Caribbean & Central America - February 2026

Cuba faces multiple crises: oil imports have halted, following the US’ removal of Venezuela’s former president Nicolás Maduro (2013-2026) and subsequent threat of tariffs on other oil suppliers; the power grid only operates at half its capacity; and there are food and foreign currency shortages. These are all intensely pressing but short-term problems; here we look at some of the longer term, structural issues that lie behind them and which will have to be tackled in any attempt to get the island back on a pathway to recovery.

The island is both a one-party state and a centrally planned economy. Ongoing attempts by the Partido Comunista de Cuba (PCC) government to update the socialist economic model do not seem to be working. Between 2019 and 2024 the economy contracted by a cumulative 11.9%. That period includes the coronavirus (Covid-19) pandemic, and unlike some of its neighbours Cuba has still not fully recovered from that blow. The latest (December 2025) projections from the United Nations (UN) Economic Commission for Latin America and the Caribbean (Eclac) estimate that GDP contracted another 1.5% in 2025 and will grow by a bare minimum 0.1% this year. Broadly speaking growth has been cyclical and volatile, reflecting the rise and fall of Cuba’s politically driven partnerships with the Soviet Union (1970-1990) and Venezuela (2000-2026). Absent that external support, the economy has stagnated.

A key part of the problem is that the state sector is large, inefficient, and poorly managed. A 2024 paper by Laura Marie of France’s development agency (AFD) states bluntly “Cuba’s economic model, characterised by low productivity and a lack of diversification, is no longer sustainable.” Multiple exchange rates are used to favour state companies. Grupo de Administracion Empresarial SA (Gaesa), the commercial arm of Cuba’s military, receives particularly favourable treatment.

The AFD report highlights that elsewhere state-funded investment in physical capital has been erratic and has contracted every year since 2019. Although attempts have been made to increase foreign currency earnings through tourism, medical services, and pharmaceuticals, the centrally planned system has been unable to reverse structural decline in both the agricultural and industrial sectors. Manufacturing output fell by 30% in 2019-2021. Before 2019 central government subsidies to state owned companies represented 22.5% of GDP. Amid heavy financial pressure on central government, that proportion fell to under 10% by 2022. The estimated fiscal deficit has averaged 6.3% of GDP since 2012 but almost doubled to 12.3% in 2024, according to the AFD report.

The government exercises tight political control of the population. Yet deep dissatisfaction with falling living standards cannot be ignored. Many Cubans have taken the drastic decision to leave. The average annual population growth rate in the ten years to 2023 was negative at -1.6%, reflecting emigration and a low birth rate. It is estimated that 1.4m people, more than 10% of the population, left the country in 2019-2024. Many of those leaving are young and relatively well-qualified, meaning that the country is losing some of its best human capital. Despite this exodus official data shows a very low unemployment rate (1.8% in 2023). The explanation is that there is comparative overemployment in the public sector which tends to mask the impact of low real wages and rising poverty. According to Onei, the Cuban statistical office, the population is now 9.7m, having fallen below the 10m mark in 2024.

Many economists, including government officials, contend that Cuba needs to turn to the private sector to attract new investment and modernise its ageing industries and infrastructure. However, the government has approached the issue with extreme caution, for fear of a loss of political control. A macroeconomic stabilisation plan launched in 2023 calls for increasing foreign direct investment (FDI) with the state reserving the right to choose which business partners it works with. However, little has come of this initiative due to a combination of the US trade embargo and Cuban red tape and controls. Any foreign company looking to move into Cuba faces state controls on recruitment, large exchange rate risks, and complex central bank regulations.

Another form of privatisation has also been in play. Supported by then-president Raúl Castro (2008-2018), after 2008 the government allowed citizens in designated sectors to set up their own businesses. They are allowed to trade at home and overseas, but in the latter case only through state-owned companies. In 2021 the government went further, granting legal status to micro, small, and medium sized enterprises (MSMEs). Estimates vary but up to a third are employed outside the state sector. Many MSMEs function in low value-added areas of the economy such as gastronomy and retail, but there is also some higher value activity in manufacturing and construction. While they have opened a valuable space for innovation and growth, the government is concerned to ensure small businesses do not become a political threat. The MSMEs are also unlikely to be able to attract large-scale FDI in the near future.

Meanwhile, interrupted by constant power blackouts, industrial production and agricultural harvests have again been falling. The loss of subsidised Venezuelan oil is hitting the country hard. The government has reacted slowly but is still trying to address the national energy shortfall. It has launched a “Programme for the Recovery of the National Electro-Energy System” which calls for construction of 92 solar parks by 2028 of which 55 were due to be completed last year. Under a 2019 agreement China is helping develop solar energy. But eliminating the energy deficit and replacing obsolete generators, whether they are renewable or fossil fuel-fired, is likely to take years and require billions of US dollars.

Among many necessary reforms, Cuba will also need to renegotiate its heavy foreign and public debt burden. Only limited data on the debt is published. The sharp devaluation of the peso during the 2019 monetary reform led to a downward revision of nominal GDP. As a result, it is estimated that in 2024 external public debt reached 108.8% of GDP, an unsustainable proportion. These government-to-government debts were last rescheduled in Paris Club negotiations in 2015. A new debt rescheduling exercise will be unavoidable.

Ageing population

Having a falling and ageing population has major long-term implications for the country, not least the need to increase social funding as pension pay-ins grow more slowly than pension pay-outs. The proportion of the population aged 60 or over has increased from 14.7% in 2002 to 24% in 2023.

Cost of US embargo

In September 2025 Cuba’s Foreign Minister Bruno Rodríguez put the cost of the decades-old US embargo and sanctions on Cuba from March 2024 to February 2025 at over US$7.56bn, up 49% on the same period a year earlier. Rodríguez also estimated that the cost to the island of qualified people and work force who had left due to these economic pressures was around US$2.57bn. He said that the US embargo against Cuba had cost the island some US$170.68bn in over six decades.