Growth returns to Caribbean Basin, but recovery is uneven

Economic performance in the Caribbean will be uneven this year: Some economies will grow by 5 percent or more, but others will be lucky to eke out even negligible economic growth.
“The Dominican Republic and Guyana are expected to remain the strongest performers in the subregion,” according to the U.N.’s Economic Commission for Latin America and the Caribbean. “The outlook is less favorable in the Bahamas, Cuba and Trinidad and Tobago — countries with deep-rooted structural impediments and high vulnerability to external developments.”
The Dominican Republic is projected to have 5.1 percent growth, while Guyana is expected to check in at 5 percent and St. Kitts and Nevis at 5.3 percent. On the other end of the spectrum are Trinidad and Tobago (.5 percent growth), the Bahamas (1 percent), Suriname (1.4 percent), and Cuba (1.5 percent).
Low global oil prices have dampened economic growth in oil-rich Trinidad and Tobago. “Hopefully Trinidad will have bottomed out from last year,” said Trevor Alleyne, Caribbean division chief at the International Monetary Fund. “For the region as a whole, Trinidad won’t be pulling down the region’s average as it was last year.”
While some Caribbean economies have little more than tourism to sustain themselves, even those with other resources can find themselves hurting.
“It goes back to undisciplined fiscal policies,” Alleyne said. “When things were great, when oil was $100 per barrel and gold was high, they decided, ‘OK it’s time to party.’ When these prices plummeted, they found themselves without any buffers to manage that process.”
Institutional problems and political uncertainty have buffeted a Haitian economy already hit hard by natural disasters. Flooding from last year’s Hurricane Matthew and a prolonged drought have weighed heavily on growth, and the country is still feeling the after-effects of a devastating Jan. 12, 2010 earthquake.
“Economic activity in Haiti and Jamaica was adversely affected by drought conditions as well as structural obstacles, including institutional weaknesses, tight fiscal budgets and high unemployment and underemployment,” ECLAC said in its annual forecasting report.
Although ECLAC estimates 2.1 percent economic growth for Haiti, the World Bank is predicting the economy will decline by -0.6 as Haiti continues to wrestle with double-digit inflation, a hunger crisis in the region slammed by Matthew, a depreciating domestic currency and low investment levels.
The Haïti Priorise project, which brings together a group of economists, is looking at ways to not only perk up economic growth but provide improved services to the Haitian population. It is run by the Copenhagen Consensus Center, a think tank that has receive Canadian government funding.
Among the suggestions to boost economic growth are faster Internet service and more digitization. Pantelis Koutroumpis, a research fellow at Imperial College Business School in London, noted that it takes 312 days to start a business in Haiti and 97 days to register a property. Both processes, he said, can be reduced significantly if the infrastructure that powers the country’s Internet is improved to allow for digitized registrations.
The Cuban government is more optimistic about the island’s prospects than ECLAC is. It is predicting economic growth of around 2 percent with an increase in tourism leading the way. But other economists aren’t as sanguine. Pavel Vidal, a professor at Javeriana University in Colombia, is forecasting a decline of between .3 percent and 1.4 percent in the Cuban economy.
Cuban tourism officials are predicting the number of international visitors will increase to a record 4.2 million. The officials say tourism arrivals for January and February were up 15 percent over the first two months of 2016.
But as economic problems in Venezuela deepen, the future of crucial oil supplies from Cuba’s main benefactor are in question. The government recently announced that premium gasoline wouldn’t be available on the island in April, and long lines at gas stations are becoming more frequent.
To achieve sustainable growth, analysts say Cuba needs to undertake economic reforms such as unifying its unwieldy dual currency system and creating a more attractive environment for foreign investors, including allowing them to directly hire their Cuba workers, cutting through red tape, making it easier to sign contracts, and offering better legal guarantees.
Cuba has said it wants foreign investment to be a cornerstone of its future economic development.
Meanwhile, high debt burdens, large government deficits and a lack of competitiveness remain at the center of the economic challenges facing the Caribbean, said Justin Ram, director of economics for the Caribbean Development Bank.
The bank is projecting economic growth for the Caribbean region at 1.7 percent this year. But Ram said the Caribbean as a whole will continue to lag other regions unless it addresses high levels of crime and violence in some countries, unemployment and poverty and reduces its high debt levels.
“We’re not seeing the level of investments we need to boost growth,” he said. “Our economies have not kept pace with the kind of competitiveness we are seeing in other parts of the world. We are lagging behind… with respect to the types of economic reforms they are pushing through to keep their economies competitive.”
Caribbean nations also need to improve their “doing business” environment, he said. “Investors look for these things,” Ram said.
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