Caribbean countries are amongst the most vulnerable on the planet and are particularly susceptible to economic shocks and those associated with natural disasters.
Traditionally, the vulnerability of our region has been seen through the lens of natural disasters. Indeed, this has come to the forefront given the increasing intensity and frequency of natural disasters associated with climate change. There are many examples including the unprecedented destruction caused by Hurricanes Maria and Irma in 2017.
The former was responsible for Dominica losing 226 per cent of GDP in a matter of hours. COVID-19 is once more providing ample testimony of the vulnerability of the Caribbean to shocks, this time around, a global pandemic affecting every single economy in our region and our major trading partners.
This region, arguably the most tourism-dependent in the globe, will see massive losses in this sector affecting millions of lives and livelihoods. This comes after a stellar performance last year where we had 31.5 million stay-over arrivals. The best performing market was the United States from where 15.5 visitors came. The numbers are sure to decline the rest of the year because sectors are closed and the countries from where our tourists come are seeing their economies battered.
The drastic reduction in tourism will have a major adverse impact across our region. It not just about big business, but the taxi drivers, small shop owners, artistes, small-scale suppliers to hotels and the hundreds of thousands who work in hotels across the Caribbean who will be affected. There is a risk for a greater number of Caribbean people falling into poverty.
Given the scope and scale of the economic shock where entire countries in the region are in some form of total shutdown, the road to recovery will be long and hard. For so many countries in the region with limited fiscal space, the challenge will be heightened since government revenues associated with the tourist sector will take a big hit. The current crisis is not only about the tourist dollar but other sectors such as oil where new producers such as Guyana have entered the market at a time when the market has witnessed an almost collapse in oil prices.
Except for Haiti, Caribbean countries are largely ineligible for overseas development assistance. Given our country classification where Caribbean states tend to be either mid- or high-income countries, we are ineligible for concessional financing from the international financial institutions. Our region, in addition to being one of the most vulnerable on the planet, is also one of the most indebted.
The average debt to GDP ratio exceeds the international benchmark of 60 per cent in 11 countries in our region, according to the Caribbean Development Bank. Therefore, borrowing at market rates will further increase our debt, which is already unsustainable.
A silver lining for us has been the flow of remittances from families abroad sending funds to families in the region. According to the World Bank, last year Haiti received close to US$3.2 billion; Jamaica, an estimated US$2.3 billion; and Guyana approximately US$300 million from this source. However, given massive layoffs already taking place in key remittance countries, this steady stream of resources is no longer automatic.
In the US alone, by March, close to 700,000 jobs were lost due to the coronavirus. These jobless numbers are expected to rise given the US, Canada and many parts of Europe have not yet reached the projected peak number of infections. A sustained contraction in these economies could have a major impact on the flow of precious remittances for Caribbean families which could mean more families entering poverty.
Notwithstanding the challenges, governments in the region have made efforts to address the threat to lives and livelihoods posed by the virus. Some countries have introduced some form of support to their economies and the most vulnerable people. These include The Bahamas, Belize and Trinidad and Tobago. Based on a preliminary assessment done by the Overseas Development Institute, the average stimulus package to respond to the virus for small countries like those in the Caribbean averaged .8 per cent of GDP. The ones introduced for the Caribbean do not exceed 1.2 per cent of GDP.
The support package for G20 countries or the world’s wealthiest economies averages around 8.1 per cent of GDP. The package announced by the United States stood at US$2 trillion. Even this will not be enough and there is talk of another in the months to come for the United States.
The Caribbean requires a major boost to their economies as well as a re-think of their economies for which finance is key.