Cuba

Weak recovery amid a multidimensional crisis

After two consecutive years of contraction, the Cuban economy has struggled to regain momentum in 2025. Activity continues to be hampered by a combination of structural and cyclical factors, including disappointing tourism performance, an energy crisis, tougher US sanctions and monetary instability.

The trend is expected to roll over into 2026. Private consumption will be weakened by high inflation, the latter driven by the depreciation of the informal exchange rate, on top of shortages and a gradual reduction in the quantity of subsidised basic goods. The 2021 monetary reform aimed at unifying exchange rates by eliminating the convertible peso (CUC) triggered an inflationary spiral and a currency crisis. Partial dollarisation will increase pressure on the exchange rate, as it encourages currency hoarding. In addition, from January 2026, transfers via non-banking channels will be subject to a 1% surcharge. Added to this is a ban on transactions with state-linked entities, including Orbit, a remittance processing company. These US restrictions will push flows into the informal sector, which already accounts for half of the total. Furthermore, tourism (around 10% of GDP before Covid) is set to remain below pre-pandemic levels. Between January and May 2025, arrivals fell by 26.6% year-on-year and by 60% compared to 2019. Power cuts, shortages, and declining flows from Canada, Russia and the diaspora will weigh on the sector. The reinstatement of the US tourism ban in June 2025 has clouded the outlook for 2026. In addition, public consumption will continue to be curbed by tight budgetary resources. The government's headroom will remain limited amid reluctance from foreign investors due to the reactivation of Title III of the Helms-Burton Act, which put Cuba back on the list of state sponsors of terrorism, and an unattractive legal framework. Last, energy supply failures will hamper activity. The situation is due to a lack of foreign currency to import fuel, repeated breakdowns in thermoelectric power plants, and dependence on Venezuelan oil. Despite earmarking USD 1.5 billion for renewable energy investment plans by 2025, logistical challenges, supply delays, and a lack of financing are hampering the modernisation of the sector.

Exports, weakened by sanctions, will suffer from falling nickel prices and a decline in sugar production, which is expected to contract to 160,000 tonnes in 2024, well short of the target of 412,000 tonnes. Barring pharmaceuticals and biotechnology, the manufacturing sector will continue to underperform, hampered by limited access to imported inputs. Last, agriculture, although buoyed by tobacco, will remain vulnerable to climate hazards and shortages of fertilisers and pesticides.

Unsustainable public debt for a country short of foreign currency

The structurally high budget deficit has remained unchanged in 2025. Public spending (+9% according to the 2025 budget) will continue to focus on health (24% of the total), education (23%) and social security (16%), and will be excessive in light of the government's revenue-generating capacity. Added to this are subsidies for basic necessities (fuel and food) which account for 5% of total expenditure. In addition, in July 2025, the government announced a pension reform scheduled to come into force in September. It will affect more than one million Cubans (79% of pensioners) at an annual cost of USD 917 million. The budget also anticipates an 11% increase in revenue. Tax revenue accounts for 68% of the total, supported by the introduction of a special tax on telecommunications services, which is expected to generate more than USD 543 million by 2025. However, revenue remains fragile due to US sanctions, which are hampering international financing and tourism. The outlook for 2026 does not highlight any significant improvement. The deficit is expected to remain stable given Cuba’s limited resources. It will be financed through the issuance of domestic bonds.

One of the major challenges will remain the burden of external debt (around 75% of public debt in 2023), largely consisting of arrears. Cuba is struggling to meet its commitments despite restructuring efforts, including yet another round of debt rescheduling with the Paris Club in January 2025. The country had previously secured a historic agreement in 2015 with Russia and the Club which cleared its arrears, but further defaults and payment delays have undermined its financial credibility. The revised debt with the Paris Club now stands at USD 4.8 billion. However, the amount represents only 16.2% of the island's total debt, which was estimated at USD 28.5 billion at the end of 2023. Cuba's re-inclusion on the US list of state sponsors of terrorism has barred access to development loans and complicates negotiations with other creditors.

Current account deficit maintained due to lack of foreign currency inflows

Financed by targeted commercial loans, aid, and concessional loans from China and Russia, the current account deficit will widen in 2025 but is expected to stabilise in 2026. In the first half of this year, exports of goods were weak due to sanctions and were penalised by falling international prices, energy and input shortages, logistical constraints, and declining sugar production. The external strategy will once again rely on exports of medical services (accounting for two-thirds of exports of goods and services) and tourism. However, tourism is declining and has not returned to pre-pandemic levels, while medical missions are under pressure from the US. In addition, expatriate remittances will be impacted by the US crackdown. Last, forced to import 80% of its food, Cuba remains dependent on imports of raw materials, processed products and equipment.

The prospects for recovery of the external accounts are clouded by the shortage of foreign currency, itself exacerbated by US restrictions and the fragmentation of the foreign exchange market. The country has three exchange rates: an official rate of 24 CUP to the US dollar for public and budgetary transactions, a rate of 120 CUP for the island’s population and its tourists, and a parallel market rate that reached 387 CUP to the US dollar at the end of July 2025. Having to deal with this disruption, the authorities announced in December 2024, their intention to introduce a floating exchange rate regime for the intermediate rate to redirect currency flows to official channels and increase foreign exchange reserves, but failed to specify a date for its introduction. However, the date of the reform is uncertain due to the depreciation of the parallel rate.

A regime weakened by economic turmoil and sanctions

Re-elected in 2023 for a second five-year term, Miguel Díaz-Canel continues to head the Communist Party (PCC) which retains its monopoly over the country’s institutions. While the legitimacy of the regime is weakened by shortages, the collapse of purchasing power, and a lack of economic prospects, no structured opposition exists to threaten the regime's stability. However, faced with declining popular support, the government is pursuing its strategy of repression through laws targeting opponents, exertion of police pressure, and refocusing its communication on digital networks to channel frustration and encourage dialogue with the population. On the economic front, 2025 has marked a turning point in the official discourse, with the executive acknowledging its inability to reverse Cuba’s economic difficulties. Nevertheless, the government continues to blame the challenges on the US embargo.

While the Biden administration attempted to ease sanctions against Cuba, Donald Trump's arrival in the White House signalled a return to the hardline stance of his first term of office. The extraterritorial scope of the sanctions explains the measured support of other countries in the region (Brazil, Colombia and Mexico), as well as others (the EU and Canada). Faced with increased international isolation, Cuba is seeking to diversify its external support. In May 2025, the country struck a partnership deal with Russia to build an industrial park in the tax-free zone of Mariel, representing an investment of USD 1 billion by 2030. The rapprochement with China is also accelerating and has been symbolised by a visa exemption for Chinese tourists and the signing of fifteen agreements in the biotechnology sector in April 2025.

Last updated:August 2025