Cuba and its economy: 2017-2018, a preliminary assessment

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The 0.9% economic decline of GDP in 2016 produced a strongly negative impact, since the economy had been growing steadily since 1994. This was the result of a set of factors—the key being the reduction of around 40% of Venezuela's oil deliveries. This situation forced the purchase of one hundred million dollars of fuel and yet it still did not cover the shortfall in Venezuelan imports. Further, there was a 16.3% reduction in the export of goods and services, and in October the country was battered by Hurricane Matthew. The hurricane damaged 46,706 dwellings and produced losses estimated at 2.4 billion pesos. 

For 2017, a GDP growth of 2% was predicted, sustained by a strong boost to public spending, which included a 26% increase in outlays to replace imports and a 49% increase in public sector investment, which ultimately led to the rise of the fiscal deficit to 12% of the GDP.[1] 

During the first semester of the year, GDP rose by 1.1%, caused in large part by the increase in tourism. By the end of June, there was a 22.5% increase in the number of arrivals, adding to the increase of non-sugar agricultural production and construction, transportation and communications. 

However, at the end of the first semester, there was already a 13% reduction in Venezuelan oil and derivative shipments, as compared to the same period the previous year. On the other hand, there was a decrease in expected external revenues of $417 million, including the failure to uphold the sugar export plan. 

The modest results obtained meant that an increased effort would be necessary to achieve 2% GDP growth during the rest of the period. However, the country faced new obstacles starting in July. 

The most significant of these was Hurricane Irma, which battered Cuba in early September. As it crossed through 12 Cuban provinces, the storm took 10 lives, affected 179,534 homes, damaged 2,900 educational and health facilities, and produced losses estimated at 13,185,000 pesos—the most devastating impact of a natural disaster in the country's recent history.

These asset losses will need to be paid off across several years. Although the resources invested in the recovery will add new value in the final trimester, the current losses are not a positive indicator for the country's economic activity. 

In short, the country achieved a 1.6% GDP increase in 2017, thanks to the growth of tourism. The tourism industry’s contribution increased to 4.4%, with a 16.5% increase in the number of visitors. Agriculture made up 3%, which consisted mainly of fruits and vegetables, with drops in milk and egg production. Transportation and communications industries rose 3%, despite notable shortages of cargo transported by rail. The construction sector grew 2.8%. On the other hand, investment only reached 90.8% of the plan, although there was an increase in Foreign Direct Investment (FDI), which is estimated to have added about 700 million dollars this year, for a total of 2 billion dollars since the issuance of Law 118 in 2014.  

The best-performing sectors mentioned above only represent 26% of the GDP, so the increase in branches like trade, and other basic socials services, must have--to some extent—contributed positively to the overall 1.6% growth, but not enough information is currently available to determine with certainty.[2] 

Finally, in 2017, more hostile policies put into place on June 16th by the Trump Administration have already started to register as negative impacts on our economy. These effects pile onto the preexisting impact of the U.S. trade embargo, which already accumulates over $130 billion worth of damages.

Short-term debt continues to go unpaid, which poses a challenge to the flow of imports into the country. Fortunately, we have met the commitments to pay the renegotiated external debt. 

II

The outlook for 2018 is to achieve 2% GDP growth, maintaining strong public spending, which represents a fiscal deficit of 11.4%. The most significant sectoral growths should be 12% in construction; 6.7% in commerce and 4.2% in tourism, where we expect to receive five million visitors. Exports and imports should also increase, as we hope to maintain – at minimum – a positive trade balance of $54.8 million. The investment plan should be raised to 10.8 billion pesos and of that the FDI is estimated at some 600 million dollars. Finally, the average wage is expected to grow by 2.2%, while the productivity should increase 2.8%. 

2018 will remain a year of strong financial pressures -- and as announced – efforts will be focused on only the top priorities, while seeking to maintain basic services for the population. 

 

(Translator: Sasha Zients)

 

[1] It is possible to finance the deficit by issuing public debt bonds, which is a valid solution in the short and medium terms, and allows accumulating forces to boost further growth and generates income and employment in the immediate term.

[2] For the preliminary analysis of 2017 results, the report by the Ministry of the Economy sent to the ANPP was included. See: the contribution by Ricardo Cabrisas Ruíz, Vice President of the Council of Ministers and minister of the economy and planning, in the X Regular Session of the VIII Legislature of the National Assembly of the People's Power, Granma, December 22, 2017, pp. 5-7.

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