The economy of Cyprus is predominantly agricultural. Manufacturing and services are also important. After the fighting of 1974 divided the island, the economy suffered, but the Greek sector showed a rapid recovery. In 1998 Greek sector budget figures showed $2.8 billion in revenues and $3.3 billion in expenditures. In 1994 the Turkish sector had revenues of $157 million and expenditures of $211 million.

Between 1960 and 1973 the Republic of Cyprus, operating a free enterprise economy based on agriculture and trade, achieved a standard of living higher than most of its neighbours, with the exception of Israel. This progress was substantially assisted by various agencies of the United Nations, operating through the UN Development Program. Generous financial assistance was given by the World Bank and the International Monetary Fund in the form of loans for specific development projects, including electricity supply, port development, and sewerage systems. Individual foreign countries also made some aid available to Cyprus. These countries and organizations provided experts to advise economic planning and initiate productive projects; and scholarships and grants provided for the training of Cypriot specialists in these areas. During this time, the gross domestic product (GDP) and per capita income grew substantially, agricultural production doubled, industrial production and exports of goods and services more than tripled, and tourism became a significant earner of foreign exchange.

Economic affairs are affected by the division of the country. The Greek Cypriot economy is prosperous but highly susceptible to external shocks. Erratic growth rates in the 1990s reflect the economy's vulnerability to swings in tourist arrivals, caused by political instability on the island and fluctuations in economic conditions in Western Europe. Economic policy is focused on meeting the criteria for admission to the EU. As in the Turkish sector, water shortage is a growing problem, and several desalination plants are planned. The Turkish Cypriot economy has about one-fifth the population and one-third the per capita GDP of the south. Because it is recognized only by Turkey, it has had much difficulty arranging foreign financing, and foreign firms have hesitated to invest there. It remains heavily dependent on agriculture and government service, which together employ about half of the work force. Moreover, the small, vulnerable economy has suffered because the Turkish lira is legal tender. To compensate for the economy's weakness, Turkey provides direct and indirect aid to tourism, education, industry.