Based on IMF (forthcoming), “The Impact of COVID19 on European Banks,” EUR Departmental Paper.
3
Based on Salas, et. al. (2020), “Tourism in Europe After the COVID-19 Shock: Impact, Prospects, and Policies.”
Unpublished slides, European Department, International Monetary Fund.
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Loans to Highly Affected Sectors Macroeconomic Indicators
(Percent of Tier 1 capital) Share of Bank
tourism Share of Private Lending to
Real Estate Activities
Transport & Storage
Share of
(direct and travel consumptio Accommod
Wholesale & Retail
Accommodation &
Arts & Entertainm
tourism Average
indirect) in services n WEO ation &
in total quintile
total in total forecast Food
Other Services
output
Food Services
employme exports (2020-2021) Services
Construction
nt Sector
Austria 4.2
Trade
Belgium 2.2
Bulgaria 3.4
Croatia 4.3
AT 29 56 18 16 116 2 4 Cyprus 4.0
Czechia 2.5
BE 26 40 15 4 41 3 4 Denmark 2.0
Estonia
CY 39 59 17 46 44 2 3
3.0
Finland 1.8
DE 10 42 28 4 177 2 11 France 3.2
Germany 2.8
EE 14 59 24 4 86 3 7 Greece 4.8
ES 29 70 24 18 48 3 24 Hungary 2.8
Iceland 4.5
FI 20 30 30 4 167 3 10 Ireland 2.8
FR 18 53 25 9 90 2 28 Italy
Latvia
4.4
3.2
GR 40 91 51 40 29 6 10 Lithuania 1.0
Luxembourg 2.4
IE 6 25 13 21 60 4 8 Malta 4.0
IT 47 77 24 16 66 3 28 Netherlands 3.4
Norway 2.8
LU 9 3 2 3 22 0 5 Poland 1.8
LV 12 33 33 14 72 1 5 Portugal 4.8
Romania 2.0
MT 16 24 10 12 32 4 1 Slovakia 1.3
NL 15 68 33 7 88 2 21 Slovenia
Spain
3.4
5.0
PT 34 41 19 18 38 3 19 Sweden 2.6
Switzerland 2.7
SI 16 52 39 6 11 1 4 Turkey 3.0
EA SSM 22 47 23 15 90 3 11 United Kingdom 3.6
Sources: IMF (2020a) based on data from EBA Transparency Sources: Eurostat; WTTC; and IMF WEO.
Exercises and IMF staff calculations.
C. Characteristics of the Tourism Sector Affecting the Recovery Prospects
7. The tourism sector in Cyprus is highly reliant on foreign/inbound tourism, which puts
Cyprus in a less favorable position regarding the prospects for a near-term recovery. Foreign
tourist arrivals reached around 5 times of domestic tourist arrivals in 2019, and the tourism
expenditure balance (inbound minus outbound tourism expenditure) was around 8 percent of GDP
in 2019, higher than most other European countries. The European Travel Commission (2021)
estimated that European international travel declined by 69 percent in 2020, compared to a
35 percent decline for domestic travel. The high reliance of Cyprus’s tourism on international arrivals
indicates a slower near-term recovery prospect as international travel restrictions will be eased at a
slower pace than domestic tourism, and the smaller share of domestic tourism also reflects its
relatively minor contribution from its rebound to offset the drop in international arrivals. In addition,
the full dependence on air travel also makes it highly susceptible to travel restrictions.
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Tourism Expenditure Balance
(Percent of GDP)
25 25
2019
2013
20 20
2007
15 15
10 10
5 5
0 0
-5 -5
CYP
ISL
CHE
BEL
MNE
AUT
IRL
DEU
MLT
TUR
HUN
ALB
FRA
HRV
SVN
LVA
SVK
LTU
SWE
GRC
PRT
POL
CZE
RUS
NOR
ESP
EST
FIN
BGR
ITA
GBR
ROU
DNK
Source: UNWTO.
8. High reliance on hotel accommodation makes Cyprus more vulnerable to the Covid-19
shock, while concentration of stays away from cities presents a more favorable outlook. Given
the fall in attractiveness of hotels with the pandemic shock, there is potential for non-hotel
accommodations to attract tourists, which benefits countries that can provide a greater variety of
accommodations. However, in the case of Cyprus, almost all tourists stay in hotels and similar
accommodations. On the other hand, the location of overnight stays in Cyprus is more diverse, with
more stays in towns and suburbs and rural areas and relatively low ratio of stays in cities. The
relatively large size of non-urban tourism is helpful for Cyprus to cope with the pandemic, as rural
tourism is likely to increase and could partly offset the decline in urban tourism.
Overnight Stays by Degree of Urbanization, 2019
Tourist Arrivals by Type of Accomodation, 2019 (Percent)
(Percent) Cities Towns and suburbs Rural areas
100 100
Camping grounds, recreational vehicle parks and trailer parks
Holiday and other short-stay accommodation 90 90
Hotels and similar accommodation
100 100 80 80
90 90
70 70
80 80
60 60
70 70
50 50
60 60
50 50 40 40
40 40 30 30
30 30 20 20
20 20 10 10
10 10 0 0
0 0
LVA
CZE
FIN
LTU
NLD
BEL
FRA
SVK
AUT
DEU
BGR
EST
MLT
PRT
ROU
HUN
SWE
LUX
ESP
DNK
POL
EU27
MKD
ITA
CYP
HRV
AUT
CZE
SVK
NLD
BGR
FIN
LVA
DEU
EU27
FRA
LTU
BEL
CYP
MKD
MLT
EST
HUN
ESP
GRC
ROU
PRT
LUX
POL
ITA
SWE
DNK
HRV
Sources: Eurostat and IMF staff calculations.
Sources: Eurostat and IMF staff calculations.
9. Cyprus’s lower dependency on business travel and good progress on vaccination in
source countries are more favorable for recovery prospects. When evaluating travel exports by
type, Cyprus has a very high ratio of personal travel and low reliance on business travel. This trend
could suggest a quicker rebound of tourism since business tourism may be more severely affected
post-Covid-19. In addition, the major tourist market countries of Cyprus have made good progress
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on vaccinations. Two of the top three source countries (UK and Israel) are advanced in vaccinating
their population, with around 60 percent and 110 percent of population having completed
vaccinations by mid-April. Another positive factor is that two of the top three markets (Russia and
Israel) are expecting a faster recovery to pre-pandemic growth rates in 2021. The concentration of
tourist sources from Europe also increases the likelihood of travel as travel restrictions ease within
Europe and travelers prefer short-haul flights.
Cyprus: Sanitary and Recovery Indicators of
Tourism-Source Countries 1/
Total
Historical Vaccinations per 2021 real GDP
arrivals (% of Total cases per hundred of growth relative
Country of origin total) million population to 2019
United Kingdom 33.7 64716 60.4 -5.1
Russian Federation 19.9 31615 10.2 0.6
Israel 5.9 96654 111.7 2.5
Germany 4.8 36823 23.1 -1.5
Greece 4.7 29184 21.8 -4.8
Sweden 3.9 87668 21.0 0.2
Poland 2.3 69256 21.0 0.6
Switzerland 1.9 72559 21.0 0.4
Ukraine 1.8 44357 1.0 -0.3
Romania 1.7 52836 19.9 1.9
Sources: UNWTO; Bloomberg; and IMF WEO.
1/ Data on COVID cases and vaccinations is up to April 15.
10. Furthermore, the relatively good health conditions of Cyprus would help to attract
tourists once travel restrictions are lifted. Cyprus has so far ranked relatively well in terms of
health conditions. When compared with other European countries, Cyprus has relatively fewer
reported cases of Covid-19 per million people, suggesting the relatively high degree of safety of
sanitary situation in Cyprus. Cyprus has also conducted more Covid-19 tests per million people than
most of the other European countries which could help contain the pandemic. Nonetheless, the
health situation remains highly uncertain given the ongoing wave of infections.
11. Based on a Heatmap Analysis of the overall tourism characteristics and sanitary
situation, Cyprus is placed in the fourth and third quintile of EU countries in terms of the risks
to the prospect of tourism recovery. As shown in the text table, Cyprus has a score of 3.4 using
the tourism indicators 4, mainly reflecting the large dependence on foreign tourism and air travel.
Cyprus fares relatively well in terms of sanitary/health indicators, placing it in the middle quintile
with a score of 2.8. This reflects the lower number of cases and high testing rates which is partly
offset by the high stringency score on mobility restrictions that deter the attractiveness for travel.
4 The Heatmap Analysis based on indicators include: relative size of urban (vs. rural) tourism, relative size of foreign
(vs. domestic) tourism, inbound (vs. outbound) tourism spending, share of business (vs. personal) travel, share of
hotel stays (vs. other accommodations) and share of tourism by air (vs. other modes). Each indicator is scored in a
range between 1–5 with a higher score indicating a higher vulnerability (Salas, et. al., 2020). The relative ranking
should however be treated with caution given the missing values in some variables. A similar heatmap for the
health/sanitary indicators uses number of COVID-19 cases, vaccination rate, number of COVID-19 tests and
stringency of the mobility restrictions (see IMF (forthcoming) ,” Tourism in Southern Europe: Development and
Prospects under the COVID-19 Pandemic,” EUR Departmental Paper).
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Tourism Indicators Sanitary Indicators
Relative Relative
Relative
Relative Relative size of size of Inbound Share of
size of
size of size of inbound tourism (vs. hotel stays
tourism Average COVID-19 COVID-19 COVID-19 Stringency Average
urban (vs. foreign (vs. tourism exports on outbound) (vs. other
by air (vs. quintile cases vaccines tests Index quintile
rural) domestic) from RoW business tourism accommo
other
tourism tourism (vs. from (vs. spending dations)
modes)
Europe) personal)
Austria 3.0 3.8
Belgium 2.5 3.0
Bulgaria 2.5 3.3
Croatia 2.2 3.5
Cyprus 3.4 2.8
Czechia 3.7 3.8
Denmark 2.6 1.8
Estonia 3.8 2.0
Finland 4.0 2.0
France 2.7 3.0
Germany 3.7 3.0
Greece 2.5 3.0
Hungary 2.7 3.5
Iceland 4.0 1.0
Ireland 3.8 2.8
Italy 2.1 3.3
Latvia 2.9 2.8
Lithuania 3.0 3.0
Luxembourg 3.5 3.3
Malta 4.0 1.3
Netherlands 3.2 4.3
Norway 2.0 2.0
Poland 2.3 3.5
Portugal 3.6 3.8
Romania 2.4 3.0
Slovakia 2.5 3.3
Slovenia 2.8 3.5
Spain 3.0 2.8
Sweden 3.2 3.5
Switzerland 4.0 3.0
Turkey 4.3 3.3
United Kingdom 3.3 2.8
12. Looking ahead, Cyprus fares relatively well in terms of prospects for recovery given
the tourism characteristics, sanitary indicators, and recovery in the main source countries.
Using the quantile distribution of countries (combining indicators in the heatmaps), with 1 indicating
the least vulnerable and 5 being the most vulnerable, we estimate the speed of recovery for
countries assuming each broad category has the same weight. Based on the results, Cyprus should
have a relatively faster recovery rate.
Speed of Recovery: Country Rankings Speed of Recovery: Country Rankings
(Quintile) (Quintile)
5 5
Tourism Indicators Sanitary Indicators Source Country Recovery Indicators Tourism Indicators Sanitary Indicators
4 4
Slower Faster Faster
Slower
3
3
2
2
1
1
0
TUR HRV IRL LTU PRT FRA CYP ITA ESP MLT GRC 0
DEU
CHE
FIN
LTU
POL
FRA
SWE
TUR
AUT
LUX
LVA
EST
IRL
MLT
DNK
NOR
PRT
CYP
HUN
ESP
ISL
HRV
BEL
NLD
CZE
ITA
GBR
SVN
SVK
BGR
ROU
GRC
Sources: Eurostat; UNWTO; IMF WEO; Bloomberg; and IMF staff calculations.
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D. Outlook for Tourism
13. The decline in tourism is expected to be partially reversed in 2021 with a full recovery
to pre-pandemic levels expected only in the medium term. Eurocontrol forecasts (Nov 2020)
shows that air traffic in Europe would only return to 2019 levels by 2024 in the most optimistic
scenario, assuming vaccine is made widely available for travelers by summer 2021, while air traffic in
2024 would be at 92 percent of the 2019 level in their second scenario (vaccine widely available in
2022) and 75 percent in their third scenario (vaccine not effective). According to the UNWTO (2021),
the recovery outlook for 2021 remains subdued amid high uncertainty, with half of the respondents
expecting a rebound in 2021 and the other half only in 2022. The extended UNWTO scenarios for
2021–2024 indicate that it could take between 2½ and 4 years (mid-2023 – end 2024) for
international tourism to return to 2019 levels. Based on European Travel Commission (2021), which
conducts global tourism forecast using the Global Travel Service model, inbound visitor growth rates
of Southern and Mediterranean Europe are projected to be -72 percent in 2020, 132 percent in
2021, 34 percent in 2022, and 16 percent in 2023.
Cyprus: Eurocontrol's Forecast on Instrument Flight International Tourist Arrivals: Recovery to Return to
Rules (IFR) Movements 2019 Levels, Scenarios for 2021–2024
(Thousands) (Millions)
500
450 Projections
400
350
300
250
Scenario 1 - Vaccine widely made
200
available for travelers by Summer 2021
150 Scenario 2 - Vaccine widely made
100 available for travelers by Summer 2022
Scenario 3 - Vaccine not effective
50
0
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Source: UNWTO World Tourism Barometer, January 2021.
Source: Eurocontrol.
14. The slow recovery is also consistent with recent high frequency indicators. Decline in
flights to Cyprus was among the highest in Europe. Flights continue to decline in early 2021, which
does not bode well for Cyprus’s tourism given its full reliance on air travel. Based on anecdotal
evidence, hotel occupancy remains low at around 10 to 15 percent compared to the 50 to
55 percent in 2019, consistent with Southern European peers such as Portugal and Greece. EU
business confidence surveys also show continued underperformance of tourism industries although
forward-looking expectations have improved slightly since July 2020.
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Total Number of Flights: Europe Europe: Hotel Rooms Occupancy Rate
(Percent change, weekly relative to 2019 baseline) (Occupied rooms as percent of total available rooms)
20 100
0
80
-20
60
2021: week 15 2020: week 15 2019: week 15
-40
40 2020 w15: AE 2020 w15: EE 2019 w15: AE
-60 2019 w15: EE
20
-80
Week ending April 5 Week ending March 29
0
Weekly average in March 2020
-100
RUS
TUR
ESP
LUX
ITA
IRL
ROU
FRA
PRT
GBR
AUT
GRC
UKR
BEL
NLD
CHE
HRV
DEU
POL
HUN
EST
LVA
IRL
CYP
PRT
ESP
ITA
ISR
TUR
SWE
GRC
ISL
FIN
UK
ROU
LUX
MKD
NLD
BGR
AUT
BEL
FRA
MDA
BIH
SVN
BLR
DNK
MLT
POL
MNE
LTU
DEU
UKR
SVK
RUS
NOR
HRV
CHE
SRB
CZE
ALB
KOS
Sources: Smith Travel Research (STR); and IMF staff calculations.
Note: AE refers to Advanced Europe, and EE refers to Emerging Europe.
Sources: FlightRadar24; and IMF staff calculations.
Sources: Smith Travel Research (STR); FlightRadar24; and IMF staff calculations.
15. The recovery of tourism will be determined by the pace of the vaccination rollout, the
coordination among countries on travel procedures and the economic situation. New infection
waves and protracted containment measures could further delay the recovery of tourism sector. On
the other hand, vaccine developments help to shift the balance of risks and elevate the upside
potential. For Cyprus, based on the current pace of vaccine rollout in the country as well as the main
source countries, staff has projected that a recovery of 30 percent, on average, of the 2019 level is
expected in 2021 with full recovery taking place by 2024.
Cyprus: Expected Demand Over Next Three Months Cyprus: Estimated Recovery of Tourist Arrivals
(Percent Balance) (Share of total tourist arrivals)
40 40
100
20 90
20
0 80
0 70
-20
60
-40 -20 50 Share
-60 40
-40
30
-80 CYP reaches total
Overall Services -60 20
vaccination doses over
-100 Air Transport 10 120% population
Accommodation -80
-120 0
Food & Beverage
May-21
Jul-21
May-22
Nov-21
Jan-22
Jul-22
Nov-22
Jan-23
May-23
Jul-23
Nov-23
Mar-21
Sep-21
Mar-22
Sep-22
Mar-23
Sep-23
Travel/Tour Operator
-140 -100
Jan-19 Jun-19 Nov-19 Apr-20 Sep-20 Feb-21
Sources: Eurostat and Haver Analytics. Sources: UNWTO; Bloomberg; and IMF Staff Calculations.
E. Policy Priorities
16. Cyprus has adopted various measures to support the economy and tourism sector.
Main policy measures 5 include: 1) Income tax measures and VAT reductions; 2) support for bank
lending; 3) a Suspended Operations Plan for businesses that decided to suspend their operations or
5
Based on UNWTO compilation of country policy measures to support travel and tourism.
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suffered high losses and unemployment allowance; 4) Small Business Support Plan to provide funds
and subsidy of employee salaries; 5) Granting of “sickness benefit” and residence allowance for
students abroad. More targeted measures for the tourism sector include: 6) a co-promotional
program of EUR10 million with tourist agents for the projection of Cyprus as a safe destination for
tourists, and additional appropriations of EUR 11 million to support tourism between June and
September 2020, in cooperation with airlines and travel operators, as well as actions to boost tourist
attraction during the period from October 2020 to March 2021; 7) covering the health cost of
travelers who test positive while in Cyprus; 8) allowing vaccinated travelers to avoid quarantine and
negative coronavirus test restrictions from March 2021; 9) “Extraordinary Plan for the Support of
Domestic Tourism” which offers hotel discounts to permanent residents to support local businesses.
17. Continued targeted support
measures to the tourism sector are Euro Area: Increase in the Share of Insolvent Firms
(Percentage points from pre-pandemic levels; simple averages)
warranted in the short term given their 50
systemic importance to the economy. 40
Measures will need to consider solvency 30
20
support given the high risk of insolvency 10
among tourism sector firms as shown by 0
simulations of corporates in the Euro Area
Transportation
Professional activities
Electricity, Gas, Steam,
Water Supply
Construction
& Communication
Accomodation &
Public Administration
Wholesale and
Manufacturing
Mining & Quarrying
Real Estate
and Air Conditioning
Retail Trade
Food Services
& Storage
Information
(IMF, 2020b) 6. Liquidity-type support, such as
activities
guaranteed loans or lending rate subsidies,
etc. could be considered. These measures
Source: “Corporate Liquidity and Solvency in Europe during the Covid-19
would allow public support to benefit from a Pandemic: The Role of Policies”, Chapter 3 of the October 2020 Regional Economic
Outlook for Europe.
viability assessment by banks. Since many
tourism-related businesses would fall under SMEs, increased access to SME restructuring tools
would help avoid costly bankruptcies. For larger, strategic businesses, equity-type support—with
potential upside for the government down the road as the economy recovers—could also be
considered. Since the tourism sector is more likely to suffer for an extended period, these measures
could mitigate long-term scarring while ensuring scarce public resources are extended to viable
businesses. The length of the support, if fiscal space allows, could last until the end of the crisis, and
should reduce as tourism picks up. Other targeted polices such as promoting marketing for tourism,
could also boost tourism revenues.
18. Policy design measures should also take into account that tourism sector workforce is
among the most vulnerable. Workers in the hotel industry tend to fall disproportionately in the
lowest income quintile compared with other industry groups. Given low teleworkability of this
industry, these workers are more susceptible to unemployment and income loss. Policies should
thus ensure continued income replacement or wage subsidies to maintain employment ties.
6
Based on simulations using firm-level data (ORBIS database) in 13 euro area countries and October 2020 WEO
projections and announced policies, the authors find that the share of firms deemed insolvent would rise by
8 percentage points, on average, given high leverage levels and limited scope for equity financing among SMEs. See
IMF (2020b), “Corporate Liquidity and Solvency in Europe During the COVID-19 Pandemic: The Role of Policies,”
Chapter 3, Regional Economic Outlook (October) for further details.
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Workers in this sector appear to be more gender balanced, although women are represented more
than in other sectors. At the same time, this sector has a higher reliance on foreign workers in
Cyprus. Support measures should appropriately target these populations in terms of safety net
support and to facilitate easier transition back into the workforce as the recovery takes hold.
Likelihood of Being in the Top and Bottom Income Quintile by
Industry's Teleworkability
Bottom fifth Top fifth
Hotels
Agriculture
Retail
Construction
Health
Transport
Manufacturing
Art
Mining
Utilities Share of jobs
OtherServ that can be
Adminsupport done remotely
PublicAdmin
Realestate
Wholesale
Education
ICT
Finance
Professional
0.0 0.1 0.2 0.3 0.4
Sources: European Social Survey, 2018; and IMF Staff Calculations.
19. The longer-term policy challenge is to steer the sector from mass tourism to
sustainable tourism, given the impact of the pandemic and environmental concerns. Mass
tourism tries to maximize revenues through demand anticipation and capacity management,
notably in airlines, hotels, and rental cars. Risks of future pandemics, overcrowding, and
environmental policies may have long-term impacts on international travel and make mass-tourism
business model less viable. Sustainable tourism could be a potential alternative which focuses on
smaller-scale, regionally more diverse, and higher-end tourism; more strongly based on
environmental sustainability, quality of services, and non-price competitiveness. Based on the Travel
and Tourism Competitiveness Index by World Economic Forum (WEF), Cyprus has similar
competitiveness scores as the average of Euro Area countries. Cyprus also ranks among the most
improved (from 55th to 42nd); nevertheless, further improvements will need to focus on
environmental sustainability and diversification to different types of markets such as cultural
resources. Cyprus has made progress in diversifying the source markets of tourism, although the
share of its top three markets (UK, Russia, Israel) remains very high, making it vulnerable to
developments in these countries. More diversification of tourist market would help Cyprus to cope
with shocks.
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Travel and Tourism Competitiveness Index Tourism Arrivals
(Score, 1-7 (best)) (Percent, Share of arrivals from the top 3 market)
Business environment Cyprus 80
Cultural resources and 7
Safety and security EA19
business travel 6 70
5
Natural resources Health and hygiene
4 60
3
Tourist service 2 Human resources and 50
infrastructure 1 labour market
0 40
Ground and port
ICT readiness 30
infrastructure
20
Air transport Prioritization of Travel
infrastructure & Tourism 10
Environmental
International Openness
sustainability 0
Price competitiveness
IRL UKR CYP ESP MLT ITA MNE LTU PRT ISR GRC TUR HRV FRA
Sources: World Economic Forum; and IMF staff calculations. Source: UNWTO.
F. Conclusion
20. Global tourism has suffered the worst year on record in 2020. The impact on tourism in
Cyprus has been among the most severe in Europe, which in turn had a significant impact on
exports of services and on GDP growth. Nevertheless, employment has been largely protected in the
tourism sector, due to large support packages that were rolled out.
21. Looking ahead, near-term challenges to the tourism sector remain significant. The
decline in tourism is expected to be only partially reversed in 2021 with a full recovery to pre-
pandemic levels only expected in the medium term, raising risks of scarring. The Cypriot economy
remains vulnerable to the COVID-19 shock given its high dependence on tourism. High exposure of
the Cypriot banking system to the tourism sector also increases risks of a macro-financial feedback
loop. At the same time, Cyprus fares relatively well in terms of prospects for recovery, given its
tourism characteristics, sanitary indicators and recovery in the main source countries, once travel
restrictions are eased. While uncertainty remains high, the recovery of tourism will be determined by
the pace of the vaccination rollout, the coordination among countries on travel procedures and the
economic situation.
22. In this context, continued targeted support measures to the tourism sector are
warranted in the short term given their systemic importance to the economy. Policy design
measures should also take into account that the tourism sector workforce is among the most
vulnerable. The longer-term policy challenge is to steer the sector towards sustainable tourism,
given the impact of the pandemic and environmental concerns.
14 INTERNATIONAL MONETARY FUND
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