Key points:

CDB says about 70 per cent of Caricom employment is informal, limiting scale, innovation and productivity.

Crime cost Caribbean economies an average 3.4 per cent of GDP between 2014 and 2022.

Falling development assistance and heavy tourism dependence are increasing the pressure on the region to diversify.

THE Caribbean’s long-standing structural weaknesses are making the region more vulnerable to global crises, a Caribbean Development Bank (CDB) economist has warned.

Among the most significant weaknesses is the region’s high level of informal employment. Roughly 70 per cent of employment in Caricom is classified as informal, compared with about 60 per cent across Latin America and the Caribbean and 50 per cent globally. The prevalence of informal employment limits the region’s ability to scale up production because businesses remain fragmented rather than growing into larger enterprises capable of increasing output quickly. It also hampers technological innovation, as formal institutions are needed to spread new technologies in a planned and coordinated way.

“If you have large organisations that can immediately scale up production, that’s better than if you have fragmented sets of informal employment,” CDB economist Xavier Ajani Malcolm said during the CDB’s 56th Annual Meeting in Nassau, The Bahamas. “Our ability to technologically innovate is hampered by this high degree of informality as well.”

Informality is not the only drag on economic performance. Crime also continues to weigh heavily on the performance of Caribbean economies. According to Malcolm, the cost of crime averaged 3.4 per cent of GDP between 2014 and 2022, further weighing on productivity and competitiveness across Caribbean economies. These underlying vulnerabilities are reflected in the region’s competitiveness rankings. He pointed to the Global Competitiveness Index, which shows Caribbean economies lagging developed countries in innovation capability, infrastructure and market size. While market size is an inherent constraint for small island developing states, he argued that innovation and infrastructure are areas in which the region can improve. Those shortcomings have also translated into weaker productivity.

Between 2015 and 2023, the region’s productivity, measured as output per worker, declined. Over the same period, global productivity increased by just over 3 per cent, while BRICS (Brazil, Russia, India, China and South Africa) economies recorded annual gains approaching 4 per cent.

“That means in real terms, the Caricom region is moving backwards,” he said.

Those longstanding weaknesses are compounded by the Caribbean’s high exposure to climate-related shocks, which Malcolm said continue to weigh on economic growth despite efforts by countries to strengthen their resilience. Citing CDB analysis, Malcolm said a one standard deviation increase in global temperatures results in an estimated 1.5 per cent decline in GDP growth over a four-year period. He argued that even if Caribbean countries implement all the necessary climate mitigation measures, they will still be affected because rising global temperatures also weaken the economies of their major trading partners.

“Even if the Caribbean puts everything in place to do all the mitigation that we can do… we will suffer spillover effects in terms of our standard of living and our economic growth,” Malcolm said. “Engagement at the international level with our trading partners for strategies related to climate change is essential because regardless of what we do, we’ll be negatively impacted by it.”

While small island developing states experience severe impacts from extreme weather events, Caribbean small island states are particularly exposed, suffering weather-related impacts that are around six times greater than other economies, according to findings from the CDB.

Adding to these challenges, the Caribbean can no longer rely on the level of foreign assistance it once received, with the CDB pointing to what it described as a shift in the global multilateral environment. Official development assistance from developed countries declined by 8.3 per cent in 2024, reducing the support available to developing economies, including those in the Caribbean.

“The extent to which, in the Caribbean, we are able to rely upon development assistance… is declining,” he said.

He noted that assistance from the United States also fell in 2025, with official development assistance declining by more than 20 per cent in Haiti and by more than 60 per cent in Jamaica, alongside reductions across the CDB’s borrowing member countries.

“This is a new environment. This is an environment where the developed economies are no longer as interested, as willing, or as able to provide the kind of development assistance that used to be of significant benefit to the region, and this has constituted a significant change in the overall architecture in which we operate,” he said.

Malcolm said tourism-dependent economies remain among the most exposed to global shocks and argued that the sector should be used more deliberately to build demand for Caribbean-made goods. That, he suggested, could help countries move beyond selling the region mainly as a destination and begin using visitor demand to support new export markets.

MALCOLM…the extent to which in the Caribbean we are able to rely upon development assistance is declining.