BRASILIA, Brazil - The deputy managing director of the International Monetary Fund (IMF), Dr. Nigel Clarke, says policymakers in the Caribbean are facing a complex set of old and new challenges, but challenging times can also be times of opportunity, action, and resolve.
Deputy managing director of the International Monetary Fund (IMF), Dr. Nigel Clarke, delivering the 25th William G. Demas Memorial Lecture in Brazil on Tuesday night (CMC Photo)Delivering the 25th William G. Demas Memorial Lecture here on Tuesday night as part of the 55th annual meeting of the Caribbean Development Bank (CDB), Clarke, a former finance and planning minister in Jamaica, said that the Caribbean is a region of immense promise, with rich cultural heritage, natural beauty, and vibrant population.
“The world is undergoing profound change. This change introduces global vulnerabilities to which the Caribbean is not immune. The resilience of small open economies like those in the Caribbean is likely to be tested.
“It is imperative, therefore, that Caribbean countries work to put their macro-fiscal houses in order while engaging in deep and meaningful structural reforms to increase the growth potential of Caribbean economies,” said Clarke, who spoke on the theme “The Caribbean Challenge: Fostering Growth and Resilience Amidst Global Uncertainty”.
“You hold the keys to the future of the region. You have the tools, the talent, and the tenacity to chart a new path for growth and resilience. Your actions can make a difference to the Caribbean’s prospects,” Clarke said, adding “we have seen many steps in the right direction to address bottlenecks and boost productivity”.
He said that the Washington-based financial institution will continue to encourage the region to keep going, implement those reforms that are under their control and continue to work together across the region.
Clarke said regional countries should capitalize on the Caribbean Community (CARICOM) to achieve a larger market for the movement of people, investment, and trade.
“Stay focused on the goal: delivering more economic resilience, higher growth prospects, and better living standards for people across the Caribbean. And, you can count on the Fund along the way.”
In his presentation, Clarke said that it is not surprising that most Caribbean countries face a challenging outlook, noting that in its latest World Economic Outlook, the IMF had already projected tepid growth in the Caribbean region overall, even before accounting for the United States trade policy announcements.
He said that stronger performance in some countries, such as Jamaica and Trinidad and Tobago, was offset by slower growth in others.
“And in several countries, crime weighs on growth prospects. Particularly in Haiti, where the security situation hampers efforts to sustain economic activity, implement reforms, and attract aid and foreign direct investment.
“On top of that, we estimate that the April tariff announcement and its global spillovers would lower Caribbean regional growth by at least 0.2 percentage point on average.”
Clarke said that the impact varies across countries, with tourism-dependent economies, where growth is closely tied to US economic activity, the impact will mainly depend on the size of the US tourist base.
He said in oil-exporting countries, lower commodity prices and higher volatility are the main channels of transmission. Lower global growth means lower demand for these commodities which adversely impacts the economies of commodity exporting countries.
Clarke said that slower growth, while a relatively recent phenomena from a global perspective, is, unfortunately, not new to the Caribbean. He said declining growth trends in the Caribbean region have loomed over the longer horizon as well.
“Recent IMF analysis finds that most Caribbean countries had significantly slower growth over the last decades: 2001–2023, as compared with the previous two decades: 1980–2000,’ Clarke said, adding that for tourism-dependent Caribbean economies, ”we estimate a decline in potential growth from 3.3 per cent over the 1981 – 2000 period to 1.6 per cent over the following two decades, 2001-2019.”
The IMF deputy managing director said that this presents the Caribbean with an aggravated challenge to reverse the trend of slower growth at a time when global growth is also declining. “That is, the challenge is to reverse the trend of slower growth when the wind in the proverbial sail is weaker and has changed direction. Let’s be clear about what is at stake.
“Slower growth in the Caribbean slows the improvement in living standards and stymies the aspirations of Caribbean people for better opportunities. Slowing growth, in the past, has also meant that convergence in income levels between the Caribbean and advanced economies has stalled. In other words, the gap between the economic fortunes of the Caribbean national and that of her counterpart in the advanced world is growing wider.”
Clarke said that there are exceptions to the regional trend.
He said in particular, Guyana’s economy has grown rapidly over the past two decades, progressing from low-middle-income to high-income status. Growth accelerated to over 45 per cent on average in the past three years, making Guyana the fastest growing economy in the world.
“But for the Caribbean more broadly, the questions on which we should focus is, what explains the pattern of declining growth? And, what is the appropriate menu of policy responses to this pattern?
“With respect to the first question, and as in the rest of the world, a key explanation for declining growth is weak productivity growth.”
Clarke said that the growth challenge is not a mystery and that growth potential can be decomposed into its constituent factors and we can compare how the Caribbean’s growth potential has declined over time.
He said such an analytical and data-driven approach reveals that the Caribbean’s growth potential is a half of what it was a few decades ago.
Clarke said addressing the Caribbean growth challenge requires systematic and comprehensive policies to strategically improve the factors that contribute to growth potential. “Zooming in on one of the important factors: the Caribbean’s productivity growth has declined to almost zero. This is at the root of the Caribbean’s growth challenge. In addition to productivity growth, physical and human capital development need to be accelerated.
“ So, ladies and gentlemen, there is no magic solution to the Caribbean growth challenge. There is no quick fix either. In fact, great danger exists if we believe that the growth challenge can be addressed with quick fixes. Solving the growth question will require as much effort as the effort put into the macro stability reforms successfully undertaken in Jamaica, Barbados and Suriname.”
Clarke said that the goal for policy makers is clear and that is to foster resilient and inclusive growth that sustainably raises living standards.
He said that this could be achieved by maintaining and entrenching macro-economic stability and decisively and comprehensively address the factors that raise growth potential.
“As a pre-requisite, countries should strive to pursue policies that restore, maintain and entrench macroeconomic stability – stable prices, sustainable fiscal trajectories, adequate foreign exchange reserves and financial sector stability.”
Clarke said the collective Caribbean experience powerfully demonstrates the transformative potential of macroeconomic stability.
He said Jamaica, for example, which was burdened with unemployment rates that averaged 20 per cent between the early 1970’s and the end of the 1980’s and 15 per cent between over the 1990’s to the mid 2000’s only achieved the previously unimaginable result of low single digit unemployment rates, in the region of four per cent and lower, when stability became entrenched.
“Stability is also a friend to the poor as Jamaica’s experience also highlights. Jamaica achieved the lowest rate of poverty in its history in 2023, again on the back of entrenched macroeconomic stability in the context of an institutionalized social protection framework supplemented by temporary and targeted counter-cyclical measures at times of distress.
“Friends, our history and global economic history clearly demonstrate that economic stability is indispensable to national success, regardless of chosen social and political organization,” he told the audience.
Clarke said economic stability should therefore be guarded and protected as a national asset, allowing for focus on higher order challenges like structural reforms to unlock growth potential. He said also, the requirements of stability should act as a constraint on policy.
“Any proposed policy action that has the prospect of jeopardizing any of the components of stability should not make it through the policy formation gauntlet. Securing economic stability into the future requires laws but laws are insufficient.
“Stability over the long term is best preserved by developing, empowering, and strengthening institutions,” Clarke said, adding that the region should build fiscal buffers, strengthen fiscal frameworks, and bolster resilience.
He noted also that the Caribbean region hosts different currency regimes.
“The key requirement is internal consistency within the chosen currency regime. Floating rate and fixed rate currency regimes impose their own constraints. These need to be observed for success.
“While there is always room for improvement in monetary frameworks, the areas within the macro stability complex, that require urgent attention in the Caribbean, are rebuilding fiscal buffers, strengthening fiscal frameworks and bolstering resilience,” he said, adding “let’s face it: on top of all the other challenges, government budgets in the region are strapped”.
Clarke said providing extraordinary support in response to extraordinary shocks has depleted buffers.
“Public debt ratios have come down since the pandemic—this is good news. However, in many countries—including Caribbean countries—debt and financing needs are still too high.
“In fact, for some Eastern Caribbean Currency Union (ECCU) members, achieving their regional debt target of 60 percent of GDP by 2035, a full decade from now, will require sizeable efforts.”
Clarke said with timely fiscal consolidation, countries can bring down debt ratios and by so doing, they can protect themselves against future shocks. And they can make space to invest in crucial human and physical capital, an investment in their own future.
“In addition, some Caribbean countries have pegged exchange rates, which have been a long-standing anchor of stability, for example, in the Eastern Caribbean. The ECCU is one of only four currency unions in the entire world[1] and stands as a testimony to the capacity of Caribbean people to collaborate, cooperate and innovate.
“However, to safeguard the stability provided by this currency union long into the future, fiscal policies must be sustainable, resilient, and consistent with the exchange rate regime. Inconsistency only serves to compromise the currency union with the potential for destabilizing consequences.”
He said the advice to policymakers on how to rebuild buffers and strengthen frameworks is straightforward, mobilize tax revenue, spend wisely, and plan ahead.
