In a report titled “Latin America and the Caribbean-Stuck in low gear” the Washington-based financial institution said that the baseline projections reflect data available before the impact of Hurricanes Harvey, Irma, and Maria, which hit the Caribbean recently.
It said that the data do not, therefore, reflect the devastating impact of these hurricanes on a number of countries in the region and the risk they pose to their growth outlook, at least in the short term.
But in the report, the IMF noted that for commodity exporters, growth is projected to rise in 2017–18 to 1.3 per cent, from –3.3 per cent in 2016.
“There is, however, substantial variation across countries. Economic activity in tourism-dependent economies is estimated to have expanded in the first half of 2017. There are a few exceptions, however, such as Barbados, where growth in 2017 is estimated to have slowed, reflecting necessary fiscal consolidation efforts," the IMF said.
It said that in a number of cases, weather swings and hurricanes are expected to take a toll on overall growth this year, including in Antigua and Barbuda, Dominica, St Kitts and Nevis, and Haiti, which is still rebuilding from the effects of Hurricane Matthew in October 2016.
The financial institution in its Regional Economic Outlook report noted that slightly faster growth is projected for 2018, based on the acceleration in global demand, as well as country-specific factors, such as the expected entry into full operation of a new international airport in St Vincent and the Grenadines.
It said reconstruction activity following the hurricanes could have a positive impact on growth in subsequent years beyond what is projected in the baseline.
“The performance of commodity exporters has generally been weaker. Trinidad and Tobago was hit hard by lower oil and gas prices and production outages in 2014–15, and Suriname by lower commodity prices, the shutdown of alumina production, and necessary fiscal consolidation.
“The downturn in these economies is estimated to have extended into 2017, and positive growth is projected for 2018,” the IMF said, noting that growth has been stronger in Guyana, supported by two new large gold mines and positive sentiment ahead of the beginning of oil production in 2020.
The IMF said that a number of Caribbean economies have made inroads into reducing their debt burden, but the majority face high and, in some cases, rising sovereign debt levels that weigh on their prospects for strong and sustainable growth.
“In Antigua and Barbuda, Grenada, Jamaica, and St Kitts and Nevis, the government debt-to-GDP ratio has been declining from very high levels, reflecting sustained fiscal discipline, debt restructuring, and a recovery in growth. In some countries, strong inflows from economic citizenship programmes have supported debt reduction.
“In most other countries, however, additional fiscal consolidation is necessary to put government finances on a sustainable path, build buffers against future adverse shocks, and help address external imbalances,” the IMF said, noting that despite progress on financial sector reform, numerous banks in the region are saddled with high levels of nonperforming loans, which constrain credit availability and economic activity and increase banks’ vulnerability to shocks.
It said in the Eastern Caribbean Currency Union (ECCU), the authorities have made progress on reforms to strengthen bank resilience, including through regulatory enforcement of capital requirements and efforts to clean up banks’ balance sheets.
The IMF said that while reforms to strengthen the financial sector are also underway in other countries in the region, further steps are required, however, including developing markets for distressed loans to facilitate banks’ disposal of bad assets, addressing deficiencies in insolvency and debt enforcement frameworks, strengthening oversight of nonbank financial institutions, and further enhancing the capital adequacy of indigenous banks.
The Washington-based financial institution said that to promote stability in the nonbank financial sector, regulatory gaps for credit unions and the insurance industry should be addressed promptly.
“An additional priority for strengthening financial sector resilience is securing correspondent banking relationships through more effective implementation of anti– money laundering/combating the financing of terrorism frameworks, bank consolidation, and improved communication and information exchange with correspondent banks.
“Stronger implementation of structural reforms is also necessary to enhance competitiveness, private investment, and growth. Policy priorities include, in several countries, reducing high electricity costs by conserving energy and diversifying the energy mix, deepening financial systems and enhancing access to credit, tackling violent crime, and reducing high unemployment and brain drain by improving the business climate and strengthening institutions,” the IMF said.
It said enhancing economic integration of Caribbean economies, including by coordinating the search for solutions to shared and intertwined macroeconomic and structural challenges, would provide further impetus to sustained growth in incomes and jobs.
The IMF said additional steps are needed to mitigate the costs of recurrent natural disasters and climate change.
“Focusing on better preparation, mitigation, and response can help reduce the human and economic cost of disasters and climate change and build resilience to future shocks.
“Countries can build disaster and climate change risks explicitly into policy frameworks, including in the design of budgets, fiscal rules, and public investment plans,” the IMF said, noting that insurance and financial hedging tools can protect governments from the burden of disasters and increase their capacity to respond appropriately.
“Regional coordination could facilitate the pooling of insurance coverage at the Caribbean level, while the international community could support countries by providing capacity building, tools for risk management, and financing,’ the IMF added. (CMC)
- Countries: Caribbean