2009 Index of Economic Freedom

Quick Facts

Population:

• 11.3 million

GDP (PPP):

Unemployment:

• 1.8%

Inflation (CPI):

• 3.6%

FDI Inflow:

• $-0.7 million

Cuba's economic freedom score is 27.9, making its economy one of the world's least free, ahead of only Zimbabwe and North Korea. Its overall score is 0.4 point higher than last year, reflecting marginally improved scores in trade freedom and freedom from corruption. Cuba is ranked at the bottom among 29 countries in the South and Central America/Caribbean region, and its overall score is less than half of the regional average.

The Cuban economy performs relatively well in trade freedom and monetary freedom. Cuba has a moderate average tariff rate of 7.8 percent but very restrictive non-tariff barriers to trade. Inflation is moderate, but government efforts to control prices are pervasive.

Cuba's overall economic freedom remains severely hampered by numerous institutional weaknesses, and the private sector is very limited. Because the Communist government dictates economic policies, many aspects of economic activity are tightly controlled and state-dominated. No courts are free of political interference, and private property (particularly land) is strictly regulated by the state.

Background Back to the top

A one-party Communist state with a command economy, Cuba continues to depend heavily on external assistance (chiefly oil provided by Venezuela’s Hugo Chávez and remittances from Cubans living overseas) and a captive labor force. The Cuban government restricts basic human rights, such as freedom of expression, labor rights, and property ownership, and holds hundreds of political prisoners under harsh conditions. In February 2008, Fidel Castro’s 75-year-old brother Raul became Cuba’s head of state, but an ailing Fidel reportedly still directs the Communist Party and influences decision-making from behind the scenes. Overall, the regime’s hostility to free elections and safeguards for individual rights remains unchanged. Little reliable independent economic information is available, and official figures on per capita GDP may not reflect actual incomes

Business Freedom 10.0 Back to the top

The overall freedom to start, operate, and close a business remains constrained by state interference. As the government virtually controls many aspects of economic activity, only limited private entrepreneurship exists. Inconsistent and non-transparent application of regulations impedes the creation of dynamic entrepreneurial activity.

Trade Freedom 64.4 Back to the top

Cuba's weighted average tariff rate was 7.8 percent in 2006. The trade regime remains largely non-transparent, customs corruption is common, rules and regulations are non-transparent and burdensome, and imports and exports are dominated by the government. Twenty points were deducted from Cuba's trade freedom score to account for these non-tariff barriers.

Fiscal Freedom 45.9 Back to the top

Cuba has a high income tax rate of 50 percent. The top corporate tax rate is 30 percent (35 percent for companies with entirely foreign capital). In the most recent year, tax revenue as a percentage of GDP was 44.8 percent. Other taxes include a tax on property transfers and a sales tax.

Government Size 0.0 Back to the top

Total government expenditures, including consumption and transfer payments, are very high. In the most recent year, government spending equaled 72.6 percent of GDP. The state's commitment to employing every citizen continues to be an obstacle to sound fiscal management. The industrial and services sectors are largely dominated by the state.

Monetary Freedom67.0 Back to the top

Inflation is moderate, averaging 4.2 percent between 2005 and 2007. The donation of billions of dollars in petroleum products each year by Venezuela has eased inflation concerns. The government determines prices for most goods and services and subsidizes much of the economy, although some private and black market retail activity is not government-controlled. Twenty points were deducted from Cuba's monetary freedom score to adjust for measures that distort domestic prices.

Investment Freedom10.0 Back to the top

All investments must be approved by the government, and all businesses must be licensed. Cuba maintains a hostile business environment in which foreign investment is discriminated against and limited to joint ventures and complex rules and regulations are applied arbitrarily. The state dominates the economy and is the primary employer. Private-sector opportunities are limited. The government maintains strict capital and exchange controls. Some restrictions have been loosened to permit investment commitments and credit lines from China and Venezuela.

Financial Freedom10.0 Back to the top

Despite a decade of incremental changes in the financial sector, the government remains firmly in control. Cuba's banking sector remains poorly developed, and an inefficient regulatory framework, coupled with bureaucratic hurdles, poses a serious impediment to obtaining credit for entrepreneurial activity. The Cuban peso is the domestic currency, and a separate convertible peso is hard currency for foreign exchange and non-essential retail purchases. Over a dozen foreign banks have opened offices but are not allowed to operate freely. New products, such as travel and medical insurance and personal pensions, are being introduced. The government established a central bank in 1997 and converted the Banco Nacional de Cuba into one of a new set of state banks. Central bank authority was enhanced in 2005 to allow closer control of the use of hard currency and convertible pesos. Credit and insurance markets remain government-controlled.

Property Rights10.0 Back to the top

Cuban citizens may own land and productive capital for farming and self-employment. The constitution subordinates the courts to the National Assembly of People's Power (NAPP) and the Council of State. The NAPP and its lower-level counterparts choose all judges. The law and trial practices do not meet international standards for fair public trials.

Freedom From Corruption42.0 Back to the top

Corruption is perceived as significant. Cuba ranks 61st out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. Independent and official press sources have reported incidents of government corruption. For example, customs officials have requested unauthorized fees illegally or have confiscated the belongings of citizens legally residing overseas who were returning to Cuba after visiting relatives, and senior officials in large state-run tourism organizations have been jailed for corruption.

Labor Freedom20.0 Back to the top

Cuba's rigid labor regulations hinder employment and productivity growth. The formal labor market is not fully developed, and the government-controlled labor market has helped to create a large informal economy. A labor code drafted in 2006, which aims at improving the efficiency of entrepreneurial activities and contains strict penalties for the use of work time for personal benefit, took effect in 2007.