Cuba Country Risk Report Q2 2020
A robust US sanctions regime and the economic collapse of its ally Venezuela will push Cuba's economy into recession in 2019, despite a recently announced economic reform package.
Falling support from Venezuela will force Cuba to rely on more expensive fuel imports from other sources. The loss of other forms of aid from Venezuela will impact Cuba's fiscal revenues in the years ahead.
US-Cuba relations will remain strained following President Donald Trump's decision to place restrictions on travel to the island, as well as the implementation of Title III of the Helms-Burton Act. We see scope for further deterioration given hostile comments from members of President Trump's foreign policy team.
The US embargo will remain in place in the coming years, due to the Republican Party's resistance towards lifting it, capping potential investment into the island.
That said, the Cuban economy holds immense potential given the island's size and proximity to the US market. However, investment and growth will depend on political dynamics in both Cuba and the US.
The constitutional re-write that was approved in February 2019 is likely to bring only modest reforms, with the Partido Comunista de Cuba's dominance of the island's economic and political life unlikely to change.
The Cuban economy is highly dependent on US tourism to fuel growth. A more rapid decline in US tourism than we anticipate amid hostile relations or more sluggish US growth than we current expect could dampen headline economic activity.
Raúl Castro stepped down as president in April 2018. While Miguel Díaz-Canel, the new president, has pushed forward with Castro's planned reform drive, he may lack the cachet to force through reforms at a pace fast enough to address the economy's needs.
Over the long term, demographic decline poses a major risk to Cuba's economic upside.
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