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through Sir Ron Saunders
The response of policymakers at international financial institutions (IFIs) to the depth of the effects of COVID-19 on Caribbean economies needs urgent review, especially with regard to debt.
An unduly optimistic assessment of the extent of the damage done to economies and an overconfident expectation of the duration of the effects have resulted in inadequate instruments to help Caribbean countries to emerge from the hole in which they have been left unchecked. their fault. .
The countries of the Caribbean were not the source of the pandemic and were among those that have been most successful in containing it at great cost for their treasures.
The staff of the International Monetary Fund (IMF) and the World Bank Group (WBG) and directors of the boards of directors, representing the CARICOM countries, are to be commended for the advancement of the interests of the region.
The inadequate response of the IFIs is not their fault; it is entirely due to the administrators of certain large countries who remain stuck in erroneous political positions whose failures have exacerbated the harmful effects of the pandemic.
One of those still unnecessary policy positions is the application of per capita income as a criterion to prevent high-income Caribbean countries from accessing concessional loans, even though these countries are subject to the same vulnerabilities as low-income countries. returned.
Something of a breakthrough may have happened. The World Bank Board approved the preparation of loan documents of $ 100 million each for the Bahamas and Barbados – two of the countries with the highest per capita incomes in CARICOM – “because of their heavy reliance on tourism”.
It is an admission that the Board of Directors of the Bank accepted vulnerability as a criterion, that is to say superior to high income, as a qualification for concessional loans.
It must therefore be assumed that if these loans are approved by the Council in the coming weeks, this criterion can now be applied to other high-income CARICOM countries such as Antigua and Barbuda and Saint Kitts Nevis. CARICOM finance ministers at the Bank and IMF spring meetings are expected to raise this issue collectively.
This is all the more relevant since the countries which could have been “high income”, according to the IMF / WBG measures, in 2019, are certainly not today. The high unemployment rate, resulting from the pandemic, has reduced per capita income by up to 30% in some countries and is likely to reduce it even further as unemployment rises and poverty increases.
Amid all this, the response of the IFIs to the high and crippling debt in many CARICOM countries, which has exploded due to the COVID-19 pandemic, has increased the debt service burden. While the Bank and the IMF have explicitly stated that debt levels were, for some, over 100% of GDP before the pandemic, the debt instruments they provided
For example, the IMF’s Debt Service Suspension Initiative is only temporary. It is also only applicable to the poorest countries. As a result, only five CARICOM countries qualified.
The initiative is supposed to help them cope with the economic and fiscal constraints caused by the COVID-19 crisis. But that only gives a one-year grace, with repayment to be made over five years. Obviously, there will be an increase in the debt service burden of these countries.
The duration of the effects of the pandemic on the CARICOM economies and its severe impact will be longer than expected. Countries like Guyana and Suriname, with their oil and gas resources, will be better placed, but after COVID, many CARICOM countries will have much smaller savings, high debt, reduced incomes and low recovery capacity. .
The UN has already said the Caribbean faces “a lost decade” with economies and per capita income falling to 2010 levels.
They will need to have access to low-cost funding and grants from IFIs and donor governments. Immediately, they need debt relief in the form of write-offs and deferral of repayment on easier terms.
If these initiatives are not taken, the economies of the Caribbean will be trapped in a poverty trap from which they will not emerge for a generation and, even then, only if they do not suffer from disasters such as hurricanes, prolonged droughts or droughts. floods – all of which have a high probability of occurring.
Governments of CARICOM countries are striving to keep their economies afloat with policy initiatives either to revive dormant activities, such as agricultural and fishery production, or to encourage new technology-based businesses. These will contribute to economic diversification over time, but they will not immediately contribute to economic growth or replace industries such as tourism.
The spring meetings of the Bank and the IMF are the occasion for solid presentations of the difficult situation of the CARICOM countries, always recalling that they were not the origin or the spread of COVID-19.
They are in their current situation because of their vulnerability vis-à-vis their trading partners who, without exception, enjoy relatively large trade surpluses with the region. Some of these same trading partners are among the most vehement in the continued application of flawed criteria that disqualify many CARICOM countries from concessional funding.
and debt relief.
At IMF / WBG meetings this month, Caribbean representatives have the opportunity to present support proposals. One of the points to highlight is that, given that the huge trade surplus that rich countries enjoy with the CARICOM states stands in the billions of dollars on a permanent basis, which gives them incomes and jobs. , they should consider debt cancellation and rescheduling, as well as concessional terms. financing, as investments in CARICOM countries from which they derive considerable annual benefits.
If the economies of the CARICOM countries are not helped to recover, there will be a corresponding contraction in their ability to continue buying goods and services from the rich.
Efforts should be made to create a framework that integrates debt sustainability, growth-investment and resilience building for CARICOM countries. Such a framework must also take full account of the region’s vulnerability to destructive forces that it does not create, such as climate change.
CARICOM countries should speak with a collective voice in proposing such a framework at IMF / WBG meetings, not omitting any country.
Sir Ron Saunders is Antigua and Barbuda’s Ambassador to the United States and the OAS. He is also a senior researcher at the Institute of Commonwealth Studies at the University of London and at Massey College at the University of Toronto. The opinions expressed are entirely his. Previous responses and comments: www.sirronaldsanders.com