Moody's: Cuba economy boosted by eased US sanctions

Moody's raised its forecast for Cuban economic growth Thursday, saying the Caribbean island is benefitting from the loosened US embargo and a surge in tourism.

The credit rating agency said the economy will grow about 3.5 percent this year, sharply higher than its previous forecast of 2.3 percent. Next year's forecast was revised slightly higher at 3.0 percent.

The agency said Cuba is surviving the cut in Venezuelan assistance, for years a crucial crutch for the economy that included heavily discounted oil.

While the Venezuelan cutback stalled growth last year to about a 1 percent gain, "measures to diversify trade and financial links seem to have been successful and have coincided with a gradual easing of economic sanctions by the US," it said.

The US easing, which led to a reestablishment of full diplomatic relations between the two countries this year after a nearly six-decade freeze, has helped fuel reforms and a 16 percent surge in the island's tourism earnings.

If this continues, the economy will further strengthen, Moody's said.

"Increasing permissible US participation in the Cuban economy is likely to have a multiplier effect on economic activity, as it could 'crowd in' investment by non-US investors in anticipation of increased visitor arrivals to the Caribbean nation."

The communist-ruled nation's credit rating nevertheless remains a very low Caa2, reflecting what Moody's called a range of economic, legal and political risks.

But it raised the outlook to positive from stable, suggesting a possible increase in the credit rating if things continue to improve.

Moody's said it expects the April 2016 Communist Party Congress will like bolster the reform process by expanding the role of the private sector, reducing price controls, implementing tax reforms and possibly beginning to reform the clumsy dual currency system.

"There could be upward pressure on Cuba's rating if there is a further easing of US economic sanctions that has a material impact on Cuba's economic prospects and reform momentum is maintained," it said.