Dangerous curves ahead

Trinidad and Tobago’s energy-driven economy is set for robust growth in 2004 but mixed fortunes are predicted for the rest of the Caribbean, according to a preliminary economic overview by the Economic Commission for Latin America and the Caribbean (ECLAC) in Port-of-Spain. For 2004, the ECLAC report states that economies in the Organisation of Eastern Caribbean States (OECS) are likely to remain on a low growth plateau as the positive effects of the recovery in tourism are likely to be partly offset by the stagnation in agriculture, manufacturing and by the impending macro-economic imbalances.

“For 2004 the picture for most non-OECS economies is bleak,” the report said.  Trinidad and Tobago will continue to register high rates of growth, Barbados and the Bahamas will see moderate rates of economic expansion. “The growth prospects for the rest of the economies are overshadowed by currency concerns (Jamaica and Suriname), macro-economic disequilibria (Belize and Guyana) and sectoral stagnation (Guyana),” said the report. Looking at the performance of the non-OECS Caribbean economies in 2003, the report states that Trinidad and Tobago registered the region’s highest growth rate of 5.5 percent and looks poised to maintain a robust growth path as the energy sector continues to benefit from capital inflows.

Jamaica and Guyana recorded the lowest growth rates of 1.5 percent and one percent respectively. Jamaica was affected by high government deficits and an unstable currency  position. Guyana’s growth was hampered by the lack of dynamism of most economic sectors and the burden of its external debt. Bahamas (two percent), Barbados (two percent), Belize (three percent) and Suriname (2.7percent) exhibited moderate growth. The economies of Bahamas and Barbados reflected the recovery of the tourism sector following the terrorist events of September 11 2001 in the United States. In both economies, visitor arrivals and tourist expenditures increased. Belize’s growth was driven by public expenditure and is likely to decline as  the deterioration of the fiscal accounts will force the authorities to adopt a contractive policy stance, according to the ECLAC report.

In the case of Suriname, growth resulted from foreign direct investment in the mining sector and from a disciplined economic policy stance aimed at correcting short-term macro-economic disequilibria. The rate of inflation increased in most economies as a result of currency depreciation (Suri-name, Jamaica) and higher fuel costs (Guyana, Barbados). “Most economies with the exception of The Bahamas and Trinidad and Tobago witnessed an increase in their fiscal deficit. The fiscal situation shaped and, to some extent, determined the monetary policy course of the authorities,” according to the report. “Listless or moderate growth in most of these economies allowed the commercial banking system to accumulate liquidity which was used to purchase government debt issued in some cases by the monetary authorities.

“The increased demand for government paper led to a decline in the benchmark rates of interest which was transmitted to the lending and loan interest rates.” As with the OECS, the current account deficit rose — again with the exception of Trinidad and Tobago — reflecting a poor performance of merchandise exports and in some cases of non-factor export services. The capital and financial account surplus benefited from foreign direct investment flows, government divestment proceeds, official aid and grants. Guyana recorded the largest current account disequilibrium. Looking at the general trends of the OECS members in 2003, the ECLAC report said there was a gradual process of economic recovery following two years of negative growth of -2.1 percent, -0.3 percent and one percent in 2001, 2002 and 2003, respectively.

Recovery was led by the tourism sector while performance of agriculture reflected the sector’s long-standing technical and financial difficulties as  well as unfavourable external conditions. The report said that following two years of negative growth rates, OECS member States are now poised on their way to a moderate recovery led by the tourism sector. The performance of the tourism sector (three percent) benefited from the increase in  stay over visitors and cruise ship passengers and from all the major markets. Agriculture contracted in most of the OECS economies (- 2 percent in the aggregate). As in past years, manufacturing stagnated (one percent) and reflected low levels of technology, high costs and increased competition in external markets which  affected the competitiveness of both primary and higher technology intensity manufacturing such as electrical components.

The report noted that fiscal accounts deteriorated as rising current  expenditure was not matched by greater revenue in spite of the fact that a number of OECS countries implemented tax measures to strengthen their  financial position. The expansion of current expenditure responded to greater wages and  salaries, and interest payments on the OECS member States’ debt, which, in some cases, has reached significant levels.

The report stated that apart from the rising debt levels, the current concerns of the OECS member States relate to trade negotiations, including what impact the Free Trade Area of the Americas (FTAA) might have on their economies, and the formulation of a negotiating position that articulates the needs and specificities of Small Island Developing States (SIDS). OECS member States are also paying close  attention to the African, Caribbean and Pacific Countries-European Union (ACP-EU) negotiations. The focus is on the implementation of the Cotonou agreement which is based  on the principle of reciprocity between trading partners.