Cubans are preparing for a new wave of inflation after the government last week released the details of an austerity plan that, according to economists, will affect almost all areas of Cuba’s fragile economy.
The measures, which include price and tax increases as well as cuts in subsidies, will curb the growing budget deficit that is expected to exceed 18% of gross domestic product and set the stage for growth, according to the Prime Minister. Manuel Marrero.
Authorities reported that gasoline prices nearly quintupled on February 1. But some local economists argued that less visible government price increases, such as those for wholesale fuel, freight transportation, and sales and import taxes, will almost certainly lead to an increase in most goods and services at the retail level.
“In the economy, prices are not taken in one place without affecting others,” said Cuban economist Omar Everleny in an interview in Havana. “And there are predictions, in general, to see inflation between 400% and 500%,” he added.
Reuters spoke to dozens of Cubans on the streets of Havana who said prices had already risen after the announcements and would rise further in the coming weeks.
Luis Moreno, who has worked for 14 years as a taxi driver in Havana, said he has no choice but to continue raising his rates.
“If you raise prices on one thing, it tends to affect something else,” he said. “It’s not just fuel, it’s food, but everything is very expensive,” he said.
Inflation was 30% last year, compared to 38% in 2022, the Government reported. Many economists maintain that even These rates do not correspond to realitybecause the State does not monitor a booming market linked to an informal exchange rate higher than the official one.
Government officials have already reported that wholesale fuel prices will double next month, freight transportation will increase by 40% to 60% in March and, for the private sector, Import duties will be quintuple. Private businesses will also be charged a new 10% sales tax on wholesale transactions.
Some Cuban economists say deficit reduction and subsidies are essential.
“I think that the adjustment of prices (…) and other public services are necessary measures to correct the fiscal deficit,” said Pavel Vidal, an economist who previously worked at the Central Bank of Cuba and now a professor at a university in Colombia.
But most economists, including Vidal, say the same It is necessary to further open the economy – currently dominated by state companies – to private companies and investments to increase production and the tax base, while reforming state-owned companies.
“I don’t see any emphasis on increasing manufacturing or agriculture,” Everleny said.
Las The new measures are an “inflationary bomb,” said Óscar Fernándezan economist at the University of Havana and small business owner, in a post on Facebook, called on the government to relax the rules for the private sector and close state-owned companies that go bankrupt which weighs on the local economy.