Cuba to issue domestic sovereign bonds to bridge budget deficit

Cuba is to bridge its financing gap by issuing sovereign bonds to Cuban entities, according to the Director General Director of Budget Execution at the Ministry of Finance and Prices, Jesus Matos.

Speaking to the Cuban news agency Prensa Latina, he said that the Cuban government will need the domestic peso equivalent of US$11.7bn, a figure converted at the official rate, to finance its anticipated 2018 fiscal deficit and CUP 4.2bn for the amortisation of previous sums.

This, he said, will be managed through the issuance of Sovereign Bonds.

According to Mr Matos, Cuba’s fiscal deficit amounts to 12% of GDP and the overall financing needed to balance the budget including amortisation of debts due in 2018 will require the equivalent of 23% of planned budgetary expenditures.

The article notes that although elsewhere in the world the financing gap would be closed through the sale internationally of treasury bonds, in Cuba’s case, by law, Cuban Sovereign Bonds can only be acquired by the national banking system, including commercial banks and other banking financial institutions. Prensa Latina said that the bonds would carry 2.5% annual interest and appeared to suggest they will have a twenty-year maturity.

“The Cuban State contemplates repayment terms of up to 20 years”, so that “future generations will have the responsibility to honour such commitments”, the report quoted Mr Matos as saying.

Noting that such taxpayer resources were not destined for social spending and will impact both present and future generations, the news story quoted the Budget Execution Director as observing ‘there are discordant views on the subject’.

While market economies usually resort to public spending cuts, in Cuba, he observed, because 85% of government revenue originates through the state sector, the country would have to work to achieve greater efficiencies and productivity and to increase exports and to replace imports.

This is an extract from the Caribbean Council’s weekly editorially independent publication, Cuba Briefing, which provides in depth information on current economic, political and commercial developments in Cuba and news on events in Europe and the US that affect the region. Business people, academics, and those with a general interest in Cuba find it an invaluable tool for developing and maintaining knowledge and providing an insight into political, economic and commercial events in the region

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