The forthcoming G20 ministers of finance meeting can set the stage to relieve and restructure the increasing debt faced by Caribbean countries.
The region welcomes 30 million tourists annually, sustaining 14 percent of the regions jobs and contributing over 15 percent to its gross domestic product. The Caribbean’s small island developing states (SIDS), is one of the most tourism-dependent regions worldwide, with the tourism sector recognised as a key economic driver and foreign-exchange earner for its governments.
But the global lockdown measures taken to mitigate COVID- 19, has acted as a threat multiplier in the region. Not only has there been over 1,000 confirmed cases, putting increasing fiscal pressure on the region’s fragile public health systems, the pandemic has also seriously affected income streams directly and indirectly related to its important tourism sector. The global cruise line and air travel industries ground to a halt, reducing services to the region. The industry is now resuming, with the Caribbean opening back up to visitors in innovative ways.
For instance, the Barbados government is considering introducing a ‘Welcome Stamp’ which would allow international visitors to live on the island for a year while working remotely. But the economic shock to the region caused by the sudden pause in tourism, ‘to flatten the curve’, has not yet been quantified. The International Monetary Fund (IMF) predicts growth in the region to contract by 6.2 percent in 2020. This would be the deepest recession in more than half a century.
This, coupled with the devastating effects of tropical cyclones, due to climate change, renders the region particularly vulnerable. According to the Caribbean Development Bank, on average natural climate-related disasters are estimated to cost the region around two percent of GDP annually.
Remittance flows to the region are expected to fall sharply. On average they account for seven percent of the Caribbean region’s output and exceed 15 percent of GDP in Haiti and Jamaica. With the UK, Canada and the US expected to fall into recession, this important financial lifeline to many Caribbean residents is at risk.
As such, there is the very real risk that the hard-won economic and social gains made by many countries since the dramatic 2008 global economic downturn, could be halted, or reversed. Worryingly, the contagion fears associated with the virus could have a long-lasting impact on tourism in the region, even after the pandemic recedes.
Stepping up financial support
Regional financial institutions, such as the Caribbean Development Bank and Inter American Development Bank, have deployed financial and technical resources to support countries in ameliorating the economic and social impact of COVID-19. But given the unpredictable nature of the disease and its unprecedented impact on the global economy, immediate targeted assistance from G20 countries is required. The recent decision by the G20 to form a debt moratorium on official loan payments from low-income countries until the end of 2020 is to be applauded. However, this effectively kicks a long term problem into the medium-term grass as the requirement for the debt to repaid remains.
There are several ways the G20 finance minsters can forge a way forward. Firstly, to recognise that middle-income countries also need pathways of support. Secondly, that the pause on debt payments needs to be extended in order for flexible, nuanced country-by-country financial and technical solutions to be developed, that would benefit both creditors and borrowing countries. Thirdly, many countries are concerned about their credit rating and so this matter needs to be urgently reviewed. And finally, private sector creditors must be compelled to sit at the negotiating table, as the current deal only covers bilateral debt, which comprises about half of the total debt service for low-income and middle-income countries globally.
Activating these measures would mean Caribbean economies could face the financial fallout of the pandemic from a stronger position and look to invest in growth sectors to address the broader vulnerability factors they face. This would not only help build in social and economic resilience but also ensure countries are not faced with the impossible choice of saving lives or making debts repayments.