The Caribbean will suffer its deepest contraction in more than 50 years due to the downturn in tourism activity.
The abrupt halt to tourism, which accounts for 50 to 90 per cent of gross domestic product and employment in some countries, will result in economic activity falling 6.2 per cent this year as the region continues to be affected by the coronavirus (COVID-19) pandemic.
This assessment was made in a blog post by International Monetary Fund (IMF) on the global institution’s website yesterday, April 30.
The effects of the virus were worsened when many nations implemented containment measures such as border closures and lockdowns to “flatten the curve”, the post said.
Already, air travel industries and cruise lines have seen their operations come to a standstill as major cruise lines cancel sailings through June and most airlines reducing or suspending service to the Caribbean, it said.
What’s more, the impact will not be limited to tourism as there will be likely spillovers to the financial system, the IMF notes, which could include lost output from firms and high fiscal costs associated with managing local outbreaks which can worsen the pandemic’s financial impact.
The IMF also adds that “the upcoming hurricane season poses additional risks to these already budget-strapped economies.
“To sustain the economy during the crisis and contribute to a faster recovery, countries will need to allocate resources to vulnerable groups affected by the pandemic.”
Additionally, commodity prices have seen a sharp decline as exporters such as Guyana, Suriname and Trinidad and Tobago suffer losses in exports and fiscal revenues.
The IMF post adds that energy companies may also cut back production plans as weaker demand from the global contraction in manufacturing is anticipated.
However, it said oil-importing countries in the region will benefit from lower oil prices which will help to buffer the shock.
Remittance inflows are also expected to fall-off as deep recessions affect the United States, Canada and the United Kingdom. This will invariably affect nations like Jamaica and Haiti where remittances exceed more than 15 per cent of GDP.
Disruptions to the supply chain are also likely which would severely affect the importation goods and food and health security, a major issue for the region which is dependent on imports.
While many countries have announced some stimulus measure to combat the economic effects of the virus, the IMF said it continues to actively engage Caribbean nations to offer policy advice and assistance.
It further added that it is working with the World Bank, Caribbean Development Bank and other regional partners to explore options and approaches to helping countries in overcome challenges and move towards recovery.