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Economic Development

Economic Outlook: A Gradual Recovery

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Neither stagnant or going backwards, Economy Minister predicts a gradual recovery.

Alejandro Gil Fernández, Minister of Economy and Planning, described the economic outlook for first quarter of the year as “a gradual recovery,” that is neither “stagnating,” nor “stepping backwards.”

An increase in exports to $590 million, up by $162 million in the same quarter last year, and the return of tourists support the theory. Around the globe, rising costs for fuel, food, and other necessities present challenges.

“We are recovering part of the lost ground with a fall of more than 13 points of GDP. We are moving in that direction,” he said.

The availability and cost of fuel and foreign currency are the two central factors affecting recovery. Gil said, “We have many limitations. We have more income than last year, but below plan and below before 2020.”

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This factor was influenced by an increase in price of commodities, especially nickel.

Tourism Recovery

Cuba’s tourism figures have shown gains in the first quarter with approximately 450,000 international visitors during this time period.

By December, should conditions in Cuba continue to improve and global tourism recovers, Cuba’s expectations of receiving 2.5 million visitors is reasonable.

Domestic tourism has also performed well this year with approximately 2,314,000 Cubans vacationing and staying hotels, surpassing previous estimates.

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Rising Prices

Imports stand at $2 billion dollars, an increase of $688 million during the same period last year.

The increases can be seen as a result of the soaring of international market prices for oil, wheat, flour, soybean oil, rice and powdered milk.

Shipping costs are also four to five times higher than in 2019 and those costs are added into consumer prices.

International shipping also presents difficulties with global supply chains facing more complexities. It is more complicated for Cuba.

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“Sometimes, even with the money, the goods don’t arrive, because there are no ships and no logistics, Gil added.

The minister said that at current prices, increasing imports is not the best choice. “It is necessary to bet on diversification and national production.”

Business:

The minister said that efficiency problems still persist. Total business sales for the first quarter: 283,000,000 pesos, 109% in compliance with economic strategy.

Company profits are only at 50% of business goals. “This is a sign that something is wrong, the plans have to be made according to the potentialities we have, and they have to be really a road map for the plan of the economy, not something formal that is used as a reference to say that we over-fulfill,” he said..

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An analysis showed that 411 companies reported losses of 5,047 million pesos

At the end of March, the records show the average salary was 4,094 pesos, 82 pesos higher than planned.

As at April 20, 3,074 new businesses had been approved, 2,900 are MSMEs, mostly found in the urban centers of Havana and Santiago de Cuba.

Not all approved MSMEs up and running as of yet. According the Ministry, the new actors in the economy have signed export contracts for approximately $13 million for exports and $146 million in imports.

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“All this gives certain signs of a gradual recovery, but full of challenges, facing internal contradictions”, Gil said.

Inflation:

Consumer Price Index: In January 2021, monthly inflation reached 44%, and by the end of that year climbed to 77.3%, well above plan expectations of 60%) . This is linked to the supply deficit.

This January, monthly inflation was +0.15% (up 44% in2021). Prices have remained stable but they are still high for consumers. “We cannot make the mistake of comparing this month with the previous year, but there is a slowdown in price increases, which does not mean that they are low,” he said.

In March, inflation increased +1.86% since last year.

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The loss of purchasing power of wages is a factor, “Although goods and services are expensive, there is stability,” Gil said.

The gradual recovery of purchasing power,” Remains the focus.

Currency:

Foreign exchange rate problems remain a challenge to be solved.

Gil said that the informal exchange rate of $1 to 125 CUP has generated a fracture in the link between the state sector and the non-state sector, which “explodes in inflation”.

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It’s also a problem for the government in its for food and fuel for pay for fuel and food for the most vulnerable segment of the population, those who receives the basic food basket and healthcare.

The government is looking at solutions to establish a selective exchange scheme for the sale of foreign currency to national state and non-state suppliers.

Gil said, “Today we have a missing piece in the design. The sale of foreign currency to the population.

“We do not call it an exchange market. It is a secondary scheme of foreign currency allocation in which it can be sold to state and non-state economic actors at an exchange rate higher than 24, but lower than the informal one, which will allow us to support productions that will then be sold to the population in national currency”.

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The government won’t be selling foreign exchange at the price of 125 pesos for a dollar. They will look to a rate that will “balance the economy,” in a “selective and gradual manner” in the near future.

Measures to revive the economy

The minister said 158 new measures are in place to revive the economic and social strategy, which will emphasize efficiency and effectiveness.

He described the new measures as “bold”, and “innovative” under current conditions which will be required to solve the complexities of an economy that has faced two years pandemic closures and continued U.S. sanctions. “There are no magic measures,” he said, “nor solutions that can solve all the problems in one fell swoop.”

Information source: Cubadebate

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