Stopping the free fall: The emerging phase of Cuba’s economic stabilization

In 2026, several geopolitical and diplomatic factors appear to be converging, creating an opportunity to transform the Cuban economy. It remains unclear how this transformation would occur politically or what its institutional and power impacts would be. If conditions for change do arise, it is crucial to have clear priorities and a well-organized sequence for implementation.

The challenge is immense. The Cuban economy no longer has the political, social, or material capacity to keep postponing structural and institutional reforms. Nor does it make sense to continue with fragmented, partial, and overly slow reforms that have been common in the past. The size of the crisis calls for more decisive action, though not in a chaotic or improvised way.

It is essential to understand that not all reforms can be carried out simultaneously. Prioritizing, phased implementation, and establishing an order that enhances results, lowers transition costs, and focuses political, institutional, and financial resources where they can make the biggest difference are unavoidable.

From this perspective, a sensible roadmap would involve dividing the process into three stages. Each stage would address different objectives based on the urgency of the issues, the capacities available to tackle them, and the type of results expected at each point. The three stages or phases could be organized as follows:

1. Stabilization and emergency measures, lasting about two to three years, aim to stop macroeconomic decline, fix the most severe imbalances and shortages, and restore essential conditions for the economy to function.
2. Productive reactivation aims to promote structural and institutional changes that significantly enhance efficiency in resource allocation, competitiveness, and financial credibility, to achieve a sustainable recovery of productive capacity, investment, employment, and household income.
3. Strategic vision for the economic and social development model aims to clearly define the framework for international integration, key productive sectors, mechanisms for wealth redistribution, the role of the State in the economy, and other elements of a new social contract.

Although these stages would necessarily be interconnected and each would contribute to the success of the others, it is useful to define this roadmap to organize, sequence, and provide coherence to the set of changes the country needs.

A complex starting point, but with some opportunities

The initial phase of stabilization and emergency reforms starts from a particularly critical point. The Cuban economy has experienced over a decade of serious decline, which worsened sharply in 2020 and continued to decline in 2026. Along with the productive crisis and drops in exports and tourism, there has been a tightening of U.S. sanctions, the interruption of oil shipments from Venezuela after the political events of January 2026, the suspension of supplies from Mexico, and the worsening of the energy crisis. The electric power grid, transportation, water systems, healthcare services, housing, and production facilities are in very poor condition.

Therefore, the goals of this initial stage must be realistic and aligned with that starting point. Avoid setting overly ambitious or impossible short-term goals; instead, emergency objectives should aim to stop deterioration and restore basic conditions for economic activity and investor confidence.

Even so, this essential starting point coexists with three factors that could boost the positive impact of reforms in this early stage.

• First, the existence of a private sector that, despite operating under strict regulatory, banking, exchange-rate, and tax constraints, has shown significant ability for adaptation, innovation, and crisis response. The expansion of the private sector is one of the few internal drivers with immediate potential to boost supply, employment, goods availability, and income generation. It is not a fully developed or obstacle-free private sector, but it is an existing economic base upon which much of the initial transformation can build.
• Second, the contribution of a large segment of the Cuban diaspora. Many Cuban Americans and emigrants in other regions have business experience, financial and commercial connections, and capital that could significantly support the growth of the private sector on the island. In some cases, there are already examples of investment or economic ties with Cuba’s private sector. The use of these resources would be enhanced by a credible process of economic liberalization.
• Third, the possibility that, within negotiations with the United States, some “windfalls” could occur—that is, short-term relief or extraordinary benefits from a potential easing of sanctions. Depending on the scope of talks, these could lead to better access to foreign currency, tourists, remittances, investment, trade, external financing, and energy supplies. This presents a potential window of opportunity that, if properly harnessed, could boost the success of emergency measures and lower some transition costs.

The hardest part of the adjustment has already occurred

In designing measures and policies for the initial phase, it must be acknowledged that a distorted and highly socially costly adjustment has already occurred in the Cuban economy. The State has been withdrawing from goods and services markets, reducing its provisioning capacity through the ration book to a minimum, and degrading the coverage, quality, and real value of essential services such as healthcare, education, transportation, electricity, and waste collection. This is further worsened by the near disappearance of public investment in infrastructure and housing, as well as the decline in the real value of public sector wages and pensions. Overall, this has resulted in a substantial contraction of real government spending, effectively shifting a growing portion of the crisis’s costs onto households.

In this sense, part of the fiscal and monetary imbalances has already been addressed, but not through a coherent stabilization program; instead, via an asymmetric adjustment that has impacted consumption, real income, and population welfare. Inflation and the depreciation rate of the Cuban peso have generally moderated compared to previous peaks, mainly because the decline in real wages, pensions, and public spending has constrained domestic demand and driven an adjustment through increased impoverishment.

Therefore, the first phase of stabilization should not be seen in the traditional sense as a program solely aimed at lowering inflation, fiscal deficits, or government debt. Given Cuba’s current circumstances, stabilization needs to be understood in a broader way.

Six general objectives for stabilization

Under this logic, and with an approximate three-year horizon, the stabilization phase and emergency transformations could focus on the following objectives:

1. Pause the reduction in production and establish the groundwork for a slow recovery of supply in some industries.
2. Encourage the growth of the private sector as a key driver of economic recovery, employment creation, and increasing domestic supply.
3. Facilitate the adjustment of relative prices and the exchange rate so that market-based economic signals direct resource allocation.
4. Transform the labor market by enabling job reallocation while maintaining the stability of the average real wage.
5. Establish basic conditions for confidence and predictability in attracting foreign capital and revitalizing investment.
6. Maximize economic opportunities from a potential easing of sanctions and increased external openness.

Given the complex initial conditions marked by the deterioration of economic and social infrastructure, it is unlikely that market reforms and the removal of sanctions alone will yield sufficient short-term results. It is very probable that this initial phase will require extraordinary support from the international community, ideally through a multilateral emergency fund, to maintain minimum living conditions for the population and to support the start of productive reconstruction.

Pavel Vidal is a professor at the Pontifical Xavierian University in Colombia.