The Caribbean Economic

The multi-faceted impact that the coronavirus continues to inflict upon Caribbean countries have severely disrupted the lives and livelihood of the region, which is largely dependent on the tourism sector. The Caribbean, which has been struggling to escape the vicious cycle of low economic growth and high debt has been dealt another blow to its economic fortune as countries grapple with travel restrictions, closure of businesses, surging unemployment and escalating deficits due to increases in pandemic-related expenditure and plunging revenue. Perceived risk of these small and open economies has increased exponentially in light of the heightened uncertainties regarding the global economy and the indefinite impact of COVID-19.

The International Monetary Fund (IMF) has once again downgraded its forecast for real GDP growth for all of the Caribbean countries in its October 2020 update. The contraction projected for 2020 is now much steeper than initially anticipated and a deterioration relative to April 2020’s forecasts. According to the IMF, tourism-dependent Caribbean economies are projected to contract by an average of 9% in 2020, while the exporters[1] of the region are expected to average growth of 0.6%, largely driven by the strong growth of 26.2% expected for Guyana. The Eastern Caribbean Currency Union (ECCU) is anticipated to register a sharp economic contraction of 15.5% in 2020, with St Kitts and Nevis, Antigua and Barbuda and St Lucia posting the largest declines of 18.7%, 17.3% and 16.9% respectively. Figure 1 shows the comparison in real GDP growth projections from the IMF for April 2020 and October 2020.

Even though Caribbean countries have historically posted large deficits on their external current account, the ongoing pandemic has greatly exacerbated these imbalances given the plunge in visitor spend which account for approximately 20% of total exports in the region. The IMF projects an average external current account deficit of 11.3% of GDP for tourism-dependent economies for 2020, relative to an average of 2% of GDP recorded in 2019. For T&T, the current account is forecasted to turn a deficit of 3.3% of GDP in 2020, compared to an average surplus of 5.3% of GDP over the prior three-year period.  This is based on the bearish energy market as well as production challenges in the downstream sector, as energy exports account for approximately 80% of total exports.

[1] Commodity exporters include: Suriname, T&T and Guyana 

The limited fiscal space faced by most Caribbean countries has also been further eroded due to significantly reduced government revenue amid the rise in expenditure related to the pandemic. Many countries have approached various multilateral institutions for funding due to the large and growing deficits and growing debt service obligations. The Economic Commission for Latin America and the Caribbean (ECLAC) estimates that fiscal support in the region amounts to approximately USD1.3 billion. According to ECLAC, the fiscal response in the region has ranged between 0.5% - 5% of GDP (with the exception of Barbados where the fiscal response was 19.2% of GDP), with most below the Latin America and Caribbean average of 3.9% of GDP. Prior to COVID-19, several countries were on a fiscal austerity path, with countries like Jamaica, Barbados and Grenada all able to make considerable advances in stabilizing fiscal deficits and reducing onerous debt service obligations. This pandemic shock will likely erase some of the gains achieved and prolong the process of fiscal and debt sustainability for the region.   

Source: The Caribbean Outlook: forging a people-centred approach to sustainable development post-COVID-19, (ECLAC), Regional Economic Outlook for Western Hemisphere, October 2020 (IMF), Ministry of Finance -Trinidad and Tobago

*: Central Government Debt, ^: Net public sector debt

The IMF is projecting that the region will rebound in 2021 – expected to record positive GDP growth, as the economies emerge from a COVID-19 ravished year. For the tourism-dependent group of Caribbean countries, GDP is expected to expand by an average of 4%, while for the commodity-exporters, average GDP growth of 3.8% is projected, driven by 8% growth expectation for Guyana.

While most Caribbean countries have reopened borders, the widespread and highly contagious nature of the virus continue to inhibit activity in the tourism sector with knock-on effects on the rest of the economy. The recent announcement by various pharmaceutical companies of a possible vaccine for COVID-19 may help to restore some cautious optimism, however, it may be some time before the vaccine is widely accessible. Most of the Caribbean where the spread has been relatively contained saw a surge in the number of cases towards the end of August which will further delay any economic recovery. As the region battles with what seems to be a second wave of the virus, regaining economic momentum will be difficult even with the prospect of a vaccine. Now is a good opportunity for the region to rethink its strategies, especially to revitalize key economic drivers but in the context of severely limited fiscal flexibility and external vulnerability.      

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