Economic performance in the Caribbean will be uneven this year: Some economies will grow by 5 percent or more, but others will be lucky to eke out even negligible economic growth.
“The Dominican Republic and Guyana are expected to remain the strongest performers in the subregion,” according to the U.N.’s Economic Commission for Latin America and the Caribbean. “The outlook is less favorable in the Bahamas, Cuba and Trinidad and Tobago — countries with deep-rooted structural impediments and high vulnerability to external developments.”
The Dominican Republic is projected to have 5.1 percent growth, while Guyana is expected to check in at 5 percent and St. Kitts and Nevis at 5.3 percent. On the other end of the spectrum are Trinidad and Tobago (.5 percent growth), the Bahamas (1 percent), Suriname (1.4 percent), and Cuba (1.5 percent).
Low global oil prices have dampened economic growth in oil-rich Trinidad and Tobago. “Hopefully Trinidad will have bottomed out from last year,” said Trevor Alleyne, Caribbean division chief at the International Monetary Fund. “For the region as a whole, Trinidad won’t be pulling down the region’s average as it was last year.”
While some Caribbean economies have little more than tourism to sustain themselves, even those with other resources can find themselves hurting.
“It goes back to undisciplined fiscal policies,” Alleyne said. “When things were great, when oil was $100 per barrel and gold was high, they decided, ‘OK it’s time to party.’ When these prices plummeted, they found themselves without any buffers to manage that process.”
Institutional problems and political uncertainty have buffeted a Haitian economy already hit hard by natural disasters. Flooding from last year’s Hurricane Matthew and a prolonged drought have weighed heavily on growth, and the country is still feeling the after-effects of a devastating Jan. 12, 2010 earthquake.
“Economic activity in Haiti and Jamaica was adversely affected by drought conditions as well as structural obstacles, including institutional weaknesses, tight fiscal budgets and high unemployment and underemployment,” ECLAC said in its annual forecasting report.
Although ECLAC estimates 2.1 percent economic growth for Haiti, the World Bank is predicting the economy will decline by -0.6 as Haiti continues to wrestle with double-digit inflation, a hunger crisis in the region slammed by Matthew, a depreciating domestic currency and low investment levels.
The Haïti Priorise project, which brings together a group of economists, is looking at ways to not only perk up economic growth but provide improved services to the Haitian population. It is run by the Copenhagen Consensus Center, a think tank that has receive Canadian government funding.
Among the suggestions to boost economic growth are faster Internet service and more digitization. Pantelis Koutroumpis, a research fellow at Imperial College Business School in London, noted that it takes 312 days to start a business in Haiti and 97 days to register a property. Both processes, he said, can be reduced significantly if the infrastructure that powers the country’s Internet is improved to allow for digitized registrations.
The Cuban government is more optimistic about the island’s prospects than ECLAC is. It is predicting economic growth of around 2 percent with an increase in tourism leading the way. But other economists aren’t as sanguine. Pavel Vidal, a professor at Javeriana University in Colombia, is forecasting a decline of between .3 percent and 1.4 percent in the Cuban economy.
Cuban tourism officials are predicting the number of international visitors will increase to a record 4.2 million. The officials say tourism arrivals for January and February were up 15 percent over the first two months of 2016.
But as economic problems in Venezuela deepen, the future of crucial oil supplies from Cuba’s main benefactor are in question. The government recently announced that premium gasoline wouldn’t be available on the island in April, and long lines at gas stations are becoming more frequent.
To achieve sustainable growth, analysts say Cuba needs to undertake economic reforms such as unifying its unwieldy dual currency system and creating a more attractive environment for foreign investors, including allowing them to directly hire their Cuba workers, cutting through red tape, making it easier to sign contracts, and offering better legal guarantees.
Cuba has said it wants foreign investment to be a cornerstone of its future economic development.
Meanwhile, high debt burdens, large government deficits and a lack of competitiveness remain at the center of the economic challenges facing the Caribbean, said Justin Ram, director of economics for the Caribbean Development Bank.
The bank is projecting economic growth for the Caribbean region at 1.7 percent this year. But Ram said the Caribbean as a whole will continue to lag other regions unless it addresses high levels of crime and violence in some countries, unemployment and poverty and reduces its high debt levels.
“We’re not seeing the level of investments we need to boost growth,” he said. “Our economies have not kept pace with the kind of competitiveness we are seeing in other parts of the world. We are lagging behind... with respect to the types of economic reforms they are pushing through to keep their economies competitive.”
Caribbean nations also need to improve their “doing business” environment, he said. “Investors look for these things,” Ram said.
In the Dominican Republic, last year’s brisk growth (6.8 percent) is expected to ease somewhat as major construction projects are completed and government expenditures drop. Tax evasion and a large informal economy remain persistent challenges in the Caribbean’s largest tourism destination, according to the World Bank.
There are also questions about the future of the Dominican Republic-Central America Free Trade Agreement, which also includes Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, now that it appears NAFTA will be reopened.
“There is concern about what happens with DR-CAFTA if it becomes part of the bulls eye in the Trump equation,” said Jason Marczak, director of the Latin America Economic Growth Initiative at the Atlantic Center’s Adrienne Arsht Latin America Center.
Among the smaller Caribbean economies that have introduced reforms and, as a result, are seeing economic growth is Grenada. Its rules-based fiscal policy drives the budget process rather than the other way around, and it also requires officials to report their assets.
Last year’s growth rate was even higher than the 2.6 percent the government had anticipated, said Prime Minister Keith Mitchell during a recent visit to Miami to participate in a Caribbean growth conference organized by the Miami Herald and World Bank.
“With what we are seeing on the levels of construction and business activities in the country, and the further growth in the agriculture sector and tourism... we believe we will, in fact, top” last year’s growth, Mitchell said.
Increased exports, more tourism arrivals and fiscal reforms in the country known as the Spice Island have allowed Grenada to reduce its unemployment levels from 40 percent to 28 percent in the last few years. While that’s still high, the reduction makes it clear “that things are happening in the country,” Mitchell said.
Another Caribbean country that may be turning the corner is Jamaica. It has increased tax revenues and international reserves after years of struggling with high debt and low growth. This year, the recovery is expected to continue with “slow, incremental growth,” Alleyne said. Growth projections range from 1.7 percent to over 2 percent, thanks to low oil prices and an improving Jamaican investment climate.
Follow Jacqueline Charles on Twitter: @jacquiecharles
Follow Mimi Whitefield on Twitter: @heraldmimi