The Caribbean Development Bank (CDB) has forecast a bleak regional performance this year due to the ongoing global financial crisis.
Noting that global growth is expected to decelerate to 0.5% and the US economy is expected to contract by 1.6%, the CDB said that prospects for regional performance are “weighted towards the downside”. In the budget presented on Monday, Guyana’s Finance Minister Dr Ashni Singh projected growth in the GDP of 4.7%.
The Bank said last week that the global crisis is affecting the Region through the financial and productive sectors and although some spill-over into the financial sector has occurred, the impact on the real sector may be more significant and pervasive. A news release following a press conference held by Bank President Dr Compton Bourne in Barbados on February 4 said that the tourism and construction sectors may be most severely impacted by these developments, as vacationers will become more averse to travel in the wake of uncertainty about disposable incomes, while the construction sector could be affected by lower Foreign Direct Investment (FDI) flows.
A reduction in remittances is likely to affect domestic demand too, the impact of which will be felt mostly in poorer households, said the Bank.
It further noted that it is mainly through a reduction in real sector activity and subsequently, slower deposit growth that the financial sector will experience the second round effects of the global crisis. Should deposit growth decelerate, it is likely that there will be some reduction in credit to households and businesses, it said.
In terms of public finances, this year will be a particularly challenging one for regional governments as they try to maintain acceptable levels of service in a situation where revenues are likely to be declining. “The Caribbean response to the crisis will need to be at three levels – the national level, institutional and the individual. Countries will need to assess the possible contagion channels and as a result put contingencies in place to mitigate the possible fallout. This issue became even more relevant with the news days earlier that the Trinidad conglomerate CL Financial Limited had encountered major liquidity problems and several of its financial subsidiaries had to be bailed out by the Trinidad government. The scale of CL’s operations in the Caribbean and the extent of their inter-related party transactions has become a key issue for several Caribbean countries including Guyana.
At the institutional level, the CDB said firms may need to be more cautious about expanding at this time and take a defensive stance. Institutional investors are also defensive and are switching to lower return, and lower risk options to minimize the impact on net asset values. At the personal level, individuals may need to postpone some consumption and investment expenditures to mitigate the impact of any adverse effects on households”, the CDB asserted.
Loans and grants
Last year, the Bank substantially increased its assistance to its Carib-bean member countries approving loans and grants from US$210M in 2007 to US$347M in 2008.
In giving an overview of the region’s economic performance last year, the CDB said that regional economies grappled with a number of external shocks in 2008 including the global financial crisis and the subsequent deceleration in economic activity in the Region’s main trading partners; the passage of several weather systems; and the rising price of oil and other commodities in the first half of the year.
Notwithstanding, regional econo-mies were able to post some growth, albeit at a slower pace than in 2007, as the fall-out from the global crisis has not yet been fully realized, the statement said.
It noted that fiscal performances were mixed in 2008, as in some countries, efforts to cushion the effects of rising oil prices and higher wages and salaries, led to deterioration in finances. However, some countries showed improvements, benefitting from previous and ongoing fiscal reforms, while others reduced capital expenditures in the face of sluggish real sector activity.
The CDB stated that available data on the external sector suggests that there were some reserve losses on account of widening current account deficits and falling capital account surpluses. “During the year, the current account was affected by slowing tourism activity and disruptions to agricultural exports, while the capital account suffered from declining remittances and FDI flows”, it stated.
With regards to Agriculture, most countries experienced growth in the sector though this was concentrated mainly in secondary export crops, as sugar and banana production declined. The non-traditional industries that showed some improvement were fisheries, citrus, cocoa, nutmegs, mace, vegetables, root crops, and livestock and this was attributed to favourable weather conditions and higher prices on the world market.
The Bank said that sugar production is estimated to have declined in Guyana, Barbados, Belize, Jamaica and Trinidad and Tobago and in Guyana’s case; output was constrained mainly by unfavourable weather which affected planting and harvesting.
In the mining and quarrying sector there was a general increase in such activities and locally, output expanded due to favourable conditions on the world market, and the reaping of gains from previous years’ investments. “More specifically, in the bauxite industry, significant investments over the last two years led to higher bauxite production, while the high price of gold on the international market coupled with favourable weather conditions led miners to expand operations. Diamond declarations decreased however, as the high price of gold, as well as the incentives offered to prospect for other minerals shifted activity away from diamond mining”, said the Bank.
Meantime, in tourism, most countries registered a decline or slower growth in arrivals while in manufacturing, output declined in most economies. Activity in the construction sector was moderate as most countries either registered a slowdown in growth or fall-off in activity. Inflation also mounted last year.
