Cuba: Electricity and fuel significantly more expensive in Cuba

At the beginning of last week, Finance Minister Vladimir Regueiro announced that starting February 1, the price of gasoline and diesel will increase fivefold from the current 25 to 132 Cuban pesos (CUP). In the future, tourists will pay for fuel in selected gas stations in foreign currency. The government also announced a 25 percent increase in electricity prices for large consumers in the private sector and an increase in LPG tariffs. This was followed by the announcement of tariff increases for interprovincial bus transport by up to 400 percent from March 1, for rail transport by 600 percent and for air transport by 468 percent.

As of January 1st, import duties on finished goods had already been increased, and at the same time they were reduced by 50 percent for raw material imports. In addition, there will be further tariff and tax increases, especially for private economic actors.

Cuban President Díaz-Canel explained that the recent increases in prices for gasoline, electricity and transportation are aimed at “correcting distortions” and, alluding to the US blockade, “breaking the economic siege that aims to suffocate us.” . Cuba has been in a serious crisis for three years. Last year, the island’s economy shrank by one to two percent, after having already suffered a severe slump during the pandemic. Inflation was officially around 30 percent; informal inflation is likely to be much higher. At the end of the year the government announced one of the largest macroeconomic adjustment plans in recent decades for 2024. In addition to tariff increases, this provides for the end of general subsidies for basic foods in order to reduce the huge budget deficit.

Economists warn that the price and tariff hikes could contribute to higher inflation, increased dollarization and further devaluation of the CUP. The private transport sector will raise prices »and that will have an impact on the population«, predicts the independent economist Omar Everleny Pérez to AFP. Juan Triana from the Cuban Economy Study Center criticizes the tax and customs increases in particular on the online portal OnCuba. “If the fight against inflation consists in eliminating one of its main causes, it seems inconsistent to make the import of finished products more difficult.” In 2023, it was primarily new private small and medium-sized enterprises (SMEs) that increased the range of goods with their imports have noticeably improved.

“Where would inflation be today if non-state actors had not imported these goods?” asks Triana. »Anything that contributes to a short-term reduction in the supply of final products, whether imported or domestically produced, will have a pro-cyclical, inflationary and regressive effect, as it reduces the purchasing power of wages and incomes, primarily the lower income brackets of our country are affected, unless other measures compensate for this effect at the same time and within the same time frame. According to Triana, such a measure would be to strengthen state foreign exchange shops and open them up to foreign companies. However, according to the economist, this could “increase the dollarization of the economy by contributing to an increase in dollar demand and encouraging the devaluation of the Cuban peso, an outcome that contradicts one of the priorities of the stabilization program, namely the gradual de-dollarization of the economy Business.”

The establishment of gas stations operating in foreign currencies also promotes dollarization. “Cuban customers have the same opportunity to pay in convertible currency as foreigners,” said Finance Minister Regueiro. One can imagine which gas stations will be “prioritized” when it comes to supplying gasoline, especially since the government’s declared goal is to generate money for importing fuel from the “foreign exchange gas stations.” The establishment of state foreign exchange shops at the end of 2019 meant the end of the CUP shops.

“More needs to be done,” says Triana, “especially in the other direction, namely increasing tax revenues and promoting and facilitating the establishment of thousands of new SMEs and cooperatives. The state-owned companies must be relieved of their debts once and for all, and with the necessary urgency.” Simply cutting subsidies and increasing tariffs is no guarantee that the situation in which the country finds itself today will not be repeated.