Caribbean still vulnerable - IMF
Published:Friday | May 6, 2011 | 12:00 AM
The Caribbean remains the most vulnerable part of the hemisphere because of "still very high public debt levels, which are holding back growth" requiring fiscal consolidation, said the International Monetary Fund (IMF), referring to policies to reduce the deficit and debt.
Speaking at the launch of the new Western Hemisphere Regional Economic Outlook in Mexico, Nicoles Eyzaguirre, head of the IMF's Western Hemisphere Department, said that for all regional countries, but especially those with weak fiscal positions and little room for action, "the challenge is to protect the poor, but avoid universal subsidies that are often very costly and regressive."
The IMF's forecast for the wider Latin American and Caribbean region is that growth will slow to 4.75 per cent from last year's six per cent.
Within the Caribbean, Haiti is forecast to have the most robust growth of 8.6 per cent, linked to earthquake recovery spending, and coming off a year when the French-speaking nation's economy contracted 5.1 per cent.
Its neighbour Dominican Republic is also expected to grow 5.5 per cent, followed by St Lucia, 4.2 per cent. Trinidad is projected to grow 2.2 per cent and Jamaica 1.6 per cent.
None of the Caribbean economies are expected to contract in 2011, according to IMF's forecast.
The commodity export economies are in danger of overheating, the REO report reaffirmed this week, but said this can be managed through careful and well-timed withdrawal of stimulus.
The signs of overheating and suggested action said an IMF statement include:
Rising inflation stimulated by demand factors and compounded by the recent rises in food and energy prices.
Prescription: Though many central banks have been raising policy rates, additional rate hikes will be needed to contain demand pressures and limit spillovers from higher food and fuel prices into core inflation and expectations. Widening current account deficits, with import growth exceeding export growth, even in economies benefiting from higher commodity export prices.
Prescription: An adjustment to fiscal policy could play an important role in preventing an excessive deterioration of external imbalances. Acceleration of credit, resulting in expanding leverage and borrowing in foreign currency, particularly among corporations, and asset prices climbing to high levels.
Prescription: Countries should continue to strengthen their financial systems using the so-called macro-prudential policies, though these should not be used as a substitute for macroeconomic adjustment.