CDB 2017 Caribbean Economic Review and 2018 Outlook

2017 CARIBBEAN ECONOMIC REVIEW AND 2018 OUTLOOK

PURPOSE “The purpose of the Bank shall be to contribute to the harmonious economic growth and development of the member countries of the Caribbean (hereinafter called the Region) and to promote economic cooperation and integration among them, having special and urgent regard to the less developed members of the Region.�

Article 1 - Agreement establishing the Caribbean Development Bank

MISSION STATEMENT CDB intends to be the leading catalyst for development resources into the Region, working in an efficient, responsive and collaborative manner with our Borrowing Member Countries (BMCs) and other development partners, towards the systematic reduction of poverty in their countries through social and economic development.

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2017 CARIBBEAN ECONOMIC REVIEW AND 2018 OUTLOOK

CDB MEMBER COUNTRIES Borrowing Members

Anguilla

Haiti

Antigua & Barbuda

Jamaica

The Bahamas

Montserrat

Barbados

St. Kitts & Nevis

Belize

Saint Lucia

British Virgin Islands

St. Vincent & the Grenadines

Cayman Islands

Suriname

Dominica

Trinidad & Tobago

Grenada

Turks & Caicos Islands

Guyana

Non-borrowing Members Brazil

Italy

Canada

Mexico

China

United Kingdom

Colombia

Venezuela

Germany

2017 CARIBBEAN ECONOMIC REVIEW AND 2018 OUTLOOK

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OVERVIEW The extreme vulnerability of the Caribbean Region was highlighted once again in 2017. Many of Caribbean Development Bank’s (CDB) Borrowing Member Countries (BMCs) were affected by the hurricanes that passed through the Caribbean in September. It will take considerable time for some BMCs to recover from the significant economic and social damage and losses they experienced. Notwithstanding the devastating events of 2017, there was an overall uptick in economic growth to 0.6%. The rebound in oil prices helped producers such as Suriname and Trinidad and Tobago, although they stayed in recession. However, higher oil prices also put unfavourable pressures on the external positions of many other countries. Fiscal balances remained weak in most cases, and public sector debt continues to be worryingly high in many BMCs.

Although growth returned in 2017, the Region continues to underperform in comparison with other country groups. Since 2009, annual growth has averaged 0.8%1; while in other small developing states, growth averaged 4.8%.

Looking ahead, the Region is expected to grow by 2% in 2018, benefiting from a projected increase in global economic growth, but risks are tilted on the downside. Mitigating these risks will require improved resilience on many levels. Macroeconomic stability, increased competitiveness, improved human development, and environmental preparedness are all necessary conditions to improve resilience, and ensure sustainable, inclusive growth and development.

CHART 1: GROWTH (%) IN REAL OUTPUT, 2009-2017

Emerging market and developing economies Other small developing states World

Advanced economies

CDB Borrowing Member Countries

Comparable Country Groups - Real GDP Growth Rates Sources: CDB; International Monetary Fund (IMF) World Economic Outlook Database (October 2017)

1 Regional average real GDP growth was estimated at 1.0% when Trinidad and Tobago (which makes up about one third of BMCs’ total GDP) is excluded.

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2017 CARIBBEAN ECONOMIC REVIEW AND 2018 OUTLOOK

2017 CARIBBEAN ECONOMIC REVIEW AND 2018 OUTLOOK

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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.

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.

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.

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.

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.

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2017 CARIBBEAN ECONOMIC REVIEW AND 2018 OUTLOOK

TABLE 1: GROWTH (%) IN REAL OUTPUT, 2013-2017*

BMC

2013

2014

2015

2016

2017

ANG

0.5

5.6

3.6

2.5

-3.5

ANT

-0.1

5.1

4.1

5.3

3.0

BAH

0.0

-0.5

-1.7

-0.3

1.0

BAR

-0.1

0.1

0.9

1.6

1.0

BZE

0.7

4.1

3.8

-0.5

0.5

BVI

5.4

1.3

0.5

-0.8

-2.7

CAY

1.2

2.2

2.8

3.5

2.7

DOM

-0.6

4.4

-2.5

2.7

-6.9

GRE

2.4

7.3

6.4

3.7

4.5

GUY

5.2

3.8

3.2

3.3

2.9

HAI

4.2

2.8

1.2

1.4

1.2

JAM

0.2

0.5

0.9

1.4

1.7

MON

5.1

2.0

0.4

2.0

1.6

SKN

6.2

6.0

4.0

2.2

2.8

SLU

0.2

-0.9

2.0

0.9

2.9

SVG

2.5

0.3

0.9

0.8

0.0

SUR

2.9

0.4

-2.7

-10.5

-1.2

TT

2.7

-0.6

-0.6

-6.0

-1.0

TCI

1.3

4.6

5.1

4.4

3.4

All

1.6

0.6

0.3

-0.1

0.6

All ex TT

1.4

1.3

0.4

0.8

1.3

Sources: National Statistics Offices, Central Banks and CDB *Data for 2017 are preliminary estimates

Regional consumer price inflation continued to edge up in 2017.

On balance, regional inflation (proxied by the median rate) was estimated at 2.4%, up from 0.9% in 2016. The rise in consumer prices was partly influenced by higher international crude oil and commodity prices, the impact of weather-related shocks to

domestic food supply, and an increase in aggregate demand in some BMCs. Generally, price rises exceeded the median inflation rate in 11 of the 19 BMCs, with the most pronounced increases recorded in Haiti (15.3%), Suriname (9.2%) and Jamaica (5.0%).

2017 CARIBBEAN ECONOMIC REVIEW AND 2018 OUTLOOK

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SOCIAL ISSUES – POVERTY AND UNEMPLOYMENT The majority of BMCs are ranked in the high human development category2. Notwithstanding, issues of persistent poverty and indigence; inequality; vulnerability; and the inability of the poor to sustainably improve their well-being remain. The BMCs have high levels of poverty and income inequality. CDB’s forthcoming

programme of Enhanced Country Poverty Assessments (ECPAs) will provide up to date and more reliable measures of poverty, which will allow improved targeting of the factors underlying poverty.

TABLE 2: POVERTY DATA IN THE BMCs Country

Year

Population

Population

Population

Poverty Gap

Gini Coefficient

Poor (%)

Vulnerable (%)

Indigent (%)

Index

(0=equality)

ANG

2009

5.8

17.7

0

1.1

39

ANT

2007

18.3

10

3.7

6.63

48

BAH

2001

9.3

-

5

2.8

57

BAR

2010

19

10.4

9.1

6

47

BZE

2009

41.3

13.8

15.8

11.4

36

BVI

2002

22

-

<1

4.3

23

CAY

2006-07

2

1.8

0

0.44

40

DOM

2009

28.8

11.5

3

8.9

44

GRE

2008

37.7

14.6

2.4

10.13

37

GUY

2006

36.1

-

18.6

16.2

35

HAI

2012

58.5

11.5

23.8

-

61

JAM

2012

20

-

-

4.5

38

SK

2008-09

23.7

-

1.4

6.4

38

NEV

2008-09

15.9

-

0

2.7

38

SLU

2005

28.8

40.3

2

9

42

SVG

2007-08

30.2

48.2

2.9

7.5

40

SUR

2012

47.2

-

-

-

-

TT

2005

15.5

9

1.2

4.6

39

TCI

2012

21.6

11.4

0

4

36

World

2013

22.3†

LAC

2013

10.8†

Sources: Regional Government Reports, CDB, WB; †WB Poverty Gap at $5.50/day

2 UNDP – Human Development Index 2016.

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2017 CARIBBEAN ECONOMIC REVIEW AND 2018 OUTLOOK

The BMCs that have experienced sustained economic growth and declining unemployment since the period 2008 to 2009 are likely to have recovered from increases in their poverty rates during the global financial crisis, while those with negative or no growth probably experienced some deterioration. The countries which reported declines in their unemployment rate

in 2017â&#x20AC;&#x201C; Belize, The Bahamas, Grenada, Jamaica and Saint Luciaâ&#x20AC;&#x201D;also recorded positive economic growth. However, double-digit unemployment remains an area of concern for most of the Caribbean, and youth and women are disproportionately affected.

CHART 2: UNEMPLOYMENT RATES IN CDB'S BMCs (%)

2005-17

2017 Estimate Unless Otherwise Noted

Sources: National Statistics Offices, Central Banks, International Monetary Fund (IMF)

2017 CARIBBEAN ECONOMIC REVIEW AND 2018 OUTLOOK

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FISCAL PERFORMANCE AND DEBT Fiscal conditions in the Region deteriorated in 2017 and public debt remained high. The median fiscal deficit of central governments worsened from 0.7% of GDP in 2016 to 1.6% in 20173. This reflected sluggish revenue performances related to commodity outputs, declining receipts from citizenship by investment programmes, and inadequate responses on the expenditure side. Three BMCs (Barbados, Suriname, and Trinidad and Tobago) received credit rating downgrades, as the ratings agencies expressed concerns about deficit and debt levels, as well as underlying economic strength4. All three tightened their fiscal stance, by rationalising public expenditure and introducing revenue-enhancing measures. Belize also tightened its fiscal stance, following restructuring of its commercial debt in March. These actions resulted in its credit rating being upgraded, having been downgraded in late 2016 when the government first announced its intention to restructure.

High levels of indebtedness remain a challenge, with increasing debt service payments crowding out the productive expenditure needed to stimulate growth. The median public debt burden declined marginally from 66.7% of GDP in 2016 to 64.6% in 2017. Table 3 shows that debt-to-GDP ratios fell in 13 of the 19 BMCs as at the end of 2017, due to continued implementation of economic reform programmes (Grenada and Jamaica); improved revenue performance; lower interest costs associated with active debt and liability management; and a return to moderate economic growth in the tourism-driven economies. However, debt is still above 60% of GDP in 12 BMCs. In addition, following the passage of hurricanes Irma and Maria, it is anticipated that there will be sizeable fiscal and/or debt slippages during the period 2018 to 2019, as reconstruction efforts pick up.

3 Source: IMF WEO Database. Not including the five UK Overseas Territories.

4 Suriname was downgraded by Fitch in February (to B- from B+), and by Standard and Poors (S&P) in April (to B from B+). Later in the year, Moody’s placed Suriname on review for downgrade. Barbados was downgraded by Moody’s in March (to Caa3 from Caa1) and by Standard and Poor’s (S&P) in September (to CCC from CCC+). In April, Trinidad and Tobago was downgraded by Moody’s (to Ba1 from Baa3).

TABLE 3: DEBT/GDP RATIO, AS AT END OF

2016 AND 2017 2016

2017

Change

BAR

161.5

157.1

-4.4

JAM

119.4

113.4

-6.0

BZE

92.3

93.9

1.6

ANT

82.5

78.3

-4.2

SVG

82.1

77.2

-4.9

DOM

72.7

72.7

0.0

BAH

68.0

72.7

4.7

SLU

66.7

67.0

0.3

GRE

76.3

66.3

-10.0

SKN

64.8

64.6

-0.2

SUR

68.8

63.2

-5.6

ANG

60.6

56.8

-3.8

TT

58.8

60.1

1.3

GUY

45.7

45.2

-0.5

HAI

33.7

32.6

-1.1

BVI

18.8

18.7

-0.1

CAY

16.3

14.7

-1.6

TCI

7.6

7.4

-0.2

MON

5.1

6.1

1.0

Sources: IMF World Economic Outlook Database, Central Banks, Ministries of Finance, CDB estimates

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2017 CARIBBEAN ECONOMIC REVIEW AND 2018 OUTLOOK

EXTERNAL PERFORMANCE

External positions improved in the commodity-producing BMCs, but in other countries the situation worsened, and the level of foreign reserves came under further pressure. The current account deficit fell in Suriname and in Trinidad and Tobago, owing to increased oil and gas prices. Suriname also benefitted from an increase in the price of gold, as did Guyana, although there the current account returned to deficit, as imports related to the extractive industries went up. The current account improved slightly in Belize, as the trade deficit narrowed, helped by higher exports of sugar, bananas and marine products. Imports also

CHART 3: FOREIGN RESERVES (IN MONTHS OF IMPORTS)

2017 LATEST AVAILABLE

Sources: Central Banks

AS AT END OF 2016

declined, as the effects of a restrictive budget set in.

The external reserves positions were below or close to the recommended threshold in Barbados; Belize; The Bahamas; and Suriname, although they improved slightly in the latter two BMCs in 2017. In Barbados, despite strong visitor performance, the external current account remains in deficit mainly due to higher fuel prices driving increases in the price of imports. In Belize, a dramatic fall in exports in 2016, and settlement of payments for two previous nationalisations, put pressure on the reserves position.

2017 CARIBBEAN ECONOMIC REVIEW AND 2018 OUTLOOK

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2017 CARIBBEAN ECONOMIC REVIEW AND 2018 OUTLOOK

MONETARY DEVELOPMENTS AND FINANCIAL STABILITY

OUTLOOK

Monetary conditions in the BMCs were consistent with the anemic real GDP growth. Generally, monetary growth slowed in 2017, consistent with sluggish domestic credit growth in The Bahamas; Barbados; Eastern Caribbean Currency Union; Suriname; and Trinidad and Tobago. Jamaica was an exception, where an easing of credit conditions underpinned household and private-sector credit growth.

As small open economies, the BMCsâ&#x20AC;&#x2122; prospects partly depend on developments in the global economy. The IMF is forecasting that global growth will increase in both 2018 and 2019 to 3.9%, from 3.7% in 2017, reflecting existing growth momentum and tax policy changes in the United States (U.S.)5. However, the Fund warns against complacency, citing medium-term downside risks, such as a correction in financial markets; inward-looking policies; geopolitical tensions; and political uncertainty in some countries.

Generally, the regional banking system remains relatively stable.

Bank capitalisation continued to be satisfactory, with capital adequacy ratios above prudential guidelines. However, some vulnerabilities persisted across BMCs, with high (albeit declining) levels of non-performing loans (NPLs) and increasing supervisory costs; both of which are drags on banksâ&#x20AC;&#x2122; profitability.

Expectations are that high levels of liquidity will be maintained over the medium term, given the uncertain economic environment.

Furthermore, modest improvements in credit quality indicators are expected, as banks ratchet up efforts to address the NPLs on their balance sheets. The loss of correspondent banking relationships continued to pose a threat to the stability of some domestic banks, amidst tighter lending conditions and increased oversight for anti-money laundering and combating the financing of terrorism.

At the regional level, exposure to the global risks are high, but there are also the known risks associated with natural disasters and other weather-related events. The increasing frequency and intensity of these events highlight the need to improve resilience.

Economies heavily reliant on financial services will continue to face levels of scrutiny from the international community regarding the use of offshore financial centres for tax avoidance. U.S. corporation tax reform could also mean profits being repatriated from offshore, with a possible effect on revenues in the Caribbean. These reforms may also lead to higher U.S. interest rates and appreciation of the U.S. dollar, further undermining the competitiveness of the fixed-exchange-rate tourist destinations6.

On the upside however, the same reforms could increase disposable incomes, leading to a positive impact on tourism and remittances.

While the Region cannot influence any of these events, it can take mitigating actions to lessen their impacts and build resilience.

By increasing their resilience, BMCs can put themselves in a position to ensure that vulnerabilities are reduced, so that growth is sustained and inclusive.

With these considerations in mind, CDB is projecting regional economic growth of 2% for 2018, to which all BMCs are expected to contribute. Returns to positive growth are forecast for Suriname and Trinidad and Tobago, driven by recovery in the energy sectors, and in Suriname's case, gold. Higher gold output

5 IMF World Economic Outlook Update â&#x20AC;&#x201C; January 2018.

6 Although recent pronouncements by the US Administration suggests that the Administration would welcome a weaker dollar.

2017 CARIBBEAN ECONOMIC REVIEW AND 2018 OUTLOOK

is also anticipated in Guyana, where there is also expected elevation in construction and investment activity in advance of oil first coming on stream in 2020. In Belize, increased economic activity is expected as both agriculture and fisheries continue to recover, and tourism picks up again. Construction will also increase, although public investment could be limited by budget tightening to comply with the conditions of debt restructuring.

Haiti is likely to continue to grow, although the need to mobilise local resources through taxes, which recently led to protest and labour unrest, will need to be managed carefully.

CHART 4: GDP GROWTH 2017 AND 2018 (%)

2018 FORECAST

2017 ESTIMATE

BMC AVERAGE = 2.0%

Sources: CDB Estimates

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As far as the service-dependent economies are concerned, reconstruction activity should drive growth in the five countries most affected by Irma and Maria (Anguilla, Antigua and Barbuda, BVI, Dominica, and TCI). Elsewhere, the Bahamian economy will finally benefit from Baha Mar operating at full capacity, following phased openings in 2017; and there will be further hotel investment in St. Kitts and Nevis and Saint Lucia. An increase in growth is forecast for Jamaica, as agriculture recovers and mining picks up following the opening of a new operation.

New inward investment is also planned for Barbados, but uncertainty over the future of economic and fiscal policy during a general election year is likely to affect investment decisions.

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2017 CARIBBEAN ECONOMIC REVIEW AND 2018 OUTLOOK

2017 CARIBBEAN ECONOMIC REVIEW AND 2018 OUTLOOK

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CDB POLICY OUTLOOK: CONSIDERATIONS FOR A CARIBBEAN FRAMEWORK The Region faces the challenge of integrating resiliencebuilding at the individual, household, community, business and government level. How can the Region anticipate economic and natural shocks, and how can they be absorbed, in order to smooth their debilitating effects on economic development?

How does the Region build resilient economies that are also competitive, foster innovation and provide households with inclusive income opportunities?

In this vein, the CDB is proposing a framework for BMCs, to transform low-growth, vulnerable economies into high-growth, sustainable and resilient economies.

Within this framework, CDB considers four pillars of resilience that are each necessary, but none of which on its own is sufficient.

Any blueprint for economic resilience in the Region requires that all four pillars, which are interdependent, are in place: 1. macroeconomic resilience; 2. productivity and competitiveness; 3. human development; and 4. environmental resilience.

The household should be at the centre of the four pillars.

CDB is also advocating for two cross-cutting themes and policies—gender equality and regional cooperation—two “ring beams” that would hold the pillars together. They all make up a virtuous Caribbean matrix in which each pillar functioning efficiently contributes to resilient households and by extension a resilient economy. Economic growth and stable fiscal accounts rely on having a competitive private sector that leads to growth; a workforce with the correct skills; citizen security; and environmental sustainability.

CDB also recognises that good policy is important, but it is not sufficient. Effective implementation is critical, and requires strengthening in most BMCs. The following section briefly describes each of the pillars and the cross cutting themes.

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2017 CARIBBEAN ECONOMIC REVIEW AND 2018 OUTLOOK

FIGURE 1: A CARIBBEAN FRAMEWORK FOR HIGH-GROWTH, SUSTAINABLE AND RESILIENT ECONOMIES

2017 CARIBBEAN ECONOMIC REVIEW AND 2018 OUTLOOK

(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 GDP7. 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.

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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 growth8. 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.

CHART 5: DOING BUSINESS INDICATOR TRENDS

2017/2018 2016/2017 2015/2016

7 Greenidge et al (2012), ‘Threshold Effects of Sovereign Debt: Evidence from the Caribbean’.

8 Jamal Ibrahim Haidar (2012), ‘The Impact of Business Regulatory Reforms on Economic Growth’.

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2017 CARIBBEAN ECONOMIC REVIEW AND 2018 OUTLOOK

Many governments and private-sector entities have been exploring the public-private partnership (PPP) mechanism as a solution to pursue development. For example, Jamaicaâ&#x20AC;&#x2122;s Highway 2000 is a bold, transformative PPP project that impacts the lives of hundreds of thousands of citizens on a daily basis.

PPPs come in many forms, and they provide an opportunity for the public sector to leverage the resources and the expertise of the private sector to deliver public sector goods and services to the population in a cost-effective and efficient way.

The private sector represents a viable partner when one considers its extensive expertise, investment capital and ability to find and implement solutions to developmental challenges. The private sector is also capable of leveraging its influence and networks to push for good public policies in a manner that is appropriate for national development.

poverty reduction and building social resilience. Policy measures targeted at the most vulnerable in society are critical. Since all of the pillars are linked, advocating for fiscal rules automatically implies that social expenditures cannot be blanket but must now be targeted to those who need it the most. This therefore requires data and knowledge about the most vulnerable households in society.

In addition to providing assistance to the most vulnerable, it is vital to correct the skills mismatch in the labour market. This will assist with bringing down the unemployment rate for the general population, but more importantly for the young. Youth unemployment is as high as 40% in some jurisdictions. Targeted interventions to improve citizen security will also be necessary.

Conditional cash transfers that incentivise households to keep children in school and reskilling policies for the heads of households are also important.

(3) BUILDING SOCIAL RESILIENCE The Caribbeanâ&#x20AC;&#x2122;s poor and marginalised are most severely affected by economic and natural shocks. Jamaicaâ&#x20AC;&#x2122;s 2015 Survey of Living Conditions reported a rise in the national poverty rate (to 21.2% in 2015 from 20.0% in 2014), owing to a jump in rural poverty linked to weather events that disrupted agricultural production. The severe drought in 2014-15 impacted agricultural output, and caused employment to contract by 3%. Over the same time period, poverty rates fell in wealthier urban areas as business activity expanded and employment grew.

External shocks also affect the most vulnerable due to shrinking public budgets and reduced social services. Responding to these shocks will require a multi-dimensional approach to

An important aspect of building social resilience requires anticipating possible changes in the future. Looking out to 2100, declining population trends in some of the major economies will also have significant impacts on social programmes and their affordability. For example, Jamaica is expected to see a population decline of 50% between 2015 and 2100, and Trinidad and Tobago a decline of 28% over the same period. It is therefore likely that the dependency ratio is likely to increase, making it imperative that the current and future working age population can function in the labour market.

2017 CARIBBEAN ECONOMIC REVIEW AND 2018 OUTLOOK

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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:

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2017 CARIBBEAN ECONOMIC REVIEW AND 2018 OUTLOOK

• Onboarding and/or retaining BMCs’ contribution to CCRIF SPC to provide post-disaster liquidity support to participating governments;

entrepreneurs are able to take advantage of the opportunities presented. If policies have been assessed as gender unequal then mitigating actions should be considered.

• Development of indemnity insurance markets for private asset holders;

Regional Cooperation

•

Wider use and application of climate screening and resilience toolkits to assess the climate resilience of investment decisions of governments, businesses and households;

•

Continued advocacy on establishing sovereign wealth/saving funds in BMCs such that the reserves can smooth response to economic and natural shocks while complementing sound macroeconomic policy and social protection; and

• Disaster recovery loans to assist the owners of MSMEs to recover after an environmental shock.

CROSS-CUTTING THEMES Gender Equality Significantly reducing poverty in Caribbean societies and ensuring that the economy operates at or near to full potential, will require gender-mainstreamed policies, particularly where they relate to the labour market. Statistics show that the majority of households living in poverty are headed by women. This usually arises as a result of unequal pay for women in the labour market, and labour market time opportunity costs associated with childcare. CDB therefore advocates that all policies be gender assessed and marked to assess how the policy will affect both men and women, and to ensure as far as possible that there will equal treatment under the policy for all genders. For example, policies that are meant to invigorate the labour market, such as those designed to improve productivity and competitiveness, should be assessed to ensure that female and male workers and

The size of many of the Caribbean countries means that there are considerable diseconomies of scale. It is therefore important to foster greater Caribbean cooperation in areas that are mutually beneficial such as on the free movement of factors of production, in particular labour and capital. There are also other areas where regional cooperation could help overcome diseconomies of scale, such as in trade and transport. CDB therefore believes that regional cooperation is an important factor that can help reinforce the four pillars of the framework.

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2017 CARIBBEAN ECONOMIC REVIEW AND 2018 OUTLOOK

CARIBBEAN DEVELOPMENT BANK P.O Box 408, Wildey, St. Michael Barbados BB11000 (246) 431-1600 (246) 426-7269 www.caribank.org