IMF predicting economic growth for Caribbean countriesThursday, April 15, 2021
WASHINGTON, United States (CMC) — The International Monetary Fund (IMF) Thursday said that growth in Latin America and the Caribbean (LAC) recovered briskly in the second half of last year, yet still more slowly than the global economy and other emerging markets.
It said that that's despite unprecedented policy support, strong performance of trading partners, soaring commodity prices and accommodative global financial conditions.
“The persistence of the health crisis in many countries casts a shadow on the near-term outlook. People and economies continue to require a short-term shot to exit from the coronavirus (COVID-19) crisis, while the aggravation of several underlying structural fragilities poses significant long-term challenges,” said Alejandro Werner, the director of the Western Hemisphere Department of the IMF.
He said the region's contraction of seven per cent in 2020 was the sharpest in the world by far, exceeding the global slowdown of 3.3 per cent.
“Growth for 2021 is projected at 4.6 per cent, below the 5.8 per cent estimated for emerging markets excluding China. Income per capita will not catch up with its pre-pandemic level until 2024, resulting in a 30 per cent cumulative loss relative to the pre-pandemic trend.”
According to the IMF, economic growth for tourism dependent Caribbean countries, namely Antigua and Barbuda, Aruba, the Bahamas, Barbados, Belize, Dominica, Grenada, Haiti, Jamaica, St Kitts-Nevis, St Lucia and St Vincent and the Grenadines, is estimated at 1.4 per cent this year, as compared with minus 10.1 per cent last year.
The IMF also notes that economic growth in these countries for 2022 is estimated at 5.1 per cent.
For Caribbean countries, labelled as “commodity exporters” namely, Guyana, Suriname and Trinidad and Tobago, economic growth this year is projected at six per cent, up from the 4.7 per cent last year.
The Washington-based financial institution says economic growth for these countries in 2022 is 19.2 per cent.
With reference to Jamaica, where the IMF official was asked to comment on the efforts of the Andrew Holness administration to deal with a significant decline in gross domestic product (GDP) and whether the country should seek to have a balanced budget or should it seek to provide a small stimulus to the productive sector as the COVID-19 pandemic continues.
“As I said before it is a difficult balancing act. I think tourism dependent economies in the Caribbean, Jamaica is concentrated in tourism like others, but tourism represents an important part of its economy.
“It is a balancing act between continuing to provide support that will be needed without triggering financial concerns,' Werner said, adding “and I think that's what the government of Jamaica has been doing, has been doing it well, but we all have to accept that it is a difficult balancing act.”
The IMF official said that if a country goes too far in terms of support and that triggers a negative reaction to capital markets “all the good works could get undone by the volatility capital markets generate”.
“We also think that in many of these cases, the new allocation of special drawing rights (SDRs) is eventually instituted will be a positive element to increase the fire power of authorities…and will also be little bit more supportive because you will have the instruments in case volatility tightens up that you have a much stronger balance sheet at the central bank.
“So I think in the case of Jamaica…as for all the countries in the region that will be appositive addition to the arsenal of tools that they can use to manage this pandemic and allow them to be more forward leaning,” Werner said.
But Werner notes that the outlook is subject to an extraordinary degree of uncertainty as the race between vaccines and the virus continues.
“On the upside, faster control of the pandemic globally as well as stronger-than-anticipated domestic policy support would boost growth,” he said, noting that on the downside, the recent resurgence of the virus in Brazil, Chile, Paraguay, Peru, and Uruguay, combined with slow vaccine rollouts cast a shadow on the near-term outlook, though new lockdowns are likely to be less damaging than at the start of the pandemic as economies have learned to adjust.
The IMF official said that Caribbean tourism-dependent economies will be the last to recover (only in 2024) due to the slow resumption in tourism.
“The increase in US long-term yields so far has had a somewhat muted impact on asset prices and capital flows in the region. But a continued increase in long-term interest rates represents a risk,” he said.
Werner said that in the LAC, the recovery has also been heterogeneous within countries. Manufacturing has rebounded faster than contact-intensive services, aided by exports in some cases. The informal sector, which suffered the largest losses initially, has driven the job recovery.
He said that average labour income fell since the beginning of the pandemic, with pronounced divergences in labour market outcomes across countries, sectors, and demographic groups. “Countries that implemented employment retention schemes had a less dramatic fall in employment but the recovery has also been slower.”
Women and low-educated workers have struggled the most. Low-skilled female workers in particular lost more jobs or had to cut back on working hours even when able to retain employment, suffering the largest income losses.
Poverty is estimated to have increased by 19 million people, and inequality, as measured by the Gini coefficient, increased by five per cent compared to pre-crisis levels. The pandemic will also leave long-lasting damage to human capital from school closures, which were longer than in other regions.
“While the precise learning losses are difficult to estimate, IMF staff analysis suggests that students aged 10 to 19 might expect a four per cent lower income on average over their lifetimes if the lost days of schooling in 2020 are not compensated.”
Werner said that the income losses differ among countries, depending on how much the pandemic reduces the chance of completing secondary education and on the size of the skill premium for higher education. The losses will be greatest for students whose families are less able to support out-of-school learning, exacerbating already high-income inequality and low levels of educational attainment.
Werner said that the most urgent task continues to be controlling the pandemic, by ensuring that healthcare systems are adequately resourced, and everybody can be vaccinated.
“Fiscal and monetary policies should remain supportive in countries where there is sufficient policy space — a short-term shot for their economies — while countries with tight budgets should reprioritize spending towards healthcare and support for households, and work to create additional fiscal space. “Given the continued heavy toll on low-income workers, targeted support to facilitate job creation and retraining may be warranted,” he said.
The IMF official said that healing longer-term scars will be more challenging and will require accelerating structural reforms, expanding access to high-quality education and health, broadening social safety nets, and improving the business climate.
“A deeper structural transformation that could be facilitated by a broad fiscal pact is needed to reverse years of slow growth,” he added.
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