The Caribbean Outlook: Forging a people-centred approach to sustainable development post-COVID-19

The Caribbean Outlook Forging a people-centred approach to sustainable development post-COVID-19

I. The impact of COVID-19 on the Caribbean economies The COVID-19 pandemic has had wide-ranging impacts on leading sectors in the subregion. For example, losses in the tourism industry, which is the mainstay of many of the subregion’s economies, could see subregional gross domestic product (GDP) decline by as much as 7.9 percentage points, according to ECLAC estimates, owing to the near shutdown of the industry in most countries. The energy sector in Trinidad and Tobago could contract by over 57%4, while the loss of revenue in the transportation sector has badly affected regional airlines, forcing them to seek government support.

The education sector has suffered productivity losses amounting to US$ 85.7 million, owing to school closures. Furthermore, there has been an increase in security and social protection challenges, with poor households facing greater hardships and cybercrime on the rise. To address these effects, it is recommended that countries keep health and hygiene protocols in place, and continue to provide cash support for small businesses and workers who have been laid off.

A. Growth, public debt and unemployment The COVID-19 outbreak was sudden and unexpected, and the countries of the Caribbean, like most of the world, were completely unprepared for the multidimensional impact of the global pandemic. The economies of the subregion, which were already having to address many structural gaps (in areas such as infrastructure, technology, ICTs and competitiveness), must now tackle the serious economic and social repercussions of national efforts to control the spread of the disease. The lockdown and physical distancing measures have had a severe impact on business activity, pushing up unemployment across all sectors, while the fiscal measures instituted to alleviate the economic consequences have made access to finance even more difficult given the rising debt burden. Unlike many other regions, the Caribbean had not recovered fully from the global financial crisis of 2008–2009, with economic growth in the subregion averaging 0.65% a year between 2010 and 2019. Although the service producers, particularly the tourism-dependent economies, did experience some improvement thanks to the economic expansion of the United States in the period following the global financial crisis, the goods producers, with the exception of Guyana, have performed poorly as a result of the fall in commodity prices since 2014.

Figure I.1 shows how growth rates flattened between 2010 and 2019, and the sharp decline expected in 2020. The contraction in GDP is projected to be in the range of -2.9% for goods producers and -8.6% for service producers. The GDP of the Eastern Caribbean Currency Union (ECCU) member countries is expected to fall by 12.5% in 2020,5 owing to their heavy dependence on tourism which has been severely impacted by the pandemic. On average, GDP is expected to shrink by 5.4% in the Caribbean in 2020, with the sharpest falls in output in Belize (-14%), Antigua and Barbuda (-12.3%) and Saint Lucia (-11.9%). If Guyana, which has seen rapid growth owing to the start of oil production, is excluded, subregional GDP is expected to contract by 7.9% this year (see figure I.2).

4 5

According to ECLAC simulations.

Antigua and Barbuda, Dominica, Grenada, Saint Kitts and Nevis, Saint Lucia and Saint Vincent and the Grenadines.

7

Economic Commission for Latin America and the Caribbean (ECLAC)

Figure I.1

The Caribbean (selected countries and territories):a growth rates, 2010–2020b

(Percentages) 6 4 2 0 -2 -4 -6

The Caribbean Goods producing countries Service producing countries

-8 -10 2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures. a The goods producing countries are: Belize, Guyana, Suriname and Trinidad and Tobago. The service producing countries are: Anguilla, Antigua and Barbuda, Bahamas, Barbados, Dominica, Grenada, Jamaica, Montserrat, Saint Kitts and Nevis, Saint Lucia, and Saint Vincent and the Grenadines. The Caribbean average is the weighted average of the listed countries. b Figures for 2020 are projections.

Figure I.2

The Caribbean (selected countries): GDP growth projections, 2020 (Percentages)

Guyana Jamaica The Caribbean Suriname Trinidad and Tobago Saint Vincent and the Grenadines The Caribbean (excluding Guyana) Dominica Barbados Latin America and the Caribbean Bahamas Grenada Saint Kitts and Nevis Saint Lucia Antigua and Barbuda Belize -20

44.3 -5.3 -5.4 -7.0 -7.1 -7.8 -7.9 -8.1 -8.8 -9.1 -10.5 -10.5 -11.5 -11.9 -12.3 -14.0 -15

-10

-5

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.

8

0

5

10

The Caribbean Outlook: forging a people-centred approach to sustainable development post-COVID-19

The implications of the fall in GDP are exacerbated by the rising public debt and debt overhang, which have restricted fiscal space at a time when it is most needed. The average debt-to-GDP ratio for the Caribbean has remained fairly stable, albeit unsustainably high, over time, despite considerable fiscal consolidation efforts undertaken in many countries as part of national or International Monetary Fund (IMF) supported stabilization programmes. The subregion’s considerable debt burden (estimated to be equivalent to 67.6% of GDP in 2019) has not been the result of fiscal slippage, rather it is largely attributable to the impact of climate change and natural disasters, which push up expenditures and require considerable rebuilding efforts (see figure I.3). The average debt-to-GDP ratio for the Caribbean over the period 2010–2019 stood at 70.0% of GDP, suggesting that debt has been a long-standing challenge for the subregion.

Figure I.3

The Caribbean (selected countries): public debt and fiscal balance, 2019

(Percentages of GDP) 15

KNA

10

GRD

5

Fiscal balance

0

BHS

TTO

GUY -5

Average

BRB

JAM

LCA

BLZ

ATG VCT

-10 SUR -15 -20 -25

DMA 0

20

40

60

80

100

120

140

Public debt Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.

In recent years, the debt burden for goods-producing economies has converged with that of the service producers as a result of the fall in commodity prices and the subsequent decline in foreign exchange earnings. However, the gains in debt reduction are expected to be reversed, as public borrowing increases and economic activity contracts across the Caribbean in the wake of the COVID-19 pandemic. These high debt levels, with a few countries close to or above 100% of GDP, mean creditors perceive the sovereign risks in the subregion to be higher, leading to higher interest rates.

While the debt burden of the subregion is indeed significant, the immediate concern is the high debt service costs, which limit governments’ fiscal space and ability to address serious issues related to climate change, such as investing in appropriate adaptation programmes, supporting disaster risk mitigation and risk reduction efforts, and pursuing economic restructuring to build resilience.

Debt service payments have gradually accounted for a larger percentage of government revenue, reaching a peak of 26.8% in 2016 for the goods producing countries and 38.1% in 2018 for the service producing countries. For the Caribbean as a whole, debt service payments were equivalent to 29.1% of government revenue in 2019, while the figures for the goods and service producers were 22.6% and 31.7%, respectively (see figure I.4).

9

Economic Commission for Latin America and the Caribbean (ECLAC)

Figure I.4

The Caribbean (selected countries and territories):a total debt service payments, 2010–2019

(Percentages of government revenue) 40 35 30 25 20 15 10

Service producing countries The Caribbean Goods producing countries

5 0 2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures. a The goods producing countries are: Belize, Guyana, Suriname and Trinidad and Tobago. The service producing countries are: Anguilla, Antigua and Barbuda, Bahamas, Barbados, Dominica, Grenada, Jamaica, Montserrat, Saint Kitts and Nevis, Saint Lucia, and Saint Vincent and the Grenadines. The Caribbean average is the weighted average of the listed countries.

Despite the subregion’s low average growth performance, prior to the pandemic, unemployment rates in the Caribbean had begun to decline in some countries, falling by 2.9 percentage points over the last five years. The decline in unemployment in Jamaica and Grenada was particularly notable, falling from historically high rates (see figure I.5). It is expected that the unemployment rates will shoot up in the wake of the COVID-19 pandemic, since the contraction in the tourism sector will have a knock-on effect on many other sectors, including construction and distribution.

Figure I.5

The Caribbean (selected countries): unemployment rates, 2013–2019

(Percentages) 35 30 25 20

Grenada Saint Lucia Bahamas Jamaica The Caribbean Barbados Belize Suriname Trinidad and Tobago

15 10 5 0

2013

2014

2015

2016

2017

2018

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.

10

2019