REGIONAL integration facilitator, the Caribbean Community (CARICOM), is not performing as well as other developing regions and this is due to a number of factors, including the stranglehold of debt and debt-service payments, according to Minister of Finance Winston Jordan. Addressing participants on Wednesday at the 47th Annual Monetary Studies Conference, which is being hosted by the Bank of Guyana, the Finance Minister said this argument has been acknowledged at all levels and the focus is now on strategies to reduce that debt to manageable levels.
DEBT SERVICING
However, despite the best efforts being employed, countries within the Region have not been able to significantly reduce their debt levels, which has resulted in an increasing share of governments’ revenues being devoted to debt servicing.
And according to Jordan, ministers in the Region and the Secretary General of CARICOM have recognised this as having a “debilitating effect” on the Region and have, as recently as the annual meetings of the International Monetary Fund/World Bank Group in Peru in October, identified debt and access to concessionary financing as priorities, going forward.
GLOBAL ECONOMY
But not limited to the Region, the global economy has also struggled to achieve robust and balanced growth. The global economy in the last year, the minister said, has been characterised by divergence among major economies and differential performances between developed and emerging economies.
He said that overall global economic growth in 2014 was slower than was expected at 3.4 per cent and for 2015 it is now projected to be even slower at 3.1 percent. But this performance, he opined, was underpinned by stronger growth in advanced economies; more so in the U.S. and the UK, with the Euro-Area and Japan registering smaller improvements.
In contrast, however, emerging and developing economies registered slightly slower growth of 4.6 percent in 2014 and they are expected to slow further to 4 percent in 2015, with Latin America and the Caribbean recording the most significant deterioration in growth, Minister Jordan said.
GLOBAL GROWTH PROSPECTS
Subtle international events too, over which the Region has no control, have the potential to negatively impact the Region. The European Union’s categorisation of countries as tax havens is a classic example, he noted.
As it relates to risks to global growth prospects, he explained that it is mostly weighted on the downside and more significant than they were in the first half of 2015. These risks, he added, include potential spikes in oil prices above the prevailing low prices and disruptive financial asset price shifts, driven by expectations about the monetary policy stance of major economies.
According to the Finance Minister, this can cause a reversal in capital flows to developing countries, including Guyana, which is highly dependent on Foreign Direct Investment (FDI) to spur growth.
Other risks, he said, include the further strengthening of the U.S. dollar against other major currencies related to expected interest rate and growth changes, which imply huge challenges for portfolio management and real exchange rate appreciation, along with its negative trade implications in some emerging and developing countries.
“Additionally, increased geo-political risks, the possibility of stagnation in Europe and Japan and slower growth in important emerging and developing countries, which is caused by adjustment and low commodity prices, could dampen global growth prospects, with attendant implications for the Region’s economies, which are susceptible, given the high degree of openness and dependence on the rest of the world,” Jordan told the participants.
And in this current challenging international economic environment, the outlook for the CARICOM Region is mixed.
MAJOR FORCES
Minister Jordan’s contention is that the major forces which will drive the performance of the Region include commodity price trends, a stronger U.S. economy and related exchange and interest-rate dynamics.
He further revealed that commodity-based producers, including natural resources-based producers such as Guyana, Suriname and Trinidad and Tobago, are expected to face increased challenges as commodity prices soften, while the services-based economies rebound,on the basis of improved tourism outturns and lower fuel costs.
The minister posited that it is uncertain how long these service-dependent economies will continue to turn positive growth, especially given the recent attacks and threats by the correspondent banks to sever or curtail services to the small financial institutions in the Region.
By Ravin Singh