UNLEASHING GROWTHAND STRENGTHENING

RESILIENCE IN THECARIBBEAN

Sebastian AcevedoIMF Western hemisphere Department

Central Bank of Curaçao and Sint MaartenMarch 22, 2018

The Caribbean has made significant strides…

01,0002,0003,0004,0005,0006,0007,0008,0009,00010,000

Caribbean median EMDE median EMDE 25th-75th percentile

0

2,000

4,000

6,000

8,000

10,000

12,000

GDP per Capita(U.S. dollars)

60

63

66

69

72

75

78

Life Expectancy(years)

0

10

20

30

40

50

60

Infant Mortality Rate(per 1,000 live births)

40

45

50

55

60

65

70

Female Labor-forceParticipation Rate

(percent)

10

25

40

55

70

85

100

Voice and Accountability(percentile rank)

Demographic, Economic, and Social Indicators2015 or latest available

100

150

200

250

300

350

1992 2002 2012

EMDE inter-quartile range

Caribbean tourism-intensiveeconomiesCaribbean commodity exportereconomiesEMDEs

GDP per Capita

100

150

200

250

300

350

1990 2000 2010

EMDE inter-quartile range

Caribbean tourism-intensive economies

Caribbean commodity exporter economies

EMDEs

Real GDP

… but real GDP has lagged since the 2000s for tourism-intensive economies.

Notes: Commodity exporter economies are Belize, Guyana, Suriname, and Trinidad and Tobago. Tourism-intensive economies includes all other Caribbean countries.

1970s

1980s

1990s

2000s

2010-161

2

3

4

5

20 25 30 35

Real

GD

P gr

owth

(dec

ade

aver

age)

GDP per capita relative to USA

Slower Convergence

Self-reinforcing structural and macro impediments to growth

Structural Impediments

• Natural disasters• Violent crime• Brain drain• High costs of doing business • Loss of preferential trade

access and official development assistance

Macroeconomic Impediments

• Weak fiscal positions and elevated levels of public debt

• High non-performing loans• Low financial deepening and

inclusion

Declining Growth

A DIAGNOSTIC

0 50 100 150

JAMBRBBLZATGGRDLCA

DMAVCTBHSKNASURTTO

Non-CRB smallGUYLICs

Latin AmericaNon-CRB commodity

EMDE Asia DomesticForeign

EMDE median

Government Debt, 2016

High levels of debt mean very little fiscal buffers…

Government Debt

0

50

100

150

1960 1970 1980 1990 2000 2010

Caribbeannon-Caribbean small statesnon-Caribbean EMDEs

0

2

4

6

8

10

12

14

VCT GUY BHS LCA BLZ SUR BRB TTO

% G

DP

Additional adjustment needed

Projected adjustment (next 5years)

Illustrative Adjustment to Reach 60 Percent Debt Ratio in 10 Years

Median debt in Caribbean highest in ½ century and 30 percentage points higher than EMDE

… and structural factors constrain growth

Source: World Bank and IMF Staff Calculations.

ATGBHSBRB

DMA

GRDGUYBLZ

JAM

KNA

LCA

VCT

SUR

TTO

0

50

100

150

200

-1 0 1 2 3 4 5

EOD

B in

tern

atio

nal

rank

ing

(201

7)

GDP per capita, PPP$, log

High Costs of Doing Business

Heat Map: Characteristics Relevant for Growth and Prosperity(Ranking across country groups)

Tourism- Commodity Non-CRBIntensive Exporter small

CRB Economies CRB Economies states

Violent CrimeEmigrationSkilled EmigrationHuman CapitalNatural DisastersGovernment DebtTaxationNPLsEase of Doing BusinessCompetitivenessBureaucracyRegulatory QualityRule of LawControl of CorruptionTrade OpennessTrade TariffTrade ConnectivityGvc ParticipationHigh-Tech Export ShareExport Diversification

Note: Red = less favorable ranking; green = more favorable ranking.

Energy costs are high and volatile in the Caribbean

05

1015202530354045

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

HighMedianLowUS Tariff rate

Caribbean Residential Electricity Tariffs (2002-2012) 1/

(In US ₵/kWh)

1/ includes data for the Bahamas, Barbados, Belize, Dominica, Grenada, Jamaica, St. Lucia and St. Vincent and the Grenadines; limited data available for Antigua and Barbuda and Nevis; excludes Trinidad and Tobago and SurinameSource: CARILEC Tariff Survey (2012)and U.S. EIA database.

ATG

BHS

BRB

DMA

GRD

GUY

BLZJAM

KNA

LCA

VCTSUR

TTO

0

20

40

60

80

-1 0 1 2 3 4

Cons

train

ed fi

rms s

hare

GDP per capita, PPP$, log

Electricity Constraints

188

167 167

129118

111100

79

50

JAM LCA ATG KNA BHS BRB TTO DOM AE

Collateral Needed (% of loan)

0

10

20

30

40

50

60

70

BHS

GUY

GRD

DO

M

TTO

VCT

SUR

KNA

BRB

ATG

JAM

LCA

DM

A

BLZ

LAC average

Caribbean: Access to Credit as Major Constraint(% SMEs that responded "yes")

Sources: : World Bank Enterprise Survey and IMF staff calculations

Access to finance remains constrained for SMEs

12.0

7.9 7.7 7.6 7.56.7 6.6

3.53

JAM DOM BRB ATG TTO KNA LCA BHS AE

Loan-Deposit Spreads (%)

Source: World Bank Enterprise Survey and IMF staff calculations.

Source: World Bank Enterprise Survey and IMF staff calculations.

Elevated crime rates impose significant costs on the economy

4.7

2.7

4.03.5

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Bahamas (2013) Barbados (2014) Jamaica (2014) Trinidad andTobago (2013)

Perc

enta

ge o

f GDP

Crime-related Costs(% GDP)

Social costsPrivate costsGovernment costs

Sources: InterAmerican Development Bank

SLV

HND

VEN

ATG

BHS

BRBDMA

GRD

GUY

BLZJAM

KNA

LCAVCT

SUR

TTO

0

20

40

60

80

-1 0 1 2 3 4 5

Hom

ocid

e ra

te

GDP per capita, PPP$, log

Elevated Violent Crime

Brain drain is a drag on growth despite positive effect of remittances

Net Effect of Migration and Remittances on GDP Growth, 2003-13 (percent of GDP)

Sources: IMF Staff calculations

ATG

BHS

BRB

DMAGRD

BLZJAM

KNA

LCA

VCT

SUR

TTO

0

20

40

60

80

100

-1 0 1 2 3 4

Skille

d em

igra

tion

rate

GDP per capita, PPP$, log

Brain Drain

Loss of competitiveness, particularly in tourism, partly driven by higher prices

0

20

40

60

80

100

120

140

160

TCA

ATG

KNA

VGB

BRB

CYM

SXM

GRD

LCA

BHS

VIR

ABW

JAM

DO

MCU

WBM

UBL

ZPR

IVC

TD

MA

MEX

MIA CR

IN

ICH

AW HN

DPA

NGT

MSL

V

GRC

ESP

MD

V FJI

IDN

MYS

THA

SYC

MUS CP

VGM

B

AUS

Caribbean

AmericasEurope

Asia

Africa

W@tB Index― Expedia, January 2017(3-5 star hotel average, Bahamas = 100)

2.0

2.1

2.2

2.3

2.4

2.5

2.6

2.7

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Caribbean Tourist Arrivals, Market Share (In percent)

Sources: WDI; and IMF staff calculations. Sources: UNDP/UN Daily Subsistence Allowance (DSA) Rates and Fund staff calculations.Notes: Room rate: see www.travelocity.com,; www.trivago.com/ Taxi, Meals, Water, Beer, Coffee:

see www.numbeo.com/ cost-of-living/ and www.worldcabfares.com/index.phpTotal Cost without Tax = 7 * (3 star hotel) + 2 * (average taxi ride from main international airport

to capital city) + 7 * (1 inexpensive meal + 2 mid-range meals)+ 7* (2 liters water) + 7*(0.5 liter beer) + 7* (coffee).

UNLEASHING GROWTH

Diversifying the energy matrix to shield prices from oil fluctuations

0

20

40

60

80

100

World Caribbean 1/

Nuclear ElectricPowerRenewable Energy2/ 3/Coal

Natural Gas

Petroleum

Primary Energy Consumption by Source and Use(In Percent of Total)

1/ Excludes T&T and Haiti2/ Includes hydroelectric power, geothermal, solar/PV, wind, and biomass3/ For the Caribbean, renewables include hydropower and biomassSource: EIA; IDB: and IMF staff Caculations

4% 4% 3%2%20% 30%

15%

31%94%

62%

36%

2015 2016 2019 (proj)

Jamaica: Energy Generation Matrix

Biomass Renewables LNG Diesel/OilSources: Jamaica Ministry of Science, Energy and Technology and IMF Staff calculations

Loosening constraints to financial inclusion and improving access to finance

0

10

20

30

40

50

BRB LCA ATG TTO BHS JAM KNA DOM

Effect on GDP(cumulative change in GDP level)

ParticipationSpreadsCollateralNon-linear effectTotal

-15

-10

-5

0

5

10

KNA DOM BHS JAM BRB ATG LCA TTO

Effect on GINI(cumulative change in GINI)

ParticipationSpreadsCollateralNon-linear effectTotal

Sources: IMF Staff Calculations Sources: IMF Staff Calculations

Prev

entio

n an

d de

terr

ence • Parenting and

mentoring programs

• Urban Renewal

• Victims’ support

Enfo

rcem

ent a

nd d

etec

tion • Data

collection and sharing

• Targeted measures

• Rigorous evaluation of approaches

Reha

bilit

atio

n an

d in

tegr

atio

n • Treatment• Skills training• Job market

opportunities

A multi-pronged approach to reduce crime

0

2

4

6

8

10

12

Vaccinations Improvedwater andsanitation

Early warningsystems

Nutritionalinterventions

Earthquakes Floods Tropicalstorms

Measures to reduce damage from:

Bene

fit-c

ost r

atio

s

Does it Pay to Prepare/Prevent?

Break-even point

Essential to build resilience to natural disasters

Sources: World Bank and IMF Staff Calculations

Unleashing Growth in the Caribbean

0

1

2

3

TTO LCA GUY BRB SUR JAM VCT BLZ DMA ATG BHS GRD KNA

Greater human capital Deeper trade integrationLess debt Lower crimeGreater ease of doing business Lower disaster damage

Illustrative Medium-term Growth Gains(Percentage points per year; deviation from baseline)

Sources: IMF Staff calculations

Conclusions and Key Takeaways

• Macro stability is necessary but not sufficient• Thin fiscal buffers to serve as shock absorbers

• Strengthen macro fundamentals and fiscal sustainability

• Structural reforms are key to unleashing sustained and resilient growth

• Need multipronged approach• Energy costs

• Financial inclusion

• Crime

• Strengthen resilience to natural disasters

THANK YOU!