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Region must cut ‘vulnerabilities’

SHAWN CUMBERBATCH, [email protected]

Region must cut ‘vulnerabilities’

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BARBADOS AND OTHER Caribbean countries longing for a major resumption of economic growth must fix their fiscal and debt sustainability problems.

Caribbean Centre For Money And Finance (CCMF) officer-in-charge, Dr Dave Seerattan, said even though there were positive signs of international economic improvement from the last quarter of 2016, these could be negated by the region’s underlying challenges.

As a result, the economist said the aim should be to “increase economic growth while steadily reducing macroeconomic and financial vulnerabilities”.

“More importantly, even though growth is expected to improve over the next two years, most countries would still record growth that is too low to meet their developmental needs. In this context, the emphasis has to be on addressing structural impediments which hamper the productive capacity of countries,” Seerattan said.

“Well-targeted infrastructure development, a focus on the efficiency of government expenditure rather than on expenditure cuts and other supply-friendly fiscal measures in countries which still have fiscal space would be important components of this strategy.”

He added: “Where appropriate, commodity exporters could allow more exchange rate flexibility to help with the adjustment process. A range of actions is also required in connected areas such as the improvement of the business environment, increasing labour productivity and improving the efficiency of the public sector.”

He said the region “also needs to strengthen further the institutional, legal and regulatory frameworks for financial risk assessment and mitigation to deal with any financial vulnerabilities which can threaten the resumption of sustainable growth in the Caribbean”.

Giving his take on the region’s economic prospects for this year and next year, in a recent CCMF newsletter, Seerattan said “factors such as the growth performance of important trading partners and commodity price trends have a significant impact on Caribbean economic performance”.

“Domestic factors such as fiscal and debt sustainability issues, external account weakness and relatively high non-performing loans will also impact on the growth trajectory in the near term, depending on how these challenges are addressed.”

He pointed out that the moderate growth some Caribbean islands had experienced “masks significant differences in performance between countries, reflecting pre-existing external, fiscal and financial vulnerabilities which restrain growth more intensely in some countries”.

“Business and consumer confidence in particular have been negatively affected by these vulnerabilities which have proven to be significant factors hampering the robust recovery of private demand and growth in these jurisdictions.” (SC)