Cuba's Outlook Raised as Venezuela Influence Wanes, Moody's Says

  • Moody's lifts outlook on island nation to positive from stable
  • Cuba's economy also gets boost from thawing U.S. relations

Cuba’s future is looking up as its relationship with the U.S. warms even as flows of Venezuelan cash decline, Moody’s Investors Service said.

The credit-rating company, while affirming the country’s Caa2 rating, raised the outlook on Thursday to positive from stable, citing a diversification of trade and financial links after Venezuela cut financial aid. The current rating places Cuba eight steps below investment grade.

Venezuela has been scaling back its role in Cuba as crude oil prices have tumbled, causing the island nation’s growth to slow to 1 percent last year from 2.7 percent in 2013. It marks a reversal of policies forged by former Venezuelan President Hugo Chavez, who sought to counter U.S. influence in the region. For years, Venezuela has subsidized oil prices in Cuba, while the island has sent scores of doctors to work for its foreign benefactor.

"Despite pressure on Cuba’s external finances from lower economic and financial support from its main trade partner, risks remain manageable," Moody’s analysts Jaime Reusche and Anne Van Praagh said in the statement.

At the same time, more U.S. tourists are visiting Cuba after the Obama administration formally resumed diplomatic relations in July. That prompted Moody’s to boost its forecasts for economic growth to 3.5 percent this year, from a previous estimate of 2.3 percent, Moody’s said. The economy will probably expand 3 percent in 2016, it said. Economists surveyed by Bloomberg expect the U.S. to grow 2.5 percent this year and next.

Moody’s is the only global credit rating company to assign grades to Cuba. The country was governed by Fidel Castro between 1953 and 2008, when his brother Raul took over. Further easing of U.S. restrictions, in place since the 1960s, could lead to an upgrade of the rating, Moody’s said.

Moody’s last changed Cuba’s rating in April 2014, when it lowered the grade one notch from Caa1, according to data compiled by Bloomberg.

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