On Tues­day April 8, 2014, the In­ter­na­tion­al Mon­e­tary Fund (IMF) re­leased its World Eco­nom­ic Out­look (WEO). From the dis­cus­sions, the IMF be­lieves that the glob­al econ­o­my will be sup­port­ed by the stronger per­for­mance of the ad­vanced economies, par­tic­u­lar­ly that of the Unit­ed States.

Ex­pec­ta­tions for an im­proved eco­nom­ic out­turn in the Unit­ed States is like­ly to out­strip the weak­ness in some of the emerg­ing mar­kets, such as some of the in­fa­mous BRIC economies as well as weak­ness in Japan and Eu­rope. Over­all World Out­put growth of 3.6 per cent is pro­ject­ed for 2014, fur­ther in­creas­ing to 3.9 per cent in 2015 from 2013's growth of 3.0 per cent.

In­deed, ex­pec­ta­tions for the emerg­ing mar­ket and de­vel­op­ing economies are mut­ed, when com­pared to pre­vi­ous years, with growth of 4.9 per cent fore­cast­ed for 2014 and 5.3 per cent for 2015.In 2012, out­put in these economies was reg­is­tered at 5.0 per cent.

Eco­nom­ic ac­tiv­i­ty in the Latin Amer­i­can and Caribbean (LAC) re­gion is ex­pect­ed to re­main sub­dued in 2014 and 2015, con­strained by low­er com­mod­i­ty prices, tighter fi­nan­cial con­di­tions and sup­ply bot­tle­necks in some coun­tries. The IMF al­so not­ed that growth in the Caribbean re­gion re­mains in­hib­it­ed by high in­debt­ed­ness as well as weak com­pet­i­tive­ness.

The LAC re­gion is fore­cast­ed to post growth of 2.5 per cent in 2014 from an es­ti­mat­ed 2.75 per cent in 2013. With­in the Latin Amer­i­can re­gion, per­for­mances will be mixed, with ex­pec­ta­tions for Mex­i­co on the op­ti­mistic side due to the coun­try's on­go­ing re­forms in the en­er­gy and telecom­mu­ni­ca­tions sec­tors, which will boost medi­um-to-long term eco­nom­ic prospects.

Colom­bia, Pe­ru and Chile are al­so ex­pect­ed to ex­pe­ri­ence an uptick in eco­nom­ic growth be­cause of fair­ly strong do­mes­tic con­sump­tion un­der­pinned by low job­less rates as well as sol­id growth in re­al wages. On the flip­side, Brazil is ex­pect­ed to re­main in "low gear" with growth pro­ject­ed to slow to 1.8 per cent in 2014 from 2.3 per cent in 2013.

The Brazil­ian Cen­tral Bank in April de­cid­ed to end its mon­e­tary tight­en­ing cy­cle in an ef­fort to shift pol­i­cy from tem­per­ing in­fla­tion to boost­ing eco­nom­ic growth as pri­vate in­vest­ment re­mains weak.Ar­genti­na and Venezuela are both ex­pect­ed to un­der­per­form as "loose macro­eco­nom­ic poli­cies have gen­er­at­ed high in­fla­tion and a drain on for­eign ex­change re­serves."

Growth in the Caribbean re­gion is fore­cast­ed to in­crease to 3.3 per cent in 2014 from an es­ti­mat­ed 2.8 per cent in 2013. The im­proved prospects are re­lat­ed to the ex­pect­ed im­prove­ment in the ex­ter­nal econ­o­my and its im­pact up­on the tourism-de­pen­dent economies in the re­gion.How­ev­er, the re­strained ex­pec­ta­tions for the Caribbean are linked to the fis­cal in­flex­i­bil­i­ty, which many gov­ern­ments face. In­deed, the re­gion con­tin­ues to grap­ple with weak fis­cal ac­counts as well as the as­so­ci­at­ed high and ris­ing pub­lic sec­tor debt.

In 2012, tourism-de­pen­dent Caribbean coun­tries had an av­er­age pub­lic sec­tor gross debt of 87.4 per cent of GDP while the com­mod­i­ty ex­porters' av­er­age was sig­nif­i­cant­ly low­er at 50.9 per cent of GDP.Grena­da and Ja­maica record­ed a ra­tio of over 100 per cent of GDP (109.5 per cent and 146.1 per cent of GDP, re­spec­tive­ly), while on­ly three coun­tries had a debt-to-GDP ra­tio of un­der 50 per cent.

Fur­ther­more, in­ter­est pay­ments on ex­ist­ing debt stock in the most high­ly in­debt­ed coun­tries with ris­ing debt ra­tios, are al­ready in the range of 16 per cent to 41 per cent of to­tal gov­ern­ment rev­enues.

Giv­en the chal­lenges of the past few years for the re­gion, in terms of poor tourist ar­rivals, low cap­i­tal in­flows (for­eign di­rect in­vest­ments, re­mit­tances, tourism re­ceipts) and high com­mod­i­ty prices, gov­ern­ments in the re­gion had lit­tle mus­cle to im­ple­ment counter-cycli­cal fis­cal poli­cies and those coun­tries that ramped up spend­ing are now feel­ing the pres­sure.First Cit­i­zens Re­search and An­a­lyt­ics con­curs with the IMF fore­casts for a sub­dued eco­nom­ic per­for­mance in 2014.

The Caribbean re­gion con­tin­ues to face sig­nif­i­cant chal­lenges stem­ming from un­sus­tain­able ex­ter­nal po­si­tions and heavy ex­ter­nal pub­lic debt loads. With­in the past two year, sev­er­al coun­tries have had to re­sort to debt-re­struc­tur­ing ex­er­cis­es in­clud­ing St Kitts and Nevis, Ja­maica and Be­lize.

Grena­da, last year failed to ser­vice its debt oblig­a­tions and has re­cent­ly en­tered in­to a three-year Ex­tend­ed Cred­it Fa­cil­i­ty Arrange­ment with the IMF for US$21.9 mil­lion. The main ob­jec­tives of the pro­gramme are to re­store fis­cal and debt sus­tain­abil­i­ty, boost long-term growth through struc­tur­al re­forms and safe­guard the re­silience of the fi­nan­cial sec­tor.

Ac­cord­ing to the IMF, "the fis­cal ad­just­ment will be com­ple­ment­ed by a com­pre­hen­sive debt re­struc­tur­ing, which will aim to se­cure mean­ing­ful debt re­duc­tion, ad­dress fi­nanc­ing short­falls, and put Grena­da's pub­lic debt firm­ly on a down­ward path to­wards the East­ern Caribbean Cur­ren­cy Union (EC­CU) re­gion­al tar­get of 60 per­cent of GDP by 2020."Some of the risks that the Caribbean will face in the medi­um term are:

�2 Tourism sec­tor like­ly to slow­ly re­cov­er and not to pre-cri­sis lev­els;

�2 With de­te­ri­o­rat­ing fis­cal ac­counts and oner­ous debt pro­files, there ex­ists the pos­si­bil­i­ty of more cred­it events in more vul­ner­a­ble coun­tries. Caribbean coun­tries have lim­it­ed bor­row­ing room and have en­dured dif­fi­cult fis­cal ad­just­ment process­es;

�2 Lack of mon­e­tary pol­i­cy as a macro­eco­nom­ic pol­i­cy tool, giv­en the fixed ex­change cur­ren­cy regimes in place for many of the Caribbean coun­tries;

�2 Ex­change rate pres­sures due to the fixed ex­change rate frame­work with­in which sev­er­al coun­tries op­er­ate, giv­en the ex­pec­ta­tions of a slow­down in cap­i­tal in­flows;

�2 The un­cer­tain­ty of the Petro­Caribe– Caribbean economies are high­ly vul­ner­a­ble to a sharp spike in en­er­gy im­port costs as Venezuela is be­gin­ning to sig­nal its grow­ing dis­con­tent with sup­ply­ing much of the re­gion with sub­sidised oil. If Venezuela amends the terms of or dis­man­tles the agree­ment, the re­gion's al­ready weak ex­ter­nal po­si­tion can come un­der fur­ther pres­sure.

Par­tic­u­lar­ly for coun­tries which main­tain a fixed ex­change rate: any re­duc­tion in sub­sidised oil will re­sult in high­er oil im­port bill and ero­sion of for­eign ex­change re­serves.We be­lieve that the Caribbean growth will be sup­port­ed by:

�2 Im­proved ex­ter­nal econ­o­my, which will dri­ve ex­port growth;

�2 The par­tial re­cov­ery of the world econ­o­my could cre­ate some space for boost­ing re­gion­al ex­port vol­umes, ex­ports of ser­vices (par­tic­u­lar­ly tourism) and re­mit­tances re­ceipts.

Vang­ie Bha­goo-Ram­rat­tan is the head of First Cit­i­zens Re­search & An­a­lyt­ics