Country Report Cuba May 2009

Outlook for 2009-10

• In the coming year, the Economist Intelligence Unit expects political changes to centre on Cuba's relations with the US and the outcome of the end-2009 Partido de Comunista (PCC) congress.
• With both the US president, Barack Obama, and the Cuban president, RaulCastro, favouring engagement, we expect talks to continue. Differences over the question of conditionality will slow progress towards normalisation.
• There will be no radical economic liberalisation, but the Cuban government will cautiously reform management through decentralisation, greater management accountability, price adjustments and material incentives.
• Fiscal retrenchment, combined with an increase in sales taxes resulting from a surge in remittances from the US, will enable the government to reduce the fiscal deficit to below 5% of GDP in 2009 and around 3% in 2010.
• Policymakers will continue to work towards restoring a single currency, but until this objective is achieved, dislocation and perverse incentives will impede economic efficiency.
• We expect only modest improvements in living standards as GDP growth dips below 4%. The current-account deficit will narrow from 4.9% of GDP in 2008 to an average of 3.4% of GDP in 2009-10, as the trade deficit shrinks.

Monthly review

• The US president, Barack Obama, has announced the removal of most restrictions on travel and remittances for Cuban-Americans and initiated informal talks. The Cuban government has insisted on no conditionality.
• In preparation for the end-2009 PCC congress, there have been changes in the regional party leadership.
• A new deputy minister of economy and planning has been appointed, confirming that the process of enterprise restructuring is set to continue.
• In the context of slowing growth and a squeeze of foreign exchange, the authorities are curtailing fiscal spending and increasing central control of the allocation of foreign exchange.
• In light of the decline in nickel prices, slacker tourism demand and tighter financing conditions, officials have been seeking to dampen expectations for improvements in living standards.
• Amid the economic gloom, relatively strong agricultural performance, together with the lifting of some US restrictions on Cuban-Americans' travel and remittances, have provided some grounds for optimism.

This report covers the following industry codes:
SIC Code: 1;70
NAICS Code: 11;72