Progress made in Paris Club debt negotiations
Cuba and the Paris Club have agreed that the Cuban government owes some US$15bn, stemming from its 1986 default. The figure includes principal, interest and penalties.
Cuba's agreement with the informal group of 19 creditor nations that make up the Paris Club stopped short of an official plan to renegotiate the debt. But merely settling on a figure marks another step forward in the island's integration into the world economy following an unprecedented warming of diplomatic relations with the US since December.
In recent years Cuba has negotiated deals with several countries to reduce its debt while extending payment terms. A deal in 2013 settling a US$25bn debt owed to the former Soviet Union helped to pave the way for the agreement with the Paris Club. The Cuban government has also struck a similar deal with Japanese and German creditors.
The two sides have yet to agree to the share of the debt that will be written off, but the deal with the former Soviet Union (where the majority was written off) suggests that Cuba will only repay a fraction of the US$15bn figure agreed. However, one obstacle to a final agreement will be the issue of data transparency. Cuba publishes no data on international reserves, which it regards as a state secret, and hardly any data on the balance of payments. The Paris Club is likely to request access to this data, on the basis that it needs to be confident about Cuba's repayment capacity before coming to a final agreement.
We currently estimate Cuba's external debt at US$25bn, of which we had estimated total arrears (defined by the Cuban government as "immobilised debt") at US$6.5bn. The agreement with the Paris Club will therefore have the immediate impact of raising external debt; however, on the assumption that both sides reach a restructuring agreement, external debt will then fall sharply.
Impact on the forecast
Negotiations with the Paris Club are proceeding more quickly than we anticipated, and we now believe that a final settlement will be reached within the next 18 months (potentially this year, depending on how talks proceed over the thorny issue of data transparency). This will remove a major obstacle to Cuban access to international finance. We will be revising our forecasts to factor in larger inflows of external finance from 2017. In the long term, this is likely to result in firmer rates of GDP growth.
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