IMF warns Caribbean countries about high debts

The International Monetary Fund (IMF) has warned Caribbean countries that they face an uphill battle fighting the debt crisis that has them in a stranglehold. An IMF paper this week titled “Caribbean Small States: Challenges of High Debt And Low Growth”, said the average debt as a percentage of GDP for the region now hovered around 79 per cent, with some individual nations’ ratios over 100 per cent and the global financial crisis had worsened the debt crisis.
And in a sobering analysis, the document prepared by the Western Hemisphere Department of the IMF, said attempts at tackling the exploding debt situation had generally failed and it was non-commodity exporting countries like Barbados, The Bahamas and the Eastern Caribbean sub-region that faced debt levels which now jeopardised their prospects for growth.
“Several countries have made attempts at reducing debt, mainly through ad hoc restructuring or fiscal consolidation. As most countries have not adopted comprehensive economic reforms to complement these adjustment efforts, the initial gains have been too small or have not been sustained.
“Further, because of their middle income status, the majority of the region [have] not been able to benefit from international debt relief,” it was revealed.
Growth in the Caribbean has stagnated in the last two decades, except in commodity exporters. The last rapid growth spurt in the 1980s was fuelled mainly by expansion of tourism, banana production, and public investments. The slowdown, starting in the 1990s, was triggered by the loss of trade preferences to European markets and deterioration of the terms of trade, reduced fiscal space, and demographic trends, including emigration of skilled labour. Recurring natural disasters also contributed to lower growth and increased fiscal vulnerabilities.
The IMF said slower economic growth reflects deep-rooted competitiveness problems. These have translated into high current account deficits, large indebtedness vis- à-vis the rest of the world, and more generally unsustainable external positions.
Additionally, the global lender said many Caribbean economies face high and rising debt to GDP ratios that jeopardise prospects for medium-term debt sustainability and growth. In 2012, overall public sector debt was estimated about 79 per cent of regional GDP. The main challenges for Caribbean small states looking ahead include low growth, high debt and reducing vulnerabilities from natural disasters as well as financial sector weakness.
The non-commodity exporters of the Caribbean were hit hard by the global crisis of 2008-09, through lower tourism arrivals, remittances, and exports. Weak fiscal positions deteriorated further, as policy makers tried to offset lower external demand, while already-heavy debt burdens increased in most countries.
The costs of financial sector concentration were painfully illustrated by the transmission of the global crisis to regional financial markets through the collapse of an insurance conglomerate with widespread presence in the region. The reduction of international financial flows following the collapse of Lehman and the recession in the region weakened balance sheets of financial institutions and corporate firms, which are highly exposed to the tourism sector.
In the case of Eastern Caribbean Currency Union (ECCU) countries’ weak indigenous, banks have put the monetary union under considerable stress.
Support to the Caribbean from the fund and other international financial institutions has expanded significantly, largely in response to the region’s difficult financial position.
As described in the main paper, fund engagement centres on surveillance, programmes, and technical assistance from head quarters and CARTAC. Notably, the sharp increase in fiscal TA (much of which is externally financed) aims to strengthen institutions to manage fiscal consolidation.
Also, the fund holds regional discussions on common policies of ECCU countries and sponsors high-level conferences on policy issues.