Sagging international competitiveness is one of the key challenges facing the Caribbean, said Caribbean Development Bank (CDB) president, Dr. Warren Smith, who was in Toronto recently.
In spite of progress made in the development of internationally competitive industries like tourism and offshore financing, Dr. Smith said Caribbean countries remained structured around a relatively narrow range of industries that could compete in the global marketplace.
He said that the narrow export base has left many Caribbean economies vulnerable to external environment vagaries and susceptible to volatility in their foreign exchange earnings.
“In the post-preferences era, the dynamic growth and expansion of more competitive foreign exchange earnings sectors was stymied by the failure to structurally transform our economies and to create a business-friendly environment,” Smith, a Jamaican national, said at a business forum at the Jamaica Canadian Association (JCA). “Then, in an effort to maintain living standards, many governments pursued a strategy of deficit financing with the resultant accumulation of sovereign debt.”
He noted that climate change, which has had an adverse impact on the region’s infrastructure, along with the international financial crisis and the great recession, have exacerbated the crisis.
“Arising from these two phenomena, therefore, we face two major challenges,” said Smith. “First, we must put our fiscal house in order and reduce our sovereign debt to manageable levels and we need to undertake wide-ranging structural transformation so that our economies can be internationally competitive, earn more foreign exchange and become more self-sufficient. Then, and only then, can we hope to satisfy the aspirations of our people.”
The fifth president of the CDB, which was founded in 1969, Smith said several regional countries have undertaken critical reforms to reverse fiscal deficits and reduce their indebtedness.
“Some of our countries are more advanced in the process and some are just beginning to get out of the blocks,” he said. “But all of them, one way or another, need to make these steps. These adjustments will necessitate the adoption of painful measures which adversely impact the livelihoods of people. The most vulnerable in our society, many of whom live on the cusp of abject poverty, are at the greatest risk. Social safety nets must, in our view, be provided in order to minimise the risk to this group and help them ride out this difficult but necessary phase of adjustment. If we fail to do that, this very group could turn around and undermine any progress that is made in trying to adjust those two important elements of our problem.”
Smith said the CDB is responding to the member countries changing needs by forming smart partnerships with other multilateral institutions, focusing on areas of greatest impact and in alignment with the bank’s core competencies and utilising its relationships to mobilize long-dated and appropriately priced resources.
He provided a few examples of how the regional bank is translating Borrowing Member Countries’ challenges into concrete and meaningful assistance.
“St. Kitts and Nevis, for example, was experiencing large fiscal deficits and a debt to GDP (Gross Domestic product) ratio of almost 180 per cent for an extended period of time,” he said. “These two disequilibria were unsustainable and required urgent attention. Once the government determined that it was ready to craft a strategy of stability and growth, the CDB – working with the IMF (International Monetary Fund) – deployed a number of creative measures to support the overall adjustment program.
“Given the magnitude of the debt, it would have been virtually impossible for the St. Kitts & Nevis economy to grow out of debt overhang. As a consequence, a deal that was mutually beneficial to debtor and creditors were reached with external creditors. To facilitate a successful outcome for the St. Kitts & Nevis debt restructuring exercise, the CDB used its small, though relatively strong balance sheet, to provide credit enhancement. This led to an orderly reduction of the debt in the context of haircuts on both principal and coupon. To further ease the debt service burden, the CDB used funding from its soft window to swap CDB debt from its hard window on terms beneficial to St. Kitts & Nevis.”
A Cornell University graduate, Smith said St. Kitts & Nevis’ debt to GDP ratio has fallen by almost 80 percentage points to just under 100 per cent in a few years and the fiscal deficit has been virtually eliminated while economic growth hovers around 3.5 per cent.
The CDB is also providing assistance to Jamaica and Grenada which are in fiscal and debt distress. In the case of Grenada, the bank has deployed its balance sheet to underpin and facilitate the orderly restructuring of that island’s massive foreign debt estimated at around US$679 million while Jamaica’s adjustment program has benefitted from the bank’s analytical work and soft loans support to boost some key productive sector initiatives with considerable development prospects.
“There are a number of lessons that we have learned from these three cases,” said Smith, who is a former Leeward Islands Air Transport (LIAT) chief executive officer. “Adjustment programs must be underpinned by fiscal rules, any successful adjustment process should, as much as is practicable, seek to share the burden of adjustment with all social classes and creative mechanisms must be devised so that the most vulnerable in the society are adequately protected.”
Greater Toronto Area-based Caribbean consul corps diplomats representing Trinidad & Tobago, Barbados, Jamaica, St. Lucia, Antigua & Barbuda, Grenada and Dominica attended the forum.
While in Ontario, Smith met with Canada’s deputy finance minister Paul Rochon, Caribbean heads of mission in Ottawa and Canadian Council for Private Partnerships representatives.
As a founding member of the CDB that assists regional countries in financing social and economic programs, Canada has provided substantial financial and technical assistance to the bank and Caribbean people.
The visiting CDB delegation also included vice-president and bank secretary, Yvette Lemonias Seale; chief risk officer, Malcolm Buamah; presidential adviser, Dorla Humes and corporate communications head, Klao Bell-Lewis.