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Recent Data on Cuba’s Fiscal Position


The Cuban National Statistical Office (ONEI) has recently released data for the fiscal position of the general government, which includes the central, provincial and municipal governments but not the state enterprises.

Developments in 2014

Developments in 2014 suggest a moderate relaxation of fiscal policy albeit still within the basic framework of fiscal restraint in place since the crisis of 2008—a policy required to restore internal and external stability to the Cuban economy. There were, however a couple of worrisome developments: a substantial fall in government investment; and a rise in subsidies to enterprises to levels not seen since the post-Soviet contraction in the early 1990s.

  1. The overall budget deficit increased marginally from $1 billion in 2013 to $1 ¾ billion in 2014 ($ signs refer to non-convertible pesos or CUPs). Government saving (a proxy for the change in government net worth) declined from $3 ½ billion to $1 billion. (See table below[1]).

  2. The $2 billion decline in total expenditure was more than fully accounted by a $2 ¾ billion drop in investment.[2] Government current expenditure rose by just over $1 billion owing to a jump in public health which may have reflected a higher exports of medical services provided to countries other than Venezuela, like Brazil.[3] Spending on education and other social sectors was virtually unchanged

  3. Subsidies to enterprises increased by about $1 billion. It is not easy to explain this change because ONEI has discontinued the publication of data on the structure of subsidies. However, transfers representing the pass-through of Venezuelan shipments to Cuba probably fell because of the drop in oil prices. Therefore the decline in total subsidies probably (and surprisingly) reflected higher subsidies for enterprise losses.

  4. The $1 1/2 billion decline in total revenue was more than accounted for by two developments:(i) a $1 billon fall in external revenue (again, probably reflecting the accounting impact of the drop in oil price on the value of imports from Venezuela); and (ii) the virtual disappearance of the mysterious $2 1/2 billon “extraordinary revenue” that had popped out of nowhere in 2013. These declines were partly offset by a $1 ½ billion rise in domestic revenue a 1⅟2 billion increase in tax revenue stemming largely from higher profit taxes.

Medium term trends

The policy of fiscal restraint in place since the financial crisis of 2008 has resulted in a fall in the overall deficit from $4.2 billion (the highest since the post-Soviet contraction) to 1.8 billion in 2014; the deficit averaged $2.7 billion in 2009-2014. Government current saving has been in surplus for the past 6 years, after experiencing a highly unusual deficit in 2008. The most impressive feature underlying these developments has been the $7 billon increase in domestic revenue since 2008, most of which reflected the strong performance of direct and indirect taxes (in spite of relatively slow growth in GDP), and the remainder came from higher contributions of state enterprises.

Subsidies to enterprises have been on an upward trend since the beginning of the XXI century, reflecting broadly the surge in transfers related to oil imports from Venezuela which are, in effect, bartered against exports of Cuban exports of medical and educational services. Subsidies for enterprise losses oscillated without a trend, through 2011; what happened thereafter is unknown, since, as noted above, ONEI discontinued publication of the components of total subsidies. These subsidies probably have risen since then, although it is not entirely clear why. There are two possible reasons: (i) the need to assist some of the newly privatized cooperatives operating with employees transferred from the state sector; and (ii) the need to assist certain enterprises adversely affected by the ongoing gradual process of exchange rate unification.

After 2008, investment has been relatively strong by Cuba’s very modest standards, but it collapsed in 2014 to its lowest level since 2004. Current expenditure rose by $1 ½ billon since 2008 because of: (i) a rise in health expenditure (which, as suggested above, may have represented higher exports of services); and (ii) a rise in other outlays, mainly for public administration and defense. Other social expenditure and education declined marginally, exemplifying the intensity of the fiscal consolidation effort.

*

One final comment. Because of the lack of information on several key element of the fiscal position and the absence of official comment on budget releases, this note unavoidably relies on interpretations and guesses. The government has nothing to lose by publishing important details on the fiscal position (like the structure of subsidies and of “other non-tax revenue”) and by providing its own technical assessment and interpretation of the data. On the contrary, this would help those who wish to understand and analyze the data, avoid misunderstandings, and help to educate users of fiscal statistics both in Cuba and in the international financial community.

[1] The presentation used in the table differs from the official presentation in that subsidies to enterprises are netted out of expenditure and shown as a separate category.

[2] This does not necessarily mean that total investment in the economy fell. Total capital formation in the national accounts is usually (albeit not always) larger than government investment as reported in the budget (both data in current pesos). However, the fact that the difference between these two numbers is occasionally negative suggests that there are substantial methodological differences between them. Thus it is risky to interpret the difference between NIPA-based and budget-based investment numbers as representing capital formation by enterprises.

[3] Exports of professional services are believed to be included in budgeted expenditure in ONEI’s tables. At this stage it is not possible to disentangle external from domestic expenditure in education and health because the data required to prepare estimates of the former has not yet been published.


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