Why has growth in the Caribbean been so low over the last 20 years? Has debt significantly hindered it? And what are the policies that could help boost economic performance and better prepare the region to benefit from the recovery in the global economy? These are some of the issues addressed in the International Monetary Fund (IMF)’s latest Regional Economic Outlook (REO) Western Hemisphere: Heating Up in the South, Cooler in the North.
The report was launched on October 20 in Kingston, Jamaica by Gilbert Terrier, senior advisor in the Fund’s Western Hemisphere Department, in a roundtable discussion with Jamaica’s financial secretary Wesley Hughes; Keith Collister, representing the Private Sector Organization of Jamaica; Damien King, head of the department of economics at the University of West Indies; and Shelton Nicholls, Deputy Governor of the Central Bank of Trinidad & Tobago; and the IMF’s senior resident representative in Jamaica, Gene Leon.
According to IMF projections, Latin America as a whole will grow 5.7 percent in 2010 and 4 percent in 2011, while the Caribbean (including all independent Caribbean Community states, Haiti and Dominican Republic) will have a combined rate of 2.4 percent this year, with some countries still recording negative rates.
For CARICOM states only, the growth rate will be around zero in 2010, rising to 2 percent in 2011.
Noting that there is a fear that “the world economy is slowing down more than the headlines suggest,” Terrier said that the “lack of growth in the Caribbean reflects the negative impact of the world crisis further exacerbated by declines in remittances and tourism.”
The IMF study reported that recovery has only begun in most Caribbean countries, and growth will be constrained by a lackluster recovery in advanced economies, especially for the tourism-intensive countries dependent on the inflow of visitors from the United States and Europe.
Also, very high levels of public debt allow little space for fiscal stimulus, keep long-term interest rates high, and stymie private investment, creating an important obstacle to growth in many countries.
Pointing to the growth performance in Trinidad & Tobago during the last decade as a result of “diversification of the energy sector into oil, gas and petrochemicals”, Deputy Governor Nicholls said that “a mix of a productive and export base is key to maintaining growth in the region” and called for a strategy to tap potential in countries like Guyana, Belize and Trinidad & Tobago in response to global consensus about food security and climate change.
The REO shows that tourism remains a powerful force in the regional economy, where a 10 per cent increase in tourist arrivals per capita can increase growth by 0.2 percent.
It recommends that countries should pursue structural reforms that increase the tourism sector’s productivity and competitiveness, reflected in growing numbers of arrivals and receipts per tourist.
One of the strengths of this IMF report, Jamaica Financial Secretary Hughes said is that it “is an attempt to force us to focus on the issue of productivity as this issue warrants as much attention as we give to the macroeconomic indicators.”
He noted that while macroeconomic instability might have contributed to low growth, the fundamental cause of this disease is low productivity.
Collister of the Private Sector Organization of Jamaica called for the implementation of comprehensive taxation reform as recommended in an Organization-funded report.
Accumulation of debt has been a significant drag for growth in the CARICOM countries analyzed in the report (excluding Haiti).
At debt-to-GDP ratios over 60 percent, the overall impact of investment on growth is reduced, suggesting that government spending crowds out private investment.
The IMF’s study concludes that, while fiscal tightening may slow growth in the short term, lowering debt has a positive impact on growth in the medium term.
King of the University of West Indies concurred, and noted that the IMF report captured “the stark and disturbing truth about developments in the Caribbean.”
The lack of growth in the Caribbean, he said, “was not endemic to the region but rather institutional” and that what is needed is “a strengthening of the institution of the state and the capacity of governments.”
Leon, wrapping up the event, noted that “The medium-term growth outlook for the region is highly dependent on the commitment of governments to reduce the debt overhang, the implementation of investments to improve productivity and competitiveness, and the continuation of policies, including the building of buffers that can reduce the impact of shocks to macroeconomic and financial stability.”(imf.org)
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