IMF says region’s slow growth due to declining productivity

WASHINGTON—The International Monetary Fund (IMF) has attributed the slowdown in growth in the Caribbean primarily to decline in productivity rather than to a lack of investment. In a Working Paper, entitled “Caribbean Growth in an International Perspective: The Role of Tourism and Size,” the Washington-based financial institution also says tourism has been a “significant contributor” to higher growth, through both capital accumulation and productivity, and lower output volatility.

But it says policies aimed at improving productivity, further development of the tourism sector, and regional integration could “pay dividends in terms of higher growth in the region.” The IMF says Caribbean countries have experienced low growth since the 1980s, “with the current global slowdown derailing the feeble recovery of the early 2000s,” stating that the region has been “buffeted by a series of adverse exogenous shocks over time, including the erosion of trade preferences; the decline in official foreign assistance; frequent natural disasters; and recessions in source countries that drive tourism and FDI (Foreign Direct Investment) in the region.

The paper says recent global slowdown has “exacerbated the already declining trend” in growth. As a result, it says average growth has dropped from three per cent in the 1970s to 2.7 per cent in the 2000s, “although there is significant heterogeneity in growth performance across these countries.” But it says tourism remains a “viable strategy” for most of the Caribbean countries, and there is still room for this sector to expand and enhance growth and productivity.

“Although the Caribbean countries’ per capita GDP (Gross Domestic Product) increased significantly in the 1970s, in the last 20 years, most of these countries have lost ground to the fast-growing emerging and developing countries,” the report says.

However, it says growth performance has been “quite heterogeneous,” with the Eastern Caribbean Currency Union (ECCU) countries recording the “best performance overall.” It adds that the commodity-exporting countries in the region, such as Trinidad and Tobago, have been outpacing “tourism-intensive countries in the last few years, helped by the boom in commodity prices.”

CMC