Cuba flag Cuba: Economic and Political Overview

The economic context of Cuba

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

The Cuban economy is still affected by the embargo imposed by the United States. While Washington was expected to loosen its sanctions under President Joe Biden, his approach towards Cuba has been tougher than former administrations, as he further tightened the trade and travel restrictions that were put in place by Donald Trump. In 2021, the Cuban economy experienced a slow recovery from the economic crisis caused by the COVID-19 pandemic, which led GDP to grow by an estimated 2.2% (Coface). The economy is expected to continue recovering in 2022, when GDP should grow 4.2%, boosted by the post-pandemic global economic recovery.

Cuba is not transparent with its public accounts. In 2021, public debt was an estimated 151.1% of Cuban GDP and it is expected to slightly decrease to 118.9% in 2022. At the beginning of 2021, the Cuban government implemented a currency and exchange rate unification, which should yield positive results in the long term. In the short term, though, the policy aggravated some economic issues in the country, most notably causing a huge increase in inflation, which reached an estimated 500% in 2021. However, the initial effects of currency unification have been fading, and the country's inflation rate is expected to decrease to 30% in 2022. The COVID-19 pandemic deeply affected the tourism sector and revenues collapsed. Although the sector showed some signs of recovery in 2021, tourism revenues still haven't gone back to what they were before the pandemic. Public spending, which is not very flexible given the large share of operating costs, is expected to increase with the rise in civil servants' salaries and a pension system. The CIA estimated that health, education and social assistance represent around 50% of the budget expenses. Despite the lack of reliable data, the government's willingness to continue to invest heavily in the economy suggests that the fiscal deficit should increase. The country's debt should therefore continue to grow. In 2021, the government continued implementing measures in response to the economic crisis resulting from the COVID-19 pandemic, which include financial aid for workers being treated for COVID-19, flexibility to debt payment and stimulus to electronic transactions, and deferrals of social security contribution payments. Overall, Cuba’s response to the pandemic has been one of the most effective in the Caribbean. However, the crisis hindered Cuba’s progress in eradicating poverty and food insecurity in the country.

Despite a low unemployment rate (2.2% in 2018, ILOSTAT. Latest available data), the living standards of the Cuban population today remain very low. It should be noted that while official unemployment rates are low, unofficial estimates are about double the official rate. Furthermore, the unemployment rate is expected to have increased in 2021, especially among the self-employed and those working in the tourism sector, due to the lasting effects of the COVID-19 pandemic. Additionally, Cuba remains heavily dependent on food and energy imports, as it imports 80% of its food consumption. The country's situation is uncertain, as reforms are giving an increasingly significant role to private companies. This has led to pilfering, a robust black market, and brain drain.

Main Sectors of Industry

Cuba heavily depends on its natural resources to run its economy. Despite its small size, Cuba is rich in natural resources. Nickel is highly important for the country, as its leading natural resource. Cobalt is also abundant on the island, making Cuba one of the highest producers and exporters of both nickel and cobalt in the world. Cuba also has offshore oil and natural gas reserves, mainly in the northern part of the island. Sugarcane has been Cuba’s main crop for over 300 years. Furthermore, agriculture represents 2.7% of GDP and employs 17.4% of the population. Its main crops are still sugar and sugarcane (12.5 billion tons of sugarcane are produced every year), which take up a third of the cultivated land. Tobacco is the country’s second largest export crop. Other agricultural products include citrus, coffee, corn, rice, potatoes, beans, bananas, soy, cotton, and livestock. However, Cuba imports around two-thirds of the food it consumes and in 2021, as imports decreased, the government encouraged citizens to produce more of their own food. As a result, the crisis pushed the government to introduce a new set agricultural policies that eliminate the monopoly of the state-owned company Acopio on purchasing agricultural products.

Industry represents 23% of GDP and employs 17.1% of the population. It focuses on agricultural products, production of cement, textiles, tobacco, and agricultural machinery. Cuba also has significant mineral resources (particularly of nickel, cobalt, gold, and copper) and is currently conducting hydrocarbon exploration. The cigar industry is one of the leading industries in the country and it is highly dependent on tourism, as tourists are the leading costumers of the product. Therefore, the industry was fairly impacted by the halt in tourism experienced in 2021 as a result of the pandemic.

The main sector of activity in Cuba is the services sector, which represents 73.5% of GDP and employs 65.4% of the active population. Its significance is strongly related to the development of tourism, which leads the service sector alongside retail. For a long time, tourism has been pivoting the economy from total collapse and the sector boomed after Barack Obama mended US ties with Cuba in 2016. However, the tourism industry was hit the hardest during the COVID-19 pandemic and, although travel restrictions are no longer in place, tourism rates are still nowhere near their pre-pandemic levels, which negatively impacts the economy as a whole.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 17.4 17.1 65.5
Value Added (in % of GDP) 3.8 25.1 70.0
Value Added (Annual % Change) 2.6 2.5 2.2

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:
28,1/100
World Rank:
176
Regional Rank:
31

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:
4.03/10
World Rank:
77/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024

 

Country Risk

See the country risk analysis provided by Coface.
 

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Sources of General Economic Information

Ministries
Official list of ministries and their links
Ministry of Foreign Trade and Foreign Investment
Ministry of Foreign Affairs
Ministry of Finance and Prices (in Spanish)
Ministry of Industries
Statistical Office
National Bureau of Statistics and Information (in Spanish)
Central Bank
Central Bank of Cuba
Stock Exchange
The Havana Stock Exchange closed in 1959 with the Cuban Revolution
Economic Portals
Cuban portal - general (Spanish Only)
The Cuban Economy
 

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Latest Update: November 2022