Cuba's Current Issues
A guest post by Carlos Martinez (George Mason University)
Cuba appears to be edging towards a moment of reckoning. Whether change comes through mounting domestic pressure, divisions within the ruling elite, external forces, or some combination of the three is impossible to know. What is easier to predict is the scale of the challenge that would confront any government seeking to move beyond the current system. Decades of central planning have left behind an economy characterised by chronic shortages, weak productivity, crumbling infrastructure, and a state that struggles to perform even its most basic functions.
The need for reform is hardly controversial. The real question is how such reforms could be carried out after years in which scarcity has become a normal feature of daily life and confidence in public institutions has steadily eroded. Any government attempting to liberalise the economy would inherit weak finances and unresolved questions about ownership and investment. Markets alone would not solve these problems. They would need to be accompanied by credible rules, stable money, secure ownership, and a willingness to dismantle the privileges that have allowed political connections to matter more than productive activity.
Food Insecurity and Agricultural Policies
Few issues illustrate Cuba’s economic malaise more clearly than food. For years, obtaining basic groceries has required patience, luck, and often access to informal markets. Rationing, price controls, and decades of state intervention in agriculture have created a system in which finding food can be almost as challenging as producing it. According to the Food Monitor Program, at least 35% of Cubans spend more than ten hours a week searching for food. Other estimates suggest that roughly 40% of the population experiences some degree of food insecurity. As the peso continues to lose value in informal markets, reportedly reaching around 625 pesos to the dollar in June 2026, the burden on households paid in local currency has only grown heavier.
The roots of the problem lie not in a lack of farmers but in the incentives under which they operate. Much of Cuba’s food is produced by private farmers, cooperatives, usufruct holders, and small household plots. Yet the state continues to exert considerable influence over the system that connects farms to consumers. Rather than allowing producers to respond freely to demand, it remains deeply involved in determining how land is used and how agricultural output reaches the market.
Around two-thirds of Cuba’s individual landholders farm under usufruct arrangements. They can use state-owned land, but they do not truly own it. That distinction matters because, without secure ownership, farmers cannot easily use land as collateral, make long-term investments, or plan with confidence. Although the old Acopio monopoly has been loosened, producers still navigate a maze of contracts, regulations, and state priorities. The risks of farming, including fuel shortages and bad weather, fall largely on the producer, while many of the key decisions affecting the sale of crops remain outside their control.
The consequences are evident. Food production and food processing have both declined by more than 40% since 2020. The collapse of the sugar industry is particularly striking. Once the backbone of the Cuban economy, sugar production has fallen from roughly 8m metric tonnes in 1989 to less than 200,000 tonnes in 2025. That is lower than production levels recorded in 1898, when the island was emerging from a devastating war of independence. More broadly, Cuba ranks among the least productive economies in Latin America and the Caribbean when measured by output per hour worked. The food crisis is therefore not merely an agricultural problem. It is part of a wider failure of productivity.
Any serious attempt to improve food security would require giving producers greater freedom to respond to prices and consumer demand. Cuba has experimented with such reforms before. In 1980, the government authorised the Mercados Libres Campesinos, allowing farmers to sell surplus production directly to consumers after fulfilling state obligations. The markets proved popular but were abolished in 1986 as the government returned to tighter central control. The episode nevertheless demonstrated a simple principle: when farmers are allowed to profit from producing more, they generally do so.
Today, many of the obstacles remain familiar. Farmers continue to operate in an environment where uncertainty discourages investment and production. Price controls, shortages of fuel and agricultural inputs, and extensive state involvement in distribution all weaken incentives to expand output. Meanwhile, private retailers and import-oriented businesses with access to foreign currency have become increasingly important suppliers of food in urban areas. This has created opportunities for rent-seeking. When access to imports, foreign exchange, and distribution channels depends on official approval, economic success often hinges less on producing goods than on obtaining permission. Under such conditions, scarcity itself can become profitable for those positioned to manage it.
Inflation, Fiscal Dominance, and Financial Markets
If food shortages are the most visible symptom of Cuba’s economic troubles, inflation is perhaps the most pervasive. Since the monetary reform of 2021, known as the ordenamiento monetario, prices have continued to rise rapidly. Official figures reported annual inflation of 14.73% in April 2026, with food prices increasing by more than 18% over the previous year. Yet many economists regard these figures as conservative. Although the national statistics office now includes a broader range of markets in its calculations, the index still struggles to capture the informal and dollarised transactions that increasingly shape everyday life.
Independent estimates paint a bleaker picture. Pavel Vidal, a Cuban economist, has suggested that inflation may have reached around 70% in 2025 once informal-market prices are taken into account. The precise figure matters less than the broader reality: Cuba lacks many of the tools normally used to contain inflation. It has no deep domestic bond market through which the central bank can conduct conventional monetary operations, and its benchmark interest rate has remained unchanged at 2.25% for decades.
The inflation problem has unfolded alongside a prolonged economic contraction. Cuba has now experienced three consecutive years of negative economic growth, an extraordinary period of decline that has further reduced living standards, comparable to that of the Special Period. This is in addition to the fact that almost 20% of Cubans have left the island, most of them young Cubans in working age.
The deeper problem is fiscal. Persistent budget deficits have increasingly been financed through mechanisms that expand the money supply. The 2025 budget projected a deficit of 88.5bn pesos and financing requirements of 129.4bn. According to the government’s own documents, much of this financing comes through sovereign bond issuance that ultimately feeds monetary expansion. Any future government would therefore inherit not only inflation but also a fiscal system that has become accustomed to relying on monetary financing. Restoring stability would require a convincing break with those practices so that citizens and investors alike could believe that inflation would not simply return.
Some economists advocate formal dollarisation, arguing that Cuba has already moved partway in that direction. Yet monetary reform cannot be separated from the island’s external debt burden. Even estimating the size of that burden is difficult. Depending on how arrears, bilateral obligations, and creditor claims are counted, estimates range from roughly $28.5bn to more than $40bn. Such uncertainty complicates any recovery strategy. Before substantial resources flow into the country, creditors and investors will want a clearer picture of Cuba’s obligations and its capacity to meet them. Access to foreign capital will be especially important during a transition, when imports and reconstruction needs are likely to remain high.
Energy and Infrastructure
Nowhere is the deterioration of the Cuban state more visible than in the electricity system. The island’s recurring blackouts are often attributed to fuel shortages, but the problem runs deeper. Electricity generation has fallen by nearly a quarter since 2019. Much of the generating fleet is old, poorly maintained, and operating well beyond its intended lifespan. With little reserve capacity available, the failure of a single plant can cascade into wider outages.
The energy crisis is also the product of political choices. Even as the electrical system deteriorated, investment continued to flow disproportionately towards tourism. The logic may have been understandable in the short term, but the consequences are increasingly apparent. Electricity is not simply another sector of the economy. It underpins almost every productive activity on the island. As outages become more frequent, the effects spread throughout the economy, disrupting production, damaging inventories, and undermining the delivery of essential services.
The same pattern of neglect extends beyond energy. Roads, ports, housing, water systems, and public infrastructure have all suffered from decades of underinvestment. Rebuilding them will require resources that Cuba does not currently possess. Although legislation such as the Helms-Burton Act contemplates assistance for a democratic transition, external aid alone would be insufficient. Recovery would depend on attracting private investment and resolving outstanding debt issues so that capital could flow into productive projects. Infrastructure may not be as politically visible as constitutional reform, but without reliable transport, energy, and public services, broader economic liberalisation would struggle to generate sustained growth.
Conclusion
For decades, economic decisions in Cuba have been shaped less by market signals than by administrative directives and political priorities. The result has been an economy that struggles to generate growth, reward productivity, or allocate resources efficiently.
A future transition government would face immense pressure to deliver quick improvements. Yet recovery is unlikely to come from dramatic gestures alone. It will depend on rebuilding credibility among citizens, entrepreneurs, creditors, and foreign investors alike. That credibility will emerge only if people believe that the rules governing economic life have fundamentally changed and will remain stable over time.
The early years of any transition would almost certainly be difficult. Stabilisation programmes rarely produce immediate rewards, and Cuba’s economic distortions have accumulated over decades. Nevertheless, the island’s long-term prospects will depend on whether Cubans once the faltering of the current regime occurs, can building something that looks like a rule of law. That shift, more than any individual reform, would determine whether Cuba’s next chapter proves more successful than its last.
About the author
Carlos Martinez is a social mobility fellow at the Archbridge Institute and a Ph.D. candidate in the Department of Economics at George Mason University. His research focuses on economic history and economic development, with particular attention to the causal effects of the Cuban Revolution and the study of economic freedom. He writes at Cubanomics.
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Great work!