The Caribbean and the IMF: Building on a Strong Partnership
IMF Blog, June 14, 2022
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- Authors: the pandemic, lockdowns, contracting three times as much as the rest of the world in 2020.
- Published: June 14, 2022
Regional economic context and recent performance
- Caribbean economies were especially hard hit by the pandemic and lockdowns, contracting three times as much as the rest of the world in 2020.
- While tourism remains below pre-COVID levels for most countries, it is on the rebound and gaining momentum.
- Growth projection: the region is expected to grow by about 3.7 percent this year.
- Major near-term pressures:
- Higher global food and fuel prices, exacerbated by the war in Ukraine, are putting upward pressure on inflation.
- Tightening global financial conditions will increase the costs of servicing current debt and of acquiring new financing.
- Elevated government debt for most countries in the region, in part due to pandemic-response spending.
- Significant threat from climate change: more frequent and intense natural disasters, and the relentless rise in sea levels.
Policy recommendations and country examples
- Social protection and targeted support:
- Governments should target support to families in need by strengthening the adequacy and efficiency of social assistance.
- Example: Grenada scaled up cash transfers through their main social assistance program to ensure households were adequately compensated for increased living costs.
- Cash-transfer programs are presented as better support than measures like price controls on imported products, while conserving limited fiscal resources.
- Health measures to support recovery:
- Upgrading COVID-19 testing and reducing vaccine hesitancy will strengthen health systems and give tourists the confidence to return.
- Monetary policy and financial stability:
- Central banks with independent monetary policy should act decisively to address inflation and communicate clearly.
- Added vigilance is needed to preserve financial stability as debt suspension programs from earlier in the pandemic expire.
- Disaster resilience and climate adaptation:
- Disaster resilience strategies that incorporate climate risks and adaptation plans into budgets and infrastructure investments are essential.
- Examples: Dominica and Grenada developed disaster resilience strategies to integrate climate risks into planning.
- Novel debt and financing instruments:
- Contract clauses that allow for delayed debt repayment when disaster strikes (such as those introduced by Barbados and Grenada during public debt restructurings) are promising for financial resilience.
- Debt-for-nature swap example: Belize agreed to specific marine protections in exchange for a reduction in its international debt to private bondholders.
IMF engagement, instruments, and partnership
- Technical assistance and capacity building:
- The Caribbean Technical Assistance Center in Bridgetown celebrates 20 years of delivering technical assistance and training to help governments across the region.
- Financial support and program examples:
- Barbados: an IMF-supported program since 2018 helped stabilize the government and deploy macroeconomic policies to counter the pandemic and support vulnerable people.
- Jamaica and Grenada: restored stability and reduced debt through IMF-supported programs before the pandemic, positioning them better to respond to COVID-19.
- Suriname: a recent IMF-supported program to restore macroeconomic stability is described as off to a strong start.
- New financing to address structural challenges:
- The IMF’s new Resilience and Sustainability Trust (RST) provides affordable, longer-term financing designed to help countries address structural challenges—like climate change and pandemics—and build resilience to external shocks and ensure sustainable growth.
- All Caribbean IMF member countries are eligible for the RST, including countries in the region that have previously not had access to concessional IMF financing.
- The RST is intended to catalyze financing from international financial institutions and the private sector.
- The RST development is noted as owing in part to Prime Minister Mottley’s advocacy.
Strategic priorities for building resilience
- Define and implement the right economic policies to:
- Tame inflation.
- Protect the most vulnerable.
- Address debt.
- Fight climate change.
- Reinforce the economic recovery and build resilience to future shocks.
- Mobilize climate financing and safeguard debt sustainability affected by climate-related and natural disasters through a more comprehensive financial framework, including novel financing solutions.
Op-Ed published in The Nation, Jamaica Observer, and Caribbean Media Corporation (CMC).