Moody’s forecast ‘diminished growth’ in 2017

11 December 2017

Moody’s, the rating agency, has said that Cuba faces significant credit challenges due to its diminished growth prospects, and that this is reflected in its present rating of Caa2 stable.

In an annual new credit profile published on December 7, the agency observed that credit weaknesses constraining Cuba’s creditworthiness included, a changing relationship with the United States, limited access to external financing, a high dependence on imported goods and, ‘most importantly, a lack of data transparency’. It also noted that the island’s ‘structural inefficiencies directly hinder economic growth’.

More positively, it observed that Cuba’s recent history of low, but steady growth, and an expanding tourism sector continued to support the country’s existing credit profile.
The new analysis follows a November report in which Moody’s reduced the country’s credit rating from Caa2 positive to Caa2 stable. At that time, it said that this was because:

  • The rapprochement process with the United States had stalled, resulting in a reversal of measures to ease the economic embargo, and US-Cuba relations have deteriorated; and
  • Its expectations of continued reform momentum and favourable macroeconomic performance had not materialised due to climate shocks, strained relations with the US and the domestic political transition due to take place in 2018

Moody’s November report said that despite recent growth in its tourism sector, Cuba’s economic outlook remains challenging following climate and commodity price shocks, and negative spill overs from the economic crisis in Venezuela. It also observed that agriculture, food production, construction and healthcare likely posted a significant contraction owing to the various shocks faced by the economy. Key export prices for nickel have recovered but remain short of the highs achieved in 2008 and 2011, and sugar prices remain near 2015 lows, Moody’s wrote.

The credit agency estimates that the Cuban economy contracted 0.9% in 2016 despite a 13.3% increase in visitor arrivals. It forecast that the economy will contract once again in 2017 by 0.5% before returning to moderate growth of 1.1% in 2018.

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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