The Moody’s credit rating firm has dropped Cuba’s low ranking even further, saying that the island is vulnerable to an “elevated risk” of an economic collapse in Venezuela as well as “abrupt and disorderly” changes at home.
Although Cuban ruler Raúl Castro “recently indicated that his current term will be his last and, at the same time, appointed a first vice president … there is considerable uncertainty around the future state of Cuba's political economy,” the firm said.
Those factors create the risk of “an abrupt and disorderly political transition” in Cuba, Moody’s said in a report last week on how the turmoil in Venezuela could affect its cheap oil exports to member nations of the Petrocaribe program.
“Cuba relies heavily upon Venezuela for oil, which is imported with favorable financing terms through Petrocaribe,” the credit rating firm said. It put the value of Venezuelan oil sent to the island in 2012 at more than $6 billion.
“Given Venezuela's increasingly unsustainable macroeconomic imbalances and elevated risk of an economic and financial collapse, the future of this arrangement is uncertain, rendering Cuba vulnerable to a sharp adjustment in the cost of energy imports.” Moody’s said.
Cuba pays for the Venezuelan crude by sending an estimated 40,000 medical professionals, teachers, sports coaches and other “advisers” to work in Venezuela, although details of the arrangement remain largely unknown.
Cuba’s credit rating has been traditionally poor under the communist government. Moody’s dropped its rating last week from Caa1 to Caa2, described as part of the category known as “highly speculative” and “exotic.”
Castro, 82, has been pushing reforms to move the island’s economy away from its centrally controlled and inefficient Soviet model and toward a system that allows more room for small-scale private enterprise.
Venezuela, whose overall subsidy to Cuba is estimated at more than $6 billion, has been mired in weeks of violent street protests against President Nicolás Maduro that have left more than 40 dead and 600 injured. Moody’s dropped its Venezuela rating in December to Caa1.
The firm said Cuba, Nicaragua and Jamaica would be the most vulnerable if Venezuela is forced to cut back its cheap oil exports under the Petrocaribe program, while the Bahamas and Honduras would be the least affected.
The other Petrocaribe members are Antigua and Barbuda, Belize, Dominica, Grenada, Guyana, Haiti, Dominican Republic, St. Kitts and Nevis, St. Vincent and Grenadines, St. Lucia and Suriname.