Institutional reforms and investments in infrastructure will be key to foster economic recovery in the Caribbean region, according to a new report by the Inter-American Development Bank (IDB), which warns of challenging times even as the pandemic is expected to subside in 2021.
The Quarterly Bulletin is produced by the economic team from the IDB’s Caribbean Department, and it analyses economic challenges facing member countries — The Bahamas, Barbados, Guyana, Jamaica, Suriname, and Trinidad and Tobago.
For most countries in the region, 2020 will represent the deepest single year economic contraction since 1975. Four of the six — The Bahamas, Barbados, Jamaica and Suriname — would have experienced double-digit contractions of real gross domestic product (GDP) last year.
While the rapid recent progress towards development and distribution of a vaccine is an increasingly bright light at the end of the tunnel, the report notes, Caribbean economies that depend on external demand from advanced economies are not likely to see a full return to pre-COVID levels of economic activity for some time.
The decline in tourism has been sharp, with The Bahamas and Barbados reporting drops in arrivals of 68 per cent and 66 per cent in the first nine months in 2020, respectively — closer to the worst-case scenarios envisaged at the beginning of the year. Future tourism prospects are dependent on global efforts to control the coronavirus spread. One bright spot is that international reserves have held up well, including thanks to disbursements from multilateral lending institutions, and strong remittance flows from the region’s diaspora.
“The immediate urgencies are critical, especially to ensure people are safe,” said David Rosenblatt, the IDB’s Regional Economic Advisor. “However, governments must begin to plan now on how they can get their economies up and running again on a much better footing than before. We identify two areas that are crucial: infrastructure and institutional reforms.”
Infrastructure is seen as providing an important post-COVID-19 boost, with economic institutions critical in the long run to help manage short-term cycles and spur higher productivity.
“A sound institutional framework by no means constitutes a full-fledged protective shield against such devastating shocks, but it provides a more formal structure to respond to them,” the report says.
The IDB will soon release an edited volume with specific policy recommendations to strengthen public institutions, including those related to fiscal management—a topic that will be essential given tight budgets and the need to do more with fewer resources.
The Quarterly Bulletin includes chapters with specific recommendations for the IDB’s six Caribbean member countries: Jamaica, Suriname, Trinidad and Tobago, Guyana, The Bahamas and Barbados.