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Posted March 10, 2012 by publisher in Cuba-World Trade

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French CoFace credit risk and investment company has released a risk assessment for the country of Cuba.

Coface country assessment reports analyze and forecast country risk using macroeconomic, financial and political data.

The company reviews the financial history and the risks to the business environment of the country.

CoFace assigns Cuba a D rating for credit and investment risk.

Main Economic Indicators   2009 2010 2011 (e)  2012 (p)
GDP Growth (%)            1.4   2.1   2.4       2.4
Inflation (annual average)  1.4   2.9   4.7       5.7
Fiscal balance / GDP (%)  -4.8   -3.6   -3.0     -2.5
Public debt / GDP (%)      1.0   0.4   -1.2     -0.4
Current account balance / GDP (%) 34.4 34.2 34.9 35.3

STRENGTHS

Attractiveness of tourism, mineral resources (nickel) and agricultural (sugar, tobacco) abundant
Discovery of oil in 2008
Skilled labor
Relatively good social indicators
Preferential agreement with Venezuela on oil imports

WEAKNESSES

Vulnerability to external shocks (weather, commodity prices)
Limited access to external financing
Lack of infrastructure and governance weaknesses
Uncertainties about the evolution of the Castro regime and foreign relations

RISK ASSESSMENT

Growth hindered by uncertainty reforms

The trend in 2011 is expected to continue in 2012. Growth should remain poor due to the slow progress of reform, including the conversion process of “surplus labor” from the public to the private sector. The economy will suffer as a decline in tourism and a decline in nickel prices, in a tense international situation. Furthermore, the transition from a command economy to a market economy should be accompanied by rising unemployment.

The phasing of the policy of subsidizing the price should increase inflationary pressures given the rising cost of living. the medium term, the performance of the Cuban economy is largely dependent on the continued implementation of reforms since late 2010 and particular, the development of the private sector through the relaxation of legislation on business start-ups, the phasing of the rationing system and the unification of dual exchange rate.

Import controls

The current balance is maintained artificially at a level close to balance by a policy of limiting imports, both to replenish foreign exchange reserves to promote the substitution of domestic production with imports. Imports consist mainly of petroleum products from Venezuela, capital goods and food products. Nickel and agricultural products are major export items. In 2011, the current account deficit deteriorated slightly due to higher import prices and repatriation of profits in the mining sector. In 2012, the current account should improve due to reduced import demand due to increased domestic production.

The surplus in services should be reduced as a result of the contraction of tourism, even if the surplus is likely to remain high due to exports of medical services to Venezuela. Despite external debt in average across the region, the debt service remains substantial (25% of foreign exchange earnings) and should increase further in the coming years. In the wake of the reduction and rationalization of public sector spending of State contracted in 2011 and decline further in 2012. The deficit narrowed between 2009 and 2011. However, the tax system continues to show significant gaps. The informal economy represents a significant share of production that is not subject to tax. The government debt amounts to more than one third of GDP and should only slightly over the medium term.

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