soyini.grey@guardian.co.tt
The lesson of the pandemic is that the Caribbean has to insulate itself from global shocks.
Speaking to journalists taking part in an International Monetary Fund workshop in Barbados, acting director of the Western Hemisphere department Nigel Chalk said the Caribbean has to build buffers.
These, he said, include managing low debt, having a flexible exchange rate and investing in international reserves.
Chalk said this makes it more possible for tourism-based countries like Jamaica to weather economic shortfalls in the United Kingdom which is predicted to have the slowest growth in Europe and therefore a populace that may be less inclined to travel to the Caribbean on holiday.
On Monday the IMF presented a more optimistic view in its World Economic Update than its October 2022 report, but it also cautioned more needed to be done to eliminate concern.
Closer to home the revised focus from the IMF global report came with a specific challenge for the Caribbean to create opportunities for economic growth.
In issuing the revised global outlook, The IMF’s Economic Counsellor and Director of its Research Department Pierre-Olivier Gourinchas said while the economy performed better than expected since their last update in October, it was not enough to eliminate concern.
“The global economy is expected to slow this year before rebounding next year,” he said.
Speaking from Singapore, the economist, said that this update being more positive than the last may be indicative of an economy in recovery including a decline in inflation.
Speaking more specifically on the outlook for the Caribbean, the IMF’s acting Director of the Western Hemisphere department, Nigel Chalk said the message from the report is that the region has to grow.
“We know that living standards in the region only go up when you have growth, when you have productivity,” Chalk said.
“The challenge facing the region is, individually the countries are relatively small, and there is less economies of scale,” he said.
He believes diversification could address two of the biggest threats facing the region.
He said there is a need for the region to insulate itself from negative global activity and provide growth opportunities.
“You have to balance the two things right,” he said. “You have to take advantage of your comparative advantage and you have to have a sufficiently diversified economy so that you are resilient to shocks.”
Specifically, however, in T&T with its energy-based economy the outlook is positive, even though inflation remains high and Chalk acknowledged the effects the Russia/Ukraine war has had in increasing energy prices.
“T&T and Guyana are growing very strongly and are expected to continue growing very strongly.” But “they are also suffering from relatively high inflation which will be something they’ll have to manage during the course of the year but in some sense, it is a little easier to manage that when there is a lot of income coming in from natural resource revenues.”
As for what to do with that energy sector revenue, he says the IMF has no standard advice when it comes to how these countries should use sovereign wealth funds such as T&T’s Heritage and Stabilisation Fund. The view is they provide an opportunity to put away excess profits from high oil prices that could be withdrawn when prices fall. This he said helps with “fiscal management with economic management.” Alternatively, it is a way for the country to replace “resources underground with essentially financial resources held in the international financial system.”
Ultimately it remains the country’s choice, because he said there may be a requirement locally to use the fund to address infrastructural or socio-economic shortfalls. However, if there is an excess of profits, then he said it would be prudent to put money away for future use.
All in the service of building economic resilience in the Caribbean, “the pandemic showed us that being dependent on one industry particularly tourism could leave you very exposed when you get hit by an external shock.” he said.
He also believes the road to diversification requires an enabling environment for growth.
Chalk said “I think encouraging environment for inward investment removing obstacles like bureaucracy, creating a good infrastructure in order to support private sector investment, having a strong education system in order to provide the human capital necessary for those investors to get workers,” is important.
He said while many in the region have solid education systems and finding solutions to the region’s brain drain is also a concern.
Chalk said regional governments ought to invest in creating an attractive environment so that people with specialist training and advanced degrees prefer to remain in the region rather than leave for a life overseas. Encouraging them to remain in the region could boost its growth potential.
