IMF says Caribbean on road to economic recovery

The latest Economic Outlook report from the International Monetary Fund (IMF) says that the Caribbean is finally turning the corner amid “vast challenges”.

In the report released in Colombia Thursday, the Washington-based financial institution confirmed that the region is gradually recovering from last year’s severe recession citing tourism as one of the significant growth areas.

However it said “headwinds from weak labour markets in advanced economies” constrain the Caribbean's growth prospects, adding that the key challenge lies in consolidating public finances while strengthening competitiveness.

It said prospects are “somewhat more favourable in countries with lower debt burdens and lower dependence on tourism”.

The IMF noted that the Caribbean experienced a decline of more than three per cent in 2009, noting that the real Gross Domestic Product (GDP) for the Caribbean as a whole is projected to post only marginal gains in 2010, growing by an average of about one per cent.

The report said during the first half of 2010 tourist arrivals in the Caribbean increased by an average of 3.5 per cent compared with the same period last year, led by increased arrivals from the United States and Canada, against continued declines from Europe.

However it said recovery of tourism has been uneven noting that the data suggests that destinations that significantly reduced hotel prices following the economic crisis experienced milder declines in arrivals. 

"Though many factors are likely at play, downward price rigidities could help explain these intraregional differences," the IMF said.

“Boosting competitiveness and growth over the medium term remains a key policy challenge,” the IMF said, adding improving productivity will require “sustained structural reforms,” including enhancing the role of the tourism sector.

It said the region would have to adjust to a more negative scenario by focusing any expenditure on protecting the poorest households. And it cautioned that weak growth and low revenues "make progress difficult".

The IMF noted that despite a reduction in public sector spending the Caribbean’s public debt is projected to increase by an average of 15 percentage points of GDP between 2008 and 2010.

It noted that regional governments have turned to local pension funds and banks, as well as international financial institutions, to finance the large fiscal imbalances.

The IMF also acknowledged that preferential financing from Venezuela’s PetroCaribe oil agreement has also played "an important role" but it said that doubts persist over the sustainability of this assistance, "given economic conditions in Venezuela'.