How the Caribbean Can Avoid Becoming a COVID-19 Long-Hauler

IMF News, March 12, 2021

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Many Caribbean countries risk becoming COVID-19 economic long-haulers, with the pandemic’s economic fallout potentially persisting long after the health emergency is controlled.
The region’s high reliance on tourism and small size/limited policy room made Caribbean economies among the most affected by the pandemic.

Annual hotel stays plummeted by 70 percent.
Cruise ship travel was completely halted.
Tourism-dependent countries contracted by 9.8 percent in 2020.
Commodity exporters in the region (Trinidad & Tobago, Suriname, and Guyana) saw a mild contraction of 0.2 percent.
Renewed waves of infections and travel restrictions in source countries (US, UK, and Canada) have impeded a tourism rebound.
Potential long-term scarring includes:
- Loss of jobs hitting mostly youth, women, and less educated workers.
- Increases in poverty and inequality.
- Potential closings and bankruptcies of hotels, resorts and associated tourism services (restaurants, shops and tour operators).
- Fewer flights to and within the region as airlines struggle to recover.
- Loss of global ‘market share’ if cruise operators permanently reroute ships to other destinations.

Assuming no new external financing and realistic tourism scenarios, the region’s financing gap is estimated at around $4 billion, or 4.8 percent of 2020 regional GDP.
The ever-present risk of natural disasters could widen the financing gap.

Protecting lives and livelihoods is the priority: spending on treatment, testing, contact tracing, and vaccine access is imperative to limit economic scarring.
- Many Caribbean nations have joined the COVAX initiative and have made bilateral agreements to obtain additional vaccines, although coverage is still low.
- Given logistical challenges and lack of economies of scale at the national level, strong regional collaboration is key to ensure efficient vaccine distribution.
Economic support should be sustained until the recovery is entrenched, including measures to safeguard financial stability.
To create space for support and rebuild buffers, governments should accelerate progress on strengthening fiscal policy frameworks.
The extension of the G20's Debt Service Suspension Initiative until June 2021 provides some relief for countries with large borrowing needs and debt sustainability concerns.
Securing additional IMF financial support early could:
- Help smooth adjustment by bridging near-term financing gaps.
- Catalyze additional international resources.
- Provide a macroeconomic stability anchor.
- Support deeper reforms that deliver sustainable and inclusive growth.

Once the recovery takes hold, countries should tackle debt problems with well-calibrated and appropriately balanced revenue and expenditure measures to reduce primary deficits while minimizing contractionary impact on growth.
Mobilize concessional financing to help build resilience against future shocks.
Complement fiscal measures with structural reforms to strengthen competitiveness and raise long-run growth.
Regional actions:
- The Caribbean Community has launched a Caribbean Economic Recovery and Transformation Plan to develop a financing strategy to support post-pandemic investment needs.
- The IMF is partnering with the broader international community to find innovative solutions to help small developing states confront these challenges.

Adapt tourism toward eco-sustainable models: lower density, higher value-added, and greater integration with local suppliers to reduce health risks associated with mass travel.
Harness the “blue economy” potential by increasing investment in shipping, fisheries, and aquaculture.
Pursue technological innovation, such as digitalization and fintech, to improve efficiency, reduce cross-border transfer costs, and facilitate international trade.
Advance regional integration to build greater scale and stronger resilience against future shocks.

International Monetary Fund.