BRICS Bank Implications for the Caribbean Justin Ram Director of Economics, Caribbean Development Bank SELA, Caracas 08 th October 2015
Outline Caribbean Context Caribbean vulnerability Financing needs and policy requirements BRICS Bank opportunities for the Caribbean
The Caribbean context
% growth 2014 growth 1.4% and CDB forecast regional growth of 2% in 2015 5 Real GDP growth 2014 and 2015 4 3 2 1 0-1 -2-3 -4 ANG ANT BAH BAR BZE BVI CAY DOM GRE GUY HAI JAM MON SKN SLU SVG SUR TT TCI 2014 1.9 2.9 1.6 0.3 3.4 (0.1) 1.9 0.8 2.6 3.8 2.8 0.8 2.8 4.2 (2.7) (1.3) 3.3 0.5 4.0 2015 2.3 4.2 2.1 0.9 2.3 0.6 2.2 1.1 1.7 4.3 3.7 1.4 1.8 4.5 1.1 1.5 3.7 1.7 3.2 Source: CDB 2014 latest estimates, 2015 projections
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
Unemployment still at uncomfortable levels Source: CDB
and the debt situation is stark Sources: CDB, IMF WEO
reflected in recent Credit Rating Actions
And poverty is still a major challenge
In Percent of GDP Low savings rates are also a problem 15% average 40 35 30 25 20 15 10 5 0-5 ANT BAH BAR BZE DOM GRE GUY HAI JAM SKN SLU SVG TT EMD -10 Pre-crisis Post-crisis
Doing Business in the Caribbean is More Difficult Than in Other Countries Caribbean Ease of Doing Business Rank: 2014 200 180 160 140 120 100 80 60 40 20 0 Small States average Island States average Source: World Bank
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)
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
In addition to this: Environmental vulnerability ever present.
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.
Breaking down Caribbean vulnerability
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 ) 60 50 40 SIDS Non SIDS Averages 30 20 10 0 Note: Includes droughts, earthquakes, extreme temperatures, floods, mass movements, storms and volcanoes. Sources: EM-DAT; and IMF staff estimates.
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, www.em-dat.be, Université Catholique de Louvain, Brussels, Belgium
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, 2013. 19
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 2011-2020 25,219 10,114-3,876-1,410-3,466-549 2021-2030 25,489 21,741-2,880-4,761-2,973-2,597 2031-2040 24,062 36,080-4,295-10,254-3,625-6,762 2041-2050 21,857 53,574-5,639-18,309-3,819-13,224 Source: ECLAC, 2011.
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
Vulnerability due to output and export concentration SOURCE: United Nations Statistics Division National Accounts Database, CDB calculations
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 89 10.2 106 122.9 25-42 1,090 351 BAH 97 10.2 178 133.2 122-41 1,005 427 BAR 106 7.6 442 64.0 118-35 810 1340 BZE 118 41.4 110 319.5 59-31 1,355 892 DOM 97 15.7 175 483.0 42-37 990 681 GRE 126 18.4 128 257.9 32-45 1,300 688 GUY 123 11.5 195 442.9 75-32 730 581 HAI 180 246.7 71 3,495.8 312-40 1,200 530 JAM 58 6.0 135 406.3 36 10.1 39 1,580 655 SKN 121 8.7 104 291.1 82-50 805 578 SLU 100 17.8 115 191.8 17-35 935 635 SVG 103 16.7 92 97.3 38-39 585 394 SUR 162 106.4 223 486.1 106-28 1,050 1715 TTO 79 0.7 250 6.7 77 67.4 32 843 1340 REG AVG 111 37.0 166 485.6 82 5.5 38 1,020 772 Singapore 1 0.6 26 26.3 4.5 50.8 18 460 150 Source: World Bank Group
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
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.
Highly indebted, uncompetitive and vulnerable but significant financing still required
kwh per capita (2010) Vehicles per 1000 people ( 2010) We see that demand for Infrastructure Services Will Grow 18.000 16.000 R² = 0,7516 900 800 14.000 12.000 700 600 R² = 0,6768 10.000 500 8.000 400 6.000 300 4.000 200 2.000 Electricity consumed (kwh), 2010 100 Vehicles per 1000 people, 2010 0 0 10.000 20.000 30.000 40.000 50.000 60.000 0 0 20.000 40.000 60.000 80.000 100.000 120.000 GDP per capita USD (2010) GDP per capita (2010)
Electricity tariffs Electricity Tariffs for Domestic Consumer using 100 kwh per month, 2012 Country Tariff Rate (US cents/kwh) Turks & Caicos Islands 50.55 Montserrat 49.90 Cayman Islands 46.78 Anguilla 44.98 Dominica 41.04 Grenada 40.37 The Bahamas (GBPC) 39.08 St. Vincent and the Grenadines 38.03 Barbados 36.54 The Bahamas (BEC) 36.29 Jamaica 35.92 St. Lucia 33.83 Belize 18.50 Suriname 4.99 Trinidad and Tobago 4.51 (Arithmetic) Average 34.75
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 264.8 14.6 33 4.8 2002 Bahamas, The 26.9 9.0 57 5.2 2000 Barbados 372.1 5.9 100 5.9 2004 Dominica 201.6 21.2 50 10.7 2010 Grenada 331.5 11.1 61 6.8 2000 Guyana 4.0 10.7 7 0.8 2000 Haiti 15.1 0.5 24 0.1 2000 Jamaica 204.3 8.2 73 6.0 2010 St. Kitts and Nevis 123.1 7.1 43 3.0 1999 St. Vincent and the Grenadines 212.6 7.7 70 5.4 2003 Suriname 2.8 8.8 2 2.3 2003 Trinidad and Tobago 162.2 6.6 51 3.4 2000 Comparable Regions East Asia & Pacific (all income levels) Europe & Central Asia (developing only) Latin America & Caribbean (all income levels) 28.5 3.2 66 2.1 2010 22.6 5.3 86 4.6 2010 16.8 5.7 23 1.3 2010
Water resources Total renewable water resources per capita (m3/inhabitants/year) Country 1987 2011 % Change Antigua and Barbuda 812.5 571.4 (29.67) Bahamas 82.3 56.98 (30.77) Barbados 311.3 290.9 (6.55) Belize 106,000 57,253 (45.99) Guyana 326,116 317,942 (2.51) Haiti 2,098 1,368 (34.80) Jamaica 4,034 3,406 (15.57) Saint Kitts and Nevis 585.4 444.4 (24.09) Suriname 315,245 228,464 (27.53) Trinidad and Tobago 3,216 2,842 (11.63) Average 75,850 61,263 (22.91)
Thus considerable Infrastructure Investment Required In 2014, CDB found that: ousd21.4 billion (bn) required to 2025. olikely to be a USD10.6 bn financing gap.
Total Public and Private Investment Need by Country and Sector 2015-25 All Values are in USD Millions Country Electricity Transport Water and Sanitation Total Haiti 8,584 79 3,552 12,214 Jamaica 1,109 1,199 891 3,198 The Bahamas 409 640 71 1,121 Trinidad and Tobago 165 544 226 935 Guyana 353 36 231 621 Belize 244 142 110 496 Suriname 269 48 146 463 Barbados 168 198 66 432 St. Lucia 104 284 37 424 Cayman Islands 109 173 4 286 Antigua and Barbuda 69 81 22 172 Grenada 66 59 31 157 St. Kitts and Nevis 49 91 15 155 Turks and Caicos Islands 51 72 5 128 St. Vincent and the Grenadines 66 18 33 116 British Virgin Islands 46 61 8 115 Dominica 31 55 18 105 Anguilla 20 15 1 36 Montserrat 7 2 1 10 Total 11,919 3,796 5,467 21,183
The distribution of this investment
Policy requirements
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
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.
New BRICS Bank - Opportunities
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
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
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
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
Thank You!