Sluggish growth forecasted in the Caribbean and Latin America

The International Monetary Fund (IMF) said economic prospects in the Caribbean are improving “with substantial variation across countries”.

Director of the IMF’s Western Hemisphere Department Alejandro Werner said on Monday that “growth in tourism-dependent economies is expected to strengthen to around two per cent in 2019-20, supported by still strong United States growth, the main market for tourism in the region, and continued reconstruction from the 2017 hurricanes”. s

Alejandro Werner, speaking to reporters on Monday (CMC Photo)

In outlining the Regional Economic Outlook Update for Latin America and the Caribbean, Werner said economic activity remains sluggish and real gross domestic product (GDP) is expected to grow by 0.6 per cent in 2019, the slowest rate since 2016, before rising to 2.3 per cent in 2020.

He said the weak momentum reflects negative surprises in the first half of 2019, elevated domestic policy uncertainty in some large economies, heightened US-China trade tensions, and somewhat lower global growth.

With regards to the Caribbean, the IMF official told reporters that “economic prospects are generally improving, but with substantial variation across countries”.

He said with improved energy production and higher commodity prices, commodity exporting countries are expected to see some modest recovery in growth, except in Guyana, where the start of oil production in 2020 will provide a substantial boost to growth.

“More generally, regional growth continues to be impeded by lingering structural problems including high public debt, poor access to finance, high unemployment and vulnerability to commodity and climate-related shocks,” he said.

Werner said sluggish activity in Latin America and the Caribbean in the first half of this year largely reflects temporary factors, including adverse weather conditions that reduced mining output in Chile and agricultural output in Paraguay.

He said weaker global growth and lingering US-China trade tensions have also hurt the Latin America region through their impact on commodity prices and exports.

The IMF official said risks to the outlook remain tilted to the downside, including from a further escalation of US-China trade tensions, a slowdown in major economies, and tighter global financial conditions.

“The main domestic risks include a further rise in policy uncertainty, reversal of reforms, and natural disasters. Although portfolio flows were strong early this year, they declined in May-June and could decline further if downside risks were to materialize.

“Given weak growth prospects and significant downside risks, economic policies will need to strike a balance between supporting growth and rebuilding buffers.”

He said regarding policies, fiscal consolidation remains a priority in many countries in the region given high public debt levels.

“This will likely lower growth, but its contractionary effects can be mitigated by protecting public investment and well-targeted social expenditures, while raising revenue and cutting non-priority expenditure.

“In light of lower global growth and an easing bias across major advanced economy central banks, monetary policy can remain supportive of growth in the region, especially given well-anchored inflation expectations, negative output gaps, and generally subdued inflationary pressures in most countries. But efforts should continue to monitor corporate and household leverage to safeguard financial stability.”

Werner said beyond policies to support a cyclical recovery, structural reforms remain an imperative and need to be accelerated to boost potential growth.

“Such reforms should include opening the economies further to trade and foreign direct investment, an easing of regulations in product and labour markets, enhancing competition, and improving the quality of human and physical capital,” he noted.

LIAT cancels flights for “operational reasons”

Regional airline LIAT cancelled several flights on Thursday citing “operational reasons”.

The cash-strapped airline did not elaborate on the “operational reasons” but had recently warned several regional destinations that they had until March 15, to respond to the airline’s minimal revenue guarantee (MRG) proposals.

Under and MRG model, it is likely that a few flights may be cut if the government is not prepared to fund them with a guarantee with St. Vincent and the Grenadines Prime Minister Dr. Ralph Gonsalves indicating that theoretically, several countries have no quarrel with the MRG.

The airline said that it was cancelling flights LI 374 from Barbados to St. Lucia; LI 375 from St. Lucia to Barbados; LI 337 from Barbados to Grenada; LI 338 from Grenada to Barbados; LI 769 from Barbados to St. Vincent and LI 770 from St. Vincent to Barbados.

“Affected passengers will be moved to other flights at no charge. Please contact our Reservations Call Centre or your travel agent for more information,” LIAT said in a brief statement posted on its Facebook page.

The announcement coincides with a meeting held in Barbados on Wednesday attended by Gonsalves and host Prime Minister Mia Mottley.

Media reports said that the final decision on the future of the LIAT is expected later this week following the eight hour meeting that was attended by trade union representatives.

The reports said that officials have been asked to come up with a number of proposals to present to Mottley before weekend.

“A number of positions were explored and those present are to now get back to the governments later this week regarding the positions that were tabled,” the Nation newspaper Thursday quoted a  source close to the negotiations as saying.

Last week, the airline shareholders governments – Barbados, Antigua and Barbuda, Dominica and St. Vincent and the Grenadines – said they were seeking to get Caribbean countries to contribute a total of US$5.4 million in emergency funding needed to keep the airline in the sky.

The pilots have already rejected a call from them to take a salary cut as the Antigua-based airline seeks to reverse its financial situation.

“Looking at the situation as it is right now, if we are to go forward doing the things that we are doing now, if we do not look at the scheduling, if we do not look at how we are going to generate the revenue going forward, we can give up 10 per cent now and we have no idea when the company will rebound for us to recoup that investment or even for them to start paying the staff back,” President of the Leeward Islands Airline Pilots Association (LIAPA), Carl Burke said.

Last week, as she delivered her country’s national budget, Prime Minister Mottley told legislators the core elements of a new, sustainable model for the regional airline were already clear and that the restructuring is expected to dramatically cut the airline’s cost to the local taxpayer.

She acknowledged that LIAT is a tough issue to crack and that there are “more government shareholders in LIAT than in any airline in the world”.

Dominica gets US$27m for geothermal project

The World Bank on Tuesday approved a US$27 million project to support the construction of a 7 Mega Watts small geothermal power plant in Dominica; the aim of which is to increase the share of renewables, diversify the country’s energy matrix, and identify a clear road map for private sector investment in geothermal development.

Jamaica focusing on “Inflation-targeting”

Dr. Nigel Clarke, Finance Minister of Jamaica

Jamaica Finance Minister Dr. Nigel Clarke says the country is entering a new phase of its economic reform programme with the aim of ensuring that monetary policies deliver low, stable and predictable inflation.

Grenada unsure of meeting LIAT’s request

Dr. Keith Mitchell, Grenada’s Prime Minister

Grenada’s Prime Minister Dr. Keith Mitchell said his country would do its own analysis before shelling out US$487,000 to cash strapped Caribbean airline LIAT.

His announcement comes as Grenada is among eleven Caribbean shareholding countries that have until Friday March 15 to respond to the airline’s minimal revenue guarantee (MRG) proposals.

Poverty reduction rests on trade

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• Caroline Freund and Robert Koopman 
  Caroline Freund, a former senior fellow at the Peterson Institute for International Economics, is Director of Trade, Regional Integration and Investment Climate at the World Bank. Robert Koopman is Chief Economist and Director of the Economic Research and Statistics Division of the World Trade Organization.

WASHINGTON, DC – Just when poverty-reduction efforts around the world were already slowing, recent forecasts indicate that the global economy is heading into a period of deepening uncertainty. That makes measures to boost growth and expand economic opportunity all the more urgent – which is why revitalizing trade must be high on the global policy agenda. The evidence is clear: as an engine of economic growth and a critical tool for combating poverty, trade works.

With today’s trade tensions, it is easy to lose sight of the progress the world has made over the past few decades of economic integration. Since 1990, more than one billion people have lifted themselves out of poverty, owing to growth that was underpinned by trade. And today, countries are trading more and deepening economic ties even faster than in past decades. There are currently more than 280 trade agreements in place around the world, compared to just 50 in 1990. Back then, trade as a share of global GDP was around 38%; in 2017, it had reached 71%.

Open trade is particularly beneficial to the poor, because it reduces the cost of what they buy and raises the price of what they sell. As new research from the World Bank and the World Trade Organization makes clear, farmers and manufacturing workers earn more income when their products can reach overseas markets.

In Vietnam, for example, a series of trade reforms in the 1980s and 1990s helped transform the country into an export powerhouse, sharply reducing poverty there. Today, Vietnam’s exports generate 30% of its enterprise-sector employment; and its trade-to-GDP ratio – a key indicator of an open economy – is approximately 200%, the highest among all middle-income countries.

Likewise, a separate study of manufacturing in 47 African countries found that employees at export-oriented firms earned 16% more than workers at non-exporting firms. And while men and women working at trading firms received similar wages, men at non-trading firms earned more than women.

Evidence like this demonstrates the promise of open trade. But the poor do not benefit from trade automatically. In fact, our research points to serious challenges. For example, some groups of workers may lose income as a result of increased import competition. And others will encounter “behind the border” barriers – such as limited competition in transportation and distribution, weak infrastructure, or lack of information about new opportunities – that can negate the benefits of trade.

Finally, our research shows that trade can have an uneven impact on the poor, depending on specific circumstances such as one’s access to trade-supporting infrastructure, one’s gender, or whether one lives in a rural or urban area. Such dynamics are clearly discernible in India, where goods produced in rural households face a tariff rate in international markets that is 11 percentage points higher than that for goods produced in urban households.

Similarly, on the border of Laos and Cambodia, women pay higher taxes to customs officials, and their goods are more likely to be quarantined than those that are traded by men. In Uganda, where 70% of the population is employed in agriculture, the low quality and high cost of transportation prevents most producers from getting their products into the hands of foreign customers.

With appropriate trade reforms, governments can loosen such constraints, while also lowering transaction costs, promoting competition, and setting clear rules for cross-border commerce. We know that open trade can drive development. But passively counting on exports to boost economic growth and reduce poverty is not enough. We need to push harder for reforms to lower tariff barriers and remove trade-distorting regulatory measures. And more must be done to facilitate investment in infrastructure such as roads, shipping routes, and e-commerce systems that connect people to markets.

Unfortunately, recent WTO forecasts show that the growth of global trade is slowing, imperiling prospects for faster economic growth and poverty reduction. We urgently need to address the roots of global trade tensions, strengthen the rules-based trading system, and pursue further trade liberalization. Experience shows that this is the most effective way to drive inclusive and sustainable economic growth, create new opportunities, and bring us closer to our shared goal of finally ending extreme poverty.

Caroline Freund, a former senior fellow at the Peterson Institute for International Economics, is Director of Trade, Regional Integration and Investment Climate at the World Bank.

Robert Koopman is Chief Economist and Director of the Economic Research and Statistics Division of the World Trade Organization.

Copyright: Project Syndicate, 2019.
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Seven Caribbean countries BLACKLISTED

Trinidad and Tobago is among seven Caribbean countries named on the revised financial blacklist of the European Union (EU).

The updated list follows an assessment of 92 countries by the Commission of Finance Minister of the EU based on three criteria: tax transparency, good governance and real economic activity, as well as one indicator, the existence of a zero corporate tax rate.

The report published on March 12 states that Trinidad and Tobago continues to be recognized as a non-cooperative jurisdiction concerning taxation because it “has a “Non-Compliant” rating by the Global Forum on Transparency and Exchange of Information for Tax Purposes for Exchange of Information on Request”.

It added that the country’s “commitment to comply with criteria 1.1, 1.2, 1.3 and 2.1 by the end of 2019 will be monitored.

Barbados, which was on the grey list, had now been put back onto the blacklist, after failing to give a commitment to amend or abolish what the EU described as a “harmful preferential tax regime”. The EU report stated Barbados had replaced one “preferential tax regime by a measure of similar effect and did not commit to amend or abolish it by the end of 2019”.

The report said Aruba and Belize had not yet amended or abolished one harmful preferential tax regime; but the Commission will monitor Belize’s commitment to amend or abolish its newly identified harmful preferential tax regime by the end of 2019.

It said Bermuda “facilitates offshore structures and arrangements aimed at attracting profits without real economic substance and has not yet resolved this issue” and “Dominica does not apply any automatic exchange of financial information, has not signed and ratified the OECD Multilateral Convention on Mutual Administrative Assistance as amended, and has not yet resolved these issues”.

“US Virgin Islands does not apply any automatic exchange of financial information, has not signed and ratified, including through the jurisdiction they are dependent on, the OECD Multilateral Convention on Mutual Administrative Assistance as amended, has harmful preferential tax regimes, did not commit to apply the BEPS minimum standards and did not commit to addressing these issues.”

Antigua and Barbuda, St. Kitts and Nevis and St. Lucia are jurisdictions “committed to amend or abolish harmful tax regimes by end 2019,” the EU report said.

The Bahamas, British Virgin Islands and Cayman Islands meanwhile are described as jurisdictions “committed to addressing the concerns relating to economic substance in the area of collective investment funds, have engaged in a positive dialogue with the Group [EU Commission] and have remained cooperative, but require further technical guidance, were granted until end 20192 to adapt their legislation”.

In a statement, the Commission has described the act of blacklisting countries, which started in 2017, as a “true success with many countries having changed their laws and tax systems to comply with international standards”.

It said that Tuesday’s “update shows that this clear, transparent and credible process delivered a real change: 60 countries took action on the Commission’s concerns and over 100 harmful regimes were eliminated.

“The list has also had a positive influence on internationally agreed tax good governance standards,” the release from the EU said.

“The EU tax havens list is a true European success. It has had a resounding effect on tax transparency and fairness worldwide”, said Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs.

“Thanks to the listing process, dozens of countries have abolished harmful tax regimes and have come into line with international standards on transparency and fair taxation. The countries that did not comply have been blacklisted, and will have to face the consequences that this brings. We are raising the bar of tax good governance globally and cutting out the opportunities for tax abuse.” 

The UE said the next steps include sending letters to blacklisted jurisdictions explaining the decision and how they can be de-listed; continue monitoring jurisdictions that have compliance deadlines; and continue to provide technical support and clarifications whenever needed and to discuss any tax matters of mutual concern.