With high debt and large deficits, how will the Caribbean finance its economic recovery?
In 2014, Caribbean Development Bank financed a major study on Public Private Partnerships In The Caribbean: Building On Early Lessons. That study estimated that about US$21 million is needed over the next decade to bring electricity, transport and water and sanitation services to acceptable international standards across the Caribbean. The sheer magnitude of these requirements might appear daunting but not insurmountable.
With the correct policy posture and cooperation among all of the key players – public sector, private sector and development partners – these requirements can be met; and this critical component of a sustainable growth path for the Caribbean can be put in place. We can expect that the public sector will continue to play a major role in financing this growth.
However, fiscal accounts have been under significant pressure. In that case, governments need to devise credible plans for eliminating fiscal deficits; reducing debt to sustainable levels, restoring health and stability to public finances; and creating conditions for entrepreneurial dynamism. Achieving these objectives could involve expenditure cutbacks, and a greater effort to redirect available financial resources towards the private sector.
Healthy public finances and the maintenance of fiscal discipline will send the right signal to potential private investors and help to renew their confidence in our region. I applaud those countries that are promoting sound fiscal policy and are putting appropriate enforcement mechanisms in place. Such efforts augur well for enhanced fiscal stability; and the creation of an environment that is conducive to private investment.
But an improvement in the health of the public finances will not by itself stimulate needed private investment and bring about the transformation needed for sustained economic growth. The dynamism of our small business sector, in particular, is being stymied. According to the results of the World Bank’s Doing Business surveys, the arrangements for businesses to operate in the Caribbean are less than satisfactory.
Much work remains to be done to strengthen legislative and regulatory frameworks, improve business support and training services, lower interest rates, and increase access to credit. Public policy must, therefore, give due consideration to creating the enabling environment and supporting regulatory framework that will foster entrepreneurship and the emergence of a vibrant business sector.
Protracted weaknesses in segments of the indigenous banking system have undermined the soundness of the region’s financial sector. We are, therefore, encouraged by the progress now being made to rationalise and strengthen these important components of the region’s financing architecture so that they can deepend their contribution to the growth of the local private sector.
The acceleration of initiatives to strengthen bank regulatory and supervisory frameworks also demonstrate a recognition of the indispensable role which the local financial institutions will have to play in financing growth and poverty reduction. We are pleased to see discussion around the issue of a loss of correspondent banking relationships. This threat to the region’s ability to participate in international banking transactions thorugh this mechanism is ominous and will need to be resolved with a sense of real urgency.
Dr Warren Smith is Caribbean Development Bank president.
