Slow growth projected for debt-ridden Caribbean
While the global financial meltdown appears to slowly be on the mend, Caribbean economies still face significant challenges.
02/03/2013 8:00 PM
02/03/2013 8:33 PM
As Jamaica Prime Minister Portia Simpson Miller addressed her heavily indebted nation last month, the Caribbean leader reminded Jamaicans of her steadfast determination to not just balance the books but also people’s lives.
But with one of the world’s highest relative public debt burdens, the country that some are calling the Greece of the Caribbean could soon find that taking care of its most vulnerable is an obligation it cannot afford.
“Having such a high debt level means there is no fiscal space for doing anything else. It means the government doesn’t have any money left for spending on other priority programs like social programs or infrastructure development,” said Christine Richaud, the World Bank’s lead economist for the Caribbean. “It means at some point the government may have to raise taxes or cut some spending in some areas, and it creates uncertainty.”
While the bank is projecting a one percent growth for Jamaica in the year ahead, the United Nations’ Economic Commission for Latin America and the Caribbean said economic conditions have worsened so much in the struggling tourism Mecca that Jamaica’s growth is projected to be a sluggish 0.1 percent.
No stranger to tough economic times, Jamaica’s crippling debt crisis — its interest payments as a percentage of gross domestic product is among the highest in the world — crystallizes the challenges many Caribbean countries face even as the global financial meltdown shows signs of improving.
Economists warn that high debt levels in the Caribbean are dragging down economic growth. The region is looking at a “timid recovery” with a lot of uncertainty, they say.
How well or fast the mostly tourism-dependent economies of the Caribbean recover will depend as much on the decisions individual governments take in the year ahead as what happens in Europe and the United States, whose own recovery from the global financial crisis remain fragile.
The forecast for Jamaica is only slightly better than the negative economic growth Richaud sees for Grenada, a tiny Caribbean country with big problems. Flattened in 2004 by Hurricane Ivan, the worst hurricane to hit the Caribbean in a decade, Grenada continues to wrestle with widening poverty and widespread unemployment.
“It’s going through a lot of problems; we didn’t even see positive growth in Grenada for 2012. I don’t know what’s going to happen in 2013,” said Richaud, adding, “it’s impossible to talk about the outlook for Grenada” until after the Feb. 19 elections.
Less mysterious but equally uncertain is Jamaica, where the government is still renegotiating an agreement with the International Monetary Fund and Simpson Miller recently warned that the IMF agreement alone will not solve her nation’s economic problems. Projected debt service costs will consume 54 percent of the budget, according to the U.N.’s ECLAC.
“There’s a sort of quiet in the air; a lot of anxious expectations for how we are going to work our way out of the current situation in which we find ourselves — high debt-to-GDP ratio, challenging foreign exchange reserves and a tough global economy,” said Leo Williams, former deputy chairman of the Jamaica Stock Exchange. “A lot of people are looking, waiting to see the next move.”
Therese Turner-Jones, a deputy division chief with the IMF, which has rescued several Caribbean countries in recent years, said the region is in a “very difficult spot.’’
“It’s hard to see a lot of bright lights coming to some of these service economies,” said Turner-Jones, an economist with responsibilities for several Caribbean countries.
“Countries really need to do more on the fiscal side. In a sense, this region has been postponing, maybe, taking some difficult decisions.”
The region’s top commodities producers and exporters represent the few bright spots: Suriname, Guyana, Trinidad and Tobago and even Belize. Suriname and Guyana are benefitting from high prices for gold and minerals. Trinidad and Tobago, which has oil and natural gas, also is projected to post positive growth though Turner-Jones said the twin-island nation’s economy isn’t growing as well as one would expect given its wealth of natural resources.
“Even a country like Belize is doing fairly well on all sides. In commodities, they have some exports there and on the tourism side, they are doing fine,” Turner-Jones said. “It has some other issues in the financial sector but in terms of growth those four countries: Suriname, Belize, Trinidad and Guyana are doing much better than the others.”
Other countries that are projected to see robust economic activities are the Dominican Republic and Haiti, which share the island of Hispaniola.
Global economic institutions all have Haiti at the top of their growth ladder for the Caribbean region with ECLAC forecasting 6 percent and the World Bank, between 4 and 6 percent. But how growth finally shakes out, economists say, depends on the Haitian government making good on more than $600 million in public sector construction investments, no new disasters and a decent harvest. Two storms and a drought in 2012, and the government’s failure to execute investment projects severely hampered growth last year.
“We do see more positive results compared to last year,” said Elizabeth Ruppert Bulmer, acting lead economist at the World Bank for Haiti. “But there is worry in terms of whether there will be enough recovery to meet the annual projections.”
Meanwhile, improving performance by the private sector in the Dominican Republic is expected to boost growth, but the numbers could be lowered by long overdue efforts to control government spending, the World Bank said.
While the private sector may be doing well in the Dominican Republic, it is struggling elsewhere in the Caribbean, said George Tsibouris, an IMF division chief who oversees the Eastern Caribbean. Banks, he said, are seeing lower profitability mainly because private businesses are not doing so well.
“They have struggled somewhat in marketing themselves or positioning themselves relative to these economic challenges coming from external sources,” he said. “So there is an issue there in terms of how the private sector can best respond to this and sort of recover as quickly as possible.”
David E. Lewis, a Washington-D.C. consultant and longtime adviser to Caribbean governments, said regional leaders have for too long resisted making the tough decisions needed to make their nations competitive and attractive.
“You have had no new cash cow to come in to revolutionize your economy,” Lewis said. “The whole world went into something called the entertainment sector; only we in the Caribbean call it tourism still.
“We haven’t figured out in the region how do you adjust to small-market size reality,” he added.
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