ECONOMIC DEVELOPMENT CHALLENGES IN THE …

1 ECONOMIC DEVELOPMENT CHALLENGES IN THE CARIBBEAN: LOOKING TOWARDS 2030*By Andrew S Downes PhDProfessor Emeritus of EconomicsUniversity of the West Address, COTE Conference, October 10, 2018, UWI St OF THE PRESENTATION Introductory Statement The Nature of ECONOMIC DEVELOPMENT ECONOMIC DEVELOPMENT Experience in the Caribbean ECONOMIC DEVELOPMENT Planning and the Sustainable DEVELOPMENT Goals (SDGs) in the Region The Way Forward for the STATEMENT Over the last seven decades or so, the Caribbean countries have performed fairly well on the ECONOMIC and social fronts compared with other developing countries. Many of these countries have achieved an international middle income status/profile and have graduated from special DEVELOPMENT assistance. Yet in recent years the region has been described as: underachieving (Farrell on T Suffering from a Caribbean Sclerosis (Ruprah et al) Constrained by the existence of an anti-growth coalition of old established businesses and public sector bureaucracy (Persaud) Caught in a middle income trap (Downes)INTRODUCTORY STATEMENT While the per capita incomes of several countries are relatively high and the region has a good international profile, there has been a slow down of ECONOMIC growth over the last few decades.)

2 What are the reasonsfor this situation? The policiesadopted by governments? The operation of the institutionsof DEVELOPMENT and ECONOMIC management? The geographicallocation of the region? (environmental shocks, Singapore effect) The behaviour of ECONOMIC agents? ( We Like It So! -Farrell) The quality of ECONOMIC management and human resources? In recent years, several studies have been published by the IADB, CDB, IMF on the macroeconomic management and ECONOMIC DEVELOPMENT issues facing the region {see slide below}THE NATURE OF ECONOMIC DEVELOPMENT ECONOMIC DEVELOPMENT can be considered as a long term (on-going) dynamic process whereby the ECONOMIC , social and institutional mechanisms of a country operate in such a way that the level and qualityof living of the population are improved over time It is a multi-dimensional concept which incorporates both economicand non-economicfactors [ see W A Lewis: The Theory of ECONOMIC Growth, 1955] In the 1990s, the UNDP introduced the concept of human DEVELOPMENT which is the process of widening people s choices ( to lead long and healthy lives, to acquire knowledge and to have access to resources needed for a decent standard of living) and giving people the freedom and opportunities to exercise these choices ( ie voice, participation, good governance, influence, equality) [see A Sen: DEVELOPMENT as Freedom, 1999]THE NATURE OF ECONOMIC DEVELOPMENT The UNDP recently introduced the concept of multi-dimensional progress which reflects well-being beyond income and widens the human DEVELOPMENT concept to include the rights of peopleand environmental sustainability of the planet.

3 ECONOMIC DEVELOPMENT can therefore be viewed as ECONOMIC Growth + Improvements in the Quality of Life + the Ability to Realize ones Full Potential. It can take decades or generations to realise the gains of the process long term in nature The Path in non-linear with an upward trend so that the leadership( setting the vision) and ECONOMIC management( keeping track of movement along the trend) are critical the dynamicsof the process. This wider concept of ECONOMIC DEVELOPMENT magnifies the CHALLENGES associated with its measurement, monitoring and achievementTHE NATURE OF ECONOMIC DEVELOPMENT Several writers have specified the features of the ECONOMIC DEVELOPMENT process in measurable terms: Rising per capita income ( associated with ECONOMIC growth the increase in the range and quantity of goods and services over time) Changes in the production structure ( associated with the shift of resources between sectors) Promotion of innovation ( new products, processes and ways) and entrepreneurship(recognizing opportunities and garnering resources to create value) Reduction (and elimination) of poverty, deprivation, inequality and unemployment Enlarging people s choices, capabilities and freedoms via improvements in education, health and democratic participationECONOMIC DEVELOPMENT EXPERIENCE IN THE CARIBBEAN ECONOMIC GROWTH.

4 Over the period 1980 to 2016economic growth in the region has been characterized by the following: Declining average annual growth rates ( a general downward trendfor almost all countries): 1980-89: % 1990-99: 2000-09: 2010-12: 2012-16: High degree of volatilityas measured by the standard deviation of the growth rates. Growth has been disrupted by shocks ECONOMIC and environmental ( hurricanes in Grenada and Jamaica). Case of Boom and Bust in Trinidad& Tobago. The growth slowdown has been associated with a middle income trap where countries have been able to make the transition from low to middle income status through sectoral diversification but seem unable to make the big push through to the high income DEVELOPMENT EXPERIENCE IN THE CARIBBEANECONOMIC DEVELOPMENT EXPERIENCE IN THE CARIBBEAN HUMAN DEVELOPMENT : Prior to the Great Recession during the 2008/9 period Barbados and the Bahamas were classified as very high human developed countries.

5 Recent UNDP Human DEVELOPMENT Report puts Bahamas and Barbados back into the very high [even given the ECONOMIC CHALLENGES facing Barbados] The human DEVELOPMENT index goes beyond ECONOMIC growth to consider the process of enlarging people s choices in relation to living long healthy lives ( life expectancy at birth), the acquisition of knowledge ( years of schooling)and having a decent standard of living ( income per capita). ECONOMIC DEVELOPMENT EXPERIENCE IN THE CARIBBEANH uman DEVELOPMENT Index for the Caribbean Countries 1990-2015 (Value) Country 1990 2000 2010 2015 2015 (Rank) Antigua&Barbuda .. 62 High The Bahamas .. 58 High Barbados 54 High Belize 103 High Dominica.

6 96 High Grenada .. 79 High Guyana 127 Medium Jamaica 94 High St Kitts & Nevis .. 74 High St Lucia .. 92 High St Vincent & Grenadines .. 99 High Trinidad & Tobago 65 High ECONOMIC DEVELOPMENT EXPERIENCE IN THE CARIBBEAN DEVELOPMENT TRANSITION AND COMPETITIVENESS: Using the World ECONOMIC Forum classification of DEVELOPMENT stages: Stage 1 ( factor-driven economies-country relies on largely unskilled labour and its factor endowments (mainly its natural resources) Guyana Stage 2 ( efficiency-driven economies-country develops more efficient production processes and increase product quality ) Jamaica and Suriname Stage 3 (innovation-driven economies-country competes on the most sophisticated processes and innovate new ones.))

7 Barbados and Trinidad and Tobago are transitioning from Stage 2 to 3 ( Recent report has T&T in Stage 3) Global Competitiveness Index for Selected Caribbean Countries 2006/7 to 2016/7 (Rank) Some slippage in the competitiveness of some countries ECONOMIC DEVELOPMENT EXPERIENCE IN THE CARIBBEANC ountry2006-7(121 countries)2009-10(131 countries)2012-13(144 countries)2016-17(138 countries)Current Stage of DevelopmentBarbados41444472 Transition from Efficiency to InnovationJamaica67919775 EfficiencyTrinidad & to EfficiencyECONOMIC DEVELOPMENT EXPERIENCE IN THE CARIBBEAN The Global Competitiveness Reports also provide areas which affect the conduct of business in respective countries and hence the constraints on enhancing productivity and ECONOMIC growth. Over the period 2013 to 2015, the most problematic factors for doing business in the region were: Barbados:poor work ethic in the national labour force, inefficient government bureaucracy, access to finance and tax rates; Guyana:corruption, tax rates, crime and theft and inefficient government bureaucracy; Jamaica:crime and theft, inefficient government bureaucracy, corruption and tax rates; Trinidad and Tobago: poor work ethic among the national labour force, corruption, inefficient government bureaucracy, crime and theft and foreign currency regulations.

8 These factors point to the need to change or reform the administrative and social environments within which business is conducted within the region. NB: there might be intra- business challengeswhich need to be DEVELOPMENT EXPERIENCE IN THE CARIBBEAN SOCIO- ECONOMIC DEVELOPMENT : High level of poverty and in some cases increases in the level of povertyover the past decade (Bahamas, Barbados, Guyana, Trinidad & Tobago) over 20% of the population living in poverty. Moderate levels of income inequalityas shown by the Gini Coefficient most countries under Significant levels of informalitywith over 30% of GDP in most countries High level of unemploymentespecially among the youth There is a need for better data on socio- ECONOMIC variables ( DEVELOPMENT statistics) ECONOMIC DEVELOPMENT EXPERIENCE IN THE CARIBBEAN MACROECONOMIC MANAGEMENT: Over the past decade several countries have experienced increases in their fiscal deficits and significant growth in their debt to GDP ratios ( given low growth rates) Foreign exchange reserves have been under pressure with volatile export prices and fall in export demand Inflation rates have been moderate in most countries Some countries have had to seek IMF assistance ( balance of payments support to cover external shocks and to accommodate foreign reserves shortfalls due to fiscal imbalances) Some improvement in Grenada, St Kitts/Nevis, Antigua & Barbuda and Jamaica Barbados has just entered a 4 year to GDP Ratio 2013 (%)Debt to GDP Ratio 2017(%)Public Sector Primary Balance(% of GDP) 2017 DEVELOPMENT EXPERIENCE IN THE CARIBBEAN IMF Lending Arrangements in the CaribbeanCOUNTRYTYPE OF PROGRAMPERIODA ntigua/BarbudaStand-by Arrangement(SBA)2010-2013 BarbadosExtended Fund Facility(EFF)2018-2022 GrenadaEnhanced Credit Facility (ECF)

9 2010-20132014-2017 JamaicaEFFSBA2013-20162016-2019St Kitts and NevisSBA2011-2014 SurinameSBA2016-2018 (cancelled in May 2017) ECONOMIC DEVELOPMENT EXPERIENCE IN THE CARIBBEAN The World Bank s Doing Businessreports also indicate that the region has significant CHALLENGES with respect to undertaking business transactions that contribute to ECONOMIC growth in the region The rankings for the Caribbean suggest some degree of deterioration over the 2008 to 2017 period with only Jamaica holding its own The region has some way to go especially in the areas of registering property, resolving insolvency, getting credit, enforcing contracts and protecting minority investors. Ranking on the Ease of Doing Business in the Caribbean Country 2008 2017 2017 Distance to Frontier Score Antigua&Barbuda 41 113 The Bahamas 121 Barbados 117 Belize 59 112 Dominica 77 101 Grenada 70 138 Guyana 104 124 Jamaica 63 67 St Kitts & Nevis 64 134 St Lucia 34 86 St Vincent & Grenadines 54 125

10 Trinidad & Tobago 67 96 Singapore 1 2 Average Ranking of Doing Business Indicators for the Caribbean INDICATOR Rank in 2013 Rank in 2016 Distance to Frontier 2016 Starting a Business 74 87 Dealing with Construction Permits 58 97 Getting Electricity 53 74 Registering a Property 139 144 Getting Credit 92 112 Protecting Investors 67 92 Paying Taxes 100 112 Trading Across Borders 81 95 Enforcing Contracts 123 90 Resolving Insolvency 106 114 TOTAL NUMBER OF COUNTRIES 185 189 ECONOMIC DEVELOPMENT EXPERIENCE IN THE CARIBBEAN The distance to frontier score measures the distance of each economy to the frontier , which represents the best performance observed on each of the indicators across all economies in the Doing Businesssample since 2005 The macroeconomic management/stabilisation concerns in the respective countries (brought about by the effects of the Great Recession ) have affected the ECONOMIC DEVELOPMENT path of several countries.