Barbados and other Caribbean governments are being warned that several global developments could stall their economic recovery and possibly push countries back into recession.
This was outlined in an Inter-American Development Bank (IDB) commentary that examined the challenges confronting the Caribbean and Latin America policymakers in the faces of another pandemicwave and global conflict.
Authored by IDB senior economists Eduardo Cavallo, Arturo Galindo, Victoria Nuguer and Andrew Powell, the experts outlined that the robust economic recovery of the last year from the lows of the pandemic were being undermined by headwinds caused by COVID-19 subvariants, inflation, and the war between Russia and Ukraine.
“Riding a wave of strong growth at the global level, the region rebounded from its worst single-year recession in 2020, to grow nearly seven per cent in 2021,” they pointed out. However, the economists contended that policymakers now faced complex challenges in “ensuring fiscal and monetary policies are consistent” and can improve the conditions for the labour market and to boost growth and equity.
The authors added: “The war between Russia and Ukraine is having significant effects on the global economy and has opposing impacts for Latin America and the Caribbean.
“Higher commodity prices will be positive for growth and for fiscal revenues in countries of the region that export commodities, but will hit oil importers, especially in Central America and the Caribbean.”
While they acknowledged that regional governments and central banks had worked closely to confront the economic impacts of the pandemic, support businesses and households, the new challenges now called for similar coordination “but with a new approach to restore macroeconomic fundamentals, fight growing poverty and inequality, and increase exports”.
Furthermore, the region was advised that with higher debt levels and inflation on the rise, governments should pare back expansionary fiscal policies. They suggested to states that they should “reconsider the composition of spending to favour investment that will boost growth in the short and medium term and relieve rather than compound supply bottlenecks”.
They also said government transfers and subsidies to institutions should be finely targeted to “truly address poverty”. According to the IDB economists, Caribbean governments must closely coordinate fiscal and monetary policy and take measures to eliminate waste, while trying to expand the tax base from which Governments can source revenue.
When it comes to labour, the economists called for urgent reforms to fight the rising informal arrangements in the job market and the widening gender gap.
“Universal systems to care for children, the elderly and others would help bring more women into the labour market. Such reforms would not only improve fiscal accounts but also boost productivity and growth,” they added. (IMC1)