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| Cuba's economy faces many challenges. A street in Cuba. (Source: The DeVoe Moore Center) |
By the end of 2023, Cuba's economic activity had declined, inflation was higher than 30%, and fuel and basic goods shortages were recurring.
Crisis "suffocates" the economy
The situation is further aggravated by the damage caused by the unilateral embargo imposed by the US for over 62 years that has "suffocated" the economy of the Caribbean island nation.
The Cuban government announced in late December 2023 that it would implement a series of measures to “stabilize the economy” in 2024. These measures include raising the prices of services and energy, cutting subsidies for the highest consumption sectors, and introducing a new exchange rate.
However, economists say one of the biggest risks is that these measures will increase inflation, in a "domino effect".
For example, one of the most sensitive products to increases this year is fuel.
The government imports fuel and provides significant subsidies to its citizens. This plays a vital role in shaping the prices of goods. Rising fuel prices can put inflationary pressure on the prices of other goods.
At the same time, the government is trying to protect the most vulnerable sectors and workers in general. Havana announced that it would increase salaries for workers in the education and health sectors, in an effort to restore some of the purchasing power that has been affected by the crisis in recent years.
Most economists see Cuba needing to make the necessary economic adjustments by 2024 to escape the crisis, but must face the challenge without dismantling social policies that have been in place since 1959.
The past four years have been extremely complicated for the Cuban economy and 2024 will be no exception, said Karina Cruz Simón, an expert at the Cuban Center for Economic Studies.
The researcher believes that the crisis the country is facing is due to many factors, some structural, some temporary, but also external. The US embargo on Cuba is a big problem, but not the only one.
"All the difficulties Cuba is experiencing are aggravated by the embargo. The sanctions hinder the island's ability to escape its current situation," expert Karina Cruz Simón affirmed.
The biggest challenge
According to the latest document on the embargo against Cuba approved by the United Nations General Assembly, the sanctions caused a loss of 13 million USD per day to the State in 2023.
Expert Cruz Simón commented: "Cuba is falling into a state of partial dollarization of the economy, due to the lack of an official exchange market and a number of other reasons such as not being able to access credit or the international financial system due to the embargo."
Furthermore, Ms. Cruz Simón believes that the country is in a crisis in the production order for structural reasons but also from a macroeconomic perspective.
"With the measures just announced, the Cuban government aims to reduce the high fiscal deficit and reduce inflation. However, even if these measures take effect, the deficit is expected to remain at more than 15% of the Gross Domestic Product (GDP)," she informed.
In parallel with the difficulties of the crisis, Cuba is undergoing profound economic and social changes. Since 2021, life on the island has undergone a rapid transformation with the participation of a new private sector of small and medium-sized enterprises.
Although these “new economic sectors” are mainly present in the capital Havana – the face of many of the country’s major cities is changing as these small and medium-sized businesses flourish.
Joel Marill, a member of the Macroeconomic Forecasting and Coordination Steering Committee of the Cuban Ministry of Economy, cited the latest official report saying that the country now has more than 10,000 small and medium-sized private companies since the model was licensed in 2021, when Cuba adopted the so-called Economic Model Update Path. It is estimated that small and medium-sized enterprises employ more than 260,000 workers, accounting for about 18% of the economically active population.
Meanwhile, the remaining workers are still recruited in various ways into the state sector.
Mr. Marill assessed that Cuba's economy is now much more diverse in terms of economic entities, actors and forms of ownership. However, the state sector still dominates.
Part of the current debate in Cuba about the future of the economic model focuses on the fate of the nascent private sector and its relevance to the socialist project. Despite differences of opinion, most observers agree that small and medium-sized enterprises are an important engine of the Cuban economy.
Amid the shortage crisis facing the island nation, the private sector has tried to increase the supply of goods and services in the market, mostly through imports. Small and medium-sized enterprises have also created many new jobs, helping to reduce the burden on the state sector.
Experts also see the Cuban government's major challenge in 2024 as creating a higher level of integration between the emerging private sector and the public sector.
To achieve this goal, Cuba plans to create an institute that will link the growth of this economic sector with the development needs of each region of the country.
Economic analyst Karina Cruz Simón highlights the importance of making certain adjustments, modifications and even updates, especially those related to how to link the new private sector that has emerged so strongly in recent years with the state-owned enterprise sector that traditionally plays a role in the Cuban economy.
(according to VNA)
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