As Belize Prime Minister Dean Barrow welcomed Caribbean Community leaders to his English-speaking Central-American nation last month, there was one topic that he couldn’t ignore.
“There has been a failure of the world economy to recover properly from the shock of the financial crisis,” Barrow said, touching on an all-too-familiar concern among leaders of the 15-member regional bloc known as Caricom. “That failure, for the majority of us in Caricom, has meant slow growth, increasing difficulties with our public finances, and tremendous strains on our capacity to satisfy the life-improvement aspirations of our people.”
Indeed, the decline in global economic growth from 3.4 percent in 2014 to 3.1 percent last year provided for a difficult economic year for the region’s economies, the Caribbean Development Bank said.
Still tourism in the region set new arrival and spending records.
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“Visitors spent over $1 billion more than they did in 2014, contributing approximately U.S.$30 billion to Caribbean economies,” Hugh Riley, secretary general of the Caribbean Tourism Organization, said. “That’s 4.2 percent higher than the $28.8 billion spent during the previous year.”
But while Riley and other Caribbean tourism officials are glowing, economists and prime ministers remain guarded.
The region faces a mixed economic outlook in 2016 as a new mosquito-borne virus, Zika, threatens tourism goals, and falling commodity prices impact the fortunes of exporters such as Trinidad and Tobago, Suriname and Guyana. Caribbean nations that export hydrocarbons and minerals, for example, can expect to see their trade numbers deteriorate.
I am guardedly optimistic about 2016. Economic recovery remains fragile; but we expect that the countries will continue on an upward trajectory.
William Warren Smith, the head of the Caribbean Development Bank
Overall, Caribbean economies in 2016 are expected to grow by just 0.2 percent with the English-speaking nations in the region predicted to do a little better at 1.6 percent, according to the United Nations Economic Commission for Latin America and the Caribbean (ECLAC).
In Santiago, Chile, the United Nations regional organization presented its annual report Preliminary Overview of the Economies of Latin America and the Caribbean 2015, in which it updated the estimates given last October and called again on the region’s countries to invigorate economic growth through greater investment and higher productivity.
It is forecasting that Dominica, which is still recovering from Tropical Storm Erika in August, and the Dominican Republic will lead the Caribbean growth at 5.2 percent, followed by St. Kitts and Nevis at 4.7 percent. Meanwhile, Cuba, which has been enjoying improved relations with the United States and a loosening of restrictions, is expected to grow by 4.2 percent.
William Warren Smith, the head of the Caribbean Development Bank, said Caribbean economies remain in recovery mode. For example, 13 of its 19 members are expected to show faster growth while two of its stronger members, Trinidad and Tobago and Suriname, will see negative growth, the bank noted in its annual overview for the region.
“I am guardedly optimistic about 2016,” Smith said. “Economic recovery remains fragile; but we expect that the countries will continue on an upward trajectory.”
Smith noted that the Caribbean’s economic recovery is “occurring at a time of great uncertainty in what is emerging as a somewhat topsy-turvy external environment.”
The external threats include the possibility of economic weakening in Europe and North America and the uncertainty concerning China. Meanwhile, a correspondent bank “de-risking” crisis is threatening the financial and economic stability of Caribbean economies: Many U.S. banks end relations with Caribbean banks because they consider them risky for money laundering. The crisis is already impacting banking in countries like Belize where it is becoming increasingly difficult to move money in and out.
“This deprives our banks of the ability to keep U.S. deposits, do wire transfers, facilitate credit card settlements for their local clients and our economy,” Barrow said at the same meeting. “The implications of this for our international trade, for our remittances, for our structures of production, consumption and investment, are so obvious as to require little further elaboration.”
The external threats to economic recovery in the region include the possibility of economic weakening in Europe and North America and the uncertainty concerning China.
The end of correspondent banking relationships isn’t the only threat to the region’s financial and economic stability. Unemployment, drought and falling oil prices also impacted growth in 2015 and will continue to have an impact in 2016, experts say.
A look at some of the economies and their challenges
Trinidad and Tobago: Following an International Monetary Fund mission earlier this month, the head of the IMF mission delegation said the oil-rich economy of Trinidad and Tobago is confronting a major shock as energy prices sharply decline.
“The mission projects [the Gross Domestic Product] to fall 1 percent this year,” Elie Canetti said. “In addition, declines in energy-based revenues will constrain the government’s ability to act as an engine of growth.”
Despite the challenges and last year’s declaration by the country’s central bank that the twin-island’s economy was in a recession, Canetti said Trinidad and Tobago was not in a crisis. However, Trinidadians are being warned that absent some measures, they could soon be forced to take on “uncomfortable” levels of debts.
“Trinidad and Tobago still has enormous strengths, including a well-educated work force and a stable political system. With substantial financial buffers and low, albeit rising levels of public debt, Trinidad and Tobago is not in a crisis,” Canetti said.
“Nonetheless, in recent years, taking into account the size of energy revenue windfalls, the country has under-saved and under-invested in its future. As a consequence, the imbalances that are now starting to build up could lead the country to uncomfortable levels of debt,” Canetti said.
Haiti: The French- and Creole-speaking nation is in dire financial straits as it faces the dual threat of devaluation and drought. Haiti farmers are facing up to 70 percent crop losses, the World Food Program said, and as a result Haiti is facing its worst food crisis in 15 years.
Experts say the effects of the drought, and the ongoing political crisis over the unsettled presidential and parliamentary elections are weighing heavily on the gradual decline of the domestic currency, the gourde. Meanwhile, political uncertainty — the presidential runoff elections have been repeatedly delayed — are adding to the economy’s woes. Inflation is double digit, and the investment budget has seen a sharp decline. With no money for the investment budget, social programs remain unfunded, and construction activity has slowed to a crawl.
Six years after the Jan. 12, 2010, earthquake, donor support has also seen a sharp decline impacting reconstruction projects.
One bright spot for Haiti: the strong growth in manufacturing, especially in the apparel sector, the CDB noted. The sector continues to benefit from U.S. duty-free legislation. For example, at the end of 2015, the U.S.-funded Caracol Industrial Park in northern Haiti saw a 71 percent increase in jobs over 2014. There were 9,120 jobs directly supported at the park, according to its year-end report.
As for 2016, ECLAC is predicting a 2.5 percent growth. But that was based on Haiti having an elected president in office by Feb. 7. Much of what happens, say donors and experts, will now depend on how quickly the country can put a democratically elected government in place to address its economic and looming humanitarian challenges.
Jamaica: The economy continues to improve under the oversight of the IMF as a new government takes charge after last month’s elections.
Riding a wave of discontent over the economy and promising to improve the lives of Jamaicans, the Jamaica Labor Party swept into office after dealing a major upset to the People’s National Party. While investor confidence and the economy saw improvements under the People’s National Party’s leadership, Jamaicans were tired of the austerity and were drawn to the JLP’s promises to cut taxes.
The IMF is predicting that Jamaica’s sputtering economy will grow 2.1 percent this year, the fastest pace in a decade. Jamaica’s public debt is also expected to continue to decline by the end of this year, the CDB said. Unlike the IMF, however, it’s less optimistic about its growth forecast.
“CDB expects growth in Jamaica to be about 1 percent based on robust tourism activity and increased aluminum production, although output growth of some export crops could fall as prices stay low,” the bank said.
This is expected to be aided by the continued rise in investor confidence as a result of reduced inflationary expectations, an improved business environment thanks to the improvement of port efficiency and initiatives resulting in lower electricity prices, improved access to finance for small businesses, and a quicker construction approval process
Like Haiti and other nations in the region, Jamaica was affected by the drought. But the agriculture sector still contributed to growth, along with manufacturing in the area of petroleum refinery production and food and beverages.
Bahamas: The country, like Dominica, faced a major setback in 2015 because of natural disaster. In September, Hurricane Joaquin struck the southeastern islands of the Bahamas, slowing GDP growth.
And while neighboring Turks and Caicos Islands saw a 4 percent growth in tourism, overall tourist numbers fell in the Bahamas, the CDB said. Not helping tourism or the economy in general were the issues around the construction of the major resort Baha Mar that was supposed to add 12 percent to the GDP. But the resort, which was expected to create thousands of badly needed jobs, saw construction cease before completion and has been embroiled in legal proceedings. As a result, the Bahamas saw its sovereign credit rating take a huge hit last year as Standard & Poor’s downgraded it.
Cuba: The resumption of diplomatic ties with the United States in December and President Barack Obama’s recent historic visit are creating new possibilities for the Spanish-speaking Caribbean nation. While the U.S. embargo remains in place, some restrictions have been loosened, raising visibility and expectations. Last year, the economy grew by 4 percent thanks to the arrival of millions of tourists, remittances and foreign investments. Economic reforms such as a new credit policy are also helping foster growth. For example, it is now easier for Cubans engaged in construction activities and small-scale farming — drivers of the Cuban economy — to access credit. Another change: government tourism companies are booking reservations for tour groups with private restaurants, paladares and casa particulares — private bed-and-breakfasts.
“In 2016, GDP growth is expected to slightly top 4 percent, driven by increases in both consumption and investment. Foreign investment is also expected to play a more important role in the growth of the Cuban economy,” ECLAC said.