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Challenges for the
Caribbean:
Low Growth and High Debt
Jodi Scarlata
Western Hemisphere Department
Views expressed are those of the speaker alone and
should not be reported as representing the official
position of the International Monetary Fund.
Caribbean countries are among the most indebted in
the world, …
Public Debt in Selected Emerging Markets /
Developing Countries 1/
160
(End 2012, percent of GDP)
140
120
100
Average
80
60
40
0
Jamaica
Lebanon
Eritrea
Grenada
Mauritania
Sudan
St. Kitts
Antigua
Cape Verde
Barbados
Seychelles
Maldives
Egypt
Jordan
Gambia
Hungary
Belize
São Tomé
Dominica
St. Lucia
St. Vincent
Brazil
India
Guyana
Pakistan
Serbia
Bhutan
Albania
Morocco
Marshall Islands
20
Source: IMF, World Economic Outlook.
1/ Countries with debt ratio higher than 60 percent of GDP.
… and the rising debt ratio has taken its toll on the
real economy, …
World: Real per Capita GDP Growth During Periods of Rising
and Falling Debt, 1970–2007¹
6
5.3
Falling debt
Rising debt
5
5
4
4
3.2
3
3.2
3.2
2.7
3
2.0
2
1.5
2
1.6
0.8
1
1.1
1
0
World
Emerging
&
Developin
g
Advanced
Economie
s
Caribbean
(Non
ECCU)
0
ECCU
Per capita GDP growth 2
(Percent)
6
Sources: Heston, Summers, and Aten (2009); and IMF staff calculations. Based on the Fiscal Monitor (IMF 2010b), p. 63.
¹ Initial debt > 60 percent of GDP.
2 Average for subsequent 5 years.
ECCU includes Antigua & Barbuda, Dominica, Grenada, St. Kitts & Nevis, St. Lucia, and St. Vincent & the Grenadines.
Non-ECCU Caribbean includes the Bahamas, Barbados, Belize, Guyana, Jamaica, Suriname, and Trinidad & Tobago.
… as the recovery in Caribbean, especially the
tourism-dependent ones, lagged behind.
Real GDP Growth
(Percent change)
10
8
Commodity-exporting Caribbean
Tourism-dependent Caribbean
Emerging markets
Non-Caribbean small states
10
8
6
6
4
4
2
2
0
0
-2
-2
-4
-4
2008
2009
2010
2011
2012
2013
2014
Source: IMF, World Economic Outlook.
Note: Commodity-exporting Caribbean includes Belize, Guyana, Suriname and Trinidad and Tobago; Tourism dependent Caribbean includes Antigua and Barbuda, the Bahamas, Barbados, Dominica, Grenada, Jamaica, St. Kitts
and Nevis, St. Lucia, and St. Vincent and Grenadines.
The downturn in growth has been protracted in most
of the Caribbean countries, …
Real GDP
(indexes, 1997=100; world sample of 179 countries)
225
200
175
150
125
25th percentile to median
Median to 75th percentile
Antigua &
Barbuda
St. Vincent &
the Grenadines
225
200
175
Grenada
150
Dominica
The
Bahamas
100
Jamaica
St. Lucia
125
Barbados
100
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
75
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
75
St. Kitts &
Nevis
PRGT-Eligible Countries
Non-PRGT Eligible Countries
Sources: World Economic Outlook and Fund staff estimates.
… reflecting a combination of unfavorable external
conditions and structural bottlenecks.
Doing Business: Distance from Frontier
(percent; shares are of visitors to 24 Caribbean destinations)
(distance from highest-performing economies, 100 = max)
40
12
Dom. Rep. & Cuba's Share of Arrivals
Eng.-Speaking Tourism Islands' Share of Arrivals
Real GDP growth in Adv. Economies (lagged 1 yr)
Eng.-Speaking Tourism Islands' Arrivals
35
6
30
0
25
-6
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
-12
1998
20
Sources: Caribbean Tourism Org; ECCB; WEO; and Fund staff estimates.
Change in distance from frontier in 2008-13
Tourism Indicators and World Demand
25
Median distance
from frontier, 2013
20
Other
Caribbean
25
20
15
15
10
10
5
5
Median
0 change
2008-13
0
-5
-5
20
40
60
80
Distance from Frontier in 2013
Sources: World Bank.
100
Countries have attempted expansionary fiscal
policies to support the economy, …
Cumulative Overall Balances
(percent of GDP; world sample of 148 countries)
25
0
-25
-50
-75
St. Lucia
St. Vincent &
the Grenadines
The Bahamas
Barbados
Dominica
0
-25
Jamaica
-50
Grenada
-100
Antigua &
Barbuda
-125
25
St. Kitts &
Nevis
-100
-125
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
-150
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
-150
-75
PRGT-eligible countries
Non-PRGT eligible countries
Sources: World Economic Outlook; and Fund staff estimates.
… which resulted in higher primary spending and
debt service burden.
Public Sector Primary Expenditure, by Component
Interest Rates and Expenses
(percent of GDP; shaded areas denote countries with debt restructurings)
(expenditures, pct of GDP; rates, pct; restructurings noted by shading)
50
15
40
12
30
9
9
20
20
6
6
10
10
3
3
0
0
0
0
LCA
VCT
Sources: World Economic Outlook; and Fund staff estimates.
1997-99
2010-12
KNA
1997-99
2010-12
JAM
1997-99
2010-12
1997-99
2010-12
GRD
2000-02
2010-12
1997-99
2010-12
DMA
1997-99
2010-12
1997-99
2010-12
BRB
1997-99
2010-12
1997-99
2010-12
BHS
1997-99
2010-12
1997-99
2010-12
ATG
12
1997-99
2010-12
1997-99
2010-12
Total
15
Interest expenditures
Effective interest rate
1998-99
2010-12
Capital
1997-99
2010-12
30
Other
1997-99
2010-12
40
Compensation
1997-99
2010-12
50
ATG
BHS
BRB
DMA
GRD
JAM
KNA
LCA
VCT
Sources: World Economic Outlook; and Fund staff estimates.
The combination of persistent fiscal deficits and low
growth has led to the debt accumulation, …
General Government Debt
(percent of GDP; world sample of 151 countries)
200
Median to 75th percentile
Jamaica
25th percentile to median
150
Grenada
Dominica
100
Antigua &
Barbuda
The Bahamas
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2012
St. Vincent &
the Grenadines
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2012
St. Lucia
PRGT-Eligible
Not PRGT-Eligible
Sources: World Economic Outlook; and Fund staff estimates.
150
100
Barbados
50
0
St. Kitts &
Nevis
200
50
0
… and many forced debt restructurings.
Public Debt: English-Speaking Tourist-Based Caribbean
Sovereign Debt Restructurings, 1997-2012
(excluding Jamaica; percent of GDP)
100
75
Other
16%
100
Underlying debt
Due to primary deficits
Caribbean
26%
75
Due to interest rate-growth differential
50
50
25
25
0
Europe
32%
Central and South
America
26%
0
2000
2002
2004
2006
2008
2010
Sources: World Economic Outlook and Fund staff estimates.
2012
Sources: Moodys and Fund staff calculations.
Macroeconomic Sustainability and Growth
•
A well designed fiscal consolidation can support higher long term growth. High debt
burdens crowd out private sector growth by restricting the availability of financing
and undermining confidence in macroeconomic policy.
•
International evidence suggests that expenditure based consolidation has had more
success. However, where the adjustment need is large as in many Caribbean
countries, successful consolidation will require both revenue and expenditure
measures.
•
Given the relatively large size of the public sector in many Caribbean countries,
spending restraint (even if phased in more gradually) should play a major role in
adjustment, with revenue measures (e.g., broaden tax base and lower rates)
complementing efforts.
•
Fiscal rules would help sustain consolidation gains by increasing discipline and the
credibility of policy.
•
Broad political consensus and public support would enhance the chances of long
lasting successful consolidation.
Private Sector Development:
Some Key Channels
Establish a private sector
development strategy to
enhance the role of the private
sector in the economy.
Regulatory burden on
business should be alleviated
Reduce skills mismatch
through curriculum
modernization, increased
vocational and in-house
training by firms..
Review labor market restrictions to
determine whether they reduce the
response of employment to growth in
economic activity.
A strong growth agenda is critical
for the Caribbean
Growth is essential to
address fiscal,
external, and financial
weaknesses
Measures to restore
competitiveness
would help boost
growth…private
sector led growth:
Rein in cost pressures
by reducing labor
market rigidities,
addressing
infrastructure
bottlenecks, and
restraining public
expenditure
Improve the business
environment to
facilitate trade and
investment
Strengthen laws and
institutions to improve
governance,
including in financial
regulation and
supervision