Caribbean: Outlook and Challenges
Nicole Laframboise International Monetary Fund Views expressed are those of the speaker alone and should not be reported as representing the official position of the International Monetary Fund.
OUTLINE 1. Global/ regional outlook and risks 2. Caribbean: macro challenges 3. Policy priorities
Recall the impact of the “Great Recession”… World: Real GDP Growth (percent change) 6 5 4 3 2 1 0
-1 2000
2002
2004
2006
2008
2010
2012
2014
Source: World Economic Outlook. 3
ďƒ˜ The recovery was U-shaped, but world growth has been tepid since then‌ Real GDP Growth (percent change) 12 10 8 World
6
Emerging
4 2
0 -2
Advanced
-4 -6 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: World Economic Outlook. 4
A pick-up in 2013 in advanced economies… Advanced Economies: Real GDP (index: 2008Q1 = 100) 110 108 106
US
Japan
Euro area
UK
104 102 100 98 96 94 92 90 2008
2009
2010
2011
2012
2013
2014
Source: World Economic Outlook. 5
‌ is being offset in part by a slowdown in big emerging markets . Emerging Markets: Real GDP Growth (percent change) 14 Brazil India South Africa
12 10
China Russia
8 6
4 2 0 2010
2011
2012
2013
2014
Source: World Economic Outlook. 6
Global activity is expected to strengthen moderately The U.S. economy is improving, as fiscal headwinds ease and house-holds recover further The euro area is out of recession, but activity remains subdued with financial fragmentation, debt burdens China’s growth is expected to stabilize at a lower rate, reflecting both cyclical and structural factors Overall, downside risks remain, though have shifted to new risks…
7
RISKS: Effects of normalization of US monetary policy on EM sovereigns and corporates…
8
ďƒ˜ New bouts of risk aversion and financial market volatility leading to more outflows‌
Sources: EPFR; and IMF staff calculations.
9
ďƒ˜ For commodity producers, the end -- for now -- of rising demand from China and rising prices. Commodity Prices (index: March 2004=100) 400 Oil 350
Forecasts
Metals Food
300 250 200 150 100 50 2004
2006
2008
2010
2012
2014
Source: World Economic Outlook. 10
ďƒ˜ These developments pose challenges for the Caribbean region, where growth has been subdued... Caribbean: Real GDP Growth (percent change) 5 4 3 2
Commodity exporters
1
0 -1 -2 -3
Tourism dependent
-4 -5
2008
2009
2010
2011
2012
2013
2014
Source: World Economic Outlook. 11
ďƒ˜ Particularly in several tourism based markets‌. Caribbean: Tourist Arrivals (index: January 2005=100) 150
ECCU and Barbados 1/ Jamaica
Bahamas and Belize Dominican Republic
140 130 120 110 100 90 80 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Caribbean Tourism Organization. 1/ ECCU includes Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines. 12
ďƒ˜ Giving rise to persistent external imbalances Caribbean: Net Foreign Assets (NFA) (percent of GDP)
0 -50 -100 -150 -200
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1986
1984
1982
1980
-250
1988
Caribbean Tourism-based Caribbean Commodity-exporting Caribbean
Sources: International Financial Statistics; World Economic Outlook; External Wealth of Nations Database;and IMF staff calculations. 13
Snapshot: external current account deficits by country Current Account Balance, 2013 (percent of GDP) 15 10 5 0
-5 -10 -15 -20 -25
-30 -35 VCT
GRD
BHS
GUY DMA ATG
LCA
BRB
JAM
KNA
SUR
BLZ
TTO
Source: World Economic Outlook.
14
ďƒ˜ Financed less in recent years by FDI. Caribbean: Current Account Financing (average for tourism dependent countries, percent of GDP) 20 15
Capital transfers Public borrowing CA Deficit
FDI Other
10 5 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
-5
Sources: International Financial Statistics; World Economic Outlook; and IMF staff calculations. 15
ďƒ˜ High debt and weak growth have strained fiscal positions. General Government Primary Balance and Gross Debt (% of GDP) Tourism-Dependent Economies Primary balance (right scale)
Commodity Exporters Debt
100
Primary balance (right scale) 4 3
95
Debt
56
4
54
3
2
2
52
90
1
85
0
-1
80 75 70
2008
2010
2012
2014
1 50 0 48 -1
-2
46
-3
44
-4
42
-2 -3 -4 2008
2010
2012
2014
Source: IMF, World Economic Outlook Note: Statistics shown are simple averages for the respective country groups. 16
Snapshot: 2013 public debt Debt, 2013 (percent of GDP) 160 140 120 100 80 60 40 20 0 SUR
TTO
BHS
GUY DMA
BLZ
VCT
LCA
BRB
ATG
KNA
GRD
JAM
Source: World Economic Outlook.
17
ďƒ˜ In many cases leading to fiscal financing pressures Central Government Financing Needs (% of GDP) Commodity Exporters
Tourism-Dependent Economies
15
30
25 2013
10
2013
2014
2014
20 15
5
10 5
0
KNA
VCT
DMA
BHS
JAM
ATG
BRB
LCA
GRD
TTO
BLZ
SUR
GUY
0
Source: IMF staff estimates. Note: Data are presented on the government's fiscal year-basis and may not be strictly comparable across countries. Data for St. Kitts and Nevis refer to the general government. Data for Guyana refer to the nonfinancial public sector.
18
ďƒ˜ This has increased the burden on financial systems, some already struggling with high NPL ratios. Nonperforming Loans (Percent of total loans) Belize
Jamaica
ECCU
25
20
15
10
5
0 2008Q1
2009Q1
2010Q1
2011Q1
2012Q1
2013Q1
Sources: National authorities; and IMF staff calculations. šECCU includes Antigua, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, and St. Vincent and Grenadines.
19
Broad policy Objectives 1. Strengthen fiscal position: lower debt, build buffers 2. Improve competitiveness: lower costs, raise quality 3. People: create employment, safeguard social services, equity
20
Policy Recommendations ** 1. Lower public debt levels > Revise/strengthen fiscal frameworks (PFM, rules…) > Lower current expenditure, raise capital spending > Reduce tax expenditures, widen tax base, lower rates 2. Reduce financial sector vulnerabilities > Resolve failed institutions promptly > Beef up framework for resolution, crisis management > Enhance national and cross border supervision 3. Boost potential growth …. ** IMF, CARICOM COMMISSION, GROWTH FORUM, ETC…21
3. Economic Growth Lower admin costs of doing business: regulation, red tape, customs delays Strengthen public services, institutions: remove state from the productive sectors, focus on public goods and services Structural reforms to lower key costs: Labour – reduce rigidities Energy and transport: regional approach/solutions Infrastructure bottlenecks: identify, prioritize 22