Published On: Thu, Apr 4th, 2013

Caribbean Small States: Challenges Of High Debt And Low Growth

IMFWASHINGTON, DC, U.S.A. (IMF) -- The IMF report "Caribbean Small States: Challenges of High Debt and Low Growth" presents background on Caribbean small states as context for the main paper, “Macroeconomic Issues in Small States and Implications for Fund Engagement.”

It draws on recent analytical work presented at a conference for policy makers in September 2012, in Trinidad and Tobago.

Caribbean small states, while sharing many features of other small states (size-related macroeconomic vulnerabilities, lack of economies of scale, and capacity constraints) have specific characteristics which merit attention.

Highlights:

  • Caribbean small states are a diverse set of countries. The countries can be grouped as commodity exporters, service-based economies, mainly tourism and financial services, and the micro-states of the ECCU.
  • At the same time, many countries in the region share similar economic characteristics. They are small economies, very open to international trade, and highly exposed to natural disasters and economic shocks. The Caribbean is one of the most disaster-prone regions in the world.
  • The financial sector in the Caribbean is large relative to economic size and is dominated by banks. Total assets of the financial systems in the region averaged 320 percent of GDP, with 149 percent of GDP held by banks. However, limited access to credit and high interest rates still stifle private sector business expansion in some countries.
  • Growth in the Caribbean has stagnated in the last two decades, except in commodity exporters. The last rapid growth spurt in the 1980s was fueled mainly by expansion of tourism, banana production, and public investments.
  • Many Caribbean economies face high and rising debt to GDP ratios that jeopardize prospects for medium-term debt sustainability and growth. In 2012, overall public sector debt was estimated at about 79 percent of regional GDP.
  • The main challenges for Caribbean small states looking ahead include low growth, high debt and reducing vulnerabilities from natural disasters as well as financial sector weakness. These are likely to demand innovative approaches to economic policy-making looking ahead.

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