This article was originally published on the 18th June 2013 on my former blog felicialinch.com which spoke to Education, Government and Economics in the Caribbean. The articles from that site can be found on this site under Caribbean Development.
In my previous article http://felicialinch.com/2013/05/17/the-caribbean-a-global-political-leader-or-not/ I talked about the indebtedness of Caribbean nations. Thanks to all who contacted me with their comments and thoughts. Some of the perspectives received were that we are ‘no worse’ than the developed countries. So today I try to examine if this is really the case?
At first glance this may appear true. For example, if you look at the Developed countries Debt to GDP ratio in 2012 compared to countries in the Caribbean. In many cases our debt ratio was lower; see table 1 below:
Table 1: Source: International Monetary Fund, World Economic Outlook Database, April 2013
Some Caribbean economists[1] take the view that debt to GDP ratio is irrelevant in the context of the Caribbean because the real issue, put simply, is about controlling foreign exchange outflows and inflows. As Small Island Developing States (SIDS) we depend heavily on imports and there are said to be little or no substitutes for those imports. Therefore we need foreign exchange inflows to purchase what we need and so 3 factors must be addressed:
- ensuring that the demand for foreign imports, which leads to foreign exchange outflows is controlled by appropriate fiscal policy
- ensuring that the amount of external debt servicing does not have significant impact on foreign exchange earnings
- ensuring the country has adequate foreign exchange reserves as a buffer
I am no economist, but, whilst this appears to make sense looking at the figures in table 1 it is only half the story? A presentation by the Caribbean Development Bank in Sept 2012 looked at debt re-structuring in the Caribbean [2] and found that:
- Debt above 90% of GDP is difficult for Caribbean countries to manage
- Debt re-structuring should be part of a comprehensive reform programme
In addition, for many of our Caribbean Countries the ratio of interest payments to Government revenue is well above International standards, for example, Barbados’ interest on debt is 24% of Government revenue, and, given Barbados is already the highest taxed Island in the Caribbean the ability to increase revenue by raising taxes is not an option! There are also low levels of growth in many Caribbean economies, compared with those of Developed countries, despite them having higher Government debt to GDP ratios than us, see Table 2 below:
Table 2: Source: International Monetary Fund, World Economic Outlook Database, April 2013
So does that mean we should accept the IMF’s prescription on how to change our Region’s economic fortunes, not necessarily? I am certainly in agreement with many Caribbean economists that the structural adjustment programmes suggested by the IMF, which may or may not have worked in larger more developed countries, cannot be applied wholesale to the Caribbean context.
So what is the alternative? A focus on economic growth, as well as prudent fiscal control.
But haven’t we been doing this? Many Caribbean countries have stated growth is their focus yet the challenges that beset our private sectors continue year after year. In the 2013 Global Competitiveness report compiled by the World Economic Forum, the top 5 most problematic factors for doing business for Jamaica, Barbados, Guyana, and Trinidad and Tobago are shown in this link: Doing Business factors influencing productivity.Bar chart
In all cases Access to financing, Poor work ethic of the national labour force, and Inefficient Government Bureaucracy were in the top 5 factors, save in Jamaica poor work ethic was the 6th factor. These same factors were mentioned in the 2010/2011 report. Has there been no change at all, of course not, but the speed and extent of the change is insufficient if the Caribbean is to achieve the growth that it needs.
So sitting back and saying we are ‘no worse than anyone else’, is neither true, nor an option.
Moreover, for those of us who live in the Region isn’t it time we sought to excel, not maintain mediocrity, the status quo or be ‘as bad as everyone else’. Let us be the best we can be for ourselves, our children and the future of our nations.
As always would welcome you joining the conversation,
