The Government of the Republic of Cyprus (ROC) is the only internationally recognized government on the island, but since 1974 the northern third of Cyprus has been administered by Turkish Cypriots. This area proclaimed itself the “Turkish Republic of Northern Cyprus” (“TRNC”) in 1983. The United States does not recognize the “TRNC” as a government, nor does any country other than Turkey. A substantial number of Turkish troops remain in the northern part of the island. A buffer zone, or “Green Line,” patrolled by the UN Peacekeeping Force in Cyprus (UNFICYP), separates the two parts. The ROC and the area administered by Turkish Cypriots are addressed separately below. The continued de facto division of the island’s small population is a constraint on economic growth, investment, and trade. Importers in the ROC typically do not directly serve the market in the area administered by Turkish Cypriots and vice versa. The entire island of Cyprus is considered EU territory, but the EU acquis communautaire is suspended in the areas administered by Turkish Cypriots, and the north is not considered to be within the EU customs area. Internal island trade between the two areas remains limited despite the 2004 EU Green Line Regulation, which allows for the movement of certain domestically-produced goods across the Buffer Zone provided they meet EU rule of origin and sanitary/phytosanitary requirements. The Green Line Regulation also codifies movement of people across the Buffer Zone. For more information, please see the European Commission Website. U.S. citizens can travel to the area administrated by Turkish Cypriots. U.S. companies can invest in the north but should be aware of legal complications and risks due to the lack of international recognition, property disputes, tensions between the two communities, and isolation of the north from the Eurozone.
Cyprus’ sovereign credit rating has been improving in recent years on the back of prudent fiscal policy and a stronger banking sector. In July 2022, the ROC received a sovereign credit rating of BBB- (just above investment grade) from both Fitch and S&P, and Ba1 (just below investment grade) from Moody’s.
ROC governance is generally professional and honest, but often slow. Public procurement tenders can last several years, especially if a losing party contests the result. Digitalization of the justice system (e-Justice program) has advanced considerably in the last year and COVID-19 has led to greater e-governance across many (but not all) departments. Corruption scandals and investigations against government and municipal officials have shaken public confidence in the transparency and accountability of important institutions.