Is the Caribbean still in need of economic reform?
It is a message that economists from the region and elsewhere, and financial institutions as well, have been preaching to Barbados and its neighbours for several years.
That is, there is a need for real economic reform. Whether it is tourism-dependent nations like Barbados or those rich with natural resources like Guyana, countries have been told that they be more diversified economically.
In doing so, the experts have argued, these nations would be less vulnerable to international financial shocks, and reduce their dependence on foreign direct investment.
While it is not possible to completely isolate yourself from external events, the persistent large fiscal deficits and mounting debt profiles of Caribbean countries suggest that the region has not been able to reform as recommended.
The fact that the islands are vulnerable to natural events like hurricanes and facing the threat of climate change has made the challenge more difficult.
Speaking at a high level Caribbean forum in November last year in Trinidad and Tobago, International Monetary Fund deputy managing director Tao Zhang said the region was facing old and new challenges.
He saw a need to “take stock” of the required policy responses.
He referred to a similar forum in 2012 and observed that the need to enhance labour productivity and reduce energy costs remained unresolved.
“That is not to say that progress has not been made, but more work is needed,” he said.
“Another key takeaway from the Forum four years ago was that fiscal adjustment can be difficult to sustain amid weak economic growth. This certainly remains the case today.”
Zhang said the environment of low interest rates gave Caribbean countries the opportunity to “pursue adjustment, undertake liability management to lower financing costs, and reduce debts to safer levels”.
However, since his speech, the United States raised interest rates, and the Donald Trump administration took office. While the need for reform has not disappeared, there is a view that implementation has become more difficult and uncertain.
“We are committed to supporting policy reforms, and reconstruction efforts. Tides may shift, seas may rise, but the Fund’s unwavering commitment to the region will remain unchanged. Our work continues in the Caribbean by providing policy advice, technical assistance and training, and by providing financing,” Zhang said.
Addressing the Caribbean Development Bank’s (CDB) annual board of governors meeting in Jamaica last May, CDB president Dr. Warren smith said member countries had agreed to increase the pace of their economic reforms.
However, at his recent review of Caribbean economies and their outlook for this year, Smith said while some countries had taken positive steps “there is still a lot of work to be done; and the risk of policy reversal or abandonment is very high”.
“Now more than ever, regional governments cannot become distracted and relax their resolve to stay what might appear to be a painful course. Instead, they must become even more vigilant. Their commitment to “do the right thing” will help to build confidence; and ultimately stimulate private interest in growth-enhancing investments,” he said.
The need for economic reform was not mentioned in the February 18 communique released at the conclusion of the 28th Inter-Sessional Meeting Of The Conference Of Heads Of Government Of Caricom in Guyana.
The status of the CARICOM Single Market and Economy and correspondent banking were the main economic issues raised. (SC)