In 2015, the world economy experienced economic growth of three per cent. While such growth was positive, it was relatively lower than the growth rates commanded in 2013 and 2014, which stood at 3.2 per cent and 3.4 per cent respectively. This dampening of economic growth was largely influenced by the precipitous decline in international commodity prices, which have caused the contraction in economic activity in several emerging economies.
Low commodity prices, over the mid 2014 to the third quarter of 2015, have impacted the Caribbean islands differently. The commodity exporters, more specifically the oil exporters (Suriname and Trinidad and Tobago), have been plunged into economic recession as a consequence of what seems to be an emerging new normal of low oil prices. As regards the service economies, low oil prices have impacted these favourably, resulting in 1.6 per cent growth in 2015 and an estimated 2.5 per cent growth in 2016.
Apart from the bearish commodity price outlook, 2016 was also characterised by positive strides in global sustainable development and commitment to climate change action. Indeed, since their adoption by the UN General Assembly last September, the Sustainable Development Goals (SDGs) have succeeded the Millennium Development Goals (MDGs) to become the new benchmark for development effort over the next 15 years.
The SDGs, though broader in scope, still maintain fundamental MDG objectives, significantly the elimination of extreme poverty, and inequality by 2030. National governments are expected to align their development plans to the SDGs, and to develop strategies to implement them.
Furthermore, progress has also been made in the area of climate change. The landmark Paris Agreement adopted at the Twenty-first Conference of the Parties (COP21) in December 2015, entered into force on November 4, 2016. Countries have agreed to work to limit global temperature rise to well below 2 degrees Celsius, and to strive for 1.5 degrees Celsius. The Paris Agreement recognizes the multi-level nature of the climate change problem, and seeks to pool efforts of all stakeholders in pursuit of climate change mitigation and adaptation action.
For the Caribbean region, the Paris Agreement may act as a crucial driver for the scaling up of climate change action. Furthermore, ECLAC has taken the lead in creating an avenue for Caribbean economies to increase access to global climate change finance to build green industries, improve efficiencies, and strengthen their resilience to climate change.
The Caribbean region is also grappling with high public debt. In fact, the goods providers experienced an average debt to GDP ratio of 55 per cent by 2015; while the service providers’ debt to GDP ratio was over 70 per cent the same year. Given the challenge of high debt and the difficulty Small Island Developing States (SIDS) face in accessing climate change finance, ECLAC has proposed a debt buyback scheme for the Caribbean. This plan would be brokered through the Green Climate Fund (GCF), to purchase the debt of the countries. The recipient countries would in turn allocate their previous debt service payments to a Resilience Fund, which may be used to finance climate change adaptation and mitigation projects.
In the financial sector, 2016 also saw the restriction of correspondent banking relationships (CBRs) of banks in the Caribbean subregion. This practice by the large multinational banks is termed “de-risking”, since it restricts business relationships with clients or category of clients considered to be “high-risk”. In this regard, ECLAC is currently studying the ‘de-risking’ phenomenon, with a view to assessing its economic impact not only on the financial sector but on the spill-over into the real economy, particularly on export-based production of goods and services.
We are also examining the impact on the Caribbean of the unanticipated decision by referendum for the UK to leave the European Union. This unexpected ‘yes’ vote triggered immediate short term negative effects on the British economy; in the aftermath of the vote, the pound depreciated by just under 12 per cent; the prices of securities linked to the UK declined; and Britain saw a reduction in its sovereign bond credit rating from Standards and Poor, and Fitch.
For the Caribbean, there was speculation that the Brexit could result in negative spill-over effects on international trade; tourism; remittances; and development cooperation. This edition of Focus will explore the likelihood of lasting impact of Brexit.
ECLAC is poised to play a role in the provision of technical support to Caribbean economies, to help them address these current, as well as emerging, economic challenges, as the region strives to build a sustainable and prosperous future.
