Cuba: Economic and Political Overview
In this page: Economic Indicators | Foreign Trade in Figures | Sources of General Economic Information | Political Outline | COVID-19 Country Response
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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 2022, the Cuban economy recorded an estimated GDP growth of 2%, and it is expected to continue recovering in 2023, when GDP should grow 3% (Reuters).
Cuba is not transparent with its public accounts. 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 decreased to 39.07% in 2022. Furthermore, public debt also decreased in 2022, to an estimated 118.9% of Cuban GDP (compared to 151.1% in 2021). 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. Although the pandemic has significantly impacted the Cuban economy, especially as revenues from the tourism sector collapsed, the fiscal measures implemented by the government have been effective in boosting economic activity, which has been gradually recovering. 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. 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.
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 0.9% 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. In 2022, the agricultural sector was negatively impacted by droughts, intense storms, and raising sea levels.
Industry represents 23.3% 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 positively impacted by the increasing number of tourists visiting the island in 2022.
The main sector of activity in Cuba is the services sector, which represents 75% of GDP and employs 65.5% 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. Although the tourism industry was hit the hardest during the COVID-19 pandemic, tourism rates have been significantly increasing, which positively 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) | 0.9 | 23.3 | 75.0 |
| Value Added (Annual % Change) | -13.2 | -6.8 | 4.1 |
Source: World Bank - Latest available data.
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| Monetary Indicators | 2015 | 2016 | 2017 | 2018 | 2019 |
|---|---|---|---|---|---|
| Cuban Peso (CUP) - Average Annual Exchange Rate For 1 MUR | 0.03 | 0.03 | 0.03 | 0.03 | 0.03 |
Source: World Bank - Latest available data.
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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.
Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation
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.
Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024
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According to the Cuban Chamber of Commerce and the World Bank, Cuba is not only a country that is open to foreign trade, but it is also highly dependant on it - which represents 80% of the GDP. According to the latest available data from Comtrade, in 2006 the island mainly exported medicaments (7.3%), cigars (7.3%), powered aircraft (3%), crustaceans (1.9%), and medical apparatus (1.4%), while Cuba mainly imported electric generating sets and rotary converters (4.8%), refrigerators (2.9%), electric filament or discharge lamps (1.8%), rice (1.7%), and medical apparatus (1.7%). However, the latest data available from the Observatory of Economic Complexity estimates that in 2020 Cuba mainly imported poultry meat (5.4%), wheat (3.4%), soyabean meal (3.1%), corn (2.7%), and concentrated milk (2.5%), while the country exported rolled tobacco (23.8%), raw sugar (17.5%), nickel mattes (11.1%), hard liquor (8%), and zinc ore (6.5%).
Cuba's main trade partners are China, Spain, Italy, Germany, and the Netherlands. The embargo imposed by the United States has long been an obstacle to Cuba's foreign trade. And even though the Obama administration lifted the Cold War embargo policy off of Cuba in 2016, former-president Trump suspended the policy for unconditional sanctions relief, saying that he would work on a "better deal" between the two countries. However, U.S.-Cuba relations are expected to improve under the current administration, as president Biden has attested he intends to reverse the Trump's Cuban policies. Located at the crossroads between Latin America and the United States, Cuba is the largest island in the Caribbean and maintains strong economic and financial relations with Venezuela - its energy partner. With the current economic crisis in Venezuela, oil shipments have fallen sharply and are now down by around 40% compared to 2014 levels. Relations with China, Cuba's most important trade partner, have been intensifying for the past decade. Furthermore, Beijing purchases much of the Cuban nickel, which has overtaken sugar as the country's leading export commodity.
Cuba's lack of transparency remains an obstacle towards accurately accounting its trade balance. According to the WTO data, Cuba is a net importer of goods and, in 2021, imports of goods were equal to USD 8.4 billion, while exports totalled USD 1.4 billion; thus leading to a negative trade balance of USD 7 billion. Moreover, the imports of services in 2019 (latest available data) were USD 2 billion, by far inferior to the exports, which totalled USD 10.2 billion - resulting on a services trade balance of USD 8.2 billion.
| Foreign Trade Indicators | 2017 | 2018 | 2019 | 2020 | 2021 |
|---|---|---|---|---|---|
| Imports of Goods (million USD) | 10,120 | 11,484 | 9,901 | 8,165 | 8,486 |
| Exports of Goods (million USD) | 2,980 | 2,373 | 2,062 | 2,200 | 1,498 |
| Imports of Services (million USD) | 2,118 | 2,195 | 2,028 | 0 | 0 |
| Exports of Services (million USD) | 11,379 | 11,764 | 10,240 | 0 | 0 |
| Imports of Goods and Services (Annual % Change) | -1.6 | -2.0 | -2.9 | -7.6 | -4.7 |
| Exports of Goods and Services (Annual % Change) | 0.0 | -2.4 | -4.6 | -20.5 | -9.1 |
| Imports of Goods and Services (in % of GDP) | 11.7 | 12.6 | 10.6 | 7.5 | 45.1 |
| Exports of Goods and Services (in % of GDP) | 14.6 | 14.5 | 12.2 | 8.2 | 34.9 |
| Foreign Trade (in % of GDP) | 26.2 | 27.1 | 22.8 | 15.7 | 80.0 |
Source: WTO – World Trade Organisation ; World Bank , Latest Available Data
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The world rankings, published annually, measures violations of press freedom worldwide. It reflects the degree of freedom enjoyed by journalists, the media and digital citizens of each country and the means used by states to respect and uphold this freedom. Finally, a note and a position are assigned to each country. To compile this index, Reporters Without Borders (RWB) prepared a questionnaire incorporating the main criteria (44 in total) to assess the situation of press freedom in a given country. This questionnaire was sent to partner organisations,150 RWB correspondents, journalists, researchers, jurists and human rights activists. It includes every kind of direct attacks against journalists and digital citizens (murders, imprisonment, assault, threats, etc.) or against the media (censorship, confiscation, searches and harassment etc.).
The Indicator of Political Freedom provides an annual evaluation of the state of freedom in a country as experienced by individuals. The survey measures freedom according to two broad categories: political rights and civil liberties. The ratings process is based on a checklist of 10 political rights questions (on Electoral Process, Political Pluralism and Participation, Functioning of Government) and 15 civil liberties questions (on Freedom of Expression, Belief, Associational and Organizational Rights, Rule of Law, Personal Autonomy and Individual Rights). Scores are awarded to each of these questions on a scale of 0 to 4, where a score of 0 represents the smallest degree and 4 the greatest degree of rights or liberties present. The total score awarded to the political rights and civil liberties checklist determines the political rights and civil liberties rating. Each rating of 1 through 7, with 1 representing the highest and 7 the lowest level of freedom, corresponds to a range of total scores.
Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House
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Latest Update: September 2023
