Fiscal Deficit To Narrow In 2014 On Lower Public Investment Spending
BMI View: We believe that slightly stronger growth and conservative spending plans for 2014 will see the Cuban government's fiscal deficit narrow this year, to 3.2% of GDP, compared to 3.4% in 2013. We forecast the deficit to tick up to around 4.0% of GDP over the coming years, slightly higher than years past, as policymakers make greater use of international capital markets.
We forecast that Cuba's fiscal deficit will narrow slightly in 2014, to 3.2% of GDP, compared to 3.4% in 2013, thanks to an improvement in the outlook for real GDP growth, as well as the government's decision to significantly pare back capital spending. Despite the improvement, we expect that the budgetary shortfall will hover around 4.0% of GDP over the next several years, wider than the 3.4% average seen over the past five years, as the government has taken steps to gradually make greater use of international capital markets, suggesting greater deficit spending than in years past ( see 'Notwithstanding Additional Reforms, Business Climate Remains Poor', April 2).
Cuba's total revenues came in at CUP44.8bn in 2013, a 7.1% decline from the previous year. The relatively poor performance was likely due to headwinds which affected the economy at large. According to Cuba's Oficina Nacional de EstadÃstica e InformaciÃ³n (ONEI), real GDP growth in 2013 was just 2.6%, down from 3.0% in 2012. Perhaps more importantly, retail sales grew by only 4.5% in 2013 in nominal terms, and with overall economic inflation (measured using the headline GDP deflator, since a detailed breakdown has not yet been made available) coming in at 4.7%, this may actually constitute a decline in real terms. Nearly half of Cuba's tax revenues come from sales tax, so this would have had a significant negative effect on government receipts. We expect stronger GDP growth in 2014 (we are forecasting headline real GDP expansion of 2.9%), with tax receipts to pick up in tandem.
|Largely Dependent On Sales Tax For Revenues|
|Cuba - Sources Of Tax Revenue, % Of Total|