World Bank Reports Highlight Declining Living Standards in Turkish Cypriot Economy, Propose Data-Driven Reforms

Pathway to Recovery: Enhanced Data Collection and Fiscal Reforms Key to Addressing Inequality and Boosting Resilience.

The World Bank’s latest series of reports on the Turkish Cypriot economy, released today, reveal a decline in living standards between 2014 and 2021, emphasizing the urgent need for better data collection and targeted fiscal reforms to reverse the trend and build economic resilience.

The reports, part of the “Supporting Economic Convergence and Integration in Cyprus” project funded by the European Commission, document an increase in poverty rates from 11.2% in 2014 to 13.9% in 2021, alongside a rise in income inequality, as reflected in the Gini index, which climbed from 34.4 to 36.8.

“The economic impact of the pandemic has been profound, with the heaviest burden falling on vulnerable populations, including the elderly, individuals with lower education levels, and urban communities,” said Annely Koudstaal, World Bank Program Manager for Southern Europe. “Access to timely, household-level data is critical to designing effective fiscal policies that support the most vulnerable.”

Data Deficiency Hindering Policy Responses

Key challenges highlighted in the reports include inadequate and infrequent data collection. The Turkish Cypriot community’s Household Budget Survey, the primary tool for socio-economic monitoring, is conducted only every six to seven years due to financial constraints. Additionally, the last population census was held in 2011, leaving policymakers without current data to effectively address economic challenges.

The World Bank recommends aligning data practices with EU standards, including:

Conducting living standards surveys every 1–2 years.

Holding a population census every 10 years.

Establishing an absolute poverty line to better target assistance programs.

Fiscal Reforms to Support Vulnerable Communities

The reports identify fiscal reforms as a crucial mechanism for addressing poverty and inequality. Key recommendations include:

Progressive Taxation: Enhancing personal income tax and revising value-added tax structures to ensure equitable resource distribution.

Expanded Social Assistance: Increasing support for low-income households through well-targeted programs.

Poverty Profiling: Developing comprehensive poverty profiles to refine resource allocation, focusing on geographic and demographic characteristics.

The reports also note that fiscal interventions during the COVID-19 pandemic provided limited relief to low-income households, underscoring the need for more robust and proactive fiscal policies.

Building Resilience and Sustainable Growth

The Turkish Cypriot economy began showing signs of recovery in 2022 and 2023, but systemic challenges remain. The lack of up-to-date socio-economic data exacerbates vulnerabilities, leaving households exposed to risks such as rising costs of living and economic shocks.

Beyond data reforms, the reports propose integrating technological and institutional innovations to improve the efficiency of fiscal measures and public service delivery. Strengthened collaboration with international organizations and alignment with EU policy frameworks are also critical for fostering sustainable development.

Roadmap for Economic Convergence

These findings underscore the necessity of timely, data-driven reforms to strengthen economic resilience, reduce poverty, and improve living standards. By addressing inequality and fostering inclusive growth, the Turkish Cypriot economy can lay the groundwork for sustainable development and closer integration with broader EU practices.

The reports provide a roadmap for reversing negative trends, calling on local authorities, international partners, and policymakers to prioritize evidence-based approaches for long-term prosperity.