Transcript economic resilience in the caribbean: some observations

ECONOMIC RESILIENCE IN
THE CARIBBEAN: SOME
OBSERVATIONS*
Andrew S Downes PhD
Professor of Economics and Pro Vice Chancellor (Planning and
Development), University of the West Indies
*Workshop on Resilience Building in Small States, Malta June 18-19,
2013
BACKGROUND TO CARIBBEAN
ECONOMIES
Growth and Production Performance
-- Over the 1960-2010 period Real GDP per
capita tripled ( Antigua/Barbuda, Belize, St Vincent,
T&T), doubled (Barbados, Dominica, Grenada, St
Kitts/Nevis, St Lucia)
◦ Slow down in economic growth over the past 3
decades
1984-94


GDP (%)
GDP per capita (%)
3.7
2.9
1994-2004
2.2
1.0
(Source: World Bank)
◦ Possible “middle income trap” in Caribbean??
◦
Decline in the contribution of agriculture and the
rise of the services sector – output and
employment
BACKGROUND TO
CARIBBEAN ECONOMIES
◦ Tourism has been a main contributor to
output and its growth – Antigua, Bahamas,
Barbados, St Lucia
◦ Petroleum and associated products have
dominated Trinidad and Tobago
◦ Agriculture is still important to Belize,
Dominica, Guyana
◦ Economies still dependent on one-two major
areas of economic activity which are exportoriented.Vulnerable to economic and natural
shocks.
◦ Regression analysis of economic growth of
Caribbean points to the statistical (and
economic) positive significance of (i) exports (
eg tourism) and (ii) physical capital and (iii)
human capital ( education) in the growth
process. Also role of policies and institutions.
BACKGROUND TO CARIBBEAN
ECONOMIES
Employment and Unemployment
◦ Employment distribution mirrors that of the
sectoral distribution of GDP – service workers
(tourism, distribution, government) dominate
in almost all countries. Significant number in
elementary occupations (including the
informal sector)
◦ Unemployment rates have been historically
high (over 10 percent of the labour force).
Decline in the rate prior to 2009 to single digit
(e.g., 4.9% in 2008 for T&T)
BACKGROUND TO CARIBBEAN
ECONOMIES
◦
◦
◦
◦
◦
◦
Bahamas: 14.8% in 1992 to 8.7% in 2008
Barbados: 24.3% in 1993 to 6.7% in 2007
Belize: 14.3% in 1998 to 8.2% in 2008
Jamaica: 15.9% in 1992 to 10.0% in 2007
T & T: 19.6% in 1992 to 4.9% in 2008
Youth unemployment (females and in recent years,
male) has been a chronic problem. Some degree of
underemployment resulting in low levels of
productivity.
◦ Increased unemployment with the shock of the
Great Recession 2008-2010 ( some Governments
sought to keep up public sector employment)—In
2011: Bahamas (15.9%), Belize (15%),Barbados
(11.5%), Jamaica (13%),St Lucia (21.2%), T&T(5%)
BACKGROUND TO CARIBBEAN
ECONOMIES
Poverty and Income Inequality
◦ Relatively high rates of poverty in the region
 OECS: 18.4% (Antigua 2006) to 39% (Dominica 2002)
of the population
 Bahamas: 9.3% (2001), Barbados 19.3% (2010)
 Jamaica: 24.4% (1993) to 12.9% (2005)
 T & T: 24% (1997) to 16.7% (2005)
◦ Significant degree of income inequality: Gini
coefficients over the 1995-2005 period varied
between 0.23 (BVI in 2002) to 0.57 (Bahamas
in 2001)
BACKGROUND TO CARIBBEAN
ECONOMIES
Human Development
◦ Caribbean countries have middle to high levels of
human development (using the HDI) by the UNDP.
Barbados only country with Very HD
◦ In 2005, the HDI values ranged from 0.736
(Jamaica) to 0.892 (Barbados) or a ranking of 101
to 25 from 177 countries. In 2012, the HDI for
Barbados was 0.825 (ranked 38) and Jamaica was
0.730 ( ranked 85)
◦ Generally high levels of life expectancy at birth
(generally over 70 years); high level of primary
school enrollment and literacy (over 90% in most
cases)
BACKGROUND TO CARIBBEAN
ECONOMIES
Economic Freedom
◦ The Heritage Foundation’s Index of Economic
Freedom ranks Caribbean high: moderately
free to mostly free
◦ Barbados (ranked 22nd in 2008 with a value of
71.5 – mostly free) to Dominica (ranked 70th in
2006 with a value of 62.6 – moderately free)
out of 177 countries
Competitiveness
◦ World Economic Forum’s Global
Competitiveness Index 2008/9:
BACKGROUND TO CARIBBEAN
ECONOMIES
◦ Stage 1(factor-driven economies),
Stage 2 (efficiency -driven economies),
Stage 3 (Innovation-driven economies)
Doing Business
◦ The World Bank’s Ease of Doing Business
ranked the Caribbean countries in 2009 from
St Lucia (34th) to Guyana (105th) out of 181
countries
◦ Singapore (1), Malta (n/a), Mauritius (24),
Costa Rica (117)
BACKGROUND TO CARIBBEAN
ECONOMIES

Macroeconomic Management:
◦ High debt to GDP ratios associated with Great
Recession—in 2012 St Lucia, Grenada,
Antigua/Barbuda over 90%---little fiscal space and
need for fiscal adjustment. Sovereign Debt
restructuring adopted in OECS countries, Belize
and Jamaica.
◦ Some reduction in inflation: 2010 [range was 0.6(St
Kitts) to 12.6 (Jamaica)]; while in 2012 [ range was
1.4 (St Kitts) to 9.3(T&T)]
◦ Current account deficits on BOP increased for
several countries after Great Recession with
several countries seeking IMF assistance—
Antigua/Barbuda, Jamaica, Dominica, Grenada, St
Kitts, St Lucia and St Vincent
Member State
Human
Development*
Rank 2012
Growth Rate (%)
2010
2011
2012/e
Debt to GDP
Ratio
2012
2013/p
Doing Business
Indicators Rank**
Antigua and Barbuda
HHD 67
-8.5
-5.5
1.6
1.5
97.8
63
The Bahamas
HHD 49
0.2
1.6
2.5
2.7
52.6
77
VHHD 38
0.2
0.6
0.0
0.7
70.4
88
Belize
MHD 96
2.9
2.5
2.3
2.5
81.0
105
Dominica
HHD 72
0.9
-0.3
0.4
1.3
72.3
68
Grenada
HHD 63
0.0
1.0
0.5
0.5
105.4
106
MMD 118
4.4
5.4
3.8
5.8
60.4
114
LHD 161
-5.4
5.6
4.5
6.5
15.4
174
HHD 85
-1.5
1.3
-0.2
1.0
143.3
90
-3.6
2.0
1.4
0.9
4.3
--
Barbados
Guyana
Haiti
Jamaica
Montserrat
St. Kitts and Nevis
HHD 72
-2.4
2.1
-0.8
1.8
144.9
96
Saint Lucia
HHD 88
0.4
1.3
0.7
1.2
78.6
53
St. Vincent and the Grenadines
HHD 83
-2.8
0.1
1.2
1.5
68.3
75
MHD 105
7.3
4.5
4.0
4.5
18.6
164
HHD 67
0.0
-1.4
0.7
2.2
35.7
69
-0.5
1.4
1.5
2.3
Suriname
Trinidad and Tobago
CARICOM
BACKGROUND TO
CARIBBEAN ECONOMIES
Country
Rank
Score
Stage of Development
Barbados
47
4.40
Transition from 2 to 3
Jamaica
86
3.89
Stage 2
T&T
92
3.85
Transition from 2 to 3
Suriname
103
3.58
Stage 2
Guyana
115
3.47
Stage 1
RISKS,VULNERABILITIES AND
CHALLENGES
Removal of preferential trade arrangements
and impact on banana and sugar industries (
eg Windward Islands)
 Oil prices increases and domestic inflation (
most Caribbean countries) and “bust and boom
effect” and “Dutch Disease” ( Trinidad and
Tobago)
 World Recession and effects on exports,
remittances, foreign direct investment, debt
etc ( recent Great Recession)
 Shocks to GDP result in a decline (trough)
within a year or two years, but recovery to
pre-decline levels takes 4-7 years (Barbados)

Barbados GDP per capita (constant 2000US$) 1960-2009
12,000
10,000
8,000
6,000
4,000
2,000
0
1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
RISKS, VULNERABILITIES
AND CHALLENGES
Natural disasters with economic effects (
hurricanes, volcanoes, floods, effects of
climate change)—Grenada (Hurricane
Ivan, Montserrat ( volcanic eruptions).
 Losses from natural hazards: 0.9% of GDP
in 1980s and 1.3% in 1990s (CDB data)
 Social disruptions (Revolution in Grenada,
Trinidad & Tobago)
 These can be natural experiments for
analyzing the extent/degree of resilience
and recovery period

REGIONAL RESPONSES TO
SHOCKS
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Economic diversification at the national level ( tourism,
financial services-off shore, data processing, professional
services)
Human resources development ( skills training, universal
secondary education, increasing tertiary level enrollment)
Economic integration—CARICOM Single Market and
Economy (CSME)-Strategic Plan for Regional
Development (SPRD).
National Development Strategies and Plans(Jamaica, T&T,
Barbados and OECS)
Alternative Sources of energy—solar, wind,etc
Building codes and new infrastructure—coast zone
management. Catastrophe Funds established.
Social Partnership/Social Dialogue
Fiscal adjustments and development partner assistance
REGIONAL RESPONSES TO
SHOCKS

Challenges facing the region:
◦ Increasing productivity ( labour and other factors) and
breaking the “middle income trap”—identifying new industries
to replace the old.
◦ Reducing public indebtedness and creating fiscal space for
promoting growth and development
◦ Removing or streamlining Government regulations and ‘red
tape’ which increase transactions costs of doing business
◦ Accessing finance to promote entrepreneurship
◦ Reducing external capital inflows
◦ Lack of capacity to take advantage of trading agreements
◦ Reducing high levels of unemployment and labour market
mismatch. Strengthening social protection .

Building resilience in the region must take these
challenges into consideration