COVID-19 Pandemic and the Caribbean: Navigating Uncharted Waters

IMF Blog, April 29, 2020

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As the COVID-19 pandemic continues to spread across the globe—bringing severe human and economic costs—the Caribbean is no exception.
The region had over 1,000 confirmed cases.
Growth in the region is projected to contract by 6.2 percent in 2020. This would be the deepest recession in more than half a century.
The “sudden stop” in tourism is sharply slowing economic activity in the Caribbean.
The upcoming hurricane season poses additional risks to these already budget-strapped economies.

Tourism accounts for 50 to 90 percent of GDP and employment in some countries.
Global cruise line and air travel industries have halted with major cruise companies cancelling sailings through June and most airlines reducing or suspending service to the Caribbean region.
Tight border controls and travel restrictions, along with crippled tourism source markets in North America and Europe, have led to:
- Massive hotel booking cancellations.
- Temporary resort closures.
- Large numbers of service-sector workers put out of work.
Risks to recovery:
- Experience from previous crises suggests recovery could be delayed.
- A persistent “fear factor” associated with the virus could have a long-lasting impact on tourism even after the pandemic recedes.

Commodity exporters such as Guyana, Suriname, and Trinidad and Tobago are affected by the steep drop in commodity prices through a loss in exports and fiscal revenues.
Energy companies may cut back production plans due to weaker energy demand from a contraction in global manufacturing activity.
For oil-importing countries in the region, lower oil prices will provide a buffer to the shock.
Remittances:
- Remittances average about 7 percent of the Caribbean region’s output.
- Remittances exceed 15 percent of GDP in Haiti and Jamaica.
- With the United States, the United Kingdom, and Canada in deep recession, remittances flows to the region are expected to fall sharply.
Supply chain disruptions could:
- Constrain capital projects by delaying arrivals of materials and labor.
- Jeopardize food and health security by delaying delivery of foodstuffs and medical equipment and supplies.
Citizenship-by-Investment programs may face declining foreign demand if investors lose confidence in healthcare quality, putting further pressure on fiscal accounts.

Lost output from firms and high fiscal costs associated with managing local outbreaks—given deficiencies in public health systems—can potentially worsen the pandemic’s financial impact.
To safeguard financial stability supervisors should:
- Intensify monitoring and increase the reporting frequency of financial institutions.
- Identify financial sector risks, including exposures to tourism-related activities.
- Conduct stress testing.
Most countries have limited fiscal spending room and few have flexible exchange rate regimes to boost exports and output, constraining policy options.

Containment and mitigation measures pursued include border closures, lockdowns, expanding hospital capacity, quarantine facilities, procuring medical supplies, and training medical staff.
Continued priorities:
- Mass testing and contact tracing.
- Allocating adequate resources to hospitals and healthcare facilities.
Fiscal measures announced by most countries (examples of typical measures described):
- Additional health spending.
- Temporary cash transfers for displaced workers.
- Credit support to small and medium-sized firms and affected sectors such as tourism, transport, and agriculture.
- Expansion of social safety net programs for vulnerable groups (e.g., food and income support).
- Reduction or deferral of some taxes and electricity tariffs.
- Tax and custom duty waivers on essential food and hygiene product imports.
Monetary and credit measures where feasible:
- Central banks in the ECCU, Aruba, Barbados, Belize, Haiti, Jamaica, and Trinidad and Tobago have reduced policy rates and/or reserve requirements, or provided liquidity assistance through other facilities.
- Banks and other lending institutions have offered short-term payment deferrals and interest rate reductions on mortgages and loans, and waived late fees and charges to eligible customers.
Additional fiscal, monetary and credit-easing measures will likely be needed depending on containment effectiveness and tourism demand recovery.

The IMF is actively engaging Caribbean countries to offer policy advice and assistance, especially to those with pressing financing needs.
Examples of IMF actions referenced:
- Requests for the Rapid Credit Facility by Haiti, Dominica, Grenada, and St. Lucia have already been approved.
- Emergency assistance for three additional Caribbean countries, including Jamaica, will be considered by the IMF’s Executive Board in the coming weeks.
- Barbados has requested an augmentation of its existing Extended Fund Facility.
The doubling of the IMF’s emergency financing capacity means that up to US$2.5 billion could be made available immediately to the Caribbean region.
Recent reforms allow immediate debt service relief to low-income countries, such as Haiti, creating space for spending on urgent health needs.
The IMF is working closely with the World Bank, Caribbean Development Bank, and other regional partners to explore innovative solutions and approaches to assist Caribbean countries navigate the challenges and pave the way to economic recovery.

April 29, 2020 — Krishna Srinivasan, Sònia Muñoz, Varapat Chensavasdijai