Country Report Cuba June 2009

Outlook for 2009-10

• The focus for the president, Raul Castro, will be on Cuba's relations with the US and the response to the economic slowdown. Given recent liquidity problems, the reform agenda will remain suspended in the near term.
• The initiation of bilateral talks on migration has created momentum for an easing of sanctions. However, differences over the question of conditionality will slow progress towards normalisation.
• A shift in policy towards fiscal austerity will take precedence over economic reforms to expand the role of markets, improve incentives to lift productivity and squeeze out sources of earnings derived from black markets.
• The Economist Intelligence Unit is now expecting a fiscal deficit of 5.1% of GDP in 2009 (previously 4.5%), as retrenchment efforts fail to offset the impact of sharply lower revenue. The deficit will be monetised.
• The current-account deficit is expected to narrow from 4.9% of GDP in 2008 to 3% of GDP in 2009-10, as import compression shrinks the trade deficit.

Monthly review

• Raul Castro has continued to reshuffle the leadership in the past month, with changes in the education sector and at the Banco Central de Cuba (BCC, the central bank).
• The Organisation of American States (OAS) has voted to lift the ban on Cuba's membership of the group. The move has been welcomed, although Cuban officials have reiterated that they do not wish to join the organisation.
• The government has announced spending cuts and capital controls for foreign companies operating in Cuba. It is unclear whether the measures are precautionary or are a response to an actual liquidity crisis.
• An inspection by the Ministry of Labour has reportedly found that implementation of last year's labour reform measures has been slow, with only a minority of state companies having introduced an incentive-based pay framework.
• The Ministry of the Economy has revised down its GDP forecast for 2009 from 6% to 2-2.5%. An important factor has been the fall in nickel prices, which contributed significantly to high growth in fiscal spending in recent years.
• Tourist arrivals for January-April were up by 1.9% year on year, but gross revenue was down. The lifting of US restrictions on travel to Cuba by Cuban-Americans is beginning to be seen in the arrivals figures.

This report covers the following industry codes:
SIC Code: 37;49;60;47;39;2834;48
NAICS Code: 336;22;52;48;31;3254;517