July 30th, 2015 -- The economic recovery in the Caribbean strengthened in 2014, as growth increased to 2.3% from 1.3% in 2013. The improvement in economic activity was driven by the continued rebound in tourism and construction, which offset the impact of softer commodity prices on growth among commodity producing economies of the region.
Nevertheless, growth was not as job-creating as it could have been as the rate of unemployment fell only marginally to 15.9% in 2014, from 16.2% in 2013. Inflation increased from 1.4% to 2.0%, reflecting higher domestic demand and non-fuel commodity prices.
The fiscal position improved in 2014 as the deficit declined by half to 2.1% of GDP from4.5% of GDP in 2013. This performance was influenced by a major fiscal consolidation effort in the service-based economies, which was aimed at reducing their unsustainable debt burden. However, the deficit increased marginally in the goods-based economies amidst the pick up in activity.
Public debt contracted somewhat, but remained at 70.7% on average in 2014. Most economies had debt levels over 70% with the exception of a few including Guyana, Suriname and Trinidad and Tobago.
Monetary developments continue to be marked by weak private credit demand, associated with sluggish private investment. There was a spike in credit to the public sector, but there are concerns about the efficiency of the related public investment. Moreover, non-performing loans which had increased owing to the crisis has continued to trend downwards.
The external current account deficit contracted marginally to 14% of GDP in 2014, reflecting higher tourism receipts and the benefit of lower fuel prices for most economies, except Trinidad and Tobago. Nevertheless, foreign direct investment - a crucial source of investment and technical know-how - contracted from 8.4% of GDP to 7.6% of GDP.
The regional economy is projected to slow marginally in 2015 with growth of 2.1%. Growth in the service producers will be driven by continued recovery in tourism, while goods-producers will benefit from an expected firming of oil prices. The fiscal position is expected to be influenced by further consolidation to bring down debt levels, while the current account deficit is expected to widen owing to reduced exports.
Despite the welcome recovery in the Caribbean, underlying structural constraints remain, that could hinder growth and poverty reduction. A key challenge is the decline in investment during the period after the global crisis. Domestic investment has fallen from 28% of GDP before to 23% of GDP after the crisis in the service producers and remained stagnant at around 22% of GDP in the goods producers. This is an important cause for concern given the critical role investment plays in driving growth and development.
An important constraint has been the weakness of private investment. Therefore, careful analysis is needed to point to the incentive and institutional reforms that are required to encourage entrepreneurs to invest in new productive activity. In recognition of the financial constraint facing a number of businesses and also the wider impact of high debt, ECLAC has proposed a debt relief strategy to help Caribbean small island developing states (SIDS).
The strategy centres on multilateral institutions writing off debt owed to them by Caribbean SIDS and using the earmarked debt service payments to create a Caribbean Resilience Fund. The Fund would be managed by a reputable institution such as the Caribbean Development Bank and would be used to finance projects aimed at growing the economy, reducing poverty and protecting the environment.The fund would provide finance for rehabilitation and reconstruction after disasters such as hurricanes and floods. A counterpart fund- the Macroeconomic and Stabilization Fund - would be used to provide countercyclical finance to address economic shocks such as terms of trade shocks.
Debt relief at this time is deemed justified, as the fiscal adjustment to achieve sustainability by the region would be very large and costly in terms of growth and reduced social protection. In addition much of the growth in debt stemmed from shocks, rather than fiscal imprudence. Additionally, the region has limited access to concessional external finance.
To conclude, debt relief complemented by increased domestic resources could go a long way in helping the region finance its sustainable development.
*************************
DISCLAIMER
This article was posted in its entirety as received by SKNVibes.com. This media house does not correct any spelling or grammatical error within press releases and commentaries. The views expressed therein are not necessarily those of SKNVibes.com, its sponsors or advertisers
Trinidad & Tobago News