Cyprus invested regularly more than 30% of GDP in an attempt to replace lost productive capacity and social and economic infrastructure, particularly in housing, as well as to expand capacity. As a result, a very large number of employment opportunities were created. Gainful employment grew on average by 6% per annum, achieving full employment by 1978: conditions which continued to prevail up to 1981. The unemployment rate in 1981 was 2,6% of the economically active population.

The impressive growth performance was based on a number of exogenous and endogenous factors. Exogenous factors, such as the booming Arab markets, the Lebanese crisis of 1975, favourable weather and high international market prices for some of the major Cyprus agricultural products provided the impetus that lifted the economy. An additional element was foreign aid, which helped bridge the financing gap.

Internally, the aggressive and expansionary fiscal and monetary policies, the acceptance by trade unions of a substantial cut in wage levels, the entrepreneurial ability, which exploited export opportunities that came along, the diligence, perseverance, self-sacrifice and hard work of the people formed the front which led the economy to the path of recovery. The willingness to undertake large investments was also a significant factor. Furthermore, the adoption of a labour intensive strategy and the policy to encourage the temporary employment of Cypriots abroad helped ease the unemployment problem.

However, the rapid recovery of the economy, in conjunction with rising inflation worldwide, led to overheating tendencies and substantial increases of domestic prices (11% in 1981). Moreover, the current account of the Balance of Payments exhibited large deficits, about 160 million or 7% of GDP in 1981. Both accelerating inflation and large deficits in the current account of the Balance of Payments, were clear signs of instability, which required positive action from the Government.

Source: www.kypros.org