No Cause for Optimism: An Economist’s Take on the Current Situation in Cuba
Ricardo Torres, a Washington, D.C.-based Cuban economist, shares his thoughts on Cuba’s ongoing economic crisis. He is currently a Faculty Fellow at American University and holds a Ph.D. in Economics from the University of Havana were he taught and conducted research at the Center for the Study of the Cuban Economy.
Havana residents prepare a soup over an open fire during a blackout following the failure of a major power plant in Havana, Cuba on Saturday, Oct. 19, 2024. (AP Photo/Ramon Espinosa)
*The opinions and points of view expressed by interviewees are their own and don’t necessarily reflect the opinions or positions of CEDA.
How has migration out of Cuba since 2021 impacted Cuba’s economy?
At present, with so much occurring on the island, it is challenging to accurately assess the actual impact of outward migration. Numerous effects can be identified. It is well-established that working-age individuals are disproportionately represented among migrants. The scale of the outflow has resulted in significant costs for Cuban entities of all types due to high employee turnover. Additionally, there is a qualitative dimension: the loss of skilled workers immediately reduces productivity, as it is nearly impossible to find substitutes, thereby disrupting production processes.
In the long term, this "brain drain" depletes Cuba’s human capital, further undermining the country’s capacity to sustain economic growth. Mass migration permanently reduces the availability of labor and accelerates the decline in fertility rates, jeopardizing Cuba’s ability to maintain a stable workforce in the future. Moreover, the process exacerbates the ongoing aging of the population, increasing the demand for personal care services precisely when fewer individuals are available to provide them. While no industry is immune to this vicious cycle, the impacts on healthcare and education are particularly severe. The shortage of trained personnel undermines the well-being of current inhabitants, reducing productivity, and significantly hampers the accumulation of human capital. Similar challenges are evident in sectors such as construction and agriculture, where labor shortages cannot be offset by increased capital investment.
A shrinking and aging population also permanently dampens domestic demand, rendering investment less attractive to both domestic and foreign investors. A growing proportion of retirees deplete savings while increasing consumption of healthcare and other age-specific services, potentially reducing aggregate savings—a critical resource for capital accumulation.
Beyond labor force implications, the mass exodus has facilitated opportunities for family reunification abroad, which has diminished the flow of remittances to those remaining on the island. This has exacerbated the scarcity of hard currency, one of the most visible manifestations of the economic crisis.
In summary, this represents a near-perfect storm for Cuba’s growth potential. While the current costs are undoubtedly significant, the most profound impacts will be felt in the years to come.
What do you expect from the Cuban government in the first half of 2025?
The recent economic policy changes on the island offer little cause for optimism. While reducing the fiscal deficit is a necessary step to control inflation, Cuba's primary challenge lies on the supply side. The outdated economic model fails to provide the appropriate incentives for private investment and efficiency improvements. The deterioration of the production system is so severe that the country is effectively incapable of producing sufficient quantities of even the most basic goods for daily life, let alone competing in global markets.
The crackdown on the private sector is a terrible idea for stimulating production. The private sector is the sector responsible for the most jobs created in Cuba since 2011. In 2024, an outdated narrative disconnected from the country’s urgent needs persists. Simultaneously, the government is attempting to revive the state sector at the expense of halting the progress of the private sector. All of this generates distrust and uncertainty in regards to the authorities–distrust of their capabilities and their true commitment to the public interest. Under the current framework, I expect nothing positive. Just more of the same... and that very "same" is what lies at the root of the island's impoverishment.
What needs to happen in order to pull Cuba out of this economic crisis?
The list would be extensive, and in any case, the damage already done will be felt for generations. Whoever is in charge of the government on the island must start building trust among both domestic and foreign investors, as well as among governments that could help alleviate the financial stranglehold—but only if presented with a credible and achievable reform program with clear goals.
The initial changes, remarkably, are quite straightforward, as they essentially involve removing the restrictions currently imposed on economic actors, particularly the private sector. For example, granting private businesses access to all sectors of the economy (perhaps with the exception of social services) and eliminating the requirement for state intermediaries in both domestic and foreign trade, whether wholesale or retail. Restrictions and controls of all kinds affecting food producers should also be lifted. Another area requiring radical reform is state-owned enterprises. After conducting the necessary analyses, the goal should be to restructure unviable companies. This should be accompanied by a process of reducing centrally allocated resources, except for activities with high social impact.
Cuba needs to create markets and productive actors—particularly private ones—that operate under clear and rational rules. Even its allies, such as China, Vietnam, and Russia, have conveyed to the Cuban government the necessity of implementing such changes to overcome the crisis. That said, one cannot be idealistic. The problems are severe, and even with a perfectly designed and executed plan in a more favorable international environment, it will take Cuba years to rebuild. The good news is that improvements could appear relatively quickly, offering hope for a better future—something the authorities are currently unable to provide.
What are your recommendations for the Cuban government? The U.S. government?
The Cuban government must acknowledge that its economic and societal ideas have failed over the past 65 years. The generation that led the Cuban Revolution is leaving behind a country in a regrettable state. Cuba needs a change in direction and must create a new paradigm for a better nation in the 21st century. The focus must be on the well-being of younger generations. A brighter future for Cuba requires abandoning the failed political and economic model, building closer ties with the Cuban diaspora, and making every effort to improve relations with the United States. None of this will be easy, especially because recent events have convinced many that the current government is part of the problem and lacks the capacity to offer solutions.
As a neighboring global power and the home of the majority of the Cuban diaspora, the United States government has a moral obligation—and it is in its national interest—to take steps toward fostering a prosperous, democratic, and stable Cuba. However, this objective must align with the well-being of Cubans living on the island, who are already enduring a prolonged economic crisis.