World Bank says hard road back to economic recovery

By Marlon Madden

The World Bank is warning that Barbados and the rest of Latin America and the Caribbean will continue to face major headwinds when it comes to economic recovery over the short to medium-term.

William Maloney, the World Bank’s Chief Economist for Latin America and the Caribbean, is also of the view that the recovery of tourism-dependent states in the region is being hindered by a low COVID-19 vaccination rate.

“The Caribbean has been particularly hard-hit over the five years, both by the pandemic and then by being importers of energy and food, and they have also been hurt by the war in Ukraine. For the short-run challenges, in the first place, we are still pretty low in terms of overall vaccination rates and that has impeded the recovery of tourism in many countries,” he said.

“Many countries in the Caribbean have actually been quite successful in managing the increase in debt and shocks coming from food and energy prices, but the longer term issues are ones of scale, thinking through issues of migration and specialisation that small economies face.

“In the past, integration among the islands has not been sufficient to generate the kinds of markets that we need. So they are going to need to find more and more ways of integrating, both in terms of flow of goods and people and building larger economies going forward,” he explained.

His assessment comes as the Washington-based financial institution predicts growth of 4.9 per cent for Barbados this year, a slight change from the 4.8 per cent prediction made three months ago. It has maintained its growth forecast of 3.9 per cent for Barbados for 2024.

Maloney said the Latin America and Caribbean region continued to struggle with driving down inflation and poverty, boosting trade and achieving high-quality infrastructure development.

He added that while employment in the region has largely recovered, this came with some loss in job quality and wages. He also pointed to the need for up-skilling of workers in the region especially in highly-specialised areas.

“The region has done relatively poorly compared with the rest of the world in terms of recovering from the pandemic. The region has grown the least since 2019,” said Maloney, who added that the Caribbean’s slow recovery was due largely to “the lack of recovery of tourism”.

He said the overall forecast for Latin America and the Caribbean was “less optimistic than in previous years”. He said that average growth was predicted to reach just 1.4 per cent this year and 2.4 in 2024 due to “stronger headwinds in the global economy and reduced tailwinds” in the short-term.

He identified a slowdown in growth in developed countries, high interest rates, the ongoing war in Ukraine, an expected fall in commodity prices and uncertainty in the China economy as the major threats to economic growth in Latin America and the Caribbean.

“We have structural factors that we need to address,” said Maloney, as he addressed a press conference on Tuesday to release the World Bank’s latest review publication – The Promise of Integration: Opportunities in a Changing Global Economy.

“The fiscal situation in the region continues to be difficult but managed,” he said. Most countries have managed to increase their primary surpluses, but the rise in debt service coming from increased interest rates has partially offset that. So we are expecting average deficits around 4.4 per cent for last year and falling to 2.7 per cent for the year that is coming.

“We have achieved this level of macroeconomic stability of normalcy and that should be attracting more investment and smart growth, but we kind of see the reverse happening overall,” he said. This situation was especially the case in Latin American countries that have been witnessing a slowdown in foreign direct investment since 2011.

Maloney recommended that Latin American and Caribbean countries go after more nearshoring activities and global trade while increasing productivity, as he indicated that one of the lessons coming out of the pandemic should be the need for economic diversification.

“While we have made progress on reducing tariffs and to some degree non-tariff barriers, if you look at just trade costs and time of getting across borders, we are about four times the OECD and that puts an implicit barrier on trade,” he said.

He said when it came to infrastructure “we under invest and we badly invest”.

“We invest roughly 3.5 per cent of gross domestic product where Asia and the Middle East and even Africa, invest like seven per cent of GDP, and we don’t always put those roads in the right places and as a result, that impedes movement of goods and services,” he said.

marlonmadden@barbadostoday.bb