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Friday, March 1, 2024
GEORGE TOWN, Cayman Islands, May 25 2012 (IPS) - For yet another occasion, it was not the good news Caribbean leaders wanted to hear.
Already stung by mixed economic growth ranging from a downturn in countries like Trinidad and Tobago, Antigua and Barbuda and St. Vincent and the Grenadines to marginal growth in Barbados, St. Lucia and the British Virgin Islands, the Caribbean was told that its premier financial development bank has had its credit rating downgraded by the U.S.-based Moody’s Investment Services.
The president of the Caribbean Development Bank (CDB), Dr. Warren Smith, trying to put on a brave face in light of the downgrade from AAA to AA1, said it was not unexpected.
He told the annual CDB board of governors meeting that ended here on Thursday that the new ratings were being accepted “in today’s heightened environment of uncertainty” and that “our risk management practices need to be strengthened”.
“To that end we are undertaking an in depth examination of our risk management framework and we will implement appropriate recommendations as we build resilience to the more dangerous world which we now occupy,” Smith said.
But Grenada’s Finance Minister Nazim Burke, who described the new rating as “unfortunate and untimely”, said it also brought new problems for the Caribbean at a time when many borrowing member countries (BMCs) were “fighting to nurture a very fragile economic recovery”.
“The possibility of higher borrowing costs is a major concern. Indeed, for countries like Grenada, whose borrowing is constrained to very concessionary financing, this is a very worrying development,” Burke told the meeting.
“Nevertheless, the bank must move quickly to create a dedicated risk management function, adopt comprehensive asset-liability management policies and carry out other necessary reforms to ensure that all its fundamentals get back on track and are sustained,” he added.
But Moody’s was not the only international body bearing bad news for the Caribbean.
The Wall Street-based international credit agency Standard & Poor’s warned that Caribbean debt is increasing in light of the global economic crisis.
In its latest report, “Caribbean Debt Is on the Rise”, it said economic growth and foreign direct investment in the region have slowed, while the fiscal and debt profile of many countries have deteriorated.
“Compounding the economic decline and sluggish recovery are structural weaknesses, including lower national savings rates than those of other emerging market countries, persistent current account deficits, and a high reliance on external financing,” said Kelli Bissett, Standard & Poor’s credit analyst.
She said these factors increase the Caribbean nations’ vulnerability to external financial and economic shocks.
At the launch of the Caribbean Growth Forum (CGF) on Thursday, official figures showed that in contrast to Latin America, which grew by six percent in 2011, Caribbean countries only grew by an average 2.3 percent. The CDB is projecting that economic growth in the region will be between 1.5 and two percent this year.
The figures show Caribbean economies also face serious debt challenges. For some regional countries, public debt-to-GDP ratios have reached 100 percent.
“Despite the great diversity and differences in economic performance, there are a number of common challenges the Caribbean countries face (including) the high cost of doing business, the challenging business environment and the business climate which leads to some inefficiencies in the delivery of public services, the high debt and the mis-match that currently exists between skills and jobs,” Hasan Tuluy, the World Bank Regional Vice President for Latin America and the Caribbean, said at the signing ceremony.
The one-year CGF is a partnership between the World Bank, the Inter- American Development Bank, and the CDB with support from the United Kingdom Department for International Development (DFID) and the Canadian International Development Agency (CIDA).
IDB representative for Barbados and the Eastern Caribbean Joel Bransk told the signing ceremony that economic growth is a requirement for the region.
“We see growth as one of the most evolving conditions that lead to improving the quality of life …alleviating poverty and maintaining macroeconomic stability,” he said.
Antigua and Barbuda says it hopes to re-start by Jun. 1 this year the 110.4-million-dollar Stand By Agreement (SBA) with the International Monetary Fund (IMF) in 2011.
Reviews of the agreement had been halted after the Baldwin Spencer government last July gave “full and tangible” support to a move by the intervention of “an important financial institution by the Eastern Caribbean Central Bank”.
“The impact of this development, however, has resulted in a hiatus in the completion of reviews by the Fund and in disbursements anticipated under the Stand-by Arrangement that were programmed into our government’s budget for 2011,” said Whitfield Harris Jr., the temporary CDB governor for Antigua and Barbuda.
St. Kitts-Nevis Prime Minister Dr. Denzil Douglas on Thursday took his country’s financial problems to the Paris Club, telling the informal group of financial officials from 19 of some of the world’s biggest economies, which provides financial services such as debt restructuring, debt relief, and debt cancellation, that “I believe that it is no exaggeration to say that we are in the process of transforming our economic and social outlook.”
“To complete this transformation we need your support,” he said.
But Smith believes there is hope for the Caribbean if governments embark immediately on a raft of reform policies that would enhance the environment for the production of internationally competitive goods and services.
“This is no easy task, but it lies at the core of developing a more resilient Caribbean economy,” he said, noting for instance that the region would have to adopt new energy policies.
“The smaller countries will have no choice but to interconnect to existing and newly emerging low-cost energy production sites in neighbouring countries. Close collaboration between the producing and consuming countries is a prerequisite for making this a reality,” he said, adding also the need to prioritise the wide-scale introduction of broadband internet to drive down the cost of communication, especially for business and education.
The CDB president said the region also needed to pay close attention to the imminent commissioning of the expanded Panama Canal in 2014 that would facilitate the transit of mega ships from the expanding economies in the Eastern countries into the Caribbean.
“It will create opportunities for ports in our region to develop large transhipment facilities for vessels serving smaller ports in North and South America. It also holds the promise of these islands becoming logistic centres and industrial assembly nodes for Far Eastern businesses accessing South American ports and the nearby eastern seaboard of the United States. The job creation possibilities for our countries are enormous,” he added.
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