In my last commentary, I outlined the major challenges we face due to Covid-19. The global pandemic has exposed new vulnerabilities and lays bare the susceptibilities we have as small island developing states (SIDS). More specifically, I highlighted the likely impact on key sectors and sources of financing for our Region including on tourism, remittances, and the probability of an increase in our already unsustainable debt burden. While the immediate need is to jumpstart our economies and access finance on terms that we can afford without worsening current debt levels, the future requires a fundamental re-think of Caribbean economies emphasizing resilience above all else.
The Chair of CARICOM demonstrated good leadership in calling for a meeting of CARICOM Prime Ministers last week to discuss how the Region can address the scourge of coronavirus. Whilst obtaining finance is vital, it should not lead to further debt. Consequently, Prime Minister Mottley and her fellow leaders should formally propose a debt for resilience swap instead of seeking a suspension of debt payments as is being called for in some quarters.
Both the Commonwealth and the Economic Commission for Latin America and the Caribbean have proposed a variant of a debt swap for climate action for our Region. In other words, instead of repaying external debt, they have proposed an arrangement with external creditors for the equivalent amount owed to be used in local currency for climate action without the need for repayment of the debt. This allows investment in climate action whilst simultaneously relieving highly indebted Caribbean countries from the burden of continued servicing their crippling debt burdens which increase with every natural disaster in a constant disaster-debt cycle. I favour a one-time debt for resilience swap, which provides a more holistic approach to building resilience and reducing our vulnerability against a wider range of potential threats than only climate change.
Whereas, there has been little appetite on the issue of debt forgiveness in the recent past. The coronavirus pandemic has once more seen the issue of debt in vulnerable developing countries come to the forefront of the international agenda. The Caribbean has a unique opportunity to make its case and work with key partners and others such as the Jubilee Networks which has had success in supporting countries reduce their debt.
Another key issue is the current system of country classification for international financing. Caribbean countries except for Haiti are largely classified either as middle- or high-income countries. This makes us ineligible for grant or concessional financing from the international financial institutions. However, this classification is flawed. With a single Category 4 or 5 hurricane, a generation of development gains can be lost within hours- as has been repeatedly demonstrated in the Caribbean and other small island development states. Those in the Pacific are still reeling after the devastation unleashed by Tropical Cyclone Harold on countries like Fiji and Vanuatu just recently. These annual occurrences of natural hazards provide powerful testimony on the inadequacy of a classification system where per capita income plays such an important role. It does not account for the acute vulnerability of Caribbean countries nor those in the Pacific. Therefore, it is high time that vulnerability be included as a key
criterion in determining country classification. The Caribbean Development Bank and the Commonwealth have both done pioneering work in this area. Policy work must now be translated into an action agenda with the requisite political capital being invested to achieve progress.
As noted previously, remittances or families from overseas sending money to families in the Caribbean account for a considerable amount of financing injected in the region. However, the cost of remittances continues to be unacceptably high. Precious dollars are being diverted into transaction costs instead of going to poor families. The G20 and the international financing system have recognized the need to help bring these costs down. However, progress has been mixed. According to the World Bank’s February 2020 survey on the prices of remittances, the percentage cost of sending US$500 from the United States to Jamaica averages 6.42% and 7.14% in the case of Guyana. While this does not seem costly at first glance, when one looks at the total value of remittances going to Jamaica on an annual basis, which stood at US$2.3 billion in 2019 and US$300 million for Guyana, the amount of funds lost is staggering, especially when considered over a ten-year period.
This issue amongst others was once more raised recently when Jamaica together with Canada co-convened a meeting which included the United Nations, the G20 group of countries and the international financial institutions. This is a positive development and a sustained effort is now required given the minimal progress made to date in reducing the transaction costs of remittances. Here also, a greater investment of political capital by the Region is required since success in this area can result in an almost immediate increase in financing flowing for the Caribbean.
To advance the issues mentioned in this commentary, it is about time that we upscale our voices and collective use of our votes at the UN and elsewhere in a more strategic manner. For example, we should not support candidates for the UN Security Council, especially those who have influence in the OECD and international financial institutions, unless we get concrete and specific commitments on these matters.
We should also team up with the other major SIDS region, the Pacific, to form an alliance exclusively focused on financing. This gives us enhanced numbers and political clout with a commensurate stronger position if the two major SIDS regions can speak with one voice. We should also leverage on such an alliance to ensure that the Caribbean can benefit from the grant financing that will be made available to “vulnerable countries” for addressing the catastrophe created by the coronavirus. The Caribbean should not and cannot afford to be left out.
On the issues raised here, Prime Minister Mottley and her fellow Prime Ministers should establish a Caribbean Task Force for Leveraging Financing to take these matters forward. The remit of such a High-Level Task Force will be to develop and implement an action agenda in key fora and in partnership with the Pacific and others at the highest levels.
We have a unique opportunity. Let it not be a lost one.
Deodat Maharaj, a national of Trinidad and Tobago is a former Deputy Secretary General of the Commonwealth and ex staff of the United Nations. He can be contacted at: deodatmaharaj@gmail.com
