Cuba: a succession of economic and financial crises amid the weakening of the Cuban model

Cuba’s economic model, characterized by low productivity and a lack of diversification, is no longer sustainable. The country is facing an economic, social, and energy crisis that rivals the aftermath of the collapse of the USSR in 1991. A series of shocks have contributed to this crisis, including the 2019 collapse of Venezuela (Cuba’s key energy partner), the COVID-19 pandemic in 2020 (which devastated tourism, exports of medical services, and remittances), and the war in Ukraine in 2022 (which raised the cost of imported raw materials), all of which have rendered the country increasingly vulnerable both internally and externally. As its main foreign exchange inflows dry up, Cuba is struggling to finance its current account deficit. The country, subjected to a regime of commercial and financial sanctions by the United States, which had already been tightened during Donald Trump's first presidency (2017–2021), is undergoing a new crackdown. Trump's second term will likely result in a regime of maximum pressure on the island, with initial measures already adopted (ban on remittance transfers to the island through Western Union, re-listing as a state sponsor of terrorism, elimination of the CHNV humanitarian parole program). The steep decline in real wages—driven by the depreciation of the Cuban peso and the rising cost of basic goods—is deepening the country's poverty. In the absence of monitoring and statistical coverage by the International Monetary Fund (IMF), the Economist Intelligence Unit (EIU) has revised its economic growth projections for 2024, now estimating a new contraction of 2% in real GDP (compared to a growth projection of +1.2% in October 2024). For 2025, EIU projects growth of 0.9%, while Fitch anticipates a new year of recession (-3.5%). Cuba’s primarily state-run economy suffers from deep structural inefficiencies, mainly due to regulatory constraints and the weight of government transfers to the public sector, which distort prices. Additionally, US trade and financial sanctions greatly complicate i) the supply of consumer and capital goods, ii) access to external financing, and iii) the free circulation of financial flows (remittance inflows to the island), and iv) they erode investor confidence and harm the business environment. In response, the Cuban government’s reforms have been slow and insufficient.