Caribbean & Central America - April 2014 (ISSN 1741-4458)
CARIBBEAN POINTERS
*** JAMAICA PASSES 3RD IMF REVIEW. On 30 March, the International Monetary Fund (IMF) completed its third review of Jamaica’s performance under its extended fund facility (EFF) agreement, thus paving the way for a further US$71.4m disbursement.
The IMF described Jamaica’s implementation of the EFF requirements as “strong”, with the execution of the 2013/14 budget “broadly on track”. The IMF urged Jamaica to continue boosting investor confidence through “steadfast implementation” of the macroeconomic programme, but also through “determined actions to reduce red tape and bureaucracy”.
In addition, the IMF would like to see Jamaica protecting capital spending despite the need to restrain overall government expenditure.
On the completion of the review, however, the IMF did append a note of caution by warning that the economic recovery “remains fragile”. But then the IMF’s resident representative in Kingston, Bert Van Selm, added that there was also cause for cautious optimism on growth. He said: “In the year that you tighten your fiscal policy, you normally expect to see a negative impact on your economic growth, but actually so far this year we haven’t seen too much of that, we’ve actually had a little bit of economic growth, in spite of this fiscal adjustment.” He said this “bodes well” going forward as “a lot of the difficult stuff has already been done”.
*** FOREIGN DIRECT INVESTMENT. The United Nations (UN) Economic Commission for Latin America (Eclac) has just issued a new study on Foreign Direct Investment in the Caribbean in which it highlights, firstly, the very high relative levels of FDI in the Caribbean; its relative unprofitability; and the relatively slow recovery of FDI in the Caribbean since the 2008 global financial crisis.
The importance of FDI to the Caribbean can be seen in the fact that in 2012 the ratio of FDI inflows to GDP was 7% for the sub-region, with St Vincent & the Grenadines, St Kitts & Nevis, Belize, Guyana, and Trinidad & Tobago all recording a ratio of more than 10%. The ratio for Latin America is just 3%.
FDI flows in the Caribbean rose from US$1.7bn in 1997 to US$6.7bn in 2008. But while FDI flows in Latin America contracted only in 2009 and then rose to new highs in 2010 and 2011, the Caribbean only recorded increases in 2011 and 2012 because of the special case of Trinidad & Tobago. In 2012 the following countries were still recording FDI flows considerably below those of 2008: Antigua & Barbuda, The Bahamas, Dominica, Grenada, Guyana, Jamaica, St Kitts & Nevis, St Vincent & the Grenadines, and St Lucia. Excluding Trinidad & Tobago, FDI in the region fell from US$3.9bn in 2008 to US$1.9bn in 2012. The tourism dependent economies suffered the worst.
Then there is the question of profitability. According to the Eclac report, “FDI profitability in the Caribbean has been modest over the past five years…Belize and Trinidad & Tobago have the highest rates with 7% and 5% respectively and the rest are below 3%.” The average for Latin America over the same period was 7.8%. Interestingly, FDI profitability in the Caribbean was also substantially below that of Latin America in the pre-crisis years: 6% against 12%.
According to Eclac, this divergence in profitability “is possibly due to the sectoral pattern of FDI, which in most Caribbean economies is heavily slanted towards services, particularly tourism.”