Caribbean economies continue to grow despite outstanding challenges

Many of CARICOM’s economies are characterised by large natural resource bases, with a number of important recent oil and gas discoveries made of late. These countries do, however, also continue to face several parallel challenges including high levels of public debt.

Suriname

Formerly known as Dutch Guiana, the South American country of Suriname has a population of fewer than 600,000 people, but GDP is forecast to increase by 1.1% in 2018 following three years of recession, according to global credit insurance firm Coface, thanks to an abundance of mineral rich resources, such as gold, oil and aluminium, as well as a strong agricultural sector. However, since gaining independence from the Netherlands in 1975, the country has faced numerous economic and political challenges, including a 1980 military coup led by the now democratically elected President Désiré Bouterse.

Due to Suriname’s overreliance on commodities, its economy was plunged into recession when prices fell, spurring the country to seek out an IMF loan of $478m in 2016. Since then measures such as subsidy cuts, a public sector wage freeze, and a value-added tax of 10% have been introduced. In addition, a sovereign wealth fund managed by the central bank was established to improve savings from mining revenues. In May 2017 Suriname withdrew from its agreement with the IMF, citing that it had instead opted to fund its deficit via international loans and the issuing of debt on the international market. These reforms, coupled with projects such as the opening of the Merian gold mine, the expansion of the country’s state oil firm Staatsolie’s Tout Lui Faut refinery and the resumption of bauxite production, should see Suriname slowly climb out of its three-year recession in 2018.

Guyana

Despite an abundance of natural resources, the former British colony of Guyana has historically been one of the poorest countries in CARICOM, as well as South America. However, the fortunes of this nation of fewer than 1m people appear to have taken a dramatic upswing with recent discoveries of large oil and natural gas deposits. US oil major ExxonMobil has started deepwater drilling at the first of 17 planned wells in the country’s Liza field and estimates the total recoverable resources in the block to be more than 3.2bn barrels of oil equivalent (boe), making it a mammoth find. This has led some analysts to predict that they expect Guyana will soon become one of the top-10 oil producing countries globally. “By 2030 Guyana will be producing 700,000 boe per day,” Kevin Ramnarine, Trinidad and Tobago’s former minister of energy, told OBG. “After 2024, when companies have recovered their costs, I expect the government to be collecting $4bn-5bn per year in oil revenues, which is a fantastic boost for the country,” Ramnarine added.

Despite this rosy outlook, Guyana still faces big challenges, including a history of racial conflict between the country’s East Indian and African populations, as well as many issues in the country’s business climate, as evidenced by Guyana’s lowly ranking of 126 out of 190 countries worldwide in the World Bank’s “Doing Business 2018” report. One major issue that remains unresolved is Guyana’s border dispute with Venezuela. The latter’s President Nicolas Maduro is controversially laying claim to a region of Guyana comprising almost two-thirds of the nation’s territory. The dispute is due to be settled in the International Court of Justice, with the first round of talks scheduled for November 2018.

Barbados

With a population of just 277,821 and a GDP of $4.8bn, the tiny nation of Barbados is the most developed nation in the Eastern Caribbean, traditionally offering a high standard of living for its citizens. However, years of sluggish growth due to an overreliance on the tourism sector, coupled with Barbados’ high public debt to GDP ratio – at 105% as of 2016 – has posed significant challenges. In May 2018 there was political upheaval when the Barbados Labour Party by Mia Mottley swept to power, winning all the seats in Parliament. As the new prime minister, Mottley wasted no time in announcing that the country would enter into a lending arrangement with the IMF.

In a June 2018 press release, however, the fund expressed concerns about Barbados’ international reserves having been depleted to $220m, while stating that the central government’s debt was unsustainable. The Central Bank of Barbados reported a contraction in economic output of 0.7% year-on-year in the first quarter of 2018. In addition, the IMF stated that reforms are needed to contain wages, increase the effectiveness of public services and reduce the number of Barbados’ state-owned enterprises, while also providing stronger oversight of the country’s economy.

On a positive note for the country, however, was the announcement in August 2018 that Ross Medical University will relocate to Bridgetown from the neighbouring island of Dominica. By contrast, this came at a cost for the latter with the university thought to have contributed as much as 30% to Dominica’s GDP.

Jamaica

With a population of 2.9m people, Jamaica is the largest English-speaking member of CARICOM, and fourth most populous nation overall in the Caribbean. Services are the main driver of Jamaica’s economy, which account for more than 70% of GDP. Tourism, remittances, aluminium and bauxite mining are the mains sources of foreign exchange, with tourism alone accounting for 15% of GDP. Jamaica has for decades suffered from weak economic growth, averaging less than 1% per year for the last three decades. This is down to a bloated public sector, corruption, a high rate of violent crime, and in particular its high debt to GDP ratio of about 115%. A comprehensive package of support for the country led by the World Bank, the IMF and the International Development Bank in 2013 provided over $510m in financing towards supporting private sector led growth, public sector transformation and resilience efforts related to the impact of climate change. According to March 2018 data from the World Bank, the implementation of reforms under Prime Minister Andrew Holness are beginning to bear fruit, with the economy expected to grow by 1.7% for that year.

Smaller States

The Caribbean’s smaller nations faced major challenges in 2017, with many still reeling from the effects of natural disasters. Overall economic growth in the region stood at 0.6% in 2017, largely due to a rebound in oil prices, according to the “Caribbean Economic Review” from the Caribbean Development Bank (CBD) of that same year. The CBD forecasts economic growth will be 2% in 2018, largely due to the wider economic growth experienced globally; however, weak fiscal balances and high public sector debt continue to present challenges for countries in the region.

In 2017 hurricanes Irma and Maria caused significant damage to the countries of Anguilla, Antigua and Barbuda, British Virgin Islands, Dominica and Turks and Caicos. In Dominica, the cost of damages was estimated at 225% of GDP, while in the British Virgin Islands the figure was roughly 300% of GDP. A full assessment of damages is expected to forecast a significant impact on employment and economic growth for the years ahead.