Borrowing is not an option for Caribbean countries, says UN regional economic commission

Borrowing is not an option for Caribbean countries, says UN regional economic commission
United Nations ECLAC logo

Caribbean Heads of State and finance ministers met with the UN’s ECLAC to analyze debt relief proposals and other measures to fight the effects of the pandemic.

Access to concessional funding and debt relief urgently needed

NASSAU, BAHAMAS — Heads of State and senior financial decision-makers from 15 Caribbean countries yesterday participated in a virtual meeting with Economic Commission for Latin America and the Caribbean (ECLAC), heads of Caribbean regional organizations and representatives of other UN agencies in the subregion to discuss the economic impact of the COVID-19 pandemic on their economies.

In a statement yesterday, ECLAC noted nations in the region are already besieged by both climatic and economic shocks, including heavy indebtedness and high exposure to natural disasters.

The videoconference was presided over by Alicia Bárcena, Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC).

“Borrowing is not the answer to confront this crisis. Caribbean countries need grant support fast. There is need for urgent intervention to ensure liquidity”, she said.

“Let me say that we are very much on board. We are part of this. A game plan for the short term is needed and we have to work on this, together with CARICOM, ACS and OECS. We will continue to advocate for this debt relief, for grants, for concessional funding for the Caribbean countries.

“And we will make sure that we can all address these issues with one voice, expressed clearly and openly. We heard you loud and clear. We will make sure that the Secretary-General of the UN (António Guterres) and his team receive this information with a view to their supporting us at the international level,” Bárcena said.

Stakeholders from ECLAC’s Member Countries and Associate Members in the Caribbean area represented included: Anguilla, Antigua and Barbuda, The Bahamas, British Virgin Islands, Cayman Islands, Dominica, Grenada, Guadeloupe, Guyana, Montserrat, Saint Kitts and Nevis, Saint Vincent and the Grenadines, Sint Maarten, Trinidad and Tobago and United States Virgin Islands.

The meeting was also attended by United Nations’ resident coordinators in the subregion, representatives from other UN System entities such including the Food and Agriculture Organization (FAO), the United Nations Environment Programme (UNEP), the United Nations Population Fund (UNFPA), the United Nations World Food Programme (WFP) as well as regional intergovernmental organizations including the Association of Caribbean States (ACS), the Caribbean Community (CARICOM), the CARICOM Development Fund (CDF), the Caribbean Catastrophe Risk Insurance Facility Segregated Portfolio Company (CCRIF SPC) and the Eastern Caribbean Central Bank (ECCB).

Alicia Bárcena was accompanied by the Director of ECLAC’s Subregional Headquarters for the Caribbean in Port of Spain (Trinidad and Tobago), Diane Quarless, who moderated the dialogue, and other ECLAC experts from that office, including the Director of the Economic Development Division, Daniel Titelman from the Commission’s Headquarters in Santiago, Chile.

Bárcena stressed that Caribbean countries must increase their fiscal space and need more favorable financing conditions, notwithstanding their income per capita income levels, in order to face the pandemic’s effects.

“Considered as middle or high income countries, Caribbean countries face a lack of access to liquidity on concessional terms”, she said.

“This is why policy proposals to support economic recovery with a people-centered approach are urgently needed.”

According to the statement, all countries expressed concern at the highly vulnerable economic situation that the countries of the subregion were currently facing and urged ECLAC’s support of their advocacy in engagement with the international community for better access to grants and concessional financing, given their inability to service debt payments in the current circumstances.

Prime Minister Gaston Browne said: “The economic burden for our countries has been unsustainable because of the high levels of debt. We don’t have the capacity for printing money and our policy instruments are very limited. What is required at this point is some level of support from international financial institutions, such as the International Monetary Fund  (IMF) and the World Bank. ECLAC can help us advocate and raise its voice for us.”

Describing innovative ways by which concessional financial assistance might be extended to Caribbean economies, Browne proposed that consideration be given to having credit extended to countries which have already invested in green technology.

This he suggested could be applied through debt relief. He informed the meeting that Antigua and Barbuda was already exploring this option.

Finance minister Camillo Gonsalve, Saint Vincent and the Grenadines, identified the IMF Rapid Credit Facility (RCF) as an important mechanism which typically offered timely liquidity support free of conditionalities.

Gonsalve urged ECLAC support in  promoting new financing instruments for the Small Vulnerable Economies of the Caribbean, and in advocating that valuable financial instruments such as the RCF remain available and unchanged during these challenging times.

He also suggested that other innovative instruments such as that offering debt forgiveness to countries impacted by the EBOLA epidemic in Africa be considered in these similar circumstances created by COVID-19.

Gonsalves also intimated that urgent practical interventions are needed to deal with liquidity challenges, before they become issues of solvency.

In her presentation, Bárcena further noted that the impact of the COVID-19 pandemic in the Caribbean countries has translated into both domestic and external challenges, the most significant of which include revenue and income losses, a drop in investment, rising unemployment, increased indigence and poverty, the failure of small and medium sized businesses, and challenges to the financial system.

The external challenges include the near total shutdown of air and cruise travel, dealing an immense blow to the tourism sector; stress in related supply chains (agriculture, construction, hotels, restaurants); a sharp contraction in larger economies, a downturn in commodities prices, the contraction of foreign direct investment (FDI) flows and remittances; disruption in transportation and global supply chains; risk aversion for external investors and financial turbulence, and restrictions on foreign exchange availability.

She recalled that, according to ECLAC’s latest projections, GDP growth in the Caribbean is expected to drop in 2020 by -2.5 percent, with a downward bias.

She also noted that Caribbean countries are spending between one and four percent of GDP to tackle the COVID-19 crisis, with limited fiscal packages focused on social security programs, on loan deferrals and liquidity support for SMEs for increased health care spending on the testing and treatment of critical COVID-19 cases, and for enhanced public health surveillance.

Bárcena noted that the high debt levels and interest payments limit public expenditure.

She also highlighted the fact that “Caribbean economies have the highest debt ratios in the world, averaging 68.5 percent of GDP in 2019.

Reductions in production and income along with increases in borrowing will further rise debt burdens. Debt is rooted in external shocks, compounded by the impact of natural disasters and inherent social and economic structural weaknesses”, she said.

Given the nature of the assistance offered to the Caribbean by international financial institutions and development agencies for facing the pandemic in the short term, increased public debt is inevitable.

Moreover, Bárcena said the recovery path of Caribbean countries will be more difficult than those of other economies given the characteristics of their productive structure and in light of the ever-present threat posed by the upcoming hurricane season.

She also emphasized that the crisis induced by COVID-19 underscores the importance of ECLAC’s proposal for building resilience and reducing debt.

ECLAC’s proposal links building resilience to debt reduction and recommends the creation of the Caribbean Resilience Fund (CRF), with a view to the creation of a globally coordinated debt deleveraging mechanism with a climate component to address the global debt overhang problem: standstills and debt moratorium.