Policy%20Scape%20logo.jpg)
The Caribbean Development Bank (CDB) released this week its 2021 projections for its Borrowing Member Countries (BMCs), stating that it expects the group’s average GDP growth to increase by 3.8%.
According to the CDB’s Regional Report (2021 Outlook), most of its 19 BMCs—a grouping that includes Antigua and Barbuda, Barbados, Belize, Dominica, Grenada, Guyana, The Bahamas, and Trinidad and Tobago—had “registered double-digit declines in GDP” last year. “The economies of 19 BMCs contracted by 12.8% on average due to the onset of COVID-19,” said the CDB release announcing its updated Regional Report and Outlook for 2021.
A large part of this sharp downturn was attributable to the structure of the regional economies, many of which are tourism dependent. “Countries with significant tourism industries, such as The Bahamas, Barbados, Belize, Cayman Islands, Dominica, and Grenada, were hard-hit by a more than 70% drop in overnight visitors in 2020, which spilled over to affect other economic sectors,” the CDB added. Beyond overnight tourism, countries such as Belize also saw the complete shutdown of their cruise tourism sector due to the Center for Disease Control (CDC)’s “No Sail Orders” issued in response to the Coronavirus Disease (COVID 19).
Using data from the International Monetary Fund (IMF)’s World Economic Outlook (WEO), tourism-reliant countries such as The Bahamas, Barbados, Belize, and Dominica were expected to have sharp contractions of 14.7%, 11.6%, 16%, and 8.7%, respectively. The above-average prediction for Belize was attributable the fact that the country—also a primary-products producer—was already contending with climatological factors. “Agriculture in Belize was affected by a severe drought from the previous year, and then a reduction in tourism-related demand,” the CDB explained. “The economy contracted by 13.3%.”
Recent and preliminary data from Belize’s Statistical Institute of Belize (SIB) indicates that real output declined by 14%, just 0.7 percentage points above the CDB estimate and 2 percentage points below the IMF’s numbers.
Among BMC’s, only Guyana recorded positive growth of 26%, but this performance was “solely due to the start-up of its first oil production”. Originally, the outlook for Guyana was significantly higher; however, lower world-market prices had tempered the expected revenues for oil producing countries, including Trinidad and Tobago.
Government Revenues and Debt
The story, however, is hardly complete without likewise discussing the impact on government revenues and expenditures. The CDB report acknowledges that “[a]cross the Region, the fall in economic activity led to a steep decline in government revenues.”
In Belize, for example, the government has reported an approximate 30% decline tax revenues which conventionally accounts for roughly 90% of total public-sector receipts. The actual estimates for Belize’s revenue shortfall appear to have outstripped even the IMF’s expectations. In its WEO (October 2020), the Fund forecasted revenue and total expenditure at 31.3% and 41.1 % of GDP, respectively. This would have therefore yielded an overall deficit of about 9.8% of GDP, a figure that was roughly 2.5 times higher than the previous year’s deficit.
However, TradeScape360’s estimates—based on published statements by Belize’s Ministry of Finance (MoF) and SIB—indicate that Belize’s government revenues only accounted for about 26% of GDP, leading to a deficit of more than 15% of GDP. Total public-sector debt as a percent of GDP, therefore, is expected to be more than 130% by the close of the country’s fiscal year next month.
Belize, however, is not alone. “In 2020, debt rose in every BMC except Guyana,” the CDB explained. “The regional debt-to-GDP average moved from 66.5% to 79.5%. In Barbados debt reached almost 150% of GDP.”
Some optimism
There is the anticipation of recovery in 2021 among the CDB members, as the Bank expects that “tourism-dependent BMCs will experience some economic recovery, led by Anguilla, where GDP is expected to increase by 10.9%”. The Bank added that the recovery would be “underpinned by a gradual return of tourists, which is expected in the fourth quarter of the year.”
This recovery in travel is dependent on several external variables, not least of which is the availability of the COVID 19 vaccine. Additionally, there is need to acknowledge that other downside risks such as possible “new waves” and new “variants” of COVID 19 emerging.
For the oil producers, the nexus between the rollout of the vaccine and uptick in international travel also bodes well for oil prices, which the IMF anticipates would increase to about US$50 a barrel in 2021, up by 21% over 2020’s prices. As the CDB notes, “Expected oil price increases along with production expansion should contribute to projected GDP growth of 8.4% for Guyana in 2021. Higher oil prices will also support modest economic growth of 0.3% in Trinidad and Tobago.”
The CDB release ends, of course, with a prudent reminder. “When then pandemic diminishes, countries must continue to address the enormous economic challenges that confront the Region,” the Bank added. “Accelerated programmes to strengthen macro-fiscal frameworks and broad-based structural reforms are required to address the development constraints limiting productivity and growth.”