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Wednesday, December 30, 2009

Mixed fortunes for Caribbean economies in 2009, says new report

GEORGETOWN, Guyana -- The Caribbean Economic Performance Report 2009, compiled by the Caribbean Centre for Money and Finance, recently projected the member states to end this year with mixed fortunes, as some will see growth while others will be in deficit.

The report says many Caribbean economies remain in recession, awaiting the recovery of the United States and other Industrial economies, which supply the region’s tourists, remittance and foreign direct investment, and which absorb Caribbean exports.

It adds that advance tourism bookings are reported to be dismal, and natural gas prices remain low, even though oil prices have recovered substantially.

Foreign exchange inflows continue to decline compared to 2008, economies remain depressed and unemployment is on the increase, in spite of efforts by governments and private firms to minimize the loss of jobs.” the report noted.

However, it added that balance of payments pressures have abated in Jamaica, the country most severely affected by outflows, and the exchange rate there has stabilized.

“Foreign exchange levels remain acceptable throughout the region, aided by a small increase in the global allocation of Special Drawing Rights (SDRs) by the International Monetary Fund (IMF)," the report outlined.

Five member countries of the OECS have accessed modest amounts of IMF financing, and the Jamaican authorities remain in discussion with the Fund for financing under a Standby Arrangement.

“Aruba, Belize, Guyana, Haiti and the Netherlands Antilles all recorded higher levels of foreign exchange reserves, comparing the latest month with a year earlier, with increases ranging from 10 to 30 percent,” the report states.

The 27 page document also noted that the average growth rate for the region is expected to be 1.6 percent this year, with Belize, Dominica, Guyana, Haiti and Suriname expected to record positive but slow growth in 2009.

It noted too that Guyana, despite a decline in growth of real output during the first quarter of 2009, which was due primarily to losses in the sugar sector, rebounded due to mixed output in the manufacturing and services sectors and the rice industry.

In the first quarter of 2009, the report says, Guyana’s inflation rate dropped sharply to 1.95 per cent compared to the 7.45 per cent it recorded for the same period in 2008. This was due to the fall in international oil and commodity prices as well as falling domestic prices of food items.

Caribbean economies cannot expect to emerge from recession before the US does. Advance tourism bookings are reported to be dismal, and natural gas prices remain low, even though oil prices have recovered substantially. Most tourism economies and the energy and mineral industries depend mainly on the US market.

The prospects for agriculture and those tourism economies that are less dependent on the US are not much better, because the economies of Canada, the UK and the rest of Europe all depend heavily on exports to the US to help fuel the recovery of economic output.

The policy responses of Caribbean governments are beginning to take effect as they marketing and promotional activity, and measures for some degree of amelioration of the adverse social impact of the economic contraction. So far the impact on government budgets and debt service has been mild, but much of the additional expenditure is yet to come on stream.

The economic recession has depressed fiscal revenues everywhere, and the impact has been especially severe because of the region’s increasing dependence on the Value Added Tax (VAT), which is especially sensitive to a fall in spending.

Even though governments’ efforts to contain the adverse impact of the crisis have resulted in only modest increases in spending, it says, the extent of revenue loss meant that the overall fiscal position deteriorated badly everywhere.

The unfinanced fiscal gap was the main motivation for OECS countries to seek financing from the IMF and other international financing agencies.

December 30, 2009