Caribbean Faces Uncertain Times
February 18, 2011 1 Comment
This year promises to be another hard slog for many Caribbean economies.
The latest assessment of uncertain times ahead has come from the Caribbean Development Bank (CDB). It said any sustained recovery hinges on the performance of industrialised nations, where the outlook remains uncertain.
“Taken together with the fact that the business cycles of regional economies tend to be highly correlated with those of advanced economies … these factors imply modest recoveries for most economies in the region,” the CDB said.
“However, as with the global outlook, there is a high degree of uncertainty surrounding these expectations.”
Some of the countries in the Caribbean are among the most highly indebted in the world, according to the International Monetary Fund (IMF).
This indebtedness has hampered their ability to extricate themselves from the economic crisis. Participants at an IMF-backed conference in Barbados in late January found that economic growth in the region has lagged other parts of the hemisphere largely because of weak productivity growth. They concluded that diversification of economic partners and export markets, which some countries are already pursuing, should become a deliberate strategy.
Citing tourism, the CDB said the nascent recovery in arrivals by air could be bolstered by tapping into the robust growth in emerging economies. For example, it noted that Barbados – a regional hub for the southern and eastern Caribbean – has facilitated the introduction of direct flights from Brazil.
The growing economic strength of emerging economies should also continue to be reflected in rising investment flows to the region, such as planned Brazilian investments in Guyana.
The bank also saw a continued rise greater foreign investment, construction and agriculture. On the other hand, unemployment levels are remain high. The Barbados conference participants acknowledged that lowering debt and fiscal deficits would lead to higher growth over time. Governments, they said, have to live within their means and rein in public spending. But the CDB said that even though the introduction or increase in value added taxes would help revenue growth, rising prices would make it harder to bring order to public finances.
As a result, the bank said that with the exception of a few countries, deficits are likely to widen further and debt levels are expected to continue to rise, unless greater efforts are made to control expenditure and improve debt management.