International Monetary Fund
September 19, 2013
The Global and Regional
Context for the Caribbean:
Outlook and Challenges
Alejandro Werner Western Hemisphere Department
Views expressed are those of the speaker alone and
should not be reported as representing the official
position of the International Monetary Fund.
The global recovery remains tepid…
World Real GDP Growth¹ (Percent, year-on-year, July WEO update)
-1
0
1
2
3
4
5
6
2000 2004 2008 2012 2014
Sources: IMF, World Economic Outlook; and IMF staff calculations.
Note:¹ GDP(PPP) weighted average
-5
-4
-3
-2
-1
0
1
2
3
4
2008 2010 2012 2014
Oct. 2008 WEO
Sep. 2011 WEO
July 2013 WEO update
World Real GDP1
(Percent deviation from pre-crisis
trend, 2008 = 0)
… as a pick-up in activity in some
advanced economies …
90
92
94
96
98
100
102
104
106
2008 2009 2010 2011 2012 2013
US
Japan
Euro area
UK
Real GDP (2008Q1 = 100)
Sources: Bloomberg LP; and IMF staff calculations.
… is partly offset by a slowdown in
emerging markets. Real GDP Growth (Percent, year-on-year)
Sources: Bloomberg LP; and IMF staff calculations.
-2
1
4
7
10
13
2010 2011 2012 2013
Brazil China
India Russia
South Africa
Global activity is expected to
strengthen only moderately in 2014.
The U.S. economy should see higher growth, as
fiscal headwinds ease
The euro area is crawling out of recession, with
activity remaining very subdued
China’s growth is expected to stabilize at a lower
rate, reflecting both cyclical and structural factors
Overall, downside risks to global growth are
somewhat more prominent
The LAC region is confronting a trio
of macroeconomic challenges
1. The golden decade of ever-improving
terms of trade is likely over …
Commodity Prices (Index, 2004=100)
Sources: IMF, World Economic Outlook; and IMF staff calculations.
50
100
150
200
250
300
350
400
2004 2006 2008 2010 2012 2014
Forecasts
… as China’s structural slowdown has
started weighing on commodity prices.
Sources: CEIC; and IMF, World Economic Outlook (July 2013 Update).
0
3
6
9
12
15
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
China: Real GDP growth (Percent, year-on-year)
2. External financial conditions
have turned less benign … EMBI and 10-year US Treasury Yield
(Basis points)
Source: Bloomberg LP.
0
1
2
3
4
200
250
300
350
400
450
Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13
EMBI Global US Treasury 10-year Yield (percent, RHS)
… as the Fed’s ‘taper talk’ has
prompted portfolio outflows from EMs.
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13
Bond flows Equity flows
Lehman Euro
Crisis I
Euro
Crisis II
LatAm-5: Mutual Fund Bond and Equity Flows, 2008-13 (US$ billions)
Sources: EPFR; and IMF staff calculations.
3. Several economies in the region
are facing supply bottlenecks …
Infrastructure Index vs. Income Level
Sources: Penn Table 7.1, IMF, World Economic Outlook; World Bank, World Development Indicators;
and IMF staff calculations.
KOR TWN
ISR PAN
CZE CHL THA
RUS CHN URY
MEX BRA
POL CRI
IDN
IND ARG PER
COL ROM
DOM
VEN
R² = 0.6719
2
3
4
5
6
7
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000
Infr
astr
uctu
re In
de
x
(7 =
be
st q
ua
lity)
PPP-adjusted Real GDP per capita (2005 I$)
… which foreshadow lower potential growth
in the absence of major new reforms ...
Latin America and the Caribbean: Real GDP Growth (Percent, year-on-year)
Source: IMF, World Economic Outlook (July 2013 Update).
Note: Averages are based on GDP (PPP) weights.
(WEO July
2013):
Avg. 2013-14
= 3.2
-3.5
-1.5
0.5
2.5
4.5
6.5
1980 1985 1990 1995 2000 2005 2010
Avg. 1980-89 = 2.1
Avg. 2003-12 = 4.1
Avg. 1990-02 = 2.7
Likely direction
of revisions
… while external deficits have
continued to rise ... Latin America and the Caribbean: Current Account Balance
(Percent of GDP)
Sources: IMF, World Economic Outlook (April 2013); and IMF staff calculations.
Note: Average for current account balance is based on GDP (market rates) weights; terms of trade are
GDP (PPP) weighted.
90
100
110
120
130
-5
-4
-3
-2
-1
0
1
2
3
1997 2002 2007 2012 2013
Current Account
Balance
Terms of Trade
(RHS)
… creating vulnerabilities as markets turn
less tolerant of large funding needs ...
CHN
SGP
TWN KOR
PHL
IND IDN
MYS THA
BRA
MEX
COL
CHL
PER
ISR
TUR
ZAF
POL
HUN
RUS
ROM
-16
-14
-12
-10
-8
-6
-4
-2
0
2
-10 -5 0 5 10 15 20 Exchange r
ate
change
sin
ce M
ay 8
(p
erc
ent)
External current account balance (percent of GDP, 2013H1)
Recent Exchange Rate Movements vs. Current Account Balance
Sources: Bloomberg LP; and IMF staff calculations.
These challenges are particularly acute in the
Caribbean, where growth remains subdued …
Real GDP Growth
(Percent change)
Source: IMF, World Economic Outlook (April 2013).
Note: Commodity exporters include Belize, Guyana, Suriname, and Trinidad and Tobago. Tourism-
dependent economies include Antigua and Barbuda, the Bahamas, Barbados, Dominica, Grenada, Jamaica,
St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines. Statistics shown are simple averages.
-5
-4
-3
-2
-1
0
1
2
3
4
5
2008 2009 2010 2011 2012 2013 2014
Tourism dependent Commodity exporters
Likely direction
of revisions
Tourist Arrivals
(Index, 2004 = 100)
Sources: Caribbean Tourism Organization; national authorities; and IMF staff calculations.
¹ECCU includes Antigua, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, and St. Vincent and Grenadines.
… notably in some tourism-dependent countries who
have been facing soft US and European demand ...
80
90
100
110
120
130
140
150
2005 2007 2009 2011 2013
ECCU and Barbados¹ Bahamas and Belize
Jamaica Dominican Republic
… and long-standing competitiveness issues, as
apparent from estimated REER overvaluation ...
-20
0
20
40
60
-20
0
20
40
60
Macro balance 1/ External sustainability 2/ Purchasing power parity 3/
Perc
ent
Tourism-based Caribbean
Commodity-exporting Caribbean
Minimum - Maximum
Real Effective Exchange Rate (REER) Relative to Norm
Note: Above zero indicates overvaluation; below zero suggests undervaluation.
1/ REER adjustment required to bring current account balance in line with fundamentals.
2/ REER adjustment required to bring current account balance to sustainable level.
3/ Relative to Balassa-Samuelson prediction; average of 2007-09.
… which has given rise to persistent external
imbalances …
-250
-200
-150
-100
-50
0
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
Caribbean
Tourism-based Caribbean
Commodity-exporting Caribbean
Sources: IMF, World Economic Outlook; and IMF staff calculations.
-5
0
5
10
15
20
25
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
Capital transfers FDI Public borrowing Other
Current Account Financing (Average for tourism dependent countries,
percent of GDP)
Caribbean: Net Foreign Assets (Percent of GDP)
… that often can only be financed with
support from non-commercial sources.
0
1
2
3
4
5
6
BLZ
GT
M
HN
D
LC
A
SU
R
EC
U
BR
B
CR
I
PA
N
AR
G
UR
Y
SLV
PR
Y
AT
G
VC
T
BO
L
DO
M
GR
D
DM
A
KN
A
GU
Y
HT
I
JA
M
NIC
External Financing Provided by Venezuela to Beneficiary Countries
(Percent of GDP, 2011)
Country Average = 1.25 percent of GDP
Source: Country authorities; PDVSA; and IMF staff estimates.
General Government Primary Balance and Gross Debt
(Percent of GDP)
Source: IMF, World Economic Outlook (April 2013).
Note: Statistics shown are simple averages for the respective country groups.
High debt and weak growth have kept fiscal positions
in tourism-dependent economies under strain …
-4
-2
0
2
4
42
44
46
48
50
52
54
56
2008 2010 2012
Primary balance (right scale) Debt
Commodity Exporters
-4
-2
0
2
4
70
75
80
85
90
95
100
2008 2010 2012
Primary balance (right scale) Debt
Tourism-Dependent Economies
… and, in some cases, led to significant
financing pressures …
Central Government Financing Needs (Percent of GDP)
Source: IMF staff estimates.
Note: Data are presented on the government's fiscal year-basis and may not be strictly comparable across countries.
Data for St. Kitts and Nevis refer to the general government. Data for Guyana refer to the nonfinancial public sector.
0
5
10
15
GU
Y
SU
R
BLZ
TT
O
2013 2014
Commodity Exporters
0
5
10
15
20
25
30
GR
D
LC
A
BR
B
AT
G
JA
M
BH
S
DM
A
VC
T
KN
A
2013 2014
Tourism-Dependent Economies
Nonperforming Loans
(Percent of total loans)
2013 Q1
Sources: National authorities; and IMF staff calculations.
¹ECCU includes Antigua, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, and St. Vincent and Grenadines.
… that increase the burden on financial systems
already struggling with high NPL ratios.
0
5
10
15
20
25
0
5
10
15
20
25
2008 2010 2012
ECCU¹ Jamaica Belize
A strong growth agenda is critical
for the Caribbean
Growth is essential to address fiscal, external,
and financial weaknesses
Measures to restore competitiveness would help
boost growth:
• Rein in cost pressures by reducing labor market
rigidities, addressing infrastructure bottlenecks,
and restraining public expenditure
• Improve the business environment to facilitate
trade and investment
• Strengthen laws and institutions to improve
governance, including in financial regulation and
supervision