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INDIVIDUAL BMC PERFORMANCE IN 2017

Many BMCs were affected by extreme weather events in 2017, particularly Hurricanes Irma and Maria, two category five hurricanes that passed through the Region in September. They impacted 10 BMCs, most significantly Anguilla; Antigua and Barbuda; British Virgin Islands (BVI); Dominica; and Turks and Caicos Islands (TCI). Both hurricanes caused considerable damage to economic and social infrastructure, and loss of life. Authorities estimate the costs of damage and losses at about 225% of GDP in Dominica and more than 300% in BVI. In all of the affected BMCs, the social impacts are yet to be fully assessed; but the consequences of displacement and unemployment, especially for more vulnerable households, are potentially severe for future growth prospects.

Most of the impact in TCI was felt on Grand Turk, where cruise ship visits were disrupted; however, overnight tourism, mainly based on the larger island of Providenciales, was less affected. In St. Kitts and Nevis, construction activity levelled off and overnight tourist numbers fell; but cruise ship visitor numbers bounced back late in the year. In The Bahamas, growth is estimated to have returned to positive territory, following the delayed opening of Baha Mar, the mega resort.

Of the Region’s other economies, Cayman Islands; Grenada; and Saint Lucia are estimated to have grown, due primarily to positive developments in their tourism and construction industries, and in Grenada, the education industry. The rate of growth in Jamaica was the highest since 2006, despite a contraction in agriculture following floods in May. There were strong performances in tourism, construction and manufacturing. Tourism and construction also performed well in Barbados, although overall growth was more modest. Growth is expected to have been dampened by the impact of austerity measures that were introduced to reduce domestic demand to restore external and fiscal stability. In St. Vincent and the Grenadines, visitor numbers were down despite the opening of the new airport. This was partly because room stock declined following closure of the Buccament Bay Resort.

Four of the five major commodity exporters—Belize, Guyana, Haiti, Suriname, and Trinidad and Tobago—all saw improved performance compared with 2016. Growth remained negative in Suriname, and Trinidad and Tobago. In Suriname, crude oil production targets were not met, although output from the refinery increased following an upgrade in 2016. Gold production increased but there were also cuts in public expenditure as part of the Government’s adjustment programme, which has been implemented to restore macroeconomic stability. In Trinidad and Tobago, output from the dominant oil and gas sector is estimated to have increased marginally, as previously commenced infrastructure maintenance work was completed, and new activities came on stream.

Following contraction in 2016, there was recovery in Belize. Agriculture and fishing bounced back marginally from drought and disease respectively. Visitor numbers continued to increase, although the tourism sector fell slightly overall, as tourists opted for cheaper accommodation options. Manufacturing contracted, partly due to lower oil production, and to lower production of alcoholic and non-alcoholic beverages. Growth in Guyana was underpinned by increased construction and manufacturing output. The public sector investment programme was ramped up, although some disbursement issues remained. Gold production fell slightly but its price rose. Rice output increased but sugar output fell, due to repairs at one estate, and industrial action in opposition to sugar industry restructuring. Haiti benefited from improved output of textiles and food. There were also increases in industrial production and in construction, some related to rebuilding following Hurricane Matthew in 2016.

(1) BUILDING MACROECONOMIC RESILIENCE

Macroeconomic resilience requires effective fiscal and debt management, such as using fiscal rules and fiscal responsibility legislation to create buffers that could absorb environmental and/ or economic shocks. This also requires strengthening domestic revenue mobilisation and public expenditure frameworks; better service delivery in government; and state-owned enterprise reforms.

An important aspect of macroeconomic resilience is the fiscal accounts. CDB therefore advocates for fiscal rules that nudge policymakers to make savings the priority and to ensure that fiscal buffers are in place to help alleviate the downturns caused by economic and natural disasters. Research suggests that economic distress can ensue when debt levels exceed 60% of GDP 7 . The proposed fiscal rule also has a maximum debt-to-GDP ratio of less than 60% with a buffer to a maximum of 60% of GDP to assist with rebuilding in the wake of a shock. Individual countries will determine the appropriate national fiscal rule based on expected fiscal cost of shocks.

CHART 5: DOING BUSINESS INDICATOR TRENDS

It is also important to emphasise that when governments borrow, that they borrow for productive purposes. Therefore, government projects should have rates of return that are higher than the cost of borrowing.

(2) BUILDING RESILIENCE THROUGH PRODUCTIVITY AND COMPETITIVENESS

The role of the private sector in building resilience in the Caribbean is becoming even more critical as BMCs strive to meet their targets under the Sustainable Development Goals. Research shows that improvement in the in the ranking of any Doing Business indicator could add 0.15% to annual GDP growth 8 . However, limited improvements in the business climate compromise the private sector’s efforts to contribute to this task. This climate has seemingly stagnated, based on the findings of the World Bank’s Doing Business Reports between 2016 and 2018, which show little movement in the Region’s average ranking by any of the main indicators. CDB therefore encourages governments to focus on doing business reforms to foster diversification and greater levels of growth.

2017/2018

2016/2017

2015/2016

CHART 6: POPULATION FORECAST: CHANGE FROM 2015 TO 2100

ESTIMATED TOTAL BMC POPULATION 2015: 18.0 MILLION 2100: 18.5 MILLION 3%

Sources: UN Department of Economic and Social Affairs

(4) INVESTING IN ENVIRONMENTAL RESILENCE BUILDING

CDB is poised to provide thought leadership to BMCs on how to embed resilience in national development. How can governments, businesses and households anticipate external shocks, reflect disaster risks in their investment decisions and adopt more effective ways of delivering crucial services during relief, recovery and reconstruction efforts? In 2018, the

Bank will publish a new methodology that will calculate the vulnerability and resilience of our BMCs. This index would allow for an assessment of the major sources of vulnerability for all BMCs and to provide feedback on how to build in greater resilience. An important aspect of this index will be vulnerability to environmental shocks. There are a number of initiatives that could help build environmental resilience: