Tips for region’s debt relief
AT THE REGIONAL LEVEL, an economic recovery of 1.7 per cent is projected for 2017. This is predicated on a return to positive growth in Trinidad and Tobago. Notwithstanding, the risks to the outlook are tilted on the downside.
Domestic headwinds to growth reside with the legacy effects of the Zika virus (although no longer an international epidemic) in redirecting tourist arrivals away from the region; and the loss of correspondent banking relationships, which will affect financial stability. In addition, there are the perennial risks of natural disasters and other weather related challenges.
Caribbean Development Bank is projecting growth in all of its borrowing member countries BMCs in 2017. Trinidad and Tobago’s economic recovery to one per cent real GDP growth will be driven by improvements in energy prices; investments slated for energy projects; and higher natural gas output.
The performance of Guyana and Suriname is expected to improve in 2017, commensurate with a gradual recovery in commodity prices. In Belize, recovery in agriculture and fisheries is expected. Real GDP growth is projected to range from 0.4 per cent in Suriname to 3.5 per cent in Guyana, where increased gold output and recovery in the agriculture and forestry sectors are expected.
In the tourism-dependent economies, real GDP growth is projected to range from 0.9 per cent in The Bahamas to 4.3 per cent in Turks and Caicos Islands, driven largely by increased tourist arrivals and buoyant investment in infrastructure projects. Improvements in the agriculture sector are projected for Grenada and Jamaica.
There are a number of key imperatives. Chief among these is the need to intensify policy actions aimed at generating sustainable and more inclusive economic growth. The economies must be environmentally sustainable and adaptable to climate change. Additionally, they must provide, especially for young people, employment opportunities that reflect the changing way in which the world is working; by, for example, being complementary to automation and artificial intelligence.
To achieve this shift requires an action plan that promotes regional participation in the global supply chains and increased employment opportunities. Policymakers must tackle the obstacles to growth by improving the doing business environment; enabling better access to financing for Micro, Small and Medium Enterprises (MSMEs); and implementing labour market reforms, including making it easier for young people and women to work in all sectors.
All of these measures would increase productivity and enhance competitiveness. The benefits of positive growth outcomes should be enjoyed by all, and everyone should be able to contribute to this growth. This can be achieved through targeting the Sustainable Development Goals.
The region needs improvements in social development in the areas of quality education and good housing. There must be policies and institutions that can quickly and accurately target where support is needed, and be able to continuously evaluate and improve their performance to help achieve the desired outcomes.
Economic stability is a precondition for breaking out of the unhappy cycle of high debt and low growth.
There is plenty of evidence to suggest that a high debt burden compromises a country’s economic stability, its economic growth agenda and government’s ability to support social programmes. With limited resources available to achieve desired outcomes, fiscal discipline is crucial to restoring and supporting economic stability. With that in mind, it is necessary to have robust institutions and frameworks to manage public finances.
Expenditure reforms should include adoption of fiscal rules (as was done recently in Grenada); closer monitoring and streamlining of state-owned enterprises and parastatal companies to limit transfers; and better targeting to reduce subsidies. Revenue reforms should have the objective of ensuring that revenue systems are simple, equitable, generate sufficient revenue to finance government operations, and promote economic efficiency. In relation to promoting economic efficiency, revenue systems have to be configured to facilitate trade and competitiveness.
Public debt management systems also need to be improved, including the implementation of debt management strategies that focus on minimising cost and risks. Additionally, given the vulnerabilities to natural disasters and how these have contributed to debt accumulation, it is important for countries to use revenue windfalls to set up contingency funds or sovereign wealth funds to build greater economic and social resilience.
By their very nature, these windfalls are not permanent, so they should be used to create buffers that will be needed to protect the economies when they are no longer there. There are some structural reforms that can be readily undertaken to enhance inclusive growth.
Such reforms should help businesses to grow, reduce barriers to trade and strengthen the financial sector. By introducing and then widening the scope of its credit bureau, Guyana has started to address the problem of access to finance for MSMEs.
This was one reason Guyana rose from 140 to 124 in the latest World Bank Doing Business ranking. Jamaica remains the highest ranked BMC, at 67 of 190 countries. In recent years, Jamaica has implemented several reforms aimed specifically at facilitating business, including making it easier to register property; reducing port transit times through information technology improvements; improving ease of tax filing through the use of e-filing; improving access to credit by creating a framework for private credit bureaus; and widening the range of assets that can be used as collateral. Such measures could potentially help Jamaica reach permanently higher levels of growth in the medium to long term.
The region should also allow for increased use of public/private partnerships, to help unlock value from underutilised assets. Reforms should facilitate and promote green energy production, provide incentives for raising capital, for example, on the junior stock exchange markets, and enhancing venture capital ecosystems. Efforts can also be made to engage the region’s vast diaspora in the growth agenda.
A significant platform for consistent positive growth outcomes is good governance.
A well-functioning system can effect change through open and enlightened policymaking, a professional and accountable bureaucracy, and a strong civil society participating in public affairs. Systems of government should be transparent, and foster inclusion, security and growth. Moreover, government operations and resources should be managed in such a way to ensure good value for money.
• This is the Caribbean Development Bank’s latest forecast for the region.