Caribbean: Outlook and Challenges Nicole Laframboise International Monetary Fund Views expressed are those of the speaker alone and should not be reported as representing the official position of the International Monetary Fund.
OUTLINE 1. Global/ regional outlook and risks 2. Caribbean: macro challenges 3. Policy priorities
Recall the impact of the Great Recession 6 World: Real GDP Growth (percent change) 5 4 3 2 1-1 2 22 24 26 28 21 212 214 Source: World Economic Outlook. 3
The recovery was U-shaped, but world growth has been tepid since then 12 1 8 6 4 2-2 -4-6 Real GDP Growth (percent change) World Advanced Emerging 25 26 27 28 29 21 211 212 213 214 Source: World Economic Outlook. 4
A pick-up in 213 in advanced economies 11 18 16 14 12 1 98 96 94 92 9 Advanced Economies: Real GDP (index: 28Q1 = 1) US Euro area Japan 28 29 21 211 212 213 214 UK Source: World Economic Outlook. 5
is being offset in part by a slowdown in big emerging markets. 14 12 1 Emerging Markets: Real GDP Growth (percent change) Brazil India South Africa China Russia 8 6 4 2 21 211 212 213 214 Source: World Economic Outlook. 6
Global activity is expected to strengthen moderately The U.S. economy is improving, as fiscal headwinds ease and house-holds recover further The euro area is out of recession, but activity remains subdued with financial fragmentation, debt burdens China s growth is expected to stabilize at a lower rate, reflecting both cyclical and structural factors Overall, downside risks remain, though have shifted to new risks 7
RISKS: Effects of normalization of US monetary policy on EM sovereigns and corporates 8
New bouts of risk aversion and financial market volatility leading to more outflows Sources: EPFR; and IMF staff calculations. 9
For commodity producers, the end -- for now -- of rising demand from China and rising prices. Commodity Prices (index: March 24=1) 4 35 3 Oil Metals Food Forecasts 25 2 15 1 5 24 26 28 21 212 214 Source: World Economic Outlook. 1
These developments pose challenges for the Caribbean region, where growth has been subdued... 5 4 3 2 1-1 -2-3 -4-5 Caribbean: Real GDP Growth (percent change) Commodity exporters Tourism dependent 28 29 21 211 212 213 214 Source: World Economic Outlook. 11
Particularly in several tourism based markets. 15 Caribbean: Tourist Arrivals (index: January 25=1) ECCU and Barbados 1/ Jamaica Bahamas and Belize Dominican Republic 14 13 12 11 1 9 8 25 26 27 28 29 21 211 212 213 Source: Caribbean Tourism Organization. 1/ ECCU includes Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines. 12
198 1982 1984 1986 1988 199 1992 1994 1996 1998 2 22 24 26 28 21 212 Giving rise to persistent external imbalances Caribbean: Net Foreign Assets (NFA) (percent of GDP) -5-1 -15-2 -25 Caribbean Tourism-based Caribbean Commodity-exporting Caribbean Sources: International Financial Statistics; World Economic Outlook; External Wealth of Nations Database;and IMF staff calculations. 13
Snapshot: external current account deficits by country Current Account Balance, 213 (percent of GDP) 15 1 5-5 -1-15 -2-25 -3-35 VCT GRD BHS GUY DMA ATG LCA BRB JAM KNA SUR BLZ TTO Source: World Economic Outlook. 14
1995 1996 1997 1998 1999 2 21 22 23 24 25 26 27 28 29 21 211 212 Financed less in recent years by FDI. 2 15 Caribbean: Current Account Financing (average for tourism dependent countries, percent of GDP) Capital transfers Public borrowing CA Deficit FDI Other 1 5-5 Sources: International Financial Statistics; World Economic Outlook; and IMF staff calculations. 15
High debt and weak growth have strained fiscal positions. General Government Primary Balance and Gross Debt (% of GDP) Tourism-Dependent Economies Primary balance (right scale) Debt Commodity Exporters Primary balance (right scale) Debt 1 4 56 4 95 9 85 8 75 3 2 1-1 -2-3 54 52 5 48 46 44 3 2 1-1 -2-3 7 28 21 212 214-4 42 28 21 212 214-4 Source: IMF, World Economic Outlook Note: Statistics shown are simple averages for the respective country groups. 16
Snapshot: 213 public debt Debt, 213 (percent of GDP) 16 14 12 1 8 6 4 2 SUR TTO BHS GUY DMA BLZ VCT LCA BRB ATG KNA GRD JAM Source: World Economic Outlook. 17
GUY SUR BLZ TTO GRD LCA BRB ATG JAM BHS DMA VCT KNA In many cases leading to fiscal financing pressures Central Government Financing Needs (% of GDP) Commodity Exporters Tourism-Dependent Economies 15 3 1 213 214 25 2 213 214 15 5 1 5 Source: IMF staff estimates. Note: Data are presented on the government's fiscal year-basis and may not be strictly comparable across countries. Data for St. Kitts and Nevis refer to the general government. Data for Guyana refer to the nonfinancial public sector. 18
This has increased the burden on financial systems, some already struggling with high NPL ratios. 25 Nonperforming Loans (Percent of total loans) Belize Jamaica ECCU 2 15 1 5 28Q1 29Q1 21Q1 211Q1 212Q1 213Q1 Sources: National authorities; and IMF staff calculations. ¹ECCU includes Antigua, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, and St. Vincent and Grenadines. 19
Broad policy Objectives 1. Strengthen fiscal position: lower debt, build buffers 2. Improve competitiveness: lower costs, raise quality 3. People: create employment, safeguard social services, equity 2
Policy Recommendations ** 1. Lower public debt levels > Revise/strengthen fiscal frameworks (PFM, rules ) > Lower current expenditure, raise capital spending > Reduce tax expenditures, widen tax base, lower rates 2. Reduce financial sector vulnerabilities > Resolve failed institutions promptly > Beef up framework for resolution, crisis management > Enhance national and cross border supervision 3. Boost potential growth. ** IMF, CARICOM COMMISSION, GROWTH FORUM, ETC 21
3. Economic Growth Lower admin costs of doing business: regulation, red tape, customs delays Strengthen public services, institutions: remove state from the productive sectors, focus on public goods and services Structural reforms to lower key costs: Labour reduce rigidities Energy and transport: regional approach/solutions Infrastructure bottlenecks: identify, prioritize 22