By: Staff Writer
October 31, 2023
The International Monetary Fund (IMF) says in their regional outlook for the Western Hemisphere that while growth is slowing in the Caribbean, so too is inflation, signalling a return to favourable terms of trade for commodity export countries.
The IMF said: “Economic growth in the Caribbean was strong in 2022 but is moderating this year. Real GDP growth in the region (excluding Guyana) firmed to an estimated 4.2 percent in 2022 as countries continued reopening after the COVID-19 lockdowns. In tourism-dependent countries, growth was driven by a rebound in tourism and, in some countries, strong construction activity. In commodity-exporting countries, economic growth benefited from the favourable terms of trade associated with higher oil and gas prices. However, the tailwinds that supported growth in 2022 appear to be weakening, and growth in the region (excluding Guyana) is expected to moderate to 1.9 percent in 2023.
“Inflation rose sharply in 2021–22 but is expected to moderate in almost all countries in 2023. The sharp increase in inflation was mostly driven by global factors—including high commodity prices and supplychain disruptions—particularly in countries with currency pegs, while exchange rate pass-through played a greater role in countries with a floating exchange rate. Unemployment has declined relative to the rates observed during the pandemic, but it remains high for certain groups (for example, youth and female workers). Current account balances improved in 2022, boosted by the recovery in tourism-dependent countries and higher oil and gas prices in commodity-dependent countries. However, this was somewhat offset by increased import costs (for example, food and energy).”
The region also needs to invest in climate resilience projects and accelerate the energy transition. Several countries have adopted or are developing disaster resilience strategies and national disaster plans. A number of large-scale solar projects have become operational or are under construction, while some countries are exploring geothermal power. In commodity-exporting countries, efforts are being made to reduce domestic fossil fuel consumption and lower the carbon intensities of fossil fuel and hydrogen production. Sustained progress requires additional external financing, and the sharp increase in the global cost of capital poses a key challenge. Drawing on official financing, including the IMF’s Resilience and Sustainability Facility (as Barbados and Jamaica have done), and finding new ways to mobilize private climate financing will be critical.
Meanwhile, in “Central America, Panama, and the Dominican Republic (CAPDR), growth has also softened recently, although less than in LA5 (Brazil, Chile, Colombia, Mexico, and Peru), as activity in the services sector has remained resilient, supported by still strong remittances. Growth in tourism-dependent Caribbean economies is also expected to moderate in 2023 and 2024 as the demand for tourism services continues to soften. Similarly, growth in the Caribbean commodity exporters will slow down in 2023 and further in 2024 as these countries face less favourable external conditions, although Guyana will continue to grow at a robust pace following the discovery of sizable oil reserves.”
The report also said: The financial sector appears sound and liquid in most countries despite tighter and more volatile global financial conditions. Financial institutions in the region were unscathed by financial sector developments in some advanced economies earlier in 2023, due to their limited direct cross-border exposures. Bank credit growth remains subdued in most countries. However, lending by credit unions has been strong amid rising nonperforming loans.
“Risks to economic growth remain tilted to the downside. A key risk for tourism-dependent countries is an economic slowdown in tourism source countries. Moreover, countries reliant on citizenship-by-investment programs may see lower fiscal revenues amid greater international scrutiny. For commodity-exporting countries, a sharper-than-expected global slowdown could reduce demand for their exports.”