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Issues and Prospects for the
Caribbean Region
Kelvin Dalrymple
Chief Country Economist
Caribbean Development Bank
October 20, 2005
Outline of Presentation
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The region and its development bank
Major sectors in the region
Major development issues
Recent global developments
Recent regional developments
Prospects for the region
2
Seventeen Borrowing Member Countries
(twelve independent countries)
• Antigua & Barbuda
• Jamaica
• The Bahamas
• St. Kitts & Nevis
• Barbados
• St. Lucia
• Belize
• St. Vincent & the
Grenadines
• Dominica
• Trinidad & Tobago
• Grenada
• Guyana
3
Seventeen Borrowing Member Countries
(five overseas dependent territories of UK)
• Anguilla
• British Virgin Islands
• Cayman Islands
• Montserrat
• Turks and Caicos
4
Major Sectors in the Region
• Tourism
• Long-stay and cruise
• Construction
• Agriculture
• Domestic and export
• Financial Services
• Domestic and Offshore
• Energy
• Natural Gas
• Petroleum
• Renewable sources, including solar and wind
5
Major Development Issues
• Poverty
• Fiscal & Debt sustainability
• Real output concentration and increasing
productive capacity
• Vulnerability
• Economic
• Social
• Natural Hazard
6
Poverty
• Poverty is still high in the region
• Though many middle income countries poverty
since exists at unacceptable levels
• Per capita income measurement using GDP is
inadequate
• In small islands, population coupled with
relatively high income, gives rise to high per
capita income
• The high incomes mask some of the real social
problems
• Vulnerability measures come closer to reality
7
Percentages below the poverty line
70
60
50
40
30
20
10
I
TC
TT
R
SU
G
SV
SL
U
N
SK
JC
A
AI
H
UY
G
RE
G
BV
I
DO
M
BZ
E
R
BA
AN
G
0
8
Fiscal and Debt Sustainability
• Emerging as an issue of critical importance, with
potential to stymie social and economic
development
• External and domestic factors have influenced this
outcome
• Unfavourable terms of trade and erosion of preferences.
• Natural hazards, particularly within the OECS.
• Countercyclical fiscal policy, particularly in the post 2000
period.
• An increase in commercial borrowings
• Consequently revenue growth has lagged
expenditures, resulting in rising deficits, higher
levels of indebtedness and more onerous debt
service payments
9
Overall Fiscal Position 1980-2003
0
-1
-3
-4
-5
-6
20
01
-0
3
96
-0
0
19
91
-9
5
19
86
-9
0
19
80
-8
5
-7
19
% of GDP
-2
Years
Region
OECS
10
Region
20
20
20
20
20
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
04
03
02
01
00
99
98
97
96
95
94
93
92
91
90
89
88
87
86
85
84
83
82
Debt Service as % of Revenue
25
20
15
%
10
5
0
Years
OECS
11
Debt Service as % of Exports of Goods
and Services
25
20
15
%
10
5
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
0
Region
OECS
Years
12
Fiscal and Debt Sustainability (cont’d)
• Both revenue and expenditure reforms required
• On revenue side, most countries engaging in
revenue reform are opting for VAT
• On expenditure side there is a tendency to make
the adjustment to capital expenditures
• Greater emphasis needs to be placed on reviewing
the role of the state, particularly as it relates to
recurrent expenditure
• Greater emphasis on focussing and prioritising of
the PSIP
13
Productive Capacity
• Maintaining balanced real rates of growth
essential to protect past gains and secure further
development
• High degree of economic concentration, either in
tourism or agriculture
• Noticeable decline in rates of growth since 80s
owing to changing trade regime, natural disasters,
economic shocks (global slowdown, oil prices,
source market disturbances)
14
Productive Capacity (cont’d)
• Most economies based on tourism which
contributes to as much as 60% of GDP
• Within tourism, there is a high concentration in one or
two source markets, namely the US and UK.
• Sector is vibrant, with new entrants appearing and old
participants renewing products.
• Cruise tourism gaining in importance.
• International business sector contributing
significantly to high standard of living but being
challenged by more developed economies
• Few countries have the scale and resources to be
competitive in agriculture and manufacturing
15
Productive Capacity (cont’d)
• Services remain best hope for Region.
• Need not be limited to holiday travel but can also
capitalise on provision of health and education
services.
• Countries have been trying to improve productive
capacity .
• Tourism product development since some economies are
considered to be mature destinations.
• Improvements in the regulatory and legislative
framework may be beneficial to international business
sector over medium to long term.
• Emphasis on lowering unit costs to try to realise
productivity gains.
• Ensuring that tourist/investors receive value for money.
16
Average Growth Rates 1980-2004
7
6
5
4
%
3
2
1
0
80-85
86-90
91-95
96-00
01-04
yrs
Region
OECS
17
Vulnerability
• Economic
• 15 BMCs in the top third of the world’s most vulnerable
countries (Crowards 1999)
• Small domestic market and high degree of openness.
• Limited Diversification
• Inability to take advantage of economies of scale.
• Inability to influence prices.
• Most economies based on tourism which contributes to as much
as 60% of GDP.
• High dependence on trade taxes
• Limited institutional capacity
• Social
• Encompasses not only the poor, but those on the margin.
• Social exclusion
• Natural Hazards
• Region is extremely vulnerable to natural hazards as
highlighted in 2004. However, pattern of destruction has been
well documented over the years
18
Hurricane Damage 1995-2004
Hazard
Year
Magnitude
Estimated
Cost
Countries Affected
Hurricanes
Iris/Marilyn/Luis
1995
Iris (Category
3/4)
Marilyn
(Category 1)
Luis (Category 3)
US $700 mn
Anguilla, Antigua &
Barbuda, Dominica,
Montserrat, St. Kitts &
Nevis
Hurricane
Georges
1998
Category 3
US $ 450 mn
(exc.
Dominica)
Antigua & Barbuda
Dominica, St. Kitts-Nevis
Hurricane Floyd
1999
Category 4
US $ 274 mn
The Bahamas
Hurricane Lenny
1999
Category 4/5
Tropical Storm
Earl
2004
Hurricanes
Charley, Frances
Ivan, Jeanne
2004
Anguilla, Antigua &
Barbuda, Dominica,
Grenada, St. Kitts-Nevis,
St. Lucia, St. Vincent &
the Grenadines
St. Vincent &
Grenadines, Grenada
Charley
Frances
(Category 4),Ivan
(Category 5)
Jeanne
(Category4)
USD 4.5 bn
The Bahamas, Cayman
Islands, Grenada,
Jamaica, St. Lucia, St.
Vincent & the
Grenadines, Trinidad &
Tobago
19
Natural Hazard Management (cont’d)
• Greater emphasis needed on natural hazard
management
• At the broader level, this will require greater focus
on
• Institutional preparedness
• Mitigation, to ensure that buildings and other
infrastructure are adequately protected
• Post-disaster response to rebuild social and economic
infrastructure to allow for rapid return to economic
activity
20
Recent Global Environment
• Over the past two years, global growth has
accelerated and become more broad-based.
• Higher private consumption and business
investment were principal drivers of growth.
• Inflationary pressures have been increasing owing
to rising demand and higher oil prices.
• Consequently, monetary stimuli are being
gradually removed.
• The rise in demand has, however, exacerbated
current account imbalances particularly in the US.
• Public finances remained a concern with rising
deficits notably in the US and Eurozone.
21
Recent Regional Developments
• Region generally performed well in 2004,
notwithstanding the spate of natural disasters
such as hurricanes Charley, Frances, Ivan and
Jeanne.
• Total losses from the 2004 hurricane season
estimated at more than US4.5 bn
• Most economies were able to take advantage of
rising global demand.
• As a result, tourism was the main driver of growth.
• Supported by construction, which was largely tourismbased, and to a lesser extent, financial services,
agriculture and manufacturing.
22
Growth rates in 2004
14
12
10
8
6
%
4
2
0
-2
SV
G
U
SL
SK
N
MO
N
A
JC
GU
Y
GN
D
DO
M
CA
Y
BZ
E
BA
R
BA
H
AB
AN
G
-4
Countries
23
Recent Regional Developments
Cont’d
• Available information for 2005 points to positive
but slightly slower rates of growth in tandem with
the moderate slowdown in the global economy.
• Tourism and construction (particularly hotel-related) still
continue to drive many economies.
• The outturn for agriculture appears to have decreased
mainly due to adverse weather conditions.
• Inflationary pressures have increased in the past
two years, with more governments being forced to
pass on increases to the consumer.
• Monetary stimuli are being removed gradually to
curb domestic demand, and also to narrow the
differential between US and domestic rates.
24
…so what does the future hold for
CARICOM economies?
25
Projected GDP Growth Rates (%)
7
6
5
% change in 4
GDP
3
2005
2006
2
1
0
US
Euro
Area
Japan
LAC
F. Soviet
Union
Country/Area
26
Prospects for the Region
• The outlook for the Region over the medium term
is favourable.
• Positive trends in tourism expected to continue
over the medium term, particularly with Cricket
World Cup in 2007
• Financial services have largely stabilised, and
further growth is expected
27
Prospects for the Region (cont’d)
• The CARICOM Single Market and Economy
(CSME) provides opportunities to reap benefits
from economies of scale in all areas
• Untapped potential in the region in provision of
goods and services
• Main downside risks stem from adverse
developments in the global economy and natural
disasters
• Sound development policies, particularly with
respect to public finances are critical at this
juncture
28
Debt stock situation in the BMCs
250
Debt/GDP 1997
Debt/GDP 2003
Debt/GDP 2004-07
200
150
100
50
0
A
u
ig
nt
a
h
Ba
as
m
a
s
rb
Ba
o
ad
e
liz
e
B
D
i
in
m
o
ca
da
na
re
G
na
a
uy
G
J
ai
m
a
ca
N
SK
.
St
cia
u
L
G
SV
T
T&
29
Growth is expected to continue…
• Continuation of the trend in construction activity,
with further growth projected in 2005, as both
public and private sector investment activity
continues
• Rebuilding countries ravaged by Hurricanes Charley,
Ivan, Jeanne of 2004
• Construction in anticipation of the 2007 Cricket
World Cup – public sector (roads and other
infrastructure), commercial (hotels, stadia and
other amenities) as well as private (upgrades to
private dwellings)
• Tourism, finance and energy sectors will expand
while agriculture will be uneven in growth
30
…however there are downside risks
• The main downside risks to regional growth are
from a slowdown in the international economy
• Escalating geopolitical tensions e.g. war on terror
• Deterioration in macroeconomic fundamentals
• Rising oil prices
• Rising price of oil which increases the cost of living in
major oil consuming countries as well as increases
international travel and transportation
• Rising oil prices could slow growth in the Region, and
increase the cost of production and reducing the
competitiveness of regional goods and services
• Rising debt levels of the Region’s economies – can
be reduced by increasing the growth levels
31
Prospects for CARICOM Single
Market and Economy (CSME)
• The acceleration of regional integration, through
the CSME, presents opportunities for the Region
over the medium-term
• Efficiency and productivity gains through the
more effective sourcing and utilisation of inputs
• Competition in already established markets, need
to carve out niches in an increasingly competitive
environment
32
Natural Hazard Vulnerability
• The threat of natural disasters also cannot be
overlooked, in light of the damage and destruction
caused by hurricanes and earthquakes in 2004
• Must prepare because the ability of a single event,
in a few hours, can to eliminate decades of growth
and development
• This can be well managed and investment can be
secured by being proactive
33
The unfinished agenda…
• Environmental sustainability
• Growth sectorally in tourism, agriculture will be enhanced by a
sound policy on the environment
• Enhanced livelihood opportunity for residents that reduce
poverty
• Standards
• High building standards
• High service quality
• Productivity and competitiveness
• Keys issues affecting the use of labour and the future viability
of key sectors
• Niche marketing
• Search for the few areas where there is a competitive and
comparative advantage and exploit them
• Trade Liberalisation
• Negotiations ongoing in three theatres - WTO, EU, FTAA
34
The Region is good for investment…
• On balance, things are headed in the right
direction
• The world economy is expanding
• Growth in investment will not be even
• Areas of focus will vary from island/ country
• New sectors are emerging which require financing
• Risks can and must be managed
• The Cricket World Cup (CWC) 2007 is a great
opportunity.
• Legacy benefits from CWC 2007 are also expected
to be very good
35
The message is …
• The outlook for the Region is still positive
• The global recovery is expected to continue,
although at a slightly slower pace
• The Region continues to have significant levels of
underutilised resources: natural, financial, labour
and entrepreneurial
• The Region needs to
• find ways of bringing these resources together
• to identify greater market opportunities
• to engage in sustainable production for the global
market
36
For more information, please contact
CDB
e-mail:
[email protected]
website: www.caribank.org
Thank you for your attention!