Despite recent improvements, the Caribbean region is still grappling with headwinds affecting social dynamics, fiscal outcomes, and economic growth. Global commodity prices—particularly for food and energy—remain volatile and above pre-pandemic levels, straining household budgets. While true that tourism dependent economies have seen this crucial sector recover, and commodity exporting governments have benefited from elevated prices, many citizens—particularly the most vulnerable— remain under strain.
Against this backdrop, policy makers across the region have begun to consider policies aimed at increasing competitiveness and developing closer economic relationships with regional partners, including near-shoring (particularly, global services), and deeper regional integration (with an emphasis on agriculture). The latest edition of the IDB’s Caribbean Economics Quarterly (August 2023) highlights these and related challenges and opportunities for the region.
Inflation has subsided, but remains above than pre-pandemic norms
Inflation remains a challenge globally. Even advanced economies have struggled to tame inflation, despite aggressive responses from central banks. Although inflation in 2023 is projected to be significantly lower than in 2022 across advanced, emerging, and developing economies, it is expected to remain noticeably above pre-pandemic levels up until at least 2025. The Caribbean is particularly vulnerable, given that most countries are net importers of fuel and food.
Source: IMF October 2023 WEO online database. “CCB” refers to the countries of the Caribbean Country Department (CCB) of the IDB: The Bahamas, Barbados, Guyana, Jamaica, Suriname and Trinidad and Tobago. Suriname was excluded from the line above given its status as a high-inflation outlier.
Despite high inflation, the recovery in the Caribbean was robust in 2022
Regardless of these persistent challenges and nascent opportunities, the Caribbean—both tourism- and commodity-dependent economies—, has broadly recuperated most of the lost economic activity since the pandemic (Figure 2). Commodity exporters have weathered the pandemic with fewer dislocations than their tourism-dependent neighbors. Guyana in particular will continue to benefit from an oil-driven boom for the foreseeable future.
Among tourism-dependent Caribbean states, tourism arrivals in Jamaica and The Bahamas have already surpassed their respective pre-pandemic levels. Nevertheless, it is unclear if the strength of tourist arrivals will be transitory—that is, a “binge effect” driven by pent-up demand from the pandemic—or permanent—that is, structural changes such as remote work increasing the number of visitors blending leisure and labor. Consequently, the onus will be on regional policymakers to implement the necessary reforms to capture the upside of these structural changes in source markets. Read more…