As if we did not have enough bad news already, the economic outlook for the Caribbean for the immediate future could get worse if there is no improvement in fiscal management and sustainable debt strategies.
The global economy continues to experience slower than expected growth with serious risk of destabilising events, the most significant of which is the so-called “fiscal cliff” — the possibility of the United States not being able to negotiate a compromise on raising its debt ceiling, thus triggering automatic expenditure cuts which could push the struggling US economy into recession.
The absence of a resumption of robust US growth would in turn aggravate the sluggish global economic recovery. This would have a debilitating impact on the Caribbean, especially tourism-dependent economies, as remittances and tourism revenue could decline. This could compound the effects of Hurricane Sandy, which affected areas that are home to a relatively large section of the Caribbean Diaspora.
The International Monetary Fund now predicts that there is a strong possibility that global economic growth will fall below two per cent. The IMF’s latest World Economic Outlook in October 2012 reduced its growth forecast for the Caribbean for 2013 from 2.9 per cent to 2.4 per cent, however, that will be higher than 2012.
The prognosis is a consequence of weaker than expected global economic growth, the highly open structure of the region’s economies which makes them vulnerable to price spikes in global commodity prices, international capital flows and tourist expenditures.
Fortunes differ considerably among the Caribbean countries. Growth in 2013 is expected to be much higher in the commodity-based economies of Guyana (5.5 per cent) and Suriname (4.5 per cent), in contrast to tourism-based economies such as Barbados and the eastern Caribbean mini-states. Jamaica will do the worse, except for Haiti, with economic growth being less than one per cent.
Low economic growth cannot be attributed to smallness and adverse economic developments. Lack of international competitiveness is internal and is directly attributable to bad economic policy.
The World Bank Doing Business Report 2012 shows that the region did poorly in terms of enforcing contracts, dealing with insolvencies, excess bureaucracy, delays in approvals of construction plans, resolving commercial disputes, and registering real estate. In a survey of businesses by the Caricom Secretariat in 2009, businessmen complained about complicated, convoluted and lengthy government processes.
Governments in small, open, developing economies cannot control all the factors which impact their economic growth, but they must do a better job of the factors over which they have influence. There no excuses for government inefficiencies, poor fiscal policy and excessive government borrowing.
But low international competitiveness is a combination of public sector and private sector inefficiencies. It would be most interesting and informative to do a survey of the deficiencies of the private sector in the Caribbean. We might discover that there is much room for improvement.