IMF: Brighter prospects for the region… with variations

Economic prospects are improving for the Caribbean, but with substantial variation across countries, the International Monetary Fund (IMF) has said.

The Director of the IMF’s Western Hemisphere Department Alejandro Werner told a news conference that growth in tourism-dependent economies is expected to strengthen in 2020.

He said: “With commodity prices remaining broadly stable, commodity exporters are expected to see modest recovery in growth, while large oil discoveries and the start of their production in 2020 is expected to boost growth in Guyana.”

Speaking on the theme Outlook for Latin America and the Caribbean: New Challenges to Growth, he said that the region’s exposure to climate risks continues to require strong policies.

Werner told journalists: “Potential growth continues
to be impeded by lingering structural problems including high public debt, weaker financial systems, high unemployment, and vulnerability to commodity and climate-related shocks.

“Some countries have started to strengthen their fiscal positions, but further tightening is needed in others to ensure debt sustainability.”

He said that economic activity in Latin America and the Caribbean stagnated in 2019, continuing with the weak growth momentum of the previous five years and adding more urgency and new challenges to reignite growth.

“Indeed, real gross domestic product (GDP) per capita in the region has declined by 0.6 per cent per year on average during 2014–2019, a sharp contrast from the commodity boom’s average increase of two percent per year during 2000–2013,” Werner said.

The IMF official said that this weak momentum reflects structural and cyclical factors. On the structural side, potential growth remains constrained by low investment, slow productivity growth, a weak business climate, and the low quality of infrastructure and education.

On the cyclical side, he said, growth has been held back by low global growth and commodity prices, elevated economic policy uncertainty, economic re-balancing in some economies, and social unrest in others.

Werner noted that the recent World Economic Outlook update had indicated that growth in the region is projected to rebound to 1.6 per cent in 2020 and 2.3 per cent in 2021, supported by a gradual pick up in global growth and commodity prices, continued monetary support, reduced economic policy uncertainty, and a gradual recovery in stressed economies.

But he noted: “There are also prominent downside risks. While previous external downside risks have moderated following globally synchronized monetary policy easing and the signing of the US-China phase one trade deal, some new risks have appeared, including the potential global spread of the coronavirus, which could significantly disrupt global economic activity, trade, and travel. Domestic and regional downside risks have also intensified.’

The IMF economist also warned that social unrest could spike throughout the region, while economic policy uncertainty could rise further due to both heightened social tensions and policy slippages.

Werner said that economic policies will need to strike a balance between rebuilding policy space and maintaining economic stability on the one hand and supporting economic activity and strengthening the social safety net on the other hand.

He said although the causes and triggers of social unrest have varied across countries, they generally reflect discontent with some aspects of the economic and political systems. A key priority going forward is to reignite growth, while making it more inclusive.

Werner continued: “Promoting competition will be important to avoid monopolistic practices that may hurt the poor dis-proportionally.

“Tackling corruption and weak governance will help make political systems more representative, although deeper political reforms may be needed.”

He said fiscal policy will need to support growth, expand the social safety net, and improve the quality of public goods and services. However, in many countries, spending room in the budget remains constrained by high deficits and public debt.

Said Werner: “These countries will need to improve spending efficiency, reallocate spending from non-priority areas to public investment and social transfers and increase revenues over the medium term to finance additional increases in these areas.

“Monetary policy can remain accommodative to support growth given the stable inflation outlook, well-anchored inflation expectations, and declining neutral rates worldwide.”