WASHINGTON DC, USA — While many countries, particularly those in Latin America, are expected to show encouraging growth this year and in 2011, the Caribbean is expected to take a longer time to recover from the ravishes of the global economic crisis that took hold in 2008.

Speaking with Caribbean Business Report from the International Monetary Fund headquarters in Washington DC, at the unveiling of the World Economic Outlook Report, Chief of the World Economic Division Petya Koeva Brooks said: “The Caribbean is one of the regions in the world which is among the most affected by the global crisis. It is interesting if you look at the average growth rate for 2010/2011 to discover which countries have negative growth rates. Of course the most countries in that category are in central and eastern Europe but the second most is in the Caribbean.”

She went on to say that there are several reasons for this. Chief among those is the very grim outturn for unemployment in advanced economies which has definitely taken a toll on tourism and tourism revenues in many of the Caribbean countries. She noted that many Caribbean countries are high commodity importers, so the rebound in commodity prices did in fact hurt many countries in the region. The third aspect, she stated, is that unlike economies in Latin America, more particularly Brazil, Chile and Peru, the economies in the Caribbean have very limited policy space to go ahead and support activity. In other words, the debt levels in the Caribbean are so high that it restricts the amount of support governments can provide to their respective economies.

” Unlike other economies that have a flexible exchange rate, the fixed exchange rate and the depreciation of the US dollar that was associated with an appreciation of a lot of the local currencies also hurt Caribbean exports. So all in all it was a perfect storm in terms of having a negative impact on many Caribbean economies. Because of this we expect the recovery of the Caribbean to be relatively slow,” said Brooks.

The numbers do indeed look grim. This year for Jamaica, the IMF is expecting negative growth of -0.3, with a sluggish recovery which should result in a growth rate of just 1.5 in 2011. She further added that she has noted the same pattern in other Caribbean economies.

Characterised by high debt burdens, widening fiscal deficits, yawning imbalances and an inability to meet internal demand yet alone derive foreign exchange from cogent export strategies, Caribbean economies find their backs against the wall. Earlier this year Jamaica secured a US$1.3-illion loan facility from the IMF and has struggled to pass the first test set by the renown multilateral body. Although unwilling to comment on that specific programme, Brooks did say the big challenge for the region remains to consolidate the fiscal balances in a way that really minimises the impact on growth.

“It is vitally important to try to protect the safety net and minimise the impact on the poorest in these economies. If you look around the world many counties will be faced with the issue of consolidating their fiscal balances, so from that point of view it is not just the Caribbean economies that face this most challenging of issues. We are seeing this now in Europe with some of the new smaller countries there. Looking ahead to next year these are the same issues that are going to have to be faced by some of the larger advanced economies. This is not to say that it is not going to be difficult and, as always, the devil is in the details as to how the fiscal consolidation is done and that will depend from country to country,” said the chief of the IMF’s World Economic Studies Division.

A criticism levelled at some Caribbean economies is that they are too dependent on tourism and that they need to be more diversified. In Jamaica earnings from tourism accounts for 20 per cent of GDP and half of foreign exchange earnings. What does Petya Koeva Brooks make of this?

“The dependence on tourism is indeed quite striking, but that is for good reason because the Caribbean has a competitive advantage there. In the upcoming Regional Economic Outlook you will see some estimates linking unemployment rates in OECD countries to tourist arrivals and the growth rate in Caribbean countries and we are seeing a very strong link there. Tourism will remain a key sector of Caribbean economies but more broadly it would be wise to improve the investment environment and attract more FDI.”