The latest edition of the Inter-American Development Bank’s (IDB) Caribbean Region Quarterly Bulletin was released during the annual Conference on the Economy (COTE) 2017, recently held at the St Augustine campus of the University of the West Indies.
Dr Moises Schwartz, IDB Regional Economic Advisor for the Caribbean, presented the main points in the most recent edition of the Caribbean Region Quarterly Bulletin.
The Caribbean Region Quarterly Bulletin summarises recent economic developments in six countries in the Caribbean – including The Bahamas, Barbados, Guyana, Jamaica, Suriname, and Trinidad and Tobago – as well as identifies specific challenges for the private sector to aid the Caribbean region’s economic growth.
In his remarks, at the COTE 2017 event, Schwartz noted: “All countries in the Caribbean are either already undertaking fiscal consolidation or are expected to embark on it soon. While the short-term focus is often on revenue measures and on reductions in spending for capital investment, deeper and more long-lasting measures will be required of the region’s governments to achieve sustainable fiscal accounts while providing essential services and infrastructure.”
The IDB’s Bulletin notes that there is no shortage of fiscal challenges in the Caribbean. Commodity producers, accustomed to high growth and high revenue, were caught by the slump in commodity prices during the 2008 global financial crisis.
While revenue fell immediately, expenditure only reacted slowly, leading to increases in deficits and debt while economic output contracted.
A lacklustre economic performance in tourism-dependent countries, combined with high and rigid government spending, has led to a steady build-up of debt and interest payments. These policy decisions by several Caribbean governments have increased their macroeconomic vulnerability and have also reduced their fiscal and debt sustainability.
Schwartz further recommended that, “Institutional strengthening would better guide fiscal and economic policies across the Caribbean region.”
Institutions that anchor fiscal policy, such as fiscal rules, offer several advantages, especially in a region that is so vulnerable and prone to external shocks.
Such rules institutionalise a political commitment towards budget discipline, render fiscal policy-making more predictable, and improve the quality of public financial management.
Fiscal rules can also help build up buffers that allow for countercyclical policies when shocks hit the economy.