By Hasan Tuluy
The recent High Level Caribbean Forum in Nassau was the latest in a series of discussions to develop a road map for the region’s long-term economic growth while addressing persistent debt and fiscal issues. A significant consensus about the path forward is clearly taking shape.
It’s time for decisive action, so that the region can build on hard won social and economic gains.
The reasons are multiple.
The region’s poverty reduction and shared prosperity gains in the past decades are at risk of being reversed. In the three decades after 1980, the Caribbean region’s gross domestic product per capita increased six fold, bringing about significant poverty reduction. Then, the global financial crisis of 2008/09 hit exposing the fragility of the growth model in some Caribbean countries. Jamaica and the OECS islands experienced contractions of 3.1% and 5.3% respectively in 2009. Jamaica, which had seen its poverty rate drop almost 20 percent over two decades, saw it increase by eight percent in a few years.
The Forum took place the day after the U.S. Federal Reserve revealed that it would not start tapering its asset purchases after all. By then however, countries in the Caribbean such as Belize and the Dominican Republic had already seen yields of sovereign bonds rise by 130 and 40 basis points, respectively.
That episode served as a stark reminder that, for the Caribbean, challenges from outside can be significant and uncontrollable, yet Caribbean nations have many good reasons to be open to foreign investment, increased trade, and financial market access. The benefits outweigh the uncertainty of global economic and financial engagement.
The solution is not to close themselves, but to be more open and implementing fundamental changes that will increase resilience. The risk of not establishing strong fundamentals now is that when the expected increase in financing costs finally happen, pressure will rise on local exchange rates and international reserves especially for those countries with large current account deficits such as those in the Caribbean. Investors will likely become more selective and focus on country fundamentals, moving their resources to those economies that are successful in implementing credible and sustainable reforms.
That would only add to an already challenging situation. Weak fiscal positions, declining foreign investment, frequent natural disasters, limited access to financial markets and other factors have already conspired to bring about a major debt burden for many Caribbean countries, hampering government’s ability to deliver services to the people.
Working with governments and development partners, we have put forward a Comprehensive Debt Framework, a balanced approach that will require the contributions of the international community, private sector, public institutions, and civil society to succeed. It will focus on building a more sustainable growth model, improving fiscal balance, public sector management, building resilience to natural disasters, pursuing debt restructuring and strengthening debt management.
If we are to preserve the gains of the past and secure the future for today’s youth in the Caribbean, we need to work together to create a virtuous cycle of faster economic growth and lower debt, generating opportunities for all and shifting the region’s economic outlook to a more sustainable path, a path which puts people at the center, ensuring that human and social investments are part of the new, balanced shared growth paradigm.
The time for diagnostics is definitely over.
Hasan Tuluy is World Bank Vice President for Latin America and the Caribbean.
Note: the opinions expressed in Caribbean Journal Op-Eds are those of the author and do not necessarily reflect the views of the Caribbean Journal.