In his 'Outlook for Latin America and the Caribbean, director of the Western Hemisphere Department of the International Monetary Fund (IMF) Alejandro Werner said Latin America and the Caribbean have become the new coronavirus (COVID-19) global epicentre.
He said while Caribbean economies have managed to flatten the COVID-19 curve, their key economic lifelines have collapsed “With tourism coming to a virtual standstill and key source markets in advanced economies plunging into deeper recession.
The region is likely to experience a very sharp and protracted contraction in economic activity, said Werner.
“Despite the reopening of borders starting in June for some Caribbean countries, international tourist arrivals are expected to return to pre-crisis levels only gradually over the next three years. In addition, the steep drop in oil prices is hurting commodity exporters through a loss in exports and fiscal revenues. The ongoing hurricane season poses additional risks,” the IMF official added.
Quoting the IMF’s Economic Outlook (WEO) report released on June 24, Werner said global growth is projected to be negative 4.9 per cent in 2020, a further 1.9 per cent below the projections given in April.
For the Latin America and the Caribbean economy, growth is now expected to contract by 9.4 per cent, a further 4.7 contraction than was reported in April. These contractions are largely attributed to the global COVID-19 pandemic and its ramifications on the global economies.
A cumulative loss to the global economy of over $12 trillion over two years (2020 to 2021) is expected. Of this amount, 10 per cent (or about $1.2 trillion) stems from Latin America.
“Latin America and the Caribbean has been hit particularly hard, with an expected contraction of 9.3 per cent this year, its largest recession on record,” said IMF Managing Director Kristalina Georgieva.
Following the release of the WEO report on June 26, the IMF published an article detailing the specific outlook for Latin America and the Caribbean. In this article, the forecast for the Caribbean was divided into two sections: Tourism-dependent countries (including Antigua and Barbuda, Aruba, the Bahamas, Belize, Dominica, Grenada, Jamaica, St. Kitts and Nevis, St. Lucia and St. Vincent and the Grenadines) and Commodity Exporters (Guyana, Suriname and Trinidad and Tobago).
Tourism-dependent countries are expected to record negative growth in their real Gross Domestic Product (GDP) by a massive 10.3 per cent this year. In 2021, there will be an expected growth of 4.8 per cent.
According to Georgieva, the high dependence of Caribbean economies on tourism, a sector she describes as “one of the most dramatically impacted,” contributes to the countries’ particularly high level of impact. For some countries, 50 to 90 per cent of their GDP and employment is dependent upon this sector.
She acknowledged that the policy response in the region has been swift though, with governments and central banks intervening. This has come in the form of monetary policy, including but not limited to reducing interest rates and fiscal policy (increased government spending and reduced taxation) to strengthen the healthcare systems and support employment.
“The immediate priority for fiscal policy is to continue protecting lives and livelihoods, which, given the limited fiscal space in the region, will require reprioritising expenditure, and increasing its efficiency. Policymakers will need to find creative ways to reach different segments of society, especially where informality is high,” the IMF report said.
Furthermore, the IMF is advising that monetary policy should remain “accommodative”, given the subdued inflation outlook, negative output gaps, and elevated unemployment. Essentially, governments and central banks should remain cognisant that economic activity must be supported, and that the financial markets must function effectively.
Additional policy rate cuts and measures targeted to specific markets should be considered where necessary and possible, to support economic activity and ensure the proper functioning of financial markets.
Maintaining employment in the region should be a priority, as this will reduce long-term unemployment, and help springboard recovery. Finally, the IMF stressed that countries should be keen on avoiding a “second pandemic wave,” and managing localised outbreaks.
For the commodity exporters, all countries with an oil-and-gas industry, positive economic growth of 3.5 per cent is expected. Though this is less than what was earlier projected for these three countries, this is the only set of countries escaping the region’s projected recession. “The steep drop in oil prices is hurting commodity exporters through a loss in exports and fiscal revenues,” the IMF said.
In April, Guyana’s economy was projected to grow by 52.8 per cent, a revision to the prior 86 per cent growth projection. That revision came about as a result of the less-than-usual global demand for oil due to the COVID-19 pandemic, and the oil-price war between Russia and Saudia Arabia. The IMF has not yet released figures specifically for Guyana in its new June report.
Oil aside, though, Governor of the Bank of Guyana, Gobind Ganga indicated on Thursday that the country’s projected non-oil growth, previously pegged at some five per cent, has been revised to negative five to seven per cent or even lower, as major sectors take a big hit.
- Countries: Caribbean