With high debt and large deficits, how will the Caribbean finance its economic recovery?
The Caribbean continues to search for ways to accelerate its economic recovery. Islands, like Barbados, which continue to be hemmed in by growing debt and large fiscal deficits, have been seeing some light through increased tourism arrivals and spending and low oil prices.
But in addition to depending on matters that are out of their hands, there are suggestions that Caribbean countries must do more to speed up their economic recovery.
One pertinent question is: where will they get the funds to stimulate such activity, especially if foreign direct investment does not reach pre-crisis levels? The problem is exacerbated by the fact that private lenders, including commercial banks, are wary of lending governments more money largely because of the massive amounts of debts on their books.
In such circumstances, international donors are getting even more attention from regional countries, while global financial institutions like the International Monetary Fund (IMF), World Bank, and Inter-American Development Bank are being looked at for advice on how to finance recovery.
This issue is one that Caribbean governments have been grappling with in the last seven years. This was evident more than four years ago at an economic roundtable discussion sponsored by the Caribbean Development Bank (CDB) in Nassau, The Bahamas.
Standard & Poor’s (S&P) director of sovereign ratings Olga Kalinina said then S&P believed “that the next economic cycle will bring us lower medium term growth, rising interest rates, higher fiscal debt, less liquidity and much less fiscal flexibility compared to last cycle”.
“Attracting foreign direct investment (FDI) will be a challenge, in terms of general appetite and affording tax and investment incentives that Caribbean sovereigns relied on in the past in competing for FDI,” she added.
CDB economist Dr Denny Lewis-Bynoe said the region needed to “look carefully at each country’s experience and their binding constraints, because what works for The Bahamas is not necessarily right for Barbados in terms of product offering or proximity to markets”.
“Yet there are commonalities, such as the need for training and better use of technology,” she noted.
Prime Minister Freundel Stuart is one who believes that financial institutions operating in the Caribbean, including indigenous ones, can do more to finance economic recover, especially for small businesses.
Addressing the Barbados Chamber of Commerce and Industry luncheon last year, he said while layoffs could have major implications for the economy, this could be negated by the provision of easier access to financing.
He referred to an Inter-American Development Bank report which concluded that “the key challenges that confront the nation are poor work ethic and access to financing”.
Calling for the private sector to do more, he observed: “Private decision making employs a private calculus in sharp contrast with the public sector, which uses a social calculus. The average private business person is not expected to be primarily concerned with the benefits that may accrue to society from his decisions.
A government, on the other hand, has to consider the social benefits and costs that may accrue from the decisions that it makes and from the options that it exercises.”
Speaking recently in St Kitts, IMF deputy managing director Min Zhu said one of the keys to Caribbean economic recovery was its ability to boost economic resilience, something he pledged the IMF would help them achieve.
