By J. C. Suresh
TORONTO | Havana | 8 September 2025 (IDN) — For decades, Cuba stood as one of the Caribbean’s most distinctive economies—heavily centralised, politically resilient, and symbolically influential across Latin America.
Once a regional reference point for social programs and state-driven development, it now finds itself among the hemisphere’s weakest performers. The UN’s Economic Commission for Latin America and the Caribbean (ECLAC) ranks Cuba’s outlook second only to Haiti in terms of economic decline.
While neighbouring islands like the Dominican Republic, Jamaica, and even smaller economies such as St. Lucia are charting paths of modest recovery after the pandemic, Cuba faces what Progreso Weekly calls a “multidimensional crisis—economic, infrastructural, social—that calls for nothing less than structural change.” Inflation, blackouts, and collapsing industries have pushed the island toward a cliff edge, where survival has replaced development as the national priority.
Inflation and Currency Free Fall
Inflation remains Cuba’s most corrosive economic force. Officially, the government reported a slowdown earlier this year, with a 16.4% year-on-year increase in May 2025. But as Progreso Weekly observed, “the official Consumer Price Index (CPI) likely underestimates actual inflation, as it excludes the informal markets where most Cubans shop.”
In August, pensions were nearly doubled to 4,000 pesos a month, yet at the informal exchange rate of roughly 400 pesos to the dollar, that sum translates to just $7–8. “That amount is clearly not enough to buy basics like chicken or eggs, even at subsidised prices,” the outlet wrote.
Meanwhile, the peso’s collapse accelerates. By 20 August, the dollar bought 405 CUP on the informal market, while the euro approached 450 CUP. Every peso-based wage, saving, and pension erodes almost overnight.
Five Consecutive Months of Rising Inflation
The crisis sharpened as 2025 began. According to economist Pedro Monreal, Cuba posted a 2.06 per cent monthly inflation increase in January, an annualised rate of 27.7 per cent. “This sharp rise underscores the government’s failure to maintain the necessary macroeconomic balance,” he warned on social media, adding that it threatens to worsen poverty across the island.
“Inflation has been climbing for five consecutive months, indicating a situation spinning out of control.”— Pedro Monreal, Cuban economist.
Monreal noted that although year-on-year inflation eased slightly to 24.23 per cent in January 2025—down from 31.69 per cent a year earlier—the reality is bleaker. Since late 2023, inflation has remained stuck between 20 and 32 per cent, “starkly contradicting official narratives of progress in price control.”
Agricultural Crisis and Food Prices
Food is the primary driver of inflation. Monreal pointed out that the category “food and non-alcoholic beverages” accounted for more than half of the total inflation in 2023 and 2024. Scarcity and rising costs for rice, beans, eggs, and potatoes amplify economic distress in a country that imports the majority of its staples.
Unexpected Rise in Tobacco and Alcohol Prices
Adding to January’s spike was a 22.72 per cent jump in alcohol and tobacco prices. While not essential goods, these products are widely consumed. “This time, tobacco products had the most significant inflationary impact,” Monreal explained, noting that the rise compounded pressure on already stretched household budgets.
Poverty as an Inflationary Brake
Perhaps Monreal’s most unsettling conclusion is that poverty itself is keeping inflation from being worse.
“The normalisation of widespread poverty has become the true factor restraining inflation.” — Pedro Monreal
He linked this to the dramatic decline in labour remuneration as a share of GDP. In other words, people are simply too poor to spend, muting further price surges. What appears as “control” is actually stagnation born of desperation.
The Collapse of Tourism and Sugar
While inflation gnaws away at pesos, the collapse of Cuba’s two traditional pillars—tourism and sugar—has drained the island of hard currency.
Tourist arrivals through April 2025 were down 72 per cent compared to the previous year, and hotel occupancy was only 24.1 per cent. “Even though some tourist infrastructure remains funded by the state, conditions—such as blackouts, poor services, road decay, and increased insecurity—have made Cuba an increasingly unattractive destination,” Progreso Weekly reported.
Sugar, meanwhile, has nearly vanished. The 2024–25 harvest produced only 165,000 metric tons, far from the millions once exported. The collapse threatens rum production and global brands like Havana Club, in which Pernod Ricard is heavily invested.
Blackouts and Energy Breakdown
Persistent blackouts illustrate the fragility of Cuba’s infrastructure. A February 2025 outage affected 45 per cent of the island, with recurring disruptions tied to fuel shortages and obsolete Soviet-era plants.
“Blackouts are not a temporary nuisance but a daily economic death knell,” wrote Progreso Weekly. The International Energy Agency has echoed the warning: “Without modernisation, the system cannot sustain basic consumption, let alone growth.”
Dollarisation and Economic Fragmentation
In the absence of foreign currency inflows, the government has leaned into dollarisation. GAESA-linked entities now demand rent in USD at the official rate of 24 pesos per dollar, a fiction compared to the 400 CUP street rate. ETECSA’s USD-only digital services have sparked student protests, underscoring how economic survival increasingly depends on access to remittances or foreign accounts.
Negative Growth and Bleak Forecasts
ECLAC predicts Cuba’s GDP will shrink 1.5 per cent in 2025, with barely any growth in 2026. Only Haiti faces a worse outlook. Economist Carmelo Mesa-Lago calls government measures “band-aids” in the absence of deep Reform.
Structural Constraints and Reform Options
The roots of crisis lie in both external and internal forces: U.S. sanctions, pandemic shocks, and the Ukraine war on one hand; state monopolies, currency mismanagement, and chronic underinvestment on the other.
Experts propose four urgent reforms: revive agriculture and manufacturing; unify the exchange rate; modernise energy infrastructure; and overhaul tourism. Yet, as Cuban economist Omar Everleny Pérez has argued, “Reform demands political courage and decentralisation. Otherwise, stagnation is guaranteed.”
A Nation Suffocating
For ordinary Cubans, the crisis is visceral. A Havana pensioner told Progreso Weekly: “They doubled my pension, but I can’t even buy a chicken. What’s the point of numbers if you can’t eat them?”
Queues for food, nights in darkness, and shrinking purchasing power define life across the island. For a nation once touted as a model of resilience, the decline feels like suffocation.
Adapt or Sink
Cuba, once a beacon of Latin American exceptionalism, is now in danger of becoming its cautionary tale. Without decisive Reform, inflation, dollarisation, and infrastructural collapse will cement its place at the bottom of the regional ladder.
As Progreso Weekly concluded, “the past month shows not fleeting turbulence but a deepening decline.” Monreal’s warnings make it clearer still: Cuba’s economy is not simply underperforming—it is unravelling, leaving poverty itself as the only brake on catastrophe. [IDN-InDepthNews]
Image: Street vendors © CiberCuba
