Editorial | CARICOM should promote COVID-19 Marshall Plan
At the start of the year, the Inter-American Development (IDB) projected that Caribbean economies, excluding Guyana with its oil boom, would grow, on average, by 1.5 per cent, or half a point slower than in 2019. But the IDB had a proviso: the region’s susceptibility to a range of shocks, especially natural disasters.
“In the coming year, the risk of a global recession has increased,” the bank warned in its quarterly Caribbean Region Bulletin. “This could lead to commodity price declines for regional commodity exporters and a decline in tourism arrivals for the tourism-dependent countries. In addition, reform fatigue could hamper efforts at fiscal consolidation, and financing costs could increase for emerging markets if global developments lead to financial market turbulence.”
The IDB’s worst fears have materialised, or are close to doing so. The region’s tourism has collapsed and other areas of economic activity are badly stressed. The trigger, though, isn’t a traditional source, but the coronavirus disease 2019 (COVID-19) pandemic that has already claimed some 20,000 lives around the world, and is rapidly expanding.
But except for Guyana, no Caribbean Community (CARCOM) member is now likely to grow, whether the regional sub-group, the Organization of Eastern Caribbean States (OECS), whose gross domestic product (GDP) was clipping along at around four per cent; the Bahamas and Barbados, where growth was flat; or Jamaica, whose pre-COVID-19 projection was for an expansion in output of 0.7 per cent.
In fact, an IDB simulation of a COVID-19 induced slump in visitor arrivals in key tourism-dependent countries, by 25, 50 and 75 per cent, over three time intervals (three, six and nine months between April and December) estimated a decline in “GDP, relative to the pre-crisis baseline expectation, by between 11 per cent and 26 per cent in the case of Bahamas, and by appreciable magnitudes also for Barbados and Jamaica”. For Jamaica, the impact would be between five and 17 per cent.
“Countries that are less tourism dependent would also be less affected across our range of scenarios, though other channels not simulated here could also have large impacts,” said the study’s authors, Henry Mooney and Maria Alejandra Zegarro.
What is clear, however, is that with the emerging deep global recession, as states shut down their economies to slow down COVID-19 infections, the region’s economies, individually, and as a group, will find it difficult to recover without external support. The stimulus spending planned by some governments won’t be enough and they can hardly afford more without pushing their economies back into a spiral of debt from which they are just beginning to emerge.
For instance, the J$34 billion, or just under 1.5 per cent of GDP, in stimulus spending proposed by Jamaica’s finance minister, Nigel Clarke, as part of the COVID-19 recovery effort, is around one per cent of GDP. Barbados, thus far, projects to spend about half of one per cent national output.
In Germany, Angela Merkel’s government has announced spending programmes amounting to around a fifth of GDP, and some analysts say that when all the bits and pieces of the programme are added up, it could reach 30 per cent. Mrs Merkel has essentially blown up her long-held policy of a balanced budget and little borrowing, in favour of a heavy dose of Keynesian economics. Jamaica, as do other regional countries burdened by debt, has, of course, to be careful about squandering the hard-won macroeconomic stability of recent years.
LITTLE WAS DONE
It is in that context that we last week urged our government to approach the International Monetary Fund (IMF) for a stand-by arrangement, similar to the US$1.6 billion insurance credit line from which it emerged in November. However, the dimensions of the crisis demand more, including a coordinated regional approach to the problem, separate from immediate domestic initiatives.
In this regard, CARICOM heads of government should mandate their council on finance and planning (COFAP), the community’s finance ministers, and their committee of central bankers, to fashion a broad rescue/stimulus plan to take to international community, including the G-7 countries. In the face of the Great Recession, support was promised to the Caribbean to address is problem of debt. Little was done.
This time, the region has the evidence of its painful economic reform, but with little growth to show for the effort. The fiscal prudence that made the region, particularly Jamaica, the showpiece for the multilaterals has been insufficiently matched by stimulus investment.
The case now is for a Marshall Plan-type programme for Jamaica and the Caribbean.