BRICS Bank Implications for the Caribbean Justin Ram Director of Economics, Caribbean Development Bank SELA, Caracas 08 th October 2015

Transcription

1 BRICS Bank Implications for the Caribbean Justin Ram Director of Economics, Caribbean Development Bank SELA, Caracas 08 th October 2015

2 Outline Caribbean Context Caribbean vulnerability Financing needs and policy requirements BRICS Bank opportunities for the Caribbean

3 The Caribbean context

4 % growth 2014 growth 1.4% and CDB forecast regional growth of 2% in Real GDP growth 2014 and ANG ANT BAH BAR BZE BVI CAY DOM GRE GUY HAI JAM MON SKN SLU SVG SUR TT TCI (0.1) (2.7) (1.3) Source: CDB 2014 latest estimates, 2015 projections

5 Economic Growth Consistently Lower than other Small Island Developing States (SIDs) Real GDP growth Sources: IMF, ECCB and CDB CDB BMCs data for 2014 are preliminary CDB estimates

6 Unemployment still at uncomfortable levels Source: CDB

7 and the debt situation is stark Sources: CDB, IMF WEO

8 reflected in recent Credit Rating Actions

9 And poverty is still a major challenge

10 In Percent of GDP Low savings rates are also a problem 15% average ANT BAH BAR BZE DOM GRE GUY HAI JAM SKN SLU SVG TT EMD -10 Pre-crisis Post-crisis

11 Doing Business in the Caribbean is More Difficult Than in Other Countries Caribbean Ease of Doing Business Rank: Small States average Island States average Source: World Bank

12 With high Energy costs playing a role and eroding Caribbean Competitiveness Average Retail Tariff per Utility, 2012 US: 12 US cents/kwh; EU: 20 US Cents/kWh (2014)

13 SMEs are engines of growth and employment but SMEs Face Obstacles to Access Finance Percentage of firms surveyed identifying access to finance an obstacle, 2014

14 In addition to this: Environmental vulnerability ever present.

15 In Summary remember this: Caribbean Economies in Five Bullet Points 1) Small and open vulnerable economies; 2) good development progress since Independence but still too high poverty and unemployment; 3) further development progress being constrained by dependent, uncompetitive and structurally deficient economies that are highly exposed and vulnerable to external and natural shocks, changes in terms of trade, and foreign investment flows; 4) over time, this has resulted in high and unsustainable debt positions and recurring macro-fiscal instability as major hurdles to robust, sustained growth and poverty reduction; 5) Limited policy arsenal and inadequate connectivity.

16 Breaking down Caribbean vulnerability

17 Bahamas Bangladesh El Salvador Azores Taiwan Prov.of China Cape Verde Trinidad and Tobago Fiji Puerto Rico Jamaica Vanuatu Haiti Reunion Kiribati Samoa Luxembourg Northern Mariana Isl Avg. non-sids Comoros Guadeloupe St. Helena Seychelles Turks & Caicos Isl Mauritius Micronesia, Fed. Sts. Martinique Maldives Niue Marshall Islands Avg. SIDS Dominica Guam Tonga Barbados Grenada Antigua and Barbuda Cayman Islands St. Kitts and Nevis St. Lucia Cook Islands American Samoa Wallis and Futuna St. Vincent & Grens. Anguilla Virgin Islands, British Montserrat Hong Kong Bermuda Macao Tuvalu Tokelau Caribbean SIDS are very susceptible to natural disasters. Probability of at Least 1 Natural Disaster in a Year (In percent, per 100 km 2 ) SIDS Non SIDS Averages Note: Includes droughts, earthquakes, extreme temperatures, floods, mass movements, storms and volcanoes. Sources: EM-DAT; and IMF staff estimates.

18 High incidence and impact of natural disasters High incidence due to geography (tropical climate, topography, etc.) High impact related, inter alia, to size, openness and insularity SOURCE: EM-DAT Disaster Database, Université Catholique de Louvain, Brussels, Belgium

19 Disaster Risks of Caribbean Countries Two-thirds of all Caribbean countries are classified as highly vulnerable or worse, to natural disasters Extremely vulnerable Highly Vulnerable Vulnerable At Risk Resilient Barbados British Virgin Islands Grenada Jamaica St. Lucia Trinidad & Tobago Cayman Islands Dominica Haiti Montserrat St. Kitts & Nevis St. Vincent & the Grenadines Anguilla Antigua & Barbuda Turks & Caicos Islands The Bahamas Belize Guyana Suriname Source: CDB,

20 Socio-economic Impacts of Natural Disasters (Cont d) Projections suggest that tourism activity could be particularly affected by climate change Value of Tourism Receipts (Business as Usual) Loss (High Emission Scenario) Loss (Low Emission Scenario) Bahamas Barbados Bahamas Barbados Bahamas Barbados ,219 10,114-3,876-1,410-3, ,489 21,741-2,880-4,761-2,973-2, ,062 36,080-4,295-10,254-3,625-6, ,857 53,574-5,639-18,309-3,819-13,224 Source: ECLAC, 2011.

21 THE ENVIRONMENT PLAYS AN IMPORTANT ROLE: PUBLIC INDEBTEDNESS AND ENVIRONMENTAL VULNERABILITY IN THE CARIBBEAN AS AT 2010 Item Highly indebted (Debt/GDP > 60%) Moderately indebted (Debt/GDP 30 60%) Less Indebted < 30% Extremely/Highly Vulnerable Vulnerable/At Risk Resilient Antigua and Barbuda Barbados Dominica Grenada Jamaica St. Kitts and Nevis St. Lucia St. Vincent and the Grenadines Trinidad and Tobago British Virgin Islands Cayman Islands Haiti Montserrat Belize Anguilla Bahamas, The Turks and Caicos Islands Guyana Suriname

22 Vulnerability due to output and export concentration SOURCE: United Nations Statistics Division National Accounts Database, CDB calculations

23 Doing Business Indicators ECONOMY Overall Rank STARTING A BUSINESS Cost (% of income per capita) DEALING WITH CONSTRUCTION PERMITS Time (days) GETTING ELECTRICITY Cost (% of income per capita) REGISTERING PROPERTY Time (days) GETTING CREDIT Credit bureau coverage (% of adults) PAYING TAXES Total tax rate (% profit) TRADING ACROSS BORDERS Cost to export (US$ per container) ENFORCING CONTRACTS Time (days) ANT , BAH , BAR BZE , DOM GRE , GUY HAI , , JAM , SKN SLU SVG SUR , TTO REG AVG , Singapore Source: World Bank Group

24 Adding up to high vulnerability External economic shocks (e.g. growth/price shocks) transmitted via BOP given openness Natural Disasters affect natural and human resources, economic infrastructure and therefore productive/export capacity Private sector uncompetitive

25 Impact of vulnerability in the Caribbean Negative impact on GDP growth begins at 56% debt to GDP ratio (IMF) Eleven of CDB s BMC are above this threshold. Debt distress/default occurs at >90%. Four of CDB s BMCs above this threshold. With natural events constantly adding to the debt overhang. Many countries are not generating the necessary primary balances to reduce their level of indebtedness. Remember that competitiveness is still an issue.

26 Highly indebted, uncompetitive and vulnerable but significant financing still required

27 kwh per capita (2010) Vehicles per 1000 people ( 2010) We see that demand for Infrastructure Services Will Grow R² = 0, R² = 0, Electricity consumed (kwh), Vehicles per 1000 people, GDP per capita USD (2010) GDP per capita (2010)

28 Electricity tariffs Electricity Tariffs for Domestic Consumer using 100 kwh per month, 2012 Country Tariff Rate (US cents/kwh) Turks & Caicos Islands Montserrat Cayman Islands Anguilla Dominica Grenada The Bahamas (GBPC) St. Vincent and the Grenadines Barbados The Bahamas (BEC) Jamaica St. Lucia Belize Suriname 4.99 Trinidad and Tobago 4.51 (Arithmetic) Average 34.75

29 Road infrastructure Country Borrowing Member Countries Road Density (km per 100 sq. km) Roads (km) per 1000 persons Paved Roads (%) Paved Roads (km) per 1000 persons Year of Data Antigua and Barbuda Bahamas, The Barbados Dominica Grenada Guyana Haiti Jamaica St. Kitts and Nevis St. Vincent and the Grenadines Suriname Trinidad and Tobago Comparable Regions East Asia & Pacific (all income levels) Europe & Central Asia (developing only) Latin America & Caribbean (all income levels)

30 Water resources Total renewable water resources per capita (m3/inhabitants/year) Country % Change Antigua and Barbuda (29.67) Bahamas (30.77) Barbados (6.55) Belize 106,000 57,253 (45.99) Guyana 326, ,942 (2.51) Haiti 2,098 1,368 (34.80) Jamaica 4,034 3,406 (15.57) Saint Kitts and Nevis (24.09) Suriname 315, ,464 (27.53) Trinidad and Tobago 3,216 2,842 (11.63) Average 75,850 61,263 (22.91)

31 Thus considerable Infrastructure Investment Required In 2014, CDB found that: ousd21.4 billion (bn) required to olikely to be a USD10.6 bn financing gap.

32 Total Public and Private Investment Need by Country and Sector All Values are in USD Millions Country Electricity Transport Water and Sanitation Total Haiti 8, ,552 12,214 Jamaica 1,109 1, ,198 The Bahamas ,121 Trinidad and Tobago Guyana Belize Suriname Barbados St. Lucia Cayman Islands Antigua and Barbuda Grenada St. Kitts and Nevis Turks and Caicos Islands St. Vincent and the Grenadines British Virgin Islands Dominica Anguilla Montserrat Total 11,919 3,796 5,467 21,183

33 The distribution of this investment

34 Policy requirements

35 Policy Actions: promoting sustainable and inclusive growth Fiscal Consolidation: Fiscal rules, increase efficiency of expenditure, maintain capital investment, reform of subsidies. Social Protection: targeted approach to social safety nets Energy reforms: provide the regulatory environment to increase use of RE in energy mix and greater EE Human Capital Development: Investment in quality education for all, with emphasis on science, technology, engineering and math (STEM) The need for higher savings: both public and private

36 Policy Actions: promoting sustainable and inclusive growth Improve the investment climate: make it easier for private sector to thrive (doing business reforms) Labor market reforms: increase flexibility and freedom of movement. Regulatory and Governance reforms: improve transparency and accountability. Improve regional Transport and logistics: increase efficiency of movement of people and goods across the region and tap into the growth potential of global value chains via improved logistics.

37 New BRICS Bank - Opportunities

38 New Bank - Considerable opportunities for new financing With graduation limited access to concessional resources (no assessment of vulnerability) Low savings rates economic transformation required private sector and PPPs Concessional resources/lines of credit to leverage regional expertise

39 New Bank - Considerable opportunities for new financing Note recent UK announcement of funds which are very welcome Technical assistance support Broaden trading partners for the Caribbean New Investment BRICS bank can promote this and raise awareness of Caribbean opportunities

40 Considerable opportunities for new financing Climate proof investment / resilience RE/ EE investment required Policy based lending that promotes growth - Regulatory reforms that are applicable, help improve competitiveness

41 Considerable opportunities for new financing Help reduce vulnerability through new trade routes Assist with greater integration of C in LAC ; thus Brazil must play a key role for integration

42 Thank You!