- Basic data
- Public finances and the state budget
- Banking system
- Tax System
The Cuban economy is a centrally planned economy and the state has full control over the production processes. Cuba is in the worst economic crisis in the last 30 years caused not only by the coronavirus crisis, but also by long-term structural problems of the centrally planned economy. The economic situation of the island is negatively affected by the shortfall in income from tourism, the American embargo and the crisis in Venezuela and the resulting shortfalls in the supply of subsidized oil. The crisis of the Cuban economy is manifested mainly by the critically poor availability of food and basic necessities. The significant drop in tourism due to the pandemic was manifested in 2020 by an 11.3% drop in GDP. In 2021, growth of 2.7% was expected, but in reality, despite the efforts of the Cuban government, more fundamental growth was not achieved. GDP grew by just 0.1%. A larger increase in GDP is likely only in 2023-25 in anticipation of post-pandemic tourism growth. On January 1, 2021, a currency reform took place in Cuba and the original two currencies (CUC and CUP) were unified. The only official currency in Cuba remained only the Cuban peso (CUP) with a fixed official exchange rate of 1 CUC = 24 CUP = 1 USD. The currency reform and the critical shortage of foreign exchange resources resulted in a huge increase in inflation. Prices in 2021 increased by more than 250% year-on-year. Unemployment rose slightly to nearly 4% in 2021. The currency reform and the critical shortage of foreign exchange resources resulted in a huge increase in inflation. Prices in 2021 increased by more than 250% year-on-year. Unemployment rose slightly to nearly 4% in 2021. The currency reform and the critical shortage of foreign exchange resources resulted in a huge increase in inflation. Prices in 2021 increased by more than 250% year-on-year. Unemployment rose slightly to nearly 4% in 2021. Check ebizdir for economical facts of Cuba.
Cuba has a long-term negative trade balance, as the vast majority of food and goods are imported to the island. A sharp devaluation of the currency has the effect of reducing the volume of imports and should theoretically stimulate exports. However, industrial production is facing problems. In 2020, it fell by 11.2%, and it failed to strengthen in 2021 either. Among the most important exports of Cuba are oil, nickel, medical products, sugar, tobacco, fish, citrus fruits, coffee. Imported items include oil, food, machinery and equipment, chemicals. Cuban authorities do not publish data on foreign debt, which Cuba has been struggling with for a long time. In August 2021, the Cuban government published the new Law on Micro, Small and Medium Enterprises (called MIPYMES) No. 46/2021 in the collection of laws, which was approved on August 6, 2021. The approval of new regulations governing private business is undoubtedly good news for socialist Cuba and could lead to a revival of manufacturing and services. New opportunities are opening up for the private sector, and it is possible that this will lead to a partial strengthening of economic rights, which are so necessary for the development of Cuban society.
|GDP growth (%)||-0.2||-11.3||0.1||3.2||4.9|
|Export of goods (billion USD)||2.4||2||1.6||1.8||1.9|
|Import of goods (billion USD)||9.9||7.5||9||9.8||10.8|
|Trade Balance (Billion USD)||-7.6||-5.5||-7.4||-8||-8.9|
|Industrial production (% change)||-3.6||-11.2||-1.7||2.6||3.1|
|OECD export risk||07.VII||07.VII||07.VII||ON||ON|
Source: EIU, OECD, IMD
Public finance and state budget
|State budget balance (% of GDP)||-17.1|
|Public debt (% of GDP)||212.5|
|Current account balance (billion USD)||-0.1|
The Cuban government does not publish official data on the state of the country’s fiscal policy. In 2020, EIU data estimated a fiscal deficit of 20% of GDP in 2021, slightly reduced to 17.1%. It is estimated that by 2026 the fiscal deficit will gradually decrease and will fall to just 0.4% of GDP. Up to 70% of the fiscal deficit is allegedly financed by bonds bought by state banks. The current account has a positive impact from the export of health services, which are an important source of foreign exchange, the lack of which Cuba has been struggling with for a long time.
The Cuban government has limited domestic financial resources and, due to the US embargo, complicated access to external financing. The public budget in 2021 was burdened by expenses for the health sector and subsidies for the rationing system, which has existed in Cuba since 1963. As part of the economic reform, subsidized items are gradually being removed. As of 1/1/2021, the government increased basic wages, but also adjusted the prices of electricity, food and the basic ration basket disproportionately to this increase. Many Cubans find themselves in economic distress as real wages are significantly lower than in the late 1980s.
The national banking system, headed by the Central Bank of Cuba, is relatively small. It consists of 9 commercial banks, 14 non-banking financial institutions, 9 representative offices of foreign banks in Cuba and 4 representative offices of non-banking financial institutions. The Central Bank of Cuba (BCC – Banco Central de Cuba) was established by Law No. 172 of May 28, 1997 and has been the governing body of Cuban banking ever since. Commercial banks include the National Bank of Cuba (BNC – Banco Nacional de Cuba), People’s Savings Bank (BPA – Banco Popular de Ahorro), Investment Bank (Banco de Inversiones SA), Metropolitan Bank (Banco Metropolitano SA), International Commercial Bank (BICSA – Banco Internacional de Comercio SA), International Financial Bank (BFI – Banco Financiero Internacional, SA), Credit and Commercial Bank (Banco de Crédito y Comercio), Foreign Bank of Cuba (Banco Exterior de Cuba), Venezuelan Bank (Banco de Venezuela SA). Non-banking institutions include, for example, CADECA exchange offices, the financial company Financiera Cimex, SA (FINCIMEX), FIMEL SA, FINTUR SA, FINATUR SA, etc. Representation of foreign banks and financial institutions in Cuba: FINCOMEX LTD., Novafin Financiere SA, Havin Bank Ltd., National Bank of Canada, Banco Bilbao Vizcaya Argentaria SA, Banco Sabadell SA, FRANSABANK SAL, Republic Bank Limited, BPCE INTERNATIONAL ET OUTRE-MER.
The banking system works very specifically, all Cuban banks are state-owned, transactions with USD are not allowed (embargoed currency). Any international transfers referring to Cuba are usually blocked, payment cards only work if the issuing bank has no connection with the US. The ATM network is very limited. ATMs often do not have enough cash. CADECA exchange offices do not have enough foreign currency for a long time. In 2020, Cuba introduced the possibility of owning a foreign currency payment card that foreign family members can use to send money to their families. This card can be used for purchases in foreign exchange shops.
Import companies finance their purchases mainly through letters of credit from BFI or BICSA. Our importers are always advised to check the financing options in case of deferred payment due to the payment deadline not always being met.
Since 2013, the new Tax Law No. 113 has been in force in Cuba, which, together with the budget and implementing regulations of the Ministry of Finance, represents the basic framework of the country’s fiscal structure. Natural and legal persons, both Cuban and foreign, who carry out activities for which tax liability is established by Law No. 113 are liable to tax. According to this law, more than 20 different taxes, fees and contributions are applied. The manner in which some of these taxes are implemented is regulated each year in the State Budget Act. Among the specifics of the Cuban tax system is the absence of VAT.
The goal of this legislation was primarily to bring about an increase in the efficiency of tax collection and thus the revenue from them, as the Cuban budget is facing a chronic deficit and there are fewer and fewer funds left for social policies, which make up about 50% of its expenditure items. At the same time, a tax framework was created for the newly emerging private sector. Under this law, remittances are not taxed as income. The regulation creates so-called “priority regimes” for some sectors of the Cuban economy, specifically, for example, the agricultural sector is favored over others by up to 50% of the tax burden in an effort to support national food production. Tenants farming on state land are partially exempt from tax liability for a period of 2 years.
In 2021, an adjustment regarding FO income taxes was adopted as part of the monetary reform. An amount of 39,120 CUP was set as the minimum tax base. A 4% tax applied to athletes with permanent residence in Cuba who have a contract abroad was also established. Cuban and foreign FOs with permanent residence in Cuba who work in branches of foreign commercial companies, foreign banking and non-banking financial institutions and other foreign entities accredited in the territory of the state must pay quarterly fees in the amount of 5% of their earnings.