ReportNo. 6442-CRG CaribbeanRegion CurrentSituation, Issues and Prospects Public Disclosure Authorized Otober 17,1986 LatinAmerica and the CaribbeanRegional Office

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Documentof the Ubrld Bank

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PREFACE

This Reporthas been preparedfor the CaribbeanGroup for Cooperationand EconomicDevelopment (CGCED). Its prime objectiveis to focus attentionon the performance,problems, prospects and the needs of the Caribbeancountries.

Part I, Overviewof the CaribbeanEconomies, provides a synopsis of the prcgressand the outlookof the 15 economiesin the region. While the Bank's updatingecononic reports prepared for the CGCED have essentiallya countryfocus, this sectionof the Reportaims at providinga regionalperspective on selectedeconomic policy and sectorissues, particularlyissues in the traditionalexport sectors, in employment, public finance,exchange rate policy,foreign debt, privatesector and state enterprises.

Part II examinesthe externalfinancing requirements for each countryin 1986-88. Three points are noteworthy. First,on a per capita basis, these requirementsare quite substantial.Second, in nearlyall countriesthere is now a need for balanceof paymentsor budgetarysupport in additionto externalfinancing of publicsector investment.And third, for the OECS member countries,funds on concessionalterms continueto be essential. The "tighter'consultative group arrangementholds out the prospectof possiblyaugmenting such concess.ionalassistance for countries undertakingprograms of structuraladjustment.

Part III updatesinformation on some of the regionaland subregionalprograms which complementindividual country programs of the CGCED. For some programs,additional donor assistanceis requiredfor their continuation.Comprehensive reports on the regionaland subregional piogramsare to be distributedprior to the January1987 CGCED meeting.

Finally,the CountryProfiles included in Annex I highlight country-specificpolicy issues,project priorities, creditworthiness and the Bank'sown programof assistance.

Thisdocument has a restricteddistribution and may be used by recipientsonly in the performance of their officialduties. Its contentsmay not otherwisebe diselosedwithout World Bank authorization. TABLEOF CONTENTS

Pate No.

I. OVERVIFWOF THE CARIBBEANECONO!.IES ...... 1

II. EXTERNAL FINANCING ...... 17

III. REGIONALAND SUBREGIONALPROGRAMS ...... Q. 27

ANNEX It Country Profiles ...... 33

ANNEXII: Statistical ...... 71 I. OVERVIEWOF THE CARIBBEANECONOMIES

A. INTRODUCTION

1. The recentperformance of individualCaribbean economies continues to revealtheir sensitivityto developmentsin the regionaland internationaleconomies. With the slowingof growth in the US, Canadaand severalEuropean countries, the recoverymost Caribbeaneconomies registeredin 1984 was not sustainedin 1985; indeedseveral of the larger economiesregistered declines instead (Annex II Table 1.1). In Trinioad and Tobago, the only oil exporterin the region,falling oil priceshave resultedin a significantdrop in output and employment,with real '.DP fallingby 4% in 1985, followingdeclines of 7% in 1984 and 6% in 1983. Depressedinternational markets for bauxiteand aluminumhave continuedto affectthe Jamaican,Guyanese and Surinameseeconomies. In Jamaica,real output fell by 5.0% in 1985, followinga declineof 0.5% in the previous year, and real domesticinvestment and real consumptionexpenditures are estimatedto have fallenas well. Tourismin Barbadosexperienced a good winter season,but becauseof a bad summerand depressedinternational markets for electroniccomponents, combined with the continuedtrading problemsin the CARICOM,growth in real outputslackened to 0.32, down from 3.5% in 1984. The economyof the DominicanRepublic contracted by 1% in 1985 becauseof the impactof decliningsugar exportvolume, diminished capitalinflows and the effectsof stabilizationefforts.

2. The smallertourism-based economies of the Caribbeanfared much better than the largerones in 1985. In most of the former,real GDP increased,with Antiguaand Barbudatopping the list with its second consecutiveyear of growth at a rate of over 6%. The Bahamas,Grenada, and St. Lucia are estimatedto have grown by 3% or more in 1985. In the smallerterritories, tourism and a generallyhigh level of publicsector investmentwere key factorsin the favorableperformance of 1985. Continuedincreases in bananaproduction concomitant with a weakeningof the US dollar also helped. The latterfactor may have influencedthe rise in the number of Europeanvisitors to the English-speakingCaribbean.

3. The outlookfor 1986 is that the Caribbeaneconomies will again be influencedsignificantly by externaldevelopments. The slide in oil prices in the early part of the year - from US$28 per barrel to US$15 - has furtherhurt Trinidadand Tobago,ushering in anotheryear of recession. Oil revenuesin the first half of 1986 amountedto TT$614million compared with TT$668 millionin the same periodof 1985, as a resultof which governmentcapital ex enditureshave had to be cut by 47% in that period; importsfrom CARICOM partnersfell by TT$17 million. In varyingdegrees on the other hand, the oil price slump and fall in interestrates could help stimulatethe other economies,which are oil importers. Jamaicais expectedto registera positiverate of growth,after a declineof 5% in 1985, and the fall in oil prices could affectGDP positivelyin other countriessuch as Barbados,The Bahamasand the DominicanRepublic. Likewise,the declineof the US dollarin most of 1986, to which most region1 currenciesare pegged,will make regionalexports to Europe and

I/ CARICOMdoes not cover Suriname,tLe DominicanRepublic and Haiti. - 2 -

Canadamore competitive. Increasedaccess to the US market throughthe CaribbeanBasin Initiativecould furtherbenefit several states, particularlyJamaica, Belize, the DominicanRepublic and Haiti.

4. In the Caribbeanas a whole, tourismwill continueto be the leadinggrowth industry. Touristarrivals have alreadyincreased by 2% in thlefirst sim months of 1986 as comparedwith the first half of 1985. In contrastthe indicationsare that, in a numberof countries,traditional export ccuomdities have declined. The price of bananas remains depressed, and the earnings of the bauxite/alumina sector have fallen off. On the other hand, sugar prices have risen,coffee prices more so, trends that could help the recoveryin Jamaicaand in the DominicanRepublic.

5. Given the heavy importorientation of the Caribbeaneconomies, a key factor in their growth is the availabilityof foreignexchange, whether it comes from exports or capital inflows. In the smaller territories, grants and concessionary loans have played a significantrole in maintaininga high level of public sectorinvestment in the absenceof significantgovernment savings. In both the smallerislands and the larger territories,diversification of productionand exportsis recognizedas a major developmentobjective In strengtheningthe beies of these economies. In this connection,there is a need for policiesthat could direct foreign exchangeresources, wherever available, into productiveuses ratherthan into consumption.

6. Despitethe vicissitudesof dependenceon a very limitedrange of activities,the economiesof the Caribbeancountries (with the exceptionof Guyana and Jamaica)have grown over the last 10 years as a whole, as has the average per capita income. Only two countries - Haiti and Guyana - have a GNP per capitaof less than US$800. In ten countriesGNP per capita rangesfrom US$800-3,000and in the remainingthree - the Bahamas Barbadosand Trinidadand Tobago - incomelevels range from US$4,000to about US$7,000. The social indicatorsalso show clear signs of progress. Life expectancyat birth is now higher in mDst countriesthan it was in the early 1970s,and infantmortality has fallen. Nevertheless,important socialand economicproblems remain. Althoughthere is littleinformation on the distributionof income,tentative studies in certaincases indicate it is relatilrelyekewed. In severalcountries, malnutrition and illiteracy still exist,as bealth care and educationare yet inadequate.

7. The medium to long-termprospects of the Caribbeaneconomies, with their heavy dependenceon internationalmarkets, are linkedclosely to growth in the economiesof NiorthAmerica and Europe. (Country-specific issuesare set out in a later sectionof this reportin Annex I). At the same time, the responses of the Caribbean economies to both opportunities and challengeswill also determinehow well they fare. The Bank's individualcountry assessments suggest that, assumingno new external shocks,rates of GDP growthin excessof the rates of populationincrease are feasible,despite the small size of some economies,so that incomeper capita could rise. In some countries,GDP growthrates of 4X and over are attainable. Realizationof these levelswill hinge,on the part of donors, on continuedadequate levels of externalassistance and, on the part of the Caribbeannations, on sustainedlevels of investment,on better exploitationof their preferentialaccess to the marketsof North America and the EEC; furtherdevelopment of tourism,rehabilitation and structural - 3 - adjustment of their economies to g.,nerate adequate savings (Annex II Table 1.2), to reducethe currentaccount balance of paymentsdeficits (Annex II Table 1.3) and to rendertheir economiesmore diversifiedand competitive throughthe provisionof appropriateincentives for the privatesector, by reducingthe involvementof the publicsector in economicactivities, by introducingand maintainingappropriate wage policiesand real exchange rates.

B. SELECTEDECONOMIC POLICY ISSUES

EMPLOYMENTAND WAGES

8. Unemployment continues to be one of the most serioussocial problems afflicting the region. In some countries(for example,Grenada, Jamaica, Suriname and Guyana), the numberof unemployedas a proportion of the labor force is estimatedto be around 252 or more. In 1985, the situationworsened in statesthat had been makinggood progressin reducing unemployment. In Trinidadand Tobago,for example,the unemployment rate is estimatedto have increasedfrom 132 in 1984 to 152 in 1985. In Barbados,the unemploymentsituation also deterioratedas a resultof the problemsfacing its main exportsin the CARICOMand international markets. The unemploymentrate there is estimatedto have increasedfrom 112 in 1981 to a;most202 in 1985 and is likelyto increasefurther in 1986with the closure of the largest plants in electronics and textiles.

9. While the increase in unemployed in many cases reflects a loss of jobs, new entrants into the labor market are also a significant factor. Unemploymenthas been exacerbated by the movement of people (particularly the young people)from the rural to urban areas in searchof jobs that are consideredto be more prestigiousor offer higher remuneration.In many countries,high unemploymentexists side-by-side with a shortageof agriculturallabor. Young peopleoften prefer to be unemployed than to accept the low wages of the agriculturalsector. In recentyears, real wages in some countriesas in Surinameand Trinidadand Tobago,have tended to rise despitehigh unemployment.,and the movementof wa ,es has outstrippedthe growthof productivity.

10. Given the financialproblems facing the governmentsector and the need to increase competitiveness.in the face of unsatisfactory balance of payments performance, greater attention needs to be directed to the issue of productivity.Wage differentialsamong sectorsis a questionthat also has to be addressed. Some sectorscan affordto pay high wages becauseof higher levelsof income and'productivity. The tendencyfor other sectors to emulatethat remunerationcan, however,create problems. To deal with this issue,policies and programsare neededthat raise productivityand incomelevels in the low-wageactivities, particularly agriculture, which is still a large importantsector in Caribbean economies. This could reduce wage differentials.

11. In reorganizing agriculture to provide greater incentives, more attention has to be paid to the problems relating to land tenure, land use and its distribution, marketing, provision of technical assistance, provision of infrastructure, availability of credit, the application of -4- modern technology,etc. That is, there is need for actionon several fronts. The model farm conceptused in St. Lucia and now being tried in Grenadaand in St. Vincent and the Grenadinesseems to offer a useful approachfor dealingwith output and employmentat the same time. On the matter of credit,there is a need for interestrate policiesthat encourage borrowingfor productiveinvestment. In some cases,too high a proportion of credit is used for consumption.

12. Failure of the private sectorto createjobs in the region at the desiredpace has encouragedthe growthof public sectoremployment far beyondwhat is advisable. In some cases publicsector wages and salaries accountfor more than half of currentexpenditures. Given the financial problemsfacing central governments and parastatalagencies, the strategy is not only to freezepublic sector employment,but also to prune the work force in order to increasethe effectivenessof the public service. This process,of course,will increasethe numberof unemployedif programsare not put in place to providegreater opportunities for self-employmentor if investorsare not encouragedto acceleratethe rate of job creation.

13. There have been complaintsby the privatesector about the lack of adequatelytrained workers and peoplewith requiredskills. To deal with this problem,there clearlyhas to be greatercoordination between the privatesector and governmentin reorganizingschool curricula and training programs. The privatesector can play a more activerole in developinga skilledwork force by cooperatingwith state agenciesand providingon-the- job training.

TOURISM

14. Tourism (AnnexII Tables 1.4 and 1.5) continuesto be the leading growth industry in the Caribbean and has takenover from agriculture as the main foreign exchange earner in a number of countrias in the region. The number of touristarrivals to the Caribbeanas a whole in 1985 was some 4% higher than in 1984, althoughnot all countrieshad such a favorable record. Among those where touristsincreased were the DominicanRepublic, The Bahamasand most of the countriesin the Organizationof Eastern CaribbeanStates (OECS). In Barbados,on the other hand, real outputin the tourismsector declined by 3% as a resultof a 2% fall in arrivalsand a 5X decreasein the averagelength of stay. The numberof arrivalsalso fell in Trinidadand Tobago and Jamaica. A favorabledevelopment in 1985 was the increasein visitorsfrom Europeafter four years of decline;the weakeningof the US dollarvis-a-vis the major Europeancurrencies was a contributoryfactor. In the first half of 1986, touristarrivals in the Caribbeangrew a further2% over the same period in 1985. One of the largestincreases has been in Jaaaicawhere stopovervisitors in the first half of 1986 were about 10% higherthan in the same period of 1985, and in August 1986 were 22% more than in August 1985 and 28% more than in August 1984. In the DominicanRepublic tourism revenues are expectedto increase by more than 152 in 1986. With tourismpicking up in the traditionally slower summermonths, tourismin severalcountries is now becominga year round activity. -5-

15. Although the tourism sector is becoming increasingly important in the region,it is still underdevelopedand in many cases disorganized.A lack of planningfor this activityis one reason. A failureto implement neededpolicies or strategiesin certainkey areas has nct only minimized the benefits,but has contributedto certain structuralweaknesses in the industrythat have put it at a disadvantagerelative to competingtourism destinations.

16. Generally,appropriate targets for tourismgrowth are not well- C conceptualized,perhaps because this sector is poorly integratedwith nationalplanning objectives and has weak linus to the other sectorsof the economy. There is controversyin certaincountries over which segmentof the market to target. Indeed,one of the paradoxesof Caribbeantourism appearsto be that the more expensivedestinations, where hotel rooms typicallycost over US$250a night,often have higher averageoccupancy rates than do others that charge,say, US$50. Consequently,some officials have expresseda desireto focus on 'quality'tourism although the modalitiesof realizingthis objectivehave often not been thoughtthrough. Simplyproviding high-priced hotel roomswithout accompanyingfacilities and servicesmay only resultin lower occupancyrates at a time when a large numberof hotels in the Caribbeanare reportedto be experiencing financialdifficulties.

17. For the industryas a whole, reducingcosts shouldbe a major objective,particularly now with the lower cost of energy. It appearsthat costs at certainresorts not only have increasedsharply, but there has also been overexpansion.At othersthat have not yet developedtheir tourismproduct, further expansion is feasible. This dichotomyraises the issue of planningmentioned earlier in terms of the size of the industry that shouldbe aimed at, the pace of developmentand the kind of tourism desired. Within this framework,consultation between governments and the private sector could lead to better decisions with respect to the size of hotels and numbers of rooms required each year.

18. Notwithstanding the growth in visitorsexperienced by some resorts in the region, there is concern about how much financial return some resortsare gettingfrom tourism,given the preva:-nceof packagedtours. Greaternumbers of visitorsare not a fair indicatorof benefits. Other criticalquestions relate to the qualityof the touristproduct being offeredwith regardto: beaches,hotel rooms,service, access to historical sites,shopping facilities and restaurants,availability of directflights or reliableconnections, and domestictransportation. Since tourismis an increasinglycompetitive business, these issuesneed to be attendedto. Hoteliersand promotionagencies often complainthat not enoughmoney is being spent on promotingparticular resorts. Largerpromotional budgets are, however,likely to yield resultsonly if reinforcedby the advance publicitythat resultswhen guestsare sold a productof acceptable quality.

19. It has long been recognizedthat there is a need for new approachesto marketing,not only in terms of costs,but also of putting togethermore attractivepackages. In this connection,the idea of selling severalresorts in the Caribbeanas a singledestination has often been raised,although little progress has been made in this direction. -6-

SUGAR

20. In the DominicanRepublic, the largestsugar producerin the region,sugar output declinedin 1985. Althoughtotal sugarproduction in CARICOMcountries in 1985 increasedby 6% over 1984 levels,in recentyears productionas a whole has generallyshown a strongdownward trend. In 1985, Guyana and Jamaicaregistered increases in productiondespite industrialunrest and adverseweather conditions. In Jamaica,in particular,improvementi in the rate of sugar extractioncontrlbuted to enhancedperformance. In Trinidadand Tobago,the volumeof sugar produced in 1985 was about 162 greaterthan that of 1984, althoughit was still 28% lower than that of 1980. In Barbados,the 1985 figurewas almostthe same as the previousyear but some 36,000tons less than the 1980 production level.

21. The increasedsugar production and exportsare not necessarily reflectedin greaterexport earnings (Annex II Tables 1.6 and 1.7). Surinameand the CARICOMproducers have some guuranteeswith respectto prices and volumesof exportsto the EEC market. The US also buys some Caribbeansugar. The rest is sold on the world market,where priceshit a new low in 1985. The appreciationof the US dollarvis-a-vis major Europeancurrencies during the early part of 1985 servedto reducethe dollarearnings of Caribbeanproducers.

22. As far as 1986 and beyondare concerned,the prospectsfor sugar do not appearparticularly bright, although dollar prices have turned upwardswith the depreciationof the US dollarvis-a-vis the European currencies. Cane sugar productionfor the open marketwill remain uneconomicso long as beet-sugarproduction is subsidizedby the EEC and corn sweetenerscontinue to benefitfrom the domesticUS sugar program. As a resultof the increasedproduction of alternativesweeteners, there has been a furthertightening of US quota restrictionsin 1985/86.

23. Sugar remainsan importantexport crop and a large numberof peopleare dependenton the industryfor survival. Where unemploymentis high or increasing,a major rapidcontraction of the sugar industrywould worsen the situation.

24. A principalproblem faced by the industryis the fact that costs are not only high, but they also tend to exceedthe prices received. Where the industryis privatelyow=n.-d, the companieshave been experiencing financialproblems, although less than those owned by Governments,and there are indicationsthat more factorieswill be closedin 1986. On the other hand,where the industryis ownedby the state,subsidization has becomea major issue in light of the fiscalproblems facing Caribbean governments.

25. Programsto streamlinethe industryand to make it more efficient are underwayas in Jamaica,St. Christopherand Nevis,and in Belize. In certaincases, yield per acre, as well as the sucrosecontent of the cane, have been increased. Some leadingproducers are lookingat alternative uses for sugar cane. World marketprices are also expectedto continueto recoverover the medium term. Even if productiontrends were to be reversedhowever, the prospectsare that Caribbeansugar exporters,once having satisfiedEEC quota requirementswill have to sell an increasing proportionof their productionon the open world marketat prices that bear little relationshipto the costs of production.For instance,in Barbados the cost of productionin 1985 was aboutUS 28 cents a pound,which is even higher than the preferentialEEC market price of US 17 cents;the average world price in 1985 was US 4 cents a pound. Thus, questionsfacing Caribbeancountries do not relatesimply to reducingor increasing production. In light of presenttrends, they will have to decide to what extent they can continueto producesugar under existingorganizations and arrangements,if at all. Alternativeland uses need to be explored,and policies adopted to diversify production as is being successfully done in Antiguaand Barbudaand in St. Vincentand the Grenadines. Effortsto increasethe level of productionof domesticfood crops in order to reduce the food importbill shouldbe intensified.In this regard,national and regionalresearch institutions have a vital role to play.

BANANAS

26. Regionalbanana productionhas recoveredfrom the destruction wrought by the hurricanesof the 1979-80and qualityhas also improved. One reason is the greater volume of field-packingand attention to pests and diseasecontrol. As a resultof the greaterproduction and improved quality,Caribbean producers are regainingthe share of the market lost to other countriesin the UnitedKingdom, where they enjoy a preferred position. Jamaicaand the WindwardIslands 'St. Lucia,Dominica and St. Vinccntand the Grenadines)registered increases in- 1985. However,banana productionfell in Belize and Grenada.

27. Earningsin most cases increasedin 1985 not only as a resultof the greatervolume of exports,but also the highersterling prices and the appreciationof sterlingagaixist the US dollarover the year (AnnexII Tables 1.8 and 1.9). Bananasare an attractivecash crop, and plans are underwayto increaseproductivity. As such,the regionis geared to achievinga significantincrease in production,assuming no adverseweather conditions. The tropicalstorm which hit St. Vincentstd the Grenadinesin early September1986 and wiped out more than one-halfof the country's banana industryserves as a reminderof the vulnerabilityof the industry to adverseweather conditions.Bec-use of their high cost of production, however,Caribbean producers will find it difficultto exportoutside the protectedUK market,which, however, they still seem to be a long way from satisfying.

28. Sterlingprices over the short term could hold at a level that will enablefarmers to make a profitor at least covercosts. However, favorablemovements in exchangerates cannot be taken for granted. If productionis to be encouraged,the disincentiveeffects created by the appreciationof the US dollaragainst sterling ought to be compensatedfor by either a reductionin costs or by the introductionof appropriate exchangerate strategies. - 8 -

THE MANUFACTURINGSECTOR (AND CARICOM)

29. The manufacturingsector in the Caribbeanhas been facingserious problems in recentyears. In Trinidadand To'ago,real output in the sector declinedby 11% in 1984 and an estimated16% in 1985. In Jamaica, the real value-addedin 1984 was about 25% below the level of 1974. In Barbados,manufacturing output grew at an averageannual rate of 8% between 1974 and 1980 but then fell by some 5% between 1980 and 1984, and there was a steeper fall of 9% in 1985. In the OECS, the sectorexperienced some growth in the 1970s and early 1980sbut has tendedto stagnateor decline in recentyears.

30. Manufacturingactivities have accountedfor a relativelysmall proportionof real GDP in the Caribbean- in most cases less than 12%, a level that has fallenin a numberof countriesrecently. A salientfeature of the sector is its concentrationaround a few activitiessuch as food and beverageprocessing, garments and footwear,assembly-type operations, furnit.reand a few lightmanufactured goods. The range of activities tends to be even more confinedin the smallerterritories. This concentrationmakes the sectorvulnerable to adversedeselopments affecting any one of the major categories. Dependenceon a few marketsadds to the vulnerability.

31. Manufacturedexports in the region,because they are critically dependenton the CARICOMmarket, have been hurt by economicdifficulties and trade restrictionsin the major member countries. Even if these restrictionswere removed,the buoyancyof regionaltrade in the 1970s and early 1980s is unlikelyto returnin the near future,given the economic situationof key member states. The economyof Trinidadand Tobago, besidesexperiencing three years of consistentdecline since 1983 had a cumulativeoverall balance of paymentsdeficit of TT$5,335million (US$2,223million) between 1982 and 1985. Barbadosand the OECS s *tes have been particularlyhard hit by the restrictionsTrinidad and T,bago imposedon importsof garmentsto protectits own industryin the face of fallingemployment levels and high productioncosts in the sector. The fact that the CARICOMMultilateral Clearing Facility is still inoperative has not helped. The difficultiesthat have bogged down intra-CARICOMtrade have promptedofficial statements to the effectthat Caribbear1 manufacturersought to look more to other marketsand should explorewith greatereffect the opportunitiespiovided by the US/CBI and the EECIAC? Lome Convention. A promisingdevelopment is the "twin plant"program, under which sizeableresources on soft terms are to be used in the CaribbeanBasin under section936 of the US InternalRevenue Service code to promotemanufacturing industries producing components for PuertoRican companies,for productswhich could be exportedduty-free to the US under the CBI or to EEC under the Lome Convention. The CARIBCANarrangement offeredby the Canadiangovernment could also anhanceexisting trade opportunities.Prospects will hinge on whetherCaribbean labor costs and productivitycan be kept competitivewith compet_.ngoffshore manufacturing destinationssuch as Mexico,Singapore, Republic of Korea and Philippines.

32. In light of the economicproblems facing individual member states there is a temptationto yield to pressuresby variousgroups for renewed protectionor to retaliateas a way of gettingeven with othermember stitesperceived to be using discriminatorytrade practices. One of the aims of the CARICOM is to providea frameworkfor some competitionthat will sharpenthe competitivespirit and help to developan entrepreneurial class that can then exploreopportunities in the wider world. A returnto inward-lookingpolicies and the institution of measuresthat can undermine the limitedcompetition offered within the Agreementwill work againstthe interestsof the region. Many industrieshave been protectedfor too long and this has contributedto their inabilityto competeabroad. There is an urgent need to reformthe CARICOMtariff structure with the view towards graduallyreducing protection and to removingthe biases againstexports where they exist. These measurescould perhaps be accomplishedif CARICOM problemswere seen as part of the largertrade and developmentissues and if a regionalapproach to problem-solvingwere pursued.

BAUXITEAND ALUMINA

33. The bauxitesector in the Caribbeancontinues to feel the effects of the high prices of oil of the 1970s and the depressedaluminum markets. Becausethe bauxitesector is a major foreignexchange earner in Jamaica, Guyana and Suriname,the impactof decliningproduction and depressed priceson the availabilityof foreignexchange is a criticalfactor in the problemsthese countriesface. In 1985,bauxite production in Jamaicais estimatedto have declinedby 28% and aluminaby 14%. Exportsalso fell sharply (AnnexII Tables 1.10 and 1.11). This developmentfollows the fulfillmentof a contractbetween the Governmentof Jamaicaand the US for 3.6 milliontons of bauxite. One mining companyterminated its activities during the year, while anotherreduced its shipmentsof bauxite. Alumina productionand exports (AnnexII Tables 1.12 and 1.13) were affectedby the closureof two sompanies,although one resumedoperations with the Governmentleasing the facilityuntil 1989. Guyanafared differently,with a 14% increasein the productionof high grade bauxiteand a 15% increase in exports. Productionand export levelswere, however,still below those of the 1970s. In Surinameearnings of the bauxitesector have declined since 1980.

34. The structureof the industryhas changedsince the 197Cs followingthe rise in energycosts and the tendencyfor governmentsto nationalizeforeign undertakings or increasetax revenues. Some of the major companieshave reorganizedtheir operations,and even thaughenergy costs have fallen,a returnto the situationprevailing prior to 1973 is unlikely. At the moment,there is a world oversupplyof both alumina- producingcapacity and alumina. Expansionor new plantswhich are more energy efficientare being establishedoutside of the Caribbaanwhere mineral reservesare latgerto justifysuch investments.Normally, this situationshould lead to a substitution of aluminumfor other metals; however,other metals are also experiencingcost reductions.Further, plasticsare increasinglybeing used for traditionalmaterials. If the bauxite-alumina industry in the region is to survive the issue now is to !mprove its cost competitiveness through increasedefficiency, adequate provision for spare parts, better managementand cost reductioncontrols. - 10 -

PUBLICFINANCE

35. In the contextof the problemsconfronting the Caribbeanstates, a number of questionsare being raisedabout the size and role of the public sectorand the effectivenessof certainstate instrumentsand policies. Are tax rates too high? Are the existingrate structureshaving a disincentiveeffect on productivityand investment?Are governmentstaking too high a proportionof GDP in the form of tax revenues? Is the cuieent level of spendingtoo high? Does the qualityof governmentservices justifythe level of taxes? Is the publicdebt too large? Is the private sectorbeing crowdedout as a resultof governmentactivities? These are only a few of the questionsbeing asked.

36. The public sectorhas generallygrown in responseto socioeconomic considerationsrather than to ideologicaldogma. In many cases,public spendinghas risen at a pace that cannotbe supportedby the revenuebase. As in many other countries,many of the tax systemsin the Caribbeanhave evolvedmore as a functionof raisingrevenue and of conveniencethan of achievingthe other featuresthat are desirablein a tax system,such as equity and efficiency.As a result,the burdenhas not alwaysbeen equitablyshared, a situationthat encouragesevasion and often discourages investrient.Many tax syst#nmsare more progressivein theorythan in practice. Over time, the ratio of tax revenueto GDP for some countries has increased.

37. Too high a proportionof the resourcestransferred to the public sector is being used for consumptionrather than for investment. One point to which frequentattention is drawn is the tendencyto increase the publicsector employmentabove what is warrantedand to grant wage and salary increasesthat existinglevels of productivityor inflationdo not justify. In many cases public consumptionhas been maintainedby borrowing both locallyand abroad and the servicingof this debt has amountedto a significantproportion of currentexpenditure. Transfers to keep inefficientand poorly organizedpublic corporations in operationhave also taken a toll on the revenuesof the centralgovernments.

38. In 1985, the tendencyfor tax revenuesto grow at -a slowerrate than currentspending resulted (for example,Barbados, Jamaica, Suriname and the DominicanRepublic) in an increasein the ratio of the current accountdeficit to GDP or in a declinein the currentsavings ratio. In certaininstances, this situationhas been precipitatedby developmentsin the externalsector that have affectedpublic revenues. The declining prices for oil undoubtedlyhave had and will have a differentimpact on the region:largely because of lower oil prices,nominal recurrent revenues for Trinidadand Tobago are estimatedto have fallenby about 10% between 1982 and 1985, while currentexpenditures rose by 3%. The drop in 1986 is expectedto be even more significant.The changedrevenue situation in Trinidadand Tobago has not only affectedCARICOM trade but also that country'sassistance to other CARICOMstates. With respectto the oil- importingCaribbean countries, the oil price declineis expectedto have positiveeffects. Where governmentshave been subsidizingpetroleum, reductionsin the operatingcosts of government-ownedutilities may reduce the need for this assistance.And to the extentthat lower oil prices can stimulateeconomic activity, it shouldhave a favorableeffect on the revenueposition. - 11 -

39. Given the currentaccount imbalances, public sector investment in nearly all cases (exceptfor The Bahamasand Trinidadand Tobago)has dependeda great deal on the availabilityof foreignfunds. In the case of Trinidadand Tobago,it has been able to financea significantpart of its public capitalinvestment from publicsector savings and domestic borrowings,although this situationis likelyto changenow. In the OECS countries,foreign grants and concessionaryloans averageover 85% of public sectorinvestment. While some of these resourceshave been channeledinto productivesectors, a significantprcportion has gone into social servicesand infrastructure.Governments have seen these investments as essantial to the stimulation of priva:e sector investment, which generallyhas not been of the desiredor expece:edlevel. Often, however,the need for propermaintenance of infrastracture(roads, etc.) has not been adequatelyrecognized.

EXCHANGERATh POLICY

40. Except for Guyana, Jamaica and the Dominican Republic, all the Caribbean countries have chosen to peg their currency to the US dollar. Pegging a currencywhen major currenciesare floatingis quite different from doing so when they are internationally fixed, the situation prior to 1973. While the managed float system has brought a measure of stability to the internationalmonetary system, che frequentchanges in the relationship between the US dollarand other major currencieshave had an immediate impact on the economic positions of the Caribbean states in terms of import and exportprices, foreign exchange earnings and debt servicing.

41. The directionof the changein the US doJlarhas often not been desirablefrom the perspectiveof the Caribbeaneconomies, which have often found themselvesbuffeted by circumstancesover which they have had little control. BetweenDecember 1980 and February1985 when the US dollargrew stronger,the East Caribbeandollar, for instance,appreciated by 54% againstthe pound sterling. This situationimpaired the competitivenessof those Caribbeancountries whose economieswere based on exportsto the UK, and also raisedthe cost to Europeantourists of a Caribbeanholiday. This has been partiallyreversed by the declineof the US dollarsince March 1985. Neverthelessin the periodDecember 1980 - June 1986 the appreciationof the East Caribbeandollar against the pound sterling remainsat 36%.

42. Traditionally,Caribbean countries have not viewed exchangerate policyas an instrumentof adjustmentor development.Exchange controls and import restrictionshave been used widely to supportunrealistic axchangerates. Becauseit is difficultto tell preciselyat what point a particularexchange rate becomesover-valued, such rate can remainin effectfor too long a period,leading eventually to a substantial devaluationthat can be disruptive.

43. In severaleconomies of the region,the traditionalreluctance to alter rates even when basic conditionshave changedhas had undesirable effectson resourceallocation. Transactions have been drivenoutside of officialchannels and have erodedthe revenuebase, as in Surinameand Guyana. Overvaluedrates have tendedto make importsartificially cheap - 12 -

and exportsexcessively expensive and have encouragedtravel abroad by residentswhile inflatingcosts for foreignvisitors. To curb travel abroadsome governmentshave imposedtaxes on purchasesof foreignexchange and on traveltickets. In the interestof employment,competing goods have been protectedagainst imports by quantitativerestrictions and tariffs. The persistentunemployment problem has tendedto encourageoverprotection, particularlyfor manufacturedproducts and the emergenceof employmentin the export sectorhas been stifled. Domesticagricultural production has also sufferedbecause of the absenceof adequateprice incentives. Increaseddomestic costs stemmingin some instancesfrom a fall in productivityhave been reflectedin lessenedability to competeand has affectedexternal performance. Clearly, more attentionhas to be paid to the exchangerate in the effortsof the countriesof the regionto become more competitive. In the OECS countries,which share a commoncurrency, any modificationof the exchangerate is renderedmore difficultby the need for unanimityamong the member states.

44. The exchangerate questioncould become a major issue in the contextof the CARICOM. In an effortto effectexternal adjustments, both the Guyanesedollar and the Jamaicandollar have been devaluedin recent years. In Jamaica,since the unificationof the officialand parallel foreignexchange markets in November1983, there was a depreciationof the currencyof about 45% up to the third quarterof 1985. Faced by a worseningbalance of payments,in December1985 the Trinidadand Tobago governmentdecided to changethe value of its dollarfrom TT$2.40to $S US to TT$3.60to $1 US - a 33% devaluation.However, to keep the cost of livingdown, the old rate appliesto a range of food, drugs,agricultural inputsand schoolbooks with importsof fruitsand vegetablesfrom the smtllerislands excluded. The hope is that with the devaluationin place, the Trinidadand Tobagogovernment will removethe restrictionsplaced on importsfrom all CARICOMstates. There is a need for intensivediscussions on the exchangerate issue as part of the largerdialogue taking place with respectto intraregionaltrade restrictions,and in the contextof developingstructural adjustment programs for the Caribbeaneconomies.

THE FOREIGNDEBT

45. The foreigndebt situationvaries widely among the countriesof the region. In at least two cases,- Guyanaand Jamaica- the outstanding debt in recentyears has been substantiallymore than 100% of annualGDP. For Trinidadand Tobago,however, the estimatedratio for 1985 was in the regionof 11% althoughthat level exceedsthe 5% of 10 years earlier. Among the OECS countries,these ratiosare on the order of 20% to 40%.

46. While expressingdebt outstandingas a proportionof total output gives some indicationof size, from a servi2ingpoint of view the more relevantindicators are the fractionof currentrevenue and exportsof goods and non-factorservices respectively that go for debt servicing. As a resultof increasingdebt servicepayments, poor balanceof payments performanceand inadequaterevenue growth, both these ratioshave tendedto rise rapidlyin most of the countriesof the region.

. - 13 -

47. With respectto the externaldebt serviceratio (i.e.,interest and amortizationpayments as a proportionof foreignexchange earnings), the actual figures,as indicated,do not alwaysreflect the true debt servicingposition, given the build-upof arrearsin certaincases. The debt serviceratio for Jamaicahas averagedover 351 in recentyears, (beforerescheduling it has averaged50-601), as comparedto 19X for Guyana over tie period 1979-84. The figurefor most of the other Caribbean countries is less than 101, and in some cases less than 52 mainly due to the highly concessionarynature of capitalinflows.

48. Failureto mobilizeenough concessionary funds to financeproposed public sector investmentprograms may tempt countries,particularly those with low debt serviceratios, to increasetheir borrowingon commercial terms. The debt serviceratio is a very poor guide fcr gaugingthe level of public debt,since it says nothingabout governmentfinance. The instabilityof exportearnings that characterizesthese countriesand unpredictablechanges in interestrates can lead to a rapid fluctuationin this ratio,with seriousconsequences for debt servicing. In formulating their borrowingprograms explicit recognition needs to be given to a wide range of factors,not the least of them being the structureof existingand proposeddebt levelsand the terms on which such loanswere made. Lack of constantmonitoring and appraisalof the public debt often contributesto servicingproblems. With respectto the OECS countries,the presentstate of their financesand the structureof their exportsshould discourage them from undertakingsignificant borrowing on commercialterms, even though their debt serviceratios at the moment generallytend to be low. The emphasison infrastructuraldevelopment means that in the short to medium term there may be no significantexpansion in the productiveand export- earningcapacity of these countries. In such circumstances,debt cumulates easily since resortto commercialloans often gives rise to further borrowingmerely to servicethese loans. The situationis worse if the funds are borrowed for consumption or for prestige projects, since in this case not even basic infrastructuralfacilities benefit. In any decision to incur commercialdebt, projectsand programshave to be chosencarefully in terms of economicand financialrates of returnand shouldbe self liquidating.

49. With regard to the OECS countries, their accessto the private capital markets is limited. They need assistancein strengtheningtheir fiscal positions to the point where they can financea significant proportionof their capitalprograms from local savings. In this connection,there is need for instrumentsand mechanismsthat can mobilize greaterprivate savings, coupled with policiesthat increaseprivate sector activities. Increasing the savingsratio is an integralpart of economic development.Much more effortneeds to be undertakenin this area.

50. There are lessonsto be learnedfrom the regionaland internationalforeign debt experienceof recentyears. Even when funds are easilyaccessible, borrowing not only has to be relatedto need, but also abilityto repay which can only be sustainedthrough appropriate growth. - 14 -

POLICIESTOWARD THE PRIVATESECTOR

51. The privatesector in the Caribbeanhas not playedthe risk-taking role envisagedfor it and is still dominatedby traditionctcommercial activities. To encourageits growth,governments have used Incentivessuch as tax holidays,industrial estates, factory sholls, exemption from import dutieson raw materialsand equipment,tax rebateon export related profits,accelerated depreciation allowances, freedom to repatriateprofit and capital (in the case of foreignconcerns) and protectionfrom competition. These incentiveshave been aimed largelyat encouragingthe growth of manufacturing which very early on was targeted as the main growth sector. Hanufacturing9s performance in most cases has been disappointing when viewed againstobjectives, however, particularly in the areas of exportsand employmentcreation.

52. The revenue constraints on the expansion of government activities havo given rise to a need to find new ways to encourageprivate sector investment. The heavy emphasisplaced on importsubstitution is being A.,okedat criticallyin the contextof the desireto diversifyexports and increaseforeign exchange earnings. It is increasinglybeing recognised that indiscriminateprotection interferes with proper resourceallocation and discouragesexport development. In this connection,new incentivesare being devisedto encourageexports, particularly in light of the opportunitiesoffered by the US CaribbeanBasin Initiative,CARIBCAN, and, for some countries,the EECIACPLomi Convention.

53. The hope in promotingprivate sector development has been to broadenthe sectorbeyond the traditionalcommercial groups and to accelerategrowth so that the fruitsof development could be shared more broadly. In pursuingthis objective,public policy has shown in some cases a certainambivalence with respectto privateforeign capital. This ambivalencehas been reinforcedparticularly in the early post-independence years, by an uncertain policy toward the role of foreign private investment in development.

54. A clearer policy toward foreign cap'tal has emerged, however, in many states in recent years. It has evolvedin a response not only to the need for foreign exchange but also to the recognition that foreign investors bring in not only capital but also management skills, market connections and modern technologythat can, with appropriatepolicies make the local privatesector more dynamic. There is now also a feelingamong some governmentsthat their greaterknowledge and experience,make them more capableof negotiatingappropriate terms with foreigninvestors and transnationalcorporations.

55. In responseto criticismabout its performance,local private sectorsin the regionhave often complainedstrenuously about certain publicpolicies. A frequenttarget is the tax systemwhich is viewedas having disincentiveeffects on initiativeand investmentincluding reinvestment.In response,some countries(e.g., Grenada, St. Christopher and Nevis and Antigua and Barbuda) have reformed their tax structures. Others (e.g.,Trinidad and Tobagoand Jamaica)are reviewingthem. Criticismhas also been leveledat governmentred tape in reloasingforeign exchange or approving applications of various kinds. Again, some - 15 - governments(a. g., Jamaica,Trinidad and Tobago,St. Lucia end Grenada) have set up 'one-stop*departments to facilitatedecision-making. Another problem that is often singledout is the slow pace of development of the local money and capital markets and the unavailability of sufficient risk capital. To deal with this Issue some countries(e.g., Grenada) have proposeda merchantbank where such an institutiondoes not alreadyexist.

STATEENTERPRISES

56. In recent years, a great deal of criticism has been directed at the performance of certain public sector enterprises in a number of Caribbeancountries. One reasonhas been the deterioration in the services some publicutilities have offeredand their lack of profitability.This situation is often the result of one or more of the following: poor mnagement, inadequatemaintenance of equipment,insufficient expansion to cope with increasingdemand, low productivitycombined with undulyhigh wages, constraintsplaced by governmentwith respectto rates or prices in the face of increesingcosts, and the failureof governmentsto pay their arrearsto the enterprises,particularly troublesome as they are often the largestcustomor of certainutilities. The lack of profitabilityin a large numberof state enterprisesmeans that they eitherhave to rely on the centralgovernment for subsidiesor borrow for both operational purposes and expansion. The debt servicing to which the latter gives rise ha increased expenditures in subsequentyears. Where subsidieshave been forthcoming, they have put pressureon the centralgovernment's revenue position.

57. Two factorsrequire a criticalexamination of government-owned enterprises.One is the inereasinginability on the part of central governmentsto subsidizelosses. The other is the fact that utility servicesare essentialto development.Where non-utilitycompanies are concerned,there is a strongcase for eitheroutright sale to the private sectoror sharedownership in an arrangementthat does not permit governmentalinterference in day-to-dayoperations. With respectto utilitiessuch as air and seaports,electricity and water, governments pref;erto retaintheir ownershipbecause of their nature. However,some utilities can be privatized provided a suitable regulatory environment exists. In this way governmonts could realizetheir assetsand save themselveswhatever subsidies these utilitiesnow require.

58. In some cases reorganizationhas been attemptedthrough the mechanismof the statutorybody, which permitsa certaindegree of autonomy,but the determinationof rates has tendedto rest with the central administration. Often the aim has been to ensurethat the bodies do not abuse their power to change rates in situations where the service is below acceptable levels. Utilities often argue that services tend to be poor because the rates are too low to allow for adequate maintenance or expansion. To resolve this dilemma an independent commission, as exists in some cases, free from political control can review requests for rate changes andobjections to these requestsin a rationalframework. If governmentswere to pay their debt promptly,as they may be requiredto do under a privatizedarrangement, and rateswere to be reviewedmore frequently,the utilitiesmight be able to obtain a degreeof financial viabilitythat would enablethem to undeitakethe maintenance,training and expansionrequired to improvetheir operations. - 16 -

CONCLUSION

59. Though the recoveryin most of the Caribbeaneconomias in 1984 was not kept up in 1985, the outlookfor the near to medium-termis promising. The Bank's analysissuggests that most of the regionaleconomies could grow fast enough for per capita incomesto continueto rise. For several tourism-basedeconomies, real GDP growthrates of over 4% are considered feasible. Attainmentof these levelsof growth is contingenton sustained recoveryin the economiesof North America and Europe,an adequatelevel of donor supportas well as a prolongedeffort by the Caribbeannations to structurallyadjust their economiesand addresskey economicissues most of which have been highlightedabove. These includethe need tot

(i) furtherdevelop and rendermore cost efficientthe region's tourismindustry;

(ii) increasetraditional and non-traditionalexports through improvedefficiency, appropriate investment, and targeted marketing. In this regardthere is an urgentneed to rationalizeproduction and productivityof traditionalexports and reduceproduction costs;

(iii) enhanceexport competitiveness by (a) introducingpolicies for the establishmentof appropriatereal wages and real exchange rates; (b) rationalizingthe importtariff structures with a view towardgradually reducing protection; and (c) introducing appropriateincentives for intra and extra regionalexports;

(iv) providethe necessaryincentives and infrastructurefor the privatesector to becomethe engineof economicgrowth which would in turn reduceunemployment;

(v) put greateremphasis on the educationand vocationaltraining of youth to meet the demandfor new skills;

(vi) improvetargeting of food aid and welfareprograms to the lowestincome groups which in turn would help reduce prevailingfiscal deficits while avoidingany possibleadverse effectson agriculture;

(vii) increasepublic savings, particularly through current expenditurerestraints, but also throughimproved financial performanceof the public sectorenterprises;

(viii) use public expenditurefor improvingthe necessaryeconomic infrastructurewhich is conduciveto mobilizingprivate - local and foreign- productiveinvestments rather than for consumption;and

(ix) followa prudentborrowing policy and limit borrowingson non- concessionaryterms to productiveand self-liquidating investments. - 17 -

II. EXTERNALFINANCING

60. In severalcountries public sectorsavings declined in 1985 (Annex II Table 1.2). Even in countrieswhere savingshave been positive,these have been modest;as a resultexternal financing was and still is the key determinantof the feasiblelevel of public sectorinvestment. Where public sector savingshave been negativeexternal resources are requiredto financenot only the entirepublic sector investmentbut providesome budgetarysupport as well. This trend must bt reversedin view of the increasingsignals by the major bilateraldonors that the very high aid flows to the countriesof the regionis bound over the medium term, at best, to level off if not graduallydecrease. There is thereforean urgent need to undertakethe appropriatestabilization and structuraladjustments which would resultin increasedexport revenueand public savingsneeded for investmentif growthis to be realized.

61. In all countries,with the possibleexception of Guyana and Suriname)external financing has been availablefor projectsidentified as priorityin the investmentprogram. The bindingconstraints on the size of each country'spublic sectorinvestment program have been ratherthe shortageof local counterpartfinancing, inadequate project preparation, and problemsin project implementationlinked to the lack of technical staff,shortage of constructionmaterials, and in some cases,to donor administrativedelays.

62. Tables 1-3, which follow,show the externalfinancing requirements for individualcountries in 1986-88. Jamaicais not includedas fMF/World Bank negotiationson a possibleprogram of assistanceare ongoingand detailedestimates of financingrequirements cannot be made until these negotiationsare concluded. Similarlythese tablesdo not providedata on Guyana,Haiti and the DominicanRepublic as there is no firm basis at presenton which financingrequirements can be determined.

63. The total requirementsof the countriesin Tables 1-3 of US$366 million in 1986,of US$364million in 1987 and of US$299million in 1988 comparewith realizedinflows of US$179million in 1985 and US$153million in 1984; of the externalfinancing requirements in 1986-88,the amounts still unfinancedare US$69 millionfor 1986, US$141million for 1987 and US$181million for 1988. The sharply increasedfinancing requirements for 1986-88reflect a combinationof severalfactors, viz:

(i) extraordinarycommercial borrowings by Antiguaand Barbudain 1986 and 1987 for hotel development,desalinationlpower plant, runway resurfacingand telecommunicationupgrading;

(ii) increasedcapital inflow in 1986-88linked to the large CumberlandHydroelectric project in St. Vincentand the Grenadines;

(iMi) almosta doublingin Barbadosof the borrowingson non- concessionalterms for budgetingsupport; and

(iv) resumptionof capitalinflows to Surinameassuming that the Governmentwould adopt appropriatestructural adjustment programs. Table1 - ExternalFinancing Requirements for the PubitcSector Investment Progrea and Balanceof Payments/BudgetarySupport (US 8 aillion)for CalonderYear 1986

OtherDev.lopment AssistanceRequirements (Balanceof Payments FinancialRequirements and Budgetary Support) Financinsof PSIP I(A) (B) (C) (D) (E) (F) (C) I 1(H) (I)

Country Public Sec- Local Wx4ernal Of Which Gap Total Of which Total Of Which tor Invest-Contri- Financing Disburseent Not Yet Not Yet moet Pro- bution Requirement from Existing (C)-(D) Identified Requtred Identified gram Comitments (Gap) (C).(F) (E)e(G)

Barbados 77.8 48.8J4.5 81.6 8.e 44.0 O 76.C.9 belizs 26.6 5.1 21.5 21.2 0.8 0 0 21.5C.8 Suriname 46.5 18.5 28.O 18.2 14.8 40.8 16.8' 6.8 8U.4

OECS (Total) 199.8 22.0 188.8 189.2 8.1 20.1 24.6 167.4 82.7

Antigusa/Srbuda 7.9 10.2 59.8 t8.6 1.2 5.5 5.5 08.8 6.7 ° Dominica 21.2 2.6 10.6 10.6 O 8.4 8.4 22.0 .41 Qr,n .: 29.0 8.2 26.7 24.7 2.9 6.5 2.9 88.2 4.9 St. Christopher and Nwls 8.0 1.4 6.6 .Z 9 1. 109. 16.. St. Lucia 15.0 2.8 12.2 6.9 4.2 1.8 1.8 18.5 5.5 St. Vincent a the Grenadinee 16.2 1.8 14.4 7 .-.78 2.4 2.4 16 8 2 &

Total 811.2 88.9 222.8 196.1 26.2 118.4 43.2 88. 09.4

Source: Staff eatest.

3/ Assumingno change in arroarsposition. Tabl- 2 - ExternalFinancing Requirements for tho Pubitc Sector InvestmentPrognro *nd Balance of Paymenta/BudgetarySupport (US S million)for CalenderYear 1907

Other Devolopmnnt Assistance Requirements (eBalancof Payments FinancialRequIroments nd BudgetarySupport) Financingof PSIP I (A) (B) (C) () (E) I (F) (a) I j) (I)

Country Pubitc Sec- Local External Of Which Cap Total Of Which Total Of Which tor Invest- Contri- Financing Diaburoemnt Not Yet Nt Yet Dent Pro- bution Reqsents from Existing (C)-(D) Identitfid RequIred Identifled orpm Comitment (4ap) (C)+,() (E)+(G)

Barbados 64.3 86.0 84.8 208. 7.5 286. 0 80.8 7.5 Bsllz 26.8 8.S 24.5 21.4 8.1 0 0 24.5 8.1 Suriname 61.5 20.7 86.0 9.7 21.1 ?2.S 57.8 163.1 70.4

OECS (Totol) 174.9 19.1 165.8 124.2 81.6 19.9 19.9 176.7 51.6

Antigua/Baerbude 66.6 4.2 76.8 e9.9 5.9 1.4 1.4 77.2 7.8 Deoitnca 19.8 3.0 108. 8.2 8.6 4.9 4.9 21.i i1.6 Creneda 24.4 6.2 19.2 14.8 4.4 4.6 4.0 23.2 0.4 St. Christopher and Nevis 12.9 1.4 11.6 1WS 1.0 6.0 6. 17.5 7.6 St. Lucia 16.7 8.3 13.4 0.8 5.4 1.3 1.3 14.7 0.7 St. Vincent a the Grenadine 21.1 2.0 19 1 12.9 6.8 2.8 2.8 21.4 Li.

Total 819.6 73.6 245.4 192.1 88.3 118.2 77.2 863.0 140.6

Sourc : Staff estimates.

XJ Assuming no change in arrears position. Table S - External Financing Requirement* for the Public Sector Investeent Program &.nd Balance of Paymonto/Budg.torySupPort (US 8 million) for Calendar Year 188

Other Developoent Assi stance Requiremets (Balance of Paymente Financial Requirement. and Budgetary Support) Financina of PSIP I(A) (9) (C) (D) (E) (F) (a) I I(H) (I)

Country Public Sec- Locai External Of Which Cap Total Of Which Total of Which tor Invet- Contri- Financing biabursem.nt Not Yet Not Yet mentPro- bution Roquirementufroe Existing (C)-(D) Identifled RequIred Identified gram Commitmont - (Cap) (C).(F) (E).(0)

Barbados 86.0 81.6 88.6 20.0 7.5 89.9 ao.o 88.6 87.5 setIze 24.6 2.9 21.7 18.0 3.7 0 0 21.7 8.7 Suriname 56.6 22.4 88.1 9.7 23.4 64.0 50.0 97.1 78.4

DECS-(Total) 10993 19.8 899. 60.8 89.2 2B.9 28.9 118.4 - 88.1

Antigue/Barbuda 18.8 2.5 10.8 5.0 5.8 8.9 8.9 19.7 14.? Dotinica 22.9 8.1 19.9 5.5 14.4 6.4 8.4 28.3 2S.8 ¢renada 27.4 6.9 21.5 18.7 7.8 2.0 2.0 23.5 9.8 St. Christopher and Nevis 15.9 2.5 12.5 9.7 2.8 6.0 8.o 18.5 8.8 St. Lucia 18.6 8.8 19.8 6.9 4.8 1.8 1.8 11.6 5.8 St. Vincent & the Grenadines 17.0 2.6 14.5 10.4 4.1 2.8 2.3 16.8 8.4

Total 264.4 78.8 177.8 194.0 78.8 120.9 108.9 298.7 180.7

Source: Staff estimates.

y Assumingno change in arrears position. - 21 -

64. The estimatesof financingrequirements have been based on the needs of the regionaleconomies to attainthe rates of growthprojected and also assumethat in most cases there will be improvementsin national economicmanagement. More is said in the countryanalysis that followson the assumptionsunderlying financing requirements for each country. In case this level of financing is not realized,public investmentwould have to be curtailedunless additional savings can be generated.

65. For the countriescovered by Tables 1-3, the realizedcapital inflowsin 1984 and 1985 and the requirementsfor 1986-88(column H) on a per capitabasis, work out as follows:

RealizedCapital Inflows CapitalRequirements per capita (US$) - per capita (US$)

1984 1985 1986 1987 1988

Barbados 169 145 311 239 251 Belize 119 212 129 147 131 Suriname 20 30 174 262 247 OECS (average) 150 173 304 . 319 212

66. Per capitarequirements are considerable,though for Barbados, Belizeand Suriname,commitments are likelyto be on less concessional terms than for the OECS countries. The declinein the requirementsof the OECS countriesin 1988 is to be explainedlargely by the extraordinary increasein the financingsecured for publicsector projects in Antiguaand Barbudain 1986 and 1987. Anothernoteworthy feature of the estimatesin Tables 1-3 is that, with the considerableborrowings on conventionalterms in the recentpast, net transfersare expectedto turn negativein two countries:in Barbadosfrom 1987 and in Antiguaand Barbudain 1988.

67. Presentedbelow is a brief analysisof the externalfinancing needs of each of the countries:

CountryAnalysis

68. In accordancewith the new BarbadosGovernment's policy of assigninga greaterrole for the privatesector, the publicsector investmentprogram (PSIP)has been significantlyreduced. This reduction, which will also help controlthe fiscaldeficit in the short term,isbeing carriedout principallythrougi a re-phasingof implementationschedules of projects (mainlylocally funded) over longertime periodsand by movingout of physicalinfrastructure (roads, ports) to more directlyproductive areas of activity(e.g. irrigation). The PSIP for 1986-88(both on-going and new projects)amounts to US$207.1million, of which US$102.3million representsthe externalfinancing requirements. Disbursements from existingcommitments would amountto about US$84.3million, leaving a financinggap for the periodof about US$18 million.

69. Externalfinancing requirements for budgetarysupport are estimatedto increasesignificantly in the short term, owing to increasing fiscaldeficits, principally as a resultof the wide range of tax - 22 - concessionsoffered by the July 1986 budget. Externalassistance for budgetarysupport for the period 1986-88is estimatedat aroundUS$100 million. Of this,US$70 millionhas been identifiedfor 1986 and 1987, leavinga gap of US$30million for 1988. This financinggap, however, shouldbe consideredas tentativesince the extentof externalborrowing for the budgetwould largelydepend on new revenuemeasures in 1988 and currentexpenditure controls.

70. The PSIP for Belize is consistentwith the economicand social goals of the country, with particular emphasis on economic infrastructure. Furthermore, the investment program for the period 1986-1988 is designed to forestall the declining ta'zndin public capital expenditure that has occurredover the past three to four years. To a large extent,this is being assistedby the steady improvementin publicsector savings that has occurredin Belizein FY1984/85and FY1985/86,reaching 3.52 and 5.72 of GDP respectively.This improvementis expectedto be maintained, or, in the case of the publicenterprises, to be improved,with the resultthat budgetarysupport should not be necessary.

71. Externalcapital flows to Guyanain 1985 amountedto US$27.5 million,about the same level as 'n 1984, but substantiallybe_ow the peak level of US$167million in 1981. All inflowswent to supportthe PSIP. Guyana'sPSIP is formulatedon a yearlybasis becauseof the uncertaintyof resourceflows. For 1986, the budgetedexpenditures for the PSIP were US$161.5,of which about US$88 millionwere expectedfrom externalsources. On the basis of externalinflows of only US$11.4mi-lion during January- June 1986, it is projectedthat expenditureson the PSIP for the full year will amountto US$99million of which US$45 millionwould be from external sources. About US$17 millionof the projectedexternal inflows would be for the purchaseof an aircraftfor the GuyanaAirways; thus the remaining externalinflows for 1986would be almostat the same level as of the previousyear.

72. Since 1983,external financial flows to Jamaicahave been dominatedby budgetaryand balanceof paymentssupport. Over the past three years (1984 to 1986),it is estimatedthat of a total of US$1.33 billionin new money flows,about US$351.4 million, or 26.42,was explicitlyfor projectactivity. Since 1984,however, the compositionof the budgetarysupport has changed,with a generaldecline in this form of externalflows from bilateraland multilateraldonors and an increasein other sourcesof fundingsuch as advancesales of bauxiteand alumina. Preliminaryestimates of capitalrequirements for FY1986/87and FY1987188 pendingagreement upon an appropriatemacroeconomic framework and final definitionof the publicinvestment program are as follows:

FY1985/86 FY1986187 FY1987188 (Actual)

Total 674.8 855.9 718.1

Project 117.9 162.1 138.0 Non-project 325.1 328.0 210.0 Rescheduling 231.8 228.1 158.1

ex ante financinggap 137.7 212.0 - 23 -

73. The non-projectassistance for FY 1986/87includes a required reserveimprovement of about US$140million.

74. For Suriname,the externalfinancing requirements are based on a balanceof paymentsprojection which assumesthat the Governmentwould adopt appropriatestabilization and structuraladjustment programs. In that case, a modestmeasure of economicrecovery can be expectedwith nominalgrowth in merchandiseexports at an averageannual rate of 6.5Z. On these assumptionsgross externalfinancing requirements on the public accountcould amountto US$268.5million during 1986-88. Disbursements from creditlines and project-relatedassistance already arranged by the Government(Including Lome III indicativeamounts) would provideabout US$88.3million of the total requirements.The remainderof US$161million representsthe financinggap. US$59.3million of the gap would be required in the form of project-relatedfinancing for the foreignexchange costs of a proposedcore PSIP. The remainingUS$125.9 million would be aequiredin the form of balanceof paymentssupport.

75. The massiveincrease in Antituaand Barbuda'sPSIP in 1986 and 1987, for hotel development,the water desalinization/powerplant, runway resurfacingand telecommunicationsupgrading, in additionto other normal sectoralinvestment, will imposea significantburden on fiscalresources. The four large projectsnoted above have been financedfrom commercial sources,on commercialterms, with the resultthat the country'sdebt serviceburden has increasedconsiderably, particularly for 1987 and 1988. While a continualimprovement in the public sectorsavings performance is projectedfor the period 1986 to 1988 (improvingfrom 1.41 of GDP in 1985 to 4.7% of GDP by 1987),the countrywill need furtherexternal resources particularlyfor budgetarysupport.

76. In Dominica,public sectorinvestment has emphasizedsupport for directlyproductive activities and economicinfrastruc ure. This focus will continueover the medium term as the economicdiversification efforts proceedand investmentsare directedat meetingthe infrastructural requirements.In addition,efforts are to be intensifiedto improve Dominica'sadministrative capability so that it can reducethe heavy dependenceon externalassistance in the managementof the PSIP. Discussionsat the subgroupmeeting for Dominicachaired by the World Bank in St. Lucia in March 1986 indicatedthat Dominica'sdevelopment efforts would need to be supportedby program-typeassistance over the next three years. Indicationsare that US$12 millionin nonprojectexternal assistancewould be neededover the three-yearperiod. Discussionsare in progresswith the World Bank for a structuraladjustment credit for about US$3 million from IDA and with the IMF for SDR 1.9 millionunder the StructuralAdjustment Facility. The World Bank is alreadyconsidering co- financingof the proposedhydro-power project with IDA funds of US$3 million. These operationscould also serve to attractfinancing from other sources. 77. The PSIP of St. Christopherand Nevis for 1986-88amounts to US$36 million. Three-quartersof this programhas identifiedexternal financing eitheras grantsor loans. Of the remainingquarter, about US$5 million would come from domesticsources, leaving a financinggap of nearlyUS$4 million. The FederalGovernment may need substantialbudgetary/balance of - 24 - paymentssupport in the medium term of US$22 million. The Federal Government'sdomestie debt and interestpayments almost doubled in 1986 with the assumptionof the sugar debts of the NationalAgricultural Corporation. Consequently,the currentaccount deficit of the Federal Governmentis expectedto rise from 7% of GDP in 1985 to about 10% of GDP in 1986. Strongadjustment measures are urgentlyrequired, but the Governmentmay still need budgetarysupport to Cover part of this deficit in 1986-88. Amortlzationpayments are particularlyhigh in 1986 becauseof a US$3 million loan that was contractedtVo years ago to meet part of the paymentsto formerestate owners for the sugar lands. A similarloan of US$1.5million will have to be repaidin 1988.

78. Externalinflows to St. Lucia amountedto US$11.6million in 1985, of which US$8.4million was on grant basis. Of the proposedPSIP for 1986- 88 amountingto US$45 million,the Governmentexpects to mobilizeUS$35.8 millionor 80% of the neededresources from externalsources, US$19.5 millionof which is expectedon grant basis. About t3$22 millionof the requiredresources are alreadycommitted, leaving US$13.8 million for which confirmationof donor commitmentsis needed. Besidesthe resourcesneeded to supportthe PSIP, balanceof paymentsresources of about US$4 million would be needed for budgetarysupport, mainly to offset St. Lucia's externalpayments arrears.

79. There was a substantialinflow of externalresources into St. Vincent and the Grenadinesin 1985 becauseof the ongoingPSIP which includedthe large CumberlandHydroelectric project, estimated at US$33.8 million. Capitalgrants amounted to US$7.5million, and net foreign borrowings,US$3.9 million. Externalinflows are expectedto continueat these levelsthrough 1988. Of the proposedpublic sector investment expenditures,which amountto US$54 million for 1986-88,the Government expectsto mobilizeabout US$48.0million, or 90% of the total outlay,from externalsources. About 63% of the externalinflows is expectedon grant basis. US$36.8million is alreadycommitted, leaving US$11.2 million for which confirmationof donor commitmentsis needed. Besidesthe resources neededto supportthe ongoing PSIP, balanceof paymentsresources of US$7 millionwill be needed during1986-88 to supportrehabilitation efforts followingthe damageto agricultureand propertyresulting from the tropicalstorm in September1986.

80. Grenadareceived considerable external assistance in 1984-85, mostly from USAID. Total grantswere about US$55 million in these two years,more than twice the annualaverage of 1980-84. Moreover,nearly one-thirdof the grants (US$17milion) were providedas directbudgetary support. These grantsallowed the Governmentto cut sharplyits domestic and externalborrowing and make substantialrepayments to the ECCB and IMF. The PSIP for 1986-88amounts to US$82 million,of which US$53 millionhave identifiedexternal financing either as grantsor loans. One-halfof the remainingUS$29 million is expectedto come from local sources,leaving a financinggap of nearlyUS$15 million. However,the gap may be largerif the local contributionis lower. This is not unlikely,considering that all the local counterpartfunds for the 1985 PSIP (10% of the total) consistedof budgetarysupport provided by USAID. The estimatesof budgetarysupport required for 1986-88are linkedto the likelyrevenue shortfallwith the implementationof the revisedtax systemand of the Government'sreorganization plan to cut currentexpenditures. - 25 -

OECS

81. Aggregateexternal financing requirements of the OECS countries (not includingMontserrat) are estimatedat !TS$167million for 1986,US$176 million for 1987 and is then projectedto declineto US$116million in 1988. This declineis to be explainedlargely by the drop in the public sector investment programof Antiguaand Barbudafrom the extraordinarily high levels reachedin 1986 and 1987. Ax noted,on a per capitabasis, the requiredcapital inflows for the OECS averageUS$304 in 1986,US$319 in 1987 and US$219 in 1988. Most of the funds shouldcontinue to be on concessionalterms.

82. The World Bank Group'sown lendingstrategy for the OECS is determinedby a Board decisionof Deccmber1985 that the Bank can best assist the OECS countries(other than Antiguaand Barbudabecause it is not IDA eligibleand Montserratbecause it is not a member of the World Bank Group)by providinglimited access to IDA financing(to be determinedin light of historicallending levels to these countries)possibly blended with some IBRD financing(the amountwould be determinedas a resultof the Bank'screditworthiness assessment) over the medium term if these countries adopt suitableprograms of policyreforms which would strengthentheir creditworthinessfor borrowingon conventionalterms by the end of the decade. The prospectof mobilizingthe additionalresources needed has also been improvedwith the agreementreached between donor and recipient countriesduring the meetingof the CGCED Ad Hoc AdvisoryCommittee in St. Lucia in March 1986 to move towardsa "tighter"consultative group mechanismfor these countrieswhich committhemselves to undertakea meaningfulmedium-term adjustment program. Prospectsfor the donorsto continuetheir specialefforts for these countriesappear promising. In this respectit shouldbe noted that for those countrieswhere IDA operationswe approvedduring FY84-86, commitments to OECS countries averagedUS$17 r capitaper annum,compared to US$12 per capitaper annum committedto ot nallmember countriesBank-wide. These levelsof commitmentsto O;WS countriesdo not includeIDA financingalso made availableby way of operationsapproved for the CDB. In addition,the World Bank allocatessubstantial staff resourcesto Caribbeancountries in its economicand sectorwork programs. Thus in FY85-86,the averagestaff weeks per capitadevoted to work on Caribbeancountries was about 15 and 3 times higher than the averagestaff weeks, per capitadevoted, for instance,to Brazil and Colombia,respectively.

83. The 'tighter'consultative group arrangementis intiendedto replacethe EasternCaribbean Development Fund which was proi)osedby the OECS countriesduring the June 1985 CGCED meetingbut failedto materialize. In that proposal,the OECS countriesexpressed their willingnessto adopt programsof structuraladjustment and requesteddonors to provideresources, over and above existingaid programs,to help participatinggovernments cover their budgetaryneeds includinglocal cost financingfor capitalprojects and to close balanceof paymentsgaps. The 'tighter"consultative group mechanismis to be implementedwhere possible, and shouldGovernments request it, within the frameworkof IDA/Basklending and the StructuralAdjustment Facility of the IMF. Donorswhere possible, - 26 - are expectedto supportthe programsby providing resourcesto meet budgetaryand balanceof paymentsneeds. Donorsunable to provide assistancein this form could dovetailthe projectsfinanced by them, and/or their commodityand technicalassistance programs, to close the finAncinggap in each of the participatingcountries. So far the Bank has been approachedby the Governmentsof Dominica,Grenada and St. Christopher and Nevis for assistancein fortaulatingsuch comprehensivestructural adjustmentprograms. In parallel,as a follow-upto the requestmade by the Governmentof St. Vincentand the Grenadlnes,the Bank is considering the possibility of presentingfor donor supporta three-yearpublic sector investmentprogram focusingon agriculturethat would complementthe structuraladjustment measures being implementedin that country. - 27 -

Ill. REGIONALAND SUBREGIONALPROGRAMS

A. INTRODUCTION

84. This sectiondescribes progress made on Regionaland Subregional Programssince they were reviewedat the Ad Hoc AdvisoryCommittee meeting in St. Lucia on March 12-13,1986. The agreementsreached at that meeting were recordedin ReportCGCED 86-6, dated June 6, 1986. Also, this section describesbriefly some of the main activitiescarried out by the CGCED Group duringthe past 15 months.

B. STRUCTURALADJUSTMENT IN THE CARICOMCOUWNRIES

85. The CARICOMSecretariat was entrusted with the responsibilityof preparing detailed actionprograms for regionallevel action in implementing the Nassau Understandingon StructuralAdjustment. The programs fall essentially into two categories, viz:

(i) programs aimed at defining investment and infrastructural/support opportunities. The implementation of several of these programs requires some external input; and

(ii) programs designed to clarify policy options or effectchanges to existingarrangements. The implementation of these program proposals depends on acceptance by all Member States and agreement on specific actions.

86. The CARICOMSecretariat reported that significantwork has taken place since the last meeting of the Caribbean Group for Cooperation in Economic Development (CGCED). Several studies have been advanced or completed in a number of sub-sectors and the export-oriented industries study has been completed. Severalof the follow-upprogram activities are shown as requiring externalfunding support.

87. The studiesdesigned to clarifypolicy options, namely the studieb on the reviewof the CommonExternal Tariff (CET),the regimeof fiscal incentivesand exchangerates have eitherbeen completedand circulatedto Member Statesor are nearingcompletion. The recommendationsof the CET, fiscalincentives study, and the study on exchangerates would be reviewed by the concernedauthorities over the next coupleof months.

88. The CARICOMSecretariat has also reportedthat at the July 1986 CARICOMheads of governmentsmeeting held in Guyana it was decidedto implementthe CARICOMtreaty desling with externaltrade and industrial policy. As a result,a RegionalExport Credit Facility is to be createdto providepre- and post-shipmentcredit for regionalmanufactures, excluding sugar,bauxite and oil. On industrialpolicy, the decisionwas to introducean "operationalregime for industrialprogramming" by the end of 1986. Finally,the Secretariatreported that intra-regionaltrade figured less prominentlythan at earliersummits as progresshad alreadybeen made - 28 - by member states in implementingthe 1984 Nassauaccord on dismantling obstaclesto trade and harmonizing externaltariffs. The July 1986 summit agreed to continuewith the progressmade, particularlythrough eliminating stamp dutieson importsand removalof all non-tariffbarriers to intra- regionaltrade to the extentpossible within existingforeign exchange managementpolicies. An updatingreport on progresson structural adjustmentin rARICOMis expectedto be made by the CARICOMCacretariat at the January1987 CGCED meeting.

C. REGIONALENERGY

89. To strengthenenergy sectorcoordination, the CDB organized,with World Bank assistance,a two-daymeeting of recipientsand donors' representativeson March 10-11,1986 in St. Lucia. The meetingdiscussed recentdevelopments in the energysector in the Caribbeanregion, and identifiedpriority areas for action. The meetingrecommended the initiationof two studiesand c reviewof the RegionalEnergy Action Program (REAP);it also reviewedprogress of the Common ServicesStudy initiatedby CIDA. The deliberationsof the said meetingare recordedin the *Reporton the CaribbeanEnergy Sector Meeting, March 10-11,1986", dated March 12, 1986, which was distributedto the Ad Hoc Advisory CommitteeMeeting on March 13. The followingsummarizes the followup actionstaken as a resultof the above mentionedenergy neetingt

90. Since the energymeeting, the World Bank has initiatedthe followingtwo studieswhich are financedfrom the UNDP CaribbeanPetroleum ExplorationPromotion Project (see chapterD. below): (a) the Least Cost PetroleumProducts Procurement Study; and (b) a reviewof Alternative EnergvPricing Policies. The consultantswork on the PetroleumProcurement Study, commencedin early August 1986. The study is intendedto recommend ways for reducingcost of deliveryof petroleumto the Caribbeancountries. The countriesparticipating in the study are: Antigua& Barbuda,Dominica, Grenada,Montserrat, St. Christopher& Nevis, St. Lucia,St. Vincent& the Grenadines,Barbados, Guyana, Turks and Caicos,and the BritishVirgin Islands. The draft consultantsreport is expectedby end October1986.

91. At the requestof the Governmentsof Barbados,Belize, Dominica, Grenadaand St. Vincentand the Grenadines,the World Bank, in cooperation with CDB appointeda consultantto carry out a reviewof the alternative energypricing policies which the abovementioned countries could pursue in respondingto the weakeninginternational oil prices. The final draft consultantreport is due late October1986 for reviewby the participating Governments.

92. The energymeeting in St. Lucia agreedthat the REAP program shouldbe reviewedto determinewhether the programsproposed in REAP, prior to the recentchanges in world oil prices,were still a priority. The REAP CoordinatingCommittee, chaired by CARICOMhas met since and reviewedprogress in the implementationof REAP. The Committeerecommended that the countryspecific energy assessmentswhich formedthe basis for th- REAP be updated. Dependingon the outcomeof the needs assessment,the REAP would be adjustedaccordingly. In the meantime,CDB intendsto review some elementsof the REAP programwith GTZ--theGerman Technical CooperationAgency--and agree on a technicalassistance program for implementingthe relevantcomponents. - 29 -

93. CIDA has initiateda study to determinethe feasibilityfor establishinga CommonServices for the Power UtilitiesCompanies in the OECS. The study is expectedto be ready in October1986.

D. THE CARIBBEANREGIONAL PETROLEUM EXPLORATIONPROMOTION PROJECT

Background

94. The Bank signedon April 11, 1983 the UNDP P::ojectDocument RL/82/026/A/73/42accepting the responsibilityas the gxecutingAgency for the above project. The UNMP providedUS$500,000 and the Bank contributed US$200,000. Nine Caribbeancountries are recipientsfrom the project.

95. The project,which is still ongoing,is two years behind its originalcompletion date of January1985, due mainly to delays in processingthe UNDP ProjectDocument which was finallyapproved in February 1984 duringthe CaribbeanGroup meetingthat year. The consultants,ECL of England,were appointedin December11, 1984. The projectis designedto help the participatingGovernments to evaluategeological and geophysical data, to upgradetheir petroleumlegislation, to introduceimproved contractualarrangements for exploration,to train technicaland legal personnelin the legal aspectsof petroleumexploration contracts, and to investigateknown, but underdeveloped,hydrocarbon resources.

Statusof the ExplorationProlect Component

96. Furtherto the World Bank'sprogress report for the 12 months endingDecember 31, 1985, a seriesof visitswere made duringAugust 1986 to nine of the participatingcountries with the purposeof eitherdefining or finalizingthe correspondingservice programs. Jointlywith ECL, Bank staff visitedBarbados, Grenada, Antigua, BVI and The Bahamas. Separate visitswere made by ECL to St. Christopherand Nevis and Montserratand by the Bank to Belizeand the DominicanRepublic. The statusof the country specific and the subregional programs is summarized below.

Country Programs

97. The Bahamas. Indexingand data selectionfor reproductionand interpretationwere being carriedout. The geologicevaluation report, includingrecent exploration data from Tenneco,will be completedin January1987. Barbados. A visit by ECL specialistsoccurred in September 1986 to reviewexploration and oil/gasproduction data and field operation practices;they are expectedto prepareexploration/development programs. The study will be completedin October 1986. Belize. Two issueshave been clarified: (i) due to the UNDP separatelyfunded petroleum exploration projectin Belizeno specialevaluation studies are requiredunder the RegionalProject except for the digitilizationof shot-pointbase maps to achievea commonseismic scale data base; (ii) the Finistryof Natural Resources (MNR) requested a log reproducing machine and a minicomputer for technical calculations and establishing a basic data base. Total estimated cost of this assistance would be about US$12,000, and UNDPapproval will be - 30 - sought under a revisedproject proposal. DominicanRepublic. A tentative explorationprogram was defined. Due to ECL's previousinvolvement in the DominicanRepublic, the geologicalevaluation and diagnosisreport is expectedto be finalizedby December1986. Guyanaand Jamaica. Will not participatein the study since specificcountry assessments have been made under Bank Group sponsoredprojects. Haiti. Awaitingthe Government's responseto ECL recommendationsregarding Haiti's possible participation in this project. Suriname. A missionto definea serviceprogram, is tentativelyscheduled for October 1986.

98. Antituaand Barbuda. ECL specialistsvisited Antigua and Barbuda in August 1986 and definedan actionplan. BritishVirgin Islands. Data retrieval,indexing and s'lectionare completed. Data analysis,including well informationand the interpretationand promotionreport will be completedby December1986. Cayman Islands. The authoritieshave stated no interestat presentdue to the ongoingcontract negotiations with oil companies. Grenada. Long missingseismic data (shotby Westrans)has been recoveredfrom Elf. Data interpretationand the geologicevaluation report will be finalizedby December1986.

Statusof the Trainina Component

99. During the above mentionedvisits to the countries,it was observedthat most of the Governmentagencies concerned lacked the technicalstaff with eithergeological or petroleumengineering background. Consequently,the envisagedon-the-job training by ECL staff would not be feasible. It is recommendedtherefore that a seminarfor high-level Governmentofficials should be organized;such a seminarwould be financed under the abovementionedUNDP projectand would cover petroleumexploration issues,general petroleum geology, development and economicaspects, as well as legal contractualmatters. It would also includea presentationof the generalresults of the regionalstudies and visitsto oil fields.

E. CARIBBEANPROJECT DEVELOPMENT FACILITY

100. The Facilityhad anothervery productiveperiod from November1, 1985 to August 31, 1986, as demonstratedby the steady increasein the numberof projectsprepared. In addition,the Facilityhas been able to securefinancing for about 63% of the projectproposals prepared. In mid- 1985, the Facilitystarted to chargesponsors a fee equivalentto 2.5X of the funds that it succeededraising for a project.

101. Prom November1, 1985, to August 31, 1986, 18 projectproposals have been completedin 12 countries(Antigua 1, Bahamas1, Barbados1, Belize 2, BritishVirgin Islands1, CaymanIslands 1, Dominica1, Dominican Republic4, Grenada 1, Guyana 2, Haiti 2 and Jamaica1) for a total investmentcost of US$55.5million bringing the total of proposalssince the Facilitycommenced operations in October1981 to 55 for a total investmentcost of about US$133million. Detailsof the projectscompleted and under reviewwould be indicatedin CPDF'sreport to be issued separately. - 31 -

F. CIVIL AVIATION

102. In spite of repeatedattempts, it has not been possibleto secure financingfor the establishmentof trainingcenters in the regionto upgradethe qualityof airportoperations and maintenance. The proposed project,submitted by the InternationalCivil AviationOrganization (ICAO), would be droppedfrom activeconsideration by the CGCED. It may be reintroducedin the CGCED agendain the event that the prospectsfor financingimprove.

G. SUBREGIONALPROGRAMS IN THE OECS COUNTRIES

(1) Tourism

103. In October1985, Donors'representatives interested in the proposedtourism project met in Barbadoswith representativesfrom the CaribbeanTourism Research and DevelopmentCenter (CTRC)to reviewthe revisedproject document. CDB has also organizeda meetingwith the main donors and CTRC, for November4, 1986, to determinethe interestof donors to financethe propo-sedtourism project. CDB is expectedto reporton the outcomeof this meetingat the next CGCED meetingin late January1987, at which time a decisionwould need to be made as to whetheror not to retain this projecton the active list of the CGCED Work Program(December 1, 1986 to July 1, 1988).

(2) The Inter-AgencyResident Mission

104. The work of the Inter-AgencyResident Mission (IAM), which will cease operatingon December31, 1986, has been guidedduring the last eighteenmonths by a work plan approvedby the CGCED at its meetingin Washingtonin June 1985. Some modificationsin the work plan were made in responseto the reducedlevel of staffing,and changingneeds.

105. The work plan for 1985/86envisaged the phasingout of the IARM by the end of 1986 and emphasizedactivities to facilitatethe orderly transferof functionsto various regionalinstitutions as follows:

(a) the preparationof the PublicSector InvestmentPrograms (PS;P) for the OECS member countriesand the relatedmonitorinZ- will be continuedby the CaribbeanDevelopment Bank. CDB will once again hold regularcoordination meetings with donor representativesin Barbados;

(b) the settingap, maintenance,and coordinationof Debt Management and Reportingsystems in the OECS member stateswill be carriedby the EasternCaribbean Central Bank (ECCB);

(c) certainaspects of aid coordinationactivity involving the preparationof lists of technicaland capitalassistance projects and the preparationof technicalcooperation programs will be carriedby the officeof the RegionalRepresentative of the UNDP in Barbados;and - 32 -

(d) economicadvisory, statistical, and trainingfunctions, formerly undertakenby IARM,will be trriedby a suitablystrengthened EconomicAffairs Secretariat of the OECS (EAS).

106. In light of the above,the IARM includedCDB economistsin the PSIP missionsundertaken during 1986, and preparedmanuals on PSIP preparationand relatedmonitoring functions. The IARM participatedin joint missionsand other preparationswith the ECCB and the Commonwealth Fund for TechnicalCooperation for the establishmentof debt management functionsat ECCB. Joint TechnicalCooperation Programming missions were undertakenwith UNDP (Barbados)and UNDP personnelwas trainedin the preparationof the Technicaland CapitalAssistance compendium. The IARM has involvedpersonnel from the EAS to help preparenational development plans for certainOECS countries, and to organizetraining courses in "InformationSystems for EconomicDevelopment." Shortage of staff in OECSIEAShas impededthe effectivetransfer of IARM economicadvisory and trainingfunctions to that organization.Unfortunately, the recommendationsincluded in the Reportentitled Assistance to Strengthening EconomicManagement of the OECS/EASa&.d its Member States (datedMay 8, 1985) which was consideredat the DonorsMeeting in Paris in May 1985, have not been implementeddue to inadequatedonor support. As a result,the previouslyobserved weaknesses in the EAS continue. However,under the PublicManagement and PolicyPlanning Project, supported by USAID, it has been possibleto providedirect assistance to severalof the OECS member countriesin the areas of economicand financialpolicy matters.

(3) Agricultur>'&Diversification Project/Program

109;. CIDA is financingthe AgriculturalDiversification Study as agreed under the Work Program. The consultantshave been appointedand their reportshould be availablebefore the end of 1986. Their reportis expectedto be distributedfor decisionsat the January1987 CGCED meeting in Washington.

H. CGCED ACTIVITIES

108. As part of the effortsto strengthenthe aid coordinationof the CGCED,there were three meetingsof the expandedSteering Committee (September1985, March 1986 and June 1986),one meetingof the Ad Hoc AdvisoryCommittee (St. Lucia,March 13. 1986) and a specialmeeting of the main donorsto discussthe conceptand approachof the "Tighter' ConsultativeGroup mechanism(Stptember 19, 1986). Also, the Work Program (July 1, 1985 to November30, 1986) dated November1985, has been approved and wo-k has startedon a numberof priorityprograms listed in the said document. The Work Programfor the next 18 months is under preparationand would be submittedfor considerationat the next CGCED meeting in January 1987. - 33 -

ANNEXI

COUNTRYPROFILES - 34 -

ANTIGUAAND BARBUDA

Populations 80,300 (mid-1985) IflRDIIDALendings See below

GNP per Capita: US$2030 (1985 Most Recent Atlas Methodology) EconomicMission: March 1986

The Economy

1. Real growth in the economyof Antigua and Barbudaaveraged 6.5S between 1983 and 1985. Tourismprovided the main thrustfor this rapid rate of expansion,which shouldcontinue in 1986,although at a slightlyslower pace. A steady rise in hotel occupancyrates, from 55.4X in 1983 to 71.52 in 1985, reflectsboth the increasein visitorarrivals and an increasein the averagelength of stay. Touristswere spendingmore per day in the islandsand net receiptson the tourismaccount of the balanceof payments doubledbetween 1982 and 1985*contributing to a sharp reductionin the currentaccount deficit. For the sucondyear running,there was a small overallbalance of paymentssurplus in 1985. Meanwhile,the improvementin the Government'sfiscal performance continued, and revenuemeasures introducedin late 1985 and early 1986 were expectedto lead to further increasesin tax receipts. Currentexpenditures were kept under control, leavinga surpluson public sectorcurrent account equivalent to 3.1S of GDP in 19859 comparedwith 0.92 in 1983. However,the Governmentwas unable to preventa furtherbuildup in arroarson existingforeign and domesticdebt. In addition,new public sectorborrowing abroad rose sharply in the latterhalf of 1985 on accountof four major development projects. Thesewere mainly financedon commercialterms with very short repaymentperiods. By end 1987,when these projectsshould have been completed,the Government'sexternal debt (excludingaccumulated arrears) will have risen to about 922 of GDP, from 42.8% at end 1985.

Policy Issues

2. The main policy issuesare as follows:

(a) The reductionof cumulativearrears on principaland interestis the most immediateissue facingthe Government. Furtherefforts are neededto formallyreschedule past externaldebt obligations. The Governmenthas recentlyengaged the servicesof a merchant bank to assist in this effort.

(b) The Government'sown debt servicingcapacity will have to be improvedby introducingmore revenueraising measures and by increasesin utilitytariffs. At the same time current expenditureswill need to be kept under tight control. Meanwhile, the programof divestitureof Governmentassets in the tourismand other sectorscould help to reducethe size of the projected fiscalgap.

(c) The Governmentshould avoid furtheradditions to externaldebt on commercialterms until it has becomeclear that existingdebt serviceobligations can be met. - 35 -

(d) A strengtheningof the institutionalframework for project identificationand developmentis required. The pace of project implementation,particularly where specificpolicy actionsare required,would be improvedby the establishmentof a public debt monitoring system.

GovernmentPolicy

3. The Governmentrecognizes the need for additionalrevenue raising measures,and for strengtheninginstitutional support for agricultureand tourism. Given the country'ssingle sector dependenceon tourism,fiscal policy needs to reflectthe likelywide variationsin year to year economic growth. This implies tight control on expenditurelevels with particular emphasis on the recurrent cost implications of capital expenditures.

Prolect Priorities

4. Improvement of the water distribution and storagesystem is a major infrastructural priority as manifested in the USAID financedwater supply expansion project to be completed in 1986 and the desalinization/power plant turnkey project now underway. Technical assistance is required to improve the water authority'soperating efficiencywith donorsas yet unidentified.

5. Three other major projects,the Deep Bay Hotel project, resurfacingof the airportrunway and telecommunicationsimprovements are due to be completedby end 1987. Togetherwith the desalinizationplant and some smallerprojects they will increasethe Government'sexternal debt by US$110million.

Creditworthiness

6. To improvecreditworthiness, the Governmentneeds to seek further revenueraising measures, control current expenditure, continue divesting Governmentassets in tourismand other sectors,and achieveconsiderable progressin eliminatingarrears on outstandingexternal obligations. No lending is currentlyenvisaged by IBRD.

AdditionalCapital Reauirements (US$ million): 1986 1987 1988

Additionalexternal financing required fort Public SectorInvestment Program 1.2 5.9 5.8 Balanceof Payments/Budgetary Support 5.5 1.4 8.9

TOTAL 6.7 7.3 14.7 - 36 -

THE BAHAMAS

Population: 230,000 (mid-1985) IBRDIIDALendina: See below

GNP per capita: US$7,150(1985 Atlas Most Recent methodology) EconomicMission: May 1985

The Economy

1. The Bahamasin 1985 registeredyet anotheryear of positive economicgrowth, and healthycurrent surplus in the publicbudget. The major sourcesof a 3% growthin real GDP were, once again,tourism and relatedservices. Public sectorcurrent surplus in 1985 amountedto nearly B$120 million (equivalentto 62 of GDP), reflectingslower gtowth in currentexpenditures; furthermore, loans and advancesto public corporationsromained low as a resultof continuedimprovements in the performanceof non-financialpublic enterprises.The balanceof payments currentaccount recorded a deficitof US$62million in 1985, but the overallbalance had a surplusof tfl$20million, permitting net additionsto

internationalreserves. Internationalreserves at the end of 1985 amounted to US$166million, equivalent to about 4 months of morchandiseimports.

Policy Issues

2. The economyof The Bahamashas performedwell in recentyears and the near term outlookis quitepositive, based on the dynamictourism and financialservices sectors. The countryis, however,hea"ily dependent on these two sectors. Hence economicpolicy needs to focus on sustainingthe advantagesand attractionsof these sectorswhile attempting,over the medium to long term, to diversifythe economicbase, and to spreadthe potentialand the benefitsof furthergrowth to the Family Islands;i.e., beyondNew Providenceand Grand Bahamas.

(a) As regardsthe existinggrowth sectors and centers,there is a need to effect improvedoverall profitability of the tourism sectorby raisinghotel capacityutilization and containingcost increases. In the area of offshorebanking, recent efforts towardsestablishing appropriate framework and rules for informationflows shouldbe kept up.

(b) Lookingahead, greater attention needs to be devotedto regional distributionof futuregrowth and the infrastructureand economic opportunitiesavailable in the FamilyIslands. The promotionof economicgrowth in the other islandswill, of course,make demands on the country'sfinancial and administrativeresources.

(c) Domesticresource mobilization by means of a broadertax base, and improvedassessment and collectionof taxes and user fees, would seem to be essential. - 37 -

(d) Continualupgra4ing of the operatingefficiency of the public administrationis needed,with emphasison expediting administrativeprocedures, enhancing coordination in policymaking and implementation,and strengtheningproject preparation and appraisalsystems.

GovernmentPolicy

3. The developmentstrategy of the Governmentis to continueto promotesound investmentsand growthof tourism. For the longerterm, Governmentalso intendsto pursue diversificationof the economicbase, by encouragingviable agriculturaland industrialinvestments, and establishinglinkages between these and the tourismsector.

ProiectPriorities

4. Projectprioritias continue to be adequatemaintenance and improvementof the supportinginfrastructure, particularly water distributionand storageand generaltransportation. Vocational training and technicalassistance to strengthenpublic sectorinstitutions are also required.

Creditworthiness

5. The Bahamasis consideredcreditworthy for IBRD borrowing. IBRD Program

6. Bank Group operati*)nsin The Bahamashave includedthree IBRD loans: a Water and Seweragetproject (US$10million) in 1976,a Vocational and TechnicalEducation pro ect (US$7million) in 1981,and an Urban Developmentpcoj3ct (US$5.8million) in 1982. A SecondWater and Sewerage projectis cur.entlyin the FY87 lendingprogram of the IBRD. Also, preparationfor a SecondEducation Project would beginsoon. - 38 -

BARBADOS

Population: 252,700(mid-1985) IBRD/IDALendings See below

GNP per Capita: US$4680(1985 Most Recent Atlas Methodology) EconomicMission: September1986

The Economy

1. Barbados'economy witnessed a slowdownin 1985, recordinga GDP growthof only about 0.3% as comparedwith 3.5% in 1984. Sugar production declinedmarginally, while tourismand manufacturingdeclined significantly by 3% and 9.5% respectively.The manufacturingsector continuedto suffer from trade restrictionsin the CARICOMmarket. These declines,however, were offsetby growth in miningand quarryingand in construction. Meanwhile,unemployment increased from about 17% in 1984 to 19% in 1985 and is likelyto increasefurther in 1986, followingthe recentdecisions by a few major firms to close operationsin Barbados. The slowdownin the economyin 1985 led to a lower trade gap, which in combinationwith increasednet services,resulted in a currentaccount surplus equivalent to 41 of GDP. Externalreserves increased by about US$25 million in 1985; gross reservesat the end of 1985 stood at the equivalentof 1.9 monthsof importcover (excludingCMCF). Fiscalperformance also suffereda setback in 1985; althoughcurrent revenues increased significantly owing to improvedtax collections,higher wages and salariesled to a steeper increasein currentexpenditure, causing the currentaccount surplus to declineto the equivalentto 0.8% of GDP. Competitivenessof Barbados' productionfor internationalmarkets continues to be the most critical issue. While the recentdecline of the US$, to which the BDS$ is pegged, has broughtabout some improvement,Barbados remains a relativelycostly destinationfor tourismand sourceof manufactures. In the sugar industry, costs remainhigh on an internationalbasis. These developmentshighlight criticalimbalances in the cost/pricestructures of the tourism,and manufacturingindustries, which have experiencedrapid wage increasesin recentyears. With a view to improvingcompetitiveness and accelerating economicgrowth, the new Governmenthas introduced,through its July 1986 budgetproposals, a wide range of tax concessions,principally to the hotel industry,manufacturing and businesses.

PolicyIssues

2. The main policy issuesare as follows:

(a) FiscalPolicys The tax concessionsoffered by the July 1986 budgetare bound to resultin a major revenueloss in the short term. This loss needs to be compensatedby revenueincreases, possibly in consumption taxes, and by current expenditure control. Failure to do so will weaken domestic resource mobilisation efforts - much neededto financepublic investment.

(b) Wate Policys Wage rates have increasedmore rapidlythan productivitygains in recentyears. Unlesswage increasesare restrained,international compotitiveness, particularly in manufacturingand tourism,are bound to declinefurther. - 39 -

(c) ExchangeRates Cumulatively,the real effectiveexchange rate has appreciatedby about 252 (as of December1986) in relationto the 1980 base. This is one of the factorsresponsible for Barbados' loss of internationalcompetitiveness. This issue needs to be addressedin the short term.

(d) Unemployment:The currentlyhigh unemploymentrate of around 191 highlightsthe urgencyof introducingincentives to promotelabor intensiveindustries.

(e) Manufacturin:sThe main task is to designmeasures and incentives,strengthen marketing capability and promotejoint venturesfor encouragingexports to extra-regionalmarkets with appropriatemarketing research. Also, manpowerdevelopment effortsneed to be intensified.

(f) Tourisms The criticalissus here is the competitivenessof the touristproduct. The recenttax concessionsto the tourist industryneed to be reflectedin upgradedand refurbishedtourist facilitiesin line with hotel rates charged. Concurrently,there is a need to improvemanagerial efficiency, accounting practices and marketingstrategies.

(g) Agriculture: In the sugar sector,the use of land and other resourcesneed to be rationalized,productivity h&s to be improved and measureshave to be devisedto deal with the accumulateddebt of growersand of the BarbadosSugar Industries,Ltd. In the non- sugar agriculture,major effortsare neededto encouragecrops for the domesticmarket, and with potentiallinks to food processing and the tourismindustry.

GovernmentPolicy

3. The new Government is committed to an economic strategy based on export-ledgrowth and a greater role for the private sector. Accordingly, more emphasisis being placedon exportmarketing and stimulatingdomestic investmentvia tax concessionsand lower interestrates. The public sector is expectedto play a supportiverole and to attainhigher levelsof operationalefficiency.

ProiectPriorities

4. There is no significantchange in the structureof the public sector investmentprogram in the short term, i.e., during fiscalyears 1986187and 1987/88,but the size of the programhas been reduced. In the medium term, however,the Governmentintends to move away from the physical infrastructure(e.g. roads, port facilities)to more directlyproductive areas such as irrigation,technical assistance and credit.

Creditworthiness

5. The Government of Barbados continues to demonstrate its ability for good economic management, reliance on markets and private sector - 40 - participationand a strongcom itmentto improvethe standardof lLvingof the Barbadianpopulation. Barbadosis consideredcreditworthy for IBRD lending.

IBRD Program

6. Consistentwith the 1984 decisionson graduation,the lending program includesprojects in agriculture,industry, vocational training and roads. IBRD'sprogram is expectedto includeinstitution-strengthening and relatedtechnical assistance.

IBRD Lending (US$ million)

Loan Year Borrower Purpose Bank Share

1642-BAR 1979 Barbados Education 9.0 1685-BAR 1979 Barbados Tourism 8.0 1813-BAR 1980 Barbados Industry 10.0 1940-BAR 1981 BLPC Power 6.0 2115-BAR 1982 Barbados TechnicalAssistance 2.7 2260-BAR 1983 Barbados IndustrialCredit 10.5 1642-/1-BAR 1984 Barbaods EducationSupplement 3.0 2432-BAR 1984 Barbados Road Main. & Rehab. 11.0

TOTA'. 60.2

AdditionalCapital Requirements (US$ million):

1986 1987 1988

AdditionalExternal Financing Requiredfor: Pub. Sec. Invest.Program 3.0 7.5 7.5 Balanceof Payments/Budgetary

Support __ - 30.0

TOTAL 3.0 7.5 37.5 - 41 -

BELIZE

Population: 166,200(1985) IBRD Lendints See below

GNP per CapitasUS$1130 (1985) Most Recent EconomicMission: June 1986

The Economy

1. While real GDP in Belizeis estimatedto bhve grown at an average annual rate of about 5% in the 1970.,economic performance in the first half of the 1980s has been much weaker,averaging about 1.2% real growth. The reasonsfor this are various,but includethe effectsof international recessionin the early 1980. and an almostcontinual deterioration in the country'sterms of trade as a resultmainly of fallingsugar prices abroad. There was a temporaryimprovement in this overallperformance in 1984, due to a large increasein constructionactivities and an improvementin the terms of trade becauseof a recoveryin sugar prices. This was not sustained in 1985. Partly as a result of the general stagnation of the economy,the publicsector's financial performance deteriorated, with negativepublic savingsin both FY1982/83and FY1983184,and an overall fiscaldeficit (beforeexternal grants) that reached14.3Z of GDP in FY1982/83and 12.7% of GDP in P11983/84. In addition,the public sector accumulatedexternal payments arrears during this periodon debt serviceto foreignsuppliers and multilateraland bilateralagencies. To remedythis situation,in mid-1984,the Governmentadopted an adjustmentprogram which resultedin a substantialimprovement in fiscalperformance. By PY1985J86, public savingshad improvedto a positive5.71 of GDP and the overall deficithad declinedto 5.11 of GDP. In particular,the improvementin the publicenterprises has been substantial,moving from an overalldeficit of BZ$4.4million in FY1983/84to a surplusof BZ$12.3million in FY1985|86. Reflectingthese adjustmentefforts, the externalsituation of Belizehas also improved,with an improvementin the currentaccount deficit from -11.6%of GDP in 1983 to -8.7% in 1985. Early indicationssuggest that this improvementin the balanceof paymentsshould persist throughout 1986. On the fiscalside, the level of publicsavings is expectedto decline somewhat,due to the public sectorsalary increasesof about 12% grantedin July 1986.

Policy Issues

2. The main policy issuesare as follows:

(a) While there has been an imprcvementin fiscalperformance, the outlookfor FY1986/87is not so clear.The Government'sbudget envisagesa large increasein publicsector expenditures (about 4% of GDP), to be met by the sale of specialbonds to non-residents. This program is very uncertainand if the bond sales do not materializein the number envisaged,then public savingsare expectedto decline,with the resultthat the demandson the domesticbanking system will increase. - 42 -

(b) The level of public investmenthas remainedstatic since FY1982183 (or declinedin real terms),and is not at levelsthat are warrantedby the infrastructureneeds of the economy.While there has been a budgetedincrease in FY1986187to about BZ$45.9 million,this may not be realizedif the publicsavings performanceis lower than anticipated.

(c) In the medium to long term, tax reformswill be necessaryand in W.heinterim, further improvements in procedureand administration could do much to enhancepublic sector revenues.

(d) The key developmentstrategy is to expand and diversifythe country'sexports, to reducethe instabilitiescaused by an almost total relianceon sugar. While some progresshas been made (most notablyin citrus),further efforts need to be mide for other crops such as cocoa,bananas, shrimp and beef production. Constraintson this diversificationare the infrastructure, particularlythe road network,availability of medium term credit for farmers,and a comprehensiveagricultural extension and researchservice. A final constraintis the systemof price controls,quantitative restrictions and importlicenses, and the tariffstructure.

(e) There is still concernover the weakeningof the publicsector's administrativecapacity, the shortagesof higher levelmanpower skillsand the need for organizationalrestructuring.

GovernmentPolicies

3. The presentGovernment is aware of the varietyof policy issues outlinedabove and has recentlycompleted a Five Year Macro-EconomicPlan for Belize (1)85-1989),that seeks to addressthese issues. In particular, the Governmentfavors a greaterrole for privateinvestment in order to achievegrowth, and has, for example,divested the publicsector's land holdingsin the bananasector. A programto improvethe efficiencyof the Belize ElectricityBoard and the BelizeMarketing Board has alreadybeen initiated.

ProlectPriorities

4. Furtherdevelopment of the economicInfrastructure remains the major focus of projectactivity. Investmentsare requiredin roads,water, sewerage,telecommunications, airport development and electricity.In addition,:n order to hastenthe diversificationof the economy,directly productiveassistance in the agriculturalsector designed to assist "non- traditional'crops, will be necessary.

Creditworthiness

5. The countryshould be consideredcreditworthy for limited borrowingon conventionalterms, provided measures introduced to improve public financesare continuedand that a major part of futureexternal financialassistance continues to be providedon concessionalterms. - 43 -

IBRD Lending

2273-BEZ Road Maintenanceand RehabilitationProject Approveds May 13, 1983 Amounts US$5.3million

2749-BEZ Power DevelopmentProject Approved: August 5, 1986 Amount: US$7.5million

AdditionalCapital Requirements (US$ millions)

1986 1987 1988

Public SectorInvestment Program 0.3 3.1 3.7 - 44 -

DOMINICA

Populations 0.084million (mid-1985) IBRDIIDALendinat See below

G"P per capita: US$1,160(1985 Atlas Most Recent methodology) EconomicMission: May 1986

The Economy

1. Annual GDP growthaveraged 2.3X in 1982-83,then climbedto 62 in 1984. Expendituresfor reconstructionand rehabilitationhave been the drivingforce behindthis growthperformance. Productive sectors' performancefell below potential. Bananaproduction, the traditional mainstayof the economy,is still below prehurricanelevels and the manufacturingsector experiencedseveral closures in the last two years. Growthslowed in 1985 to 1.1X, reflectingcompletion of the major roads projectand a declinein agriculturaloutput. The Govermnenthas implementedstabilization programs supported by financialarrangements from the IMF, and the public financesimproved markedly since 1980. The Government'sbudget showeda small surplusequivalent to 0.9% of GDP in 1985/86. Howeverthe currentaccount of the balanceof paymentswidened in 1984 and 1985 as investment-relatedimports increased and exportsfaltered.

Policy Issues

2. The main policy issuesare:

(a) Promotionof Public SectorSavings. Furtherrationalization of the operationsof the CentralGovernment as well as the public enterprisesis neededto strengthenthe public finances.

(b) Increasedproduction and erports. It is necessaryto improvethe incentiveenvironment for exportagriculture and manufacturing, sectorsin which performancehas falteredrecently.

(c) PublicSector Investment.Improved programming and monitoringof the public sectorinvestment is required.

GovernmentPolicy

3. The Government'sdevelopment strategy is consistentwith the above. In particular,the Governmentis pursuingexternal assistance in the contextof the 'tighter'consultative group for projectand program financingof its structuraladjustment pL2gram.

ProiectPriorities

4. The Goverment's investmentpriorities are in agricultaralsector projectsaimed at agriculturaldiversification, expansion of Its hydroelectricfacilities; and supportinginfrastructure to expand agriculture,manufacturing and tourism. - 45 -

Creditworthiness

5. Despitepast improvements,Dominica's fiscal and balanceof paymentspositions have to be strengthenedfurther. The projected debt serviceobligations in the medium term suggestthat Dominica can only be consideredmarginally creditworthy for borrowingon nonconcessionalterms; therefore,it should continueto rely on highlyconcessional capital flows for most of its developmentfinancing.

Bank Group Strategy

6. The Bank Group'sstrategy is to:

(a) Continuechanneling resources to Dominica(as to other OECS countries),mainly through the CDB.

(b) Processthe DominicaPower Project.

(c) Supportthe Government'sstructural adjustment efforts and strengthencreditworthiness.

(d) Maintaina policy dialogueon macroeconomicissues and assistthe Governmentin mobilizingexternal financing, project and nonproject.

Bank Group Lending

Credit 1^21-DOM- Road Maintenanceand RehabilitationProject, US$5.0 million;approved April 1, 1982. A proposedhydroelectric power project,for which a creditof US$3.0million is contemplated,was appraisedin October 1986 and is currentlyscheduled for Board presentationin FY 1987.

AdditionalCapital Requirements (US$ millions):

FY86/87 FY87/88 FY88/89

Additionalexternal financing required fors PublicSector InvestmentProgram - 10.7 16.6 BudgetarySupport 4.2 5.0 5.5 - 46 -

DOMINICANREPUBLIC

Populationt 6.4 million IBRD Lendines See below

GNP per capita: US$990 (1984Atlas Most Recent methodology) EconomicMissions April 1985

The Economy

1. The economycontracted by 1.2X in 1985 becauseof the Impactof decliningsugar exportvolumes, contracted capital inflows, and the effects of stabilizationefforts. In January1985, the Governmentagreed to enter iLto an IMF standbyarrangement, which took effectin March;under that program,among other things,the Governmentlimited net creditto the public sector,reduced some subsidiesand introducedan exporttax to help close fiscalgaps. The Governmentalso rescheduledits privatecommercial debt worth US$286million and Paris Club obligationsof US$240million. The privatecommercial debt agreementcalls also for a serial rescheduling affecting1986-89 payments; maturities falling due in that periodwill automaticallybe rescheduledprovided that the countryhas an internationallysupported financial program in place. The country successfullymet the objectivesof the IMF program,which expiredin March 1986. Despitethese accomplishments,the subsequentelimination of the exportsurcharges and increasedspending in the firsthalf of 1986 eroded most of the stabilizationgains by the time the new Governmenttook office in August 1986. The fiscaldeficit doubled as a percentof GDP from 2.7 to about 5 percent. This, togetherwith furthercontractions in the Dominican sugar quota in the United States,pulled down CentralBank reservesand put pressureon the peso exchangerate. Tourismcontinues to be the bright spot on the horizonwith revenuesup by more than 15 percent in 1986. PolicyIssues

2. The main issuesare as follows:

(a) Tax reformto replaeethe lost fiscalrevenues and modernize the revenuebase of the publicsector and the abolitionof non-economicpricing of stateenterprises, with the objective of increasingpublic savings;

(b) Reformof public investmentmanagement to increasethe amount and productivityof public investment;

(c) Reformthe financialsystem to help mobilizeprivate savings and facilitatethe reallocationof investmentto high-growth sectors;

(d) Reform the tariffsystem to promoteinternationally competitive industriesand activitiesby channelinginvestment into the most productivesector;

(e) Implementsectoral reforms in agriculture,industry, and tourismto realizethe full potentialin these potentially high-growthsectors; - 47 _

(f) Introduce policy reforms In health and nutrition that are necessary to Improve the productivity of Dominican worker. Creditworthines

3. The now Government in office has to establish a record of timely debt servicing which will markedly enhance the country's creditworthiness for IBRD landing.

Government Policy

4. As of this writing the Government has not made public its development program.

Future IBRD Operations

5. One project is under Immediate consideration, the Power I Project, to rehabilitateand improveelectric transmission. Anotber is also under consideration,the financingof the Haina coal terminal. Following the Bank's mission to discuss policy issues and lending program with authoritiesin October1986 the eventualprogram should become clearer. Bank Lendn (sinLce 1979)

6. 1655-W - Niaao Irrigation(1979) (IS$27.0m) Ongoing 1699-DO- Second Puerto PlataTourism (1979)(US25.0) 1760-DO- Sugar Rehabilitation(1980) (US$35.0m) 1782-DO- Urgent ImportRequirements (1980) (US$25.0O) 1783-DO- Emergencyload Projects(1980) (US$25.0m) 1784-DO- SecondHighways (1980) (US$35.0m)

2023-DO- Cocoa and CoffeeDevelopment Proj. (1981)(US$24.0m) n 2104-DO- Sites and Services(1982) (US$25.4m) 2369-DO- Coal Terminal& Power Engineering(US$3.8m) 2558-DO - Third Highwy Reconstruct.& Maintenance(US$35.8m) 2609-DO- VocationalEducation (US$5.8m) - 48 -

GRENADA

Population: 96,000 (mid 1985) IBRD/IDALendint: See below

GNP per capita: US$970 (1985Atlas Most Recent methodology) EconomicMission: March 1986

The Economy

1. The Grenadianeconomy performed better than expectedin 1985. Real GDP grew by an estimated3.7%, after fallingby nearly3% in 1983 and risingby 2Z in 1984. The leadingsectors in this recoverywere tourism and, to a lesserextent, manufacturing. On the other hand, productirc.in agriculture,the largestsector of the economy,fell becauseof the poor performanceof traditionalcrops.

2. In 1985, the currentacco.at of the CentralGovernment had a small surplusas a resultof higher than budgetedrevenues, mainly derivedfrom importtaxes. The overalldeficit of the publicsector, excluding budgetarygrants, increased from 25% of GDP in 1984 to 28% of GDP in 1985, followinga rise in capitalexpenditures. These deficitswere covered totallyby externalgrants, 80% of which came from USAID. A comprehensive tax reformwas introducedin 1986,whereby most existingtaxes, including the incometax, were repealed. The foundationof the new system is a new 20% value added tax (VAT). However,difficulties in settingup the new system and additionalexemptions granted by the Governmentmay resultin a revenueshortfall and a substantialbudgetary deficit in 1986.

3. Grenada'sbalance of paymentsdid not changesubstantially in 1985, after Improvingsignificantly in 1983-84due to a drop in investment- relatedimports and an increasein tourismreceipts. Externalgrants more than doubledto US$25 millionin 1984, and reachednearly US$30 million in 1985,allowing Grenada to cut sharplyits extert.alborrowing and make substantialrepayments to the ECCB and others. The estimatedoutstanding debt at the end of 1985 was US$47.5million (92% of imports)and the debt servicepayments amounted to US$8.3million (16% of exportsand 22% of currentrevenues). Arrearsat the end of 1985 are estimatedat US$3 million.

PolicyIssues

4. The main policy issuesare the followings

(a) Make the new tax system fully operationaland reviseit, if needed,in order to increaserevenue collection.

(b) Reorganizethe publicsector by cuttingnearly 20% of the workforce(O & M Study)to reducecurrent expenditure.

(c) Proceedwith the Model Farm projectto hand over Governmentland to agriculturalworkers.

(d) Lower the restrictionson internationaltrade and reducedomestic price controlsto improveefficiency and promoteprivate investment. - 49 -

GovernmentPolicy

5. In recentyears, the Governmenthas attemptedto increaseprivate sectorparticipation in the economythrough:

(a) Revisionof the investmentcode.

(b) Approving,in November1985, a comprehensiveplan for divesting most publicenterprises.

(c) Relaxationof the controlson interestrates, prices and foreign exchangetransactions.

(d) A major tax reform,announced in February1986, that repealsthe incometax, companytax, exportduty, stamp duty, exciseduty, consumptiontax and hotel occupancytax. The new tax systemis based on a 20% value added tax aimed at reducingthe distortions associatedwith the old tax structure.

ProlectPriorities

6. In order for the Governmentto meet its goals of increasedprivate sector investmentand higher economicgrowth, it is essentialthat it continuiesexpanding and strengtheningthe economicinfrastructure. Significantimprovements have been made in electricitysupply, the main roadsnetwork and the constructionof industrialestates. However, additionaleffort is requiredin the expansionof feederroads, water supply and the seweragesystem and telecommunications.In addition, strengtheningof sectoralinstitutions, successful implementation of variousprojects covering rehabilitation of cocoaand bananas, diversificationof agricultureand upgradingof supportservices are criticalto the Government'sgoal of revitalizingagriculture.

Creditworthiness

7. The Grenadianeconomy is vulnerableto externalshocks, particularly sharp changes in the prices of traditional exports and revenues from tourism. However, domestic policies can affect the way in which the economydeals with these shocks. Based on recentexport performance, debt service as a percentage of total exports of goods and non-factor services could decrease from 162 in 1985 to an averageof 7.5% in 1990-95. Once the new tax system is fully in place and government revenuespick up, Grenadacould servicesome amountof foreignborrowing on non-concessionalterms in the medium term. Thereforeit should continueto rely on highly concessionalassistance for most of its investmentprogram.

Bank Group Strategy

8. The Bank plans to:

(a) Continuechanneling resources to Grenada (as to other OECS countries)mainly throughCDB.

(b) Supportthe Government'sstructural adjustment efforts and strengthen creditworthiness. -so -

(c) Maintaina policy dialogue on macroeconomic Issues and assistthe Governmentin mobilisingexternal financing, project and non- project.

Bank Group Lendina

9. In March 1985, IDA approveda US$5 mAllioncredit for Agricultural Rehabilitationand Crop Diversification,which is currentlybeing implemented.The CDB is providingfunds for the creditcomplement of these projects.

AdditionalCaital Reauirements(US$ million)t

1986 1987 1988 AdditionalExternal Financing Required fort PublicSector Investmen:Program 2.0 4.4 7.8 Balanceof Paymentsand Budgetary Assistance "2 4.0 2.0 TOTAL 4.0 8.4 9.8 - 51 -

GUYANA

Population: 791,000(mid-1985) IBRDIIDALendint: See below.

GNP Per Capita: US$570 (1985 Atlas Most Recent methodology) EconomicMission: September1986

The Economy

1. Followingthree years of rapid declinein GDP, Guyana'seconomic performanceimproved somewhat in 1984 and 1985. Comparedto the cumulative 20% declineduring 1981-83,GDP grew by 2% in 1984 and 1% in 1985. The main factorbehind the positivegrowth was the improvedperformance of the bauxitesector, especially in 1984. Despitethe positivegrowth in GDP, Guyana continuesto experiencelow levelsof outputand severedomestic and externalimbalances. The public sectorfinances continues to be weak, particularlybecause of the continuedunderutilization of capacityin the main public sector corporations,increases in public sectorwages and the compoundingof domesticinterest payments. In 1985, the overallpublic sectordeficit was over 60% of GD?. Similarly,Guyana's balance of payments'situation remains precarious. The currentaccount continued to deterioratein 1985, financedlargely by the build-upof externalarrears. As of June 1986, Guyana'sexternal payments arrears stood at US$820 million,partly as a resultof its inabilitiyto serviceits outstanding publicdebt. Actual publicdebt serviceas a percentageof exportswas about 12% in 1985, comparedto scheduledof 44% (excludinginterest accrued on debt in arrears).

Policy Issues

2. The main policy issues are as follow:t

(a) Implementationof a substantialexchange rate adjustment,aimed at arrestingthe rapidlydeteriorating foreign exchange situation and integratingthe parallelmarket into the officialmarket.

(b) Reductionin the size of the publicsector deficit, mainly through expenditurereductions at the CentralGovernment level and improvedproductivity of publicenterprises.

(c) Reductionof price distortionsthrough liberalization of domestic pricesby removingcontrols especially on sugar and rice, as done for non-traditionalcommodities.

(d) Prioritizationof resourcesfor rehabilitationin the medium term in order to restorethe economy'sproductive capacity which has been substantiallyreduced by the foreignexchange shortage.

(e) Simplificationof the exportand importlicensing system to grant equal accessto foreign exchange to both the public and private sectors.

(f) Upgradingof the fiscaland non-fiscalincentive system in terms of physicaland institutionalsupport infrastructure, especially the establishmentof a one-stopclearing house for foreign investmentand the promulgationof an investmentcode. - 52 -

Gov..rnmentPolicy

3. In the Government'spolicy memorandum submitted to the Bank in May 1986, the Governmenthas initiateda number of policies to tacklethe above issues:

(a) Institutionof a currencybasket to monitorthe value of the G$ relativeto the US$ and the establishmentof a defactomultiple exchangerate regime (a differentialbuying rate for gold and diamond).

(b) Explorationof additionalrevenue sources, especially avenues for taxing the informalsector; and the restructuringof the maturitiesof domesticdebt.

(c) Organizationalrestruc.uring of the public enterprisesinto supervisorycouncils, and the decisionto close non-viable enterprises.

(d) Developmentof institutionalchanges with respectto (i) a review of investmentincentives and importlicensing legislation and procedures,and (ii) new initiativeswith respectto gold, petroleumand other exportcommodities.

ProiectPriorities

4. Becauseof the uncertaintysurrounding resource inflows, the PSIP is restrictedto ongoingprojects with identifiedexternal support and short-termprograms of major domesticimportance. Agriculture remains the main thrustof the ongoingPSIP. The Governmentis activelyseeking externalsupport for its petroleumand hydro-powerdevelopment programs and for the rehabilitationof the bauxitesector.

Creditworthiness

5. Given the size of Guyana'sexternal arrears and its debt servicing problems,it cannotbe consideredcreditworthy for non-concessional financing.

Bank Group Stratet

6. The Bank Group proposesto:

(a) Supportthe Government'seffort in a comprehensivemanner to addresscritical internal and externalimbalances through a structuraladjustment program if it so desires;

(b) Shouldthe Governmentundertake to implementthe needed comprehensivestabilization and structuraladjustment programs, assist it in its effortsto mobilizethe necessaryexternal financing;

(c) Exploresuitable arrangements that could constitutethe basis for rehabilitationof the bauxitesector. - 53 -

Bank Group Lending (Since1978)

IBD

- 1622-GUA- ImportProgram Approved: October10, 1978; Closeds June 30, 1979 (US$5.0m) - 1623-GUA- Upper DemeraraForestry Approved: October10, 1978; Ongoing(Supplemental financing approvedMarch 7, 1985) (US$10m) - 1906-GUA- TechnicalAssistarce for Power Development Approveds October7, 1980; Closeds June 30, 1984 (US$8.0m) - 1948-GUA- StructuralAdjustment Loan Approveds February3, 1981;Closeds December31, 1983 (US$14m) - 1949-GUA- SecondTechnical Assistance Approved: February3, 1981;Closed: December31, 1984 (US$1.5m)

IDA

- 853-GUA- ImportProgram Approved: October10, 1978; Closeds June 30, 1979 (SDR 5.0 m) - 1098-GUA- StructuralAdjustment Credit Approvedt February3, 1981;Closedt December31, 1983 (SDR 6.3 m) - 1208-GUA- PetroleumExploration Promotion Approveds February16, 1982; Ongoing (SDR 1.7 m) - -QUA - TechnicalAssistance for the Bauxite Approved: Auust 66, 1986 but not yet signed. - 54 - HAITI

Populations 5.5 million (mid-1985) IBRDIIDALending: See Below

GNP per capita: US$350 (1985Atlas Most Recent EconomicMission: methodology November1985

The Economy

1. The economyof Haiti has stagnatedsince 1980. In part, this is due to externalfactors: export receiptsfrom coffeewere affectedby low world prices and hurricanes;the assemblyindustry, while successfully weatheringthe 1980-83North Americanrecession, has sufferedbadly from the recentdifficulties in the U.S. computerindustry; the only bauxite mine wab closedin 1982,when its depositswere exhausted,and tourismhas also sufferedseverely.

2. Internalfactors also contributedto the stagnation: in agriculturethe key problemhas been populationpressure on limitednatural resources,which have led to severeerosion, declining marginal productivityand increasingpoverty for the rural peasants;public policies,especially inappropriate pricing incentives and diffusedand unfocusedagricultural investment and creditpolicies, have compounded this; and with the exceptionof investmentsin the Artibonitevalley, rural developmentprojects do not seem to have led to productionincreases.

3. Further,the incentivesystem toward local industrydid not encourageexports. The high protectionled to the saturaitionof the local market and an industryunable to competein world markets. Employmentin this local industryhas stagnatedaround 25,000.

4. Fiscaldiscipline weakened during the 1980s. The budgetdeficit averaging10 percentof GDP was financedby externalconcessional aid (67 percent),Ceitral Bank credit (28 percent)and foreigncommercial borrowing (5 percent). Public expenditurewas very poorly allocated;waste and inefficiencywere endemic;extra-budgetary spending was frequentlyout of control;public savingswere inadequate.This lack of fiscaldiscipline and the inappropriateuse of public funds led to a declinein net aid flows, from seven to five percentof GDP, during 1983-85.

5. The above factorsled to the deep financialdisequilibrium that has grippedHaiti this decade. That part of the public sectordeficit financedthrough monetary creation spilled over into the balanceof payments. Net reserveshad fallento minus US$86 millionby the end of FY85 and gross reserveswere essentiallynonexistent. The dollarpremium on the parallelmarket rose from about 8 percentin January1985 to 23 percentby January1986.

New Government'sResponse

6. Very tight fiscalcontrols were introducedsoon after the February 1986 changeof governmentand, as a result,public sector operations--net - 55 - of expenditure financed with external concessional loans, showet a surplus throughAugust 10, 1986, as comparedto a very large deficitduring the same period of the previousyear. The tight fisualpolicies should bring about an overallbalance of paymentssurplus of some US$20 million. The discountfor the Gourde in the parallelmarket has declinedto about 5 percent.

7. Also, the transitoryGovernment is embarkedon a far reaching, courageousprogram of economicreforms that seeks to promoteeconomic expansionthrough export led growth and improvedagricultural performace. To achievethese objectivesthe Governmentis removingimpediments to efficientresoutce allocation and is strivingto rebuildthe confidenceof private investorsand the donor agencies. In additionto tighteningof fiscaland monetarypolicies, the Governmentis closingor divestingitself of major money losing and uneconomic public enterprises, exposing private and publicmonopolies to competitionfrom importsand breakingup import monopolies.

8. In terms of trade liberalization,so far the list of products subjectto importquotas were reducedfrom 111 to 35 and by the end of 1986 the law that establishedthe importquota and licensingschemes will have been abolished. By that time, all goodswill be traded freelyexcept for the prohibitionto importused newspapersand used clothingand the temporary--untillate 1987--importlicensing--without quotas--of a few agriculturalproducts (vegetable oil, rice, maize,millet, beans and pork meat).

Policy Issues

9. Followingis a more comprehensivelist of the issuesthat the Government has addressed and will continue to addressover the next 15 months.

(a) Fiscal Policy: Improved revenue collection (by improving customsvaluation, customs procedures, value added tax collectionand incometax collection,and eliminatingpetty taxes);improved allocation of expenditures(by avoiding extra-budgetaryspending, reinforcing expenditure controls and public sectoraccounting, limiting public sector employmentand wage bill, reallocatingcurrent expenditures towardhealth, education, agriculture).

(b) Public Enterprises:Eliminate real resourcelosses (end budgetarytransfers, audit enterprises,liberalize cement market, restructurepublic sectorenterprises); and limiting employmentincreeses and eliminatingpublic sector arrears among publicutilities.

(c) Public Investmerts Greateremphasis on priorityneeds of productivesectotrs and human capital(complete ongoing priorityprojects, improve external aid coordinationand - 56 -

coordinationwith NGOs, prepareseries of small employment generatingproductive projects).

(d) CompetitionPolicy: Improveallocation of resource (eliminateimport quotas, reduce tariff to average20 percent level).

(a) AgriculturalPolicy: Improveproducer incentive (progressive eliminationof exporttaxes, replacegrain importquotas with tariffs,raise rentalson State lands and tax large landholdings);improve public servicesand creditto farmers (strengthenextension services, emphasize irrigation rehabilitation,operations and maintenance,replace existing agriculturalcredit institutionswith new bank).

(f) IndustrialPolicy: Promoteprivate investment (consistent applicationof 1985 investmentcode, improvecustoms administration,encourage private industrial parks).

(g) SocialDevelopment: Improvehuman capital (improve efficiencyof public healthand educationministries, emphasizefamily planning, continue basic educational reform).

ProjectPriorities

10. The priorityfor public sectorinvestment projects should be to supportthe expansionof privateenterprises in agriculture,industry and services,especially for export. Socially-orientedprojects should be subjectto systematicleast cost solutions. In agriculturethe focus shouldbe irrigationrehabilitation and the provisionof essential infrastructure(like rural roads)in high potentialirrigated and rainfed areas. The priorityin industryis also infrastructure(i.e., power).

Bank Group Strategy

11. During its FY87, IDA proposesto extendto Haiti a creditto supportthe TransportVII project (US$20million), an Economic RehabilitationCredit (amountyet to be determined)and a Technical AssistanceCredit. A creditto supportthe expansionand restructuringof industrialfirms is under considerationfor early FY88.

12. Finally,IDA will make the effectivecoordination of Haiti's investmentprogram the focus of its generalassistance to the country.

IDA Financing

22 credits (of which 12 are fully disbursed) Total committed: US$256.4million - 57 -

JAMAICA

Populations 2.2 million (1985) IBRD/IDALendint: See below

GNP per Capita: US$890 (1985 Atlas Most Recent methodology) EconomicMissions July 1986

The Economy

1. The Jamaicaneconomy continues to sufferfrom internaland externalimbalances. In the last two years, 1984 and 1985, real GDP has declined(by -0.5% and -5.0% respectively),predominantly as a resultof a dramaticdecline in the bauxiteand aluminasector. Gross exportproceeds from mining declinedby US$153.7million in 1985 or by about 35% over the preceedingyear and some 62% lower than receiptsin 1981. Other export performancein 1985 was also disappointing.Tourism revenues were static, sugar receiptswere down by 24.6%,with other agriculturalproducts only showingmodest improvement.Clothing continued to exhibitstrong growth (an increaseof 10%), however,other manufacturedexports declined. As a resultof these developments,the currrentaccount of the balanceof paymentsdeteriorated by US$5.0million in 1985 to reach a deficit equivalentto about 9.5% of GDP. From Januaryto October 1985, the officialexchange rate for the Jamaicandollar vis a vis the US dollar continuallydepreciated from about J$5.040to US$1.00to about J$6.100. Since then, however,the nominalrate has appreciatedto J$5.50,at which level it has remained. The overallpublic sectordeficit for FY1985/86was 13.8% of GDP, representinga marginalimprovement over the 15.51 of GDP in FY1984/85. The outlookfor the economyin 1986 has improved. Tourismhas improvedsignificantly in the first half of 1986, and it is projectedthat overallstopover visitor arrivals could increaseby about 10%. Furthermore,the declinein the bauxite/aluminasector has stabilizedand a modest improvementin both aluminaand bauxiteproduction can be expected. As a resultof these developments,together with considerablylower import levels, the currentaccount of the balanceof paymentshas shown considerableimprovement in the first half of 1986, comparedto the same period in 1985. Provisionalestimates suggest a surplusof US$13.2million for January-June1986, comparedto a US$148.8million deficitfor the same period in 1985. On the other hand the overallfiscal deficit remains stagnant. Estimatesfor the first few months of this fiscalyear (FY1986/87)indicate a deficitof 4.9% of GDP comparedto 4.8% of GDP for the same four month period in FY1985186.

Policy Issues

2. The main policy issuesfacing the Governmentare as follows:

(a) Despitesome of the positiveindications in the balanceof paymentsfor 1986, a fundamentaldisequilibrium in the external accountscontinues to exist,due in part to the large debt service obligations. It is estimatedthat Jamaicaneeds a reserve improvement of about US$140.0million in FY1986/87. The balance of paymentsconstraints on the economyare still severe,and furtheradjustment efforts will be necessary. - 58 -

(b) Since the stabilizationof the nominalexchange rate in October 1985, the Jamaicandollar has appreciatedby between 102 to 151 in real effectiveterms (dependingupon the base period for measurementand comparison).While domesticinflation has fallen (12.22on an annualbasis at the end of July 1986, comparedto 23.22 at the end of July 1985),nominal wage adjustmentshave been in the regionof 10% to 152, with the resultthat a real danger exists that the competitivenessof the country'snon-traditional export sectormay be eroded.

(c) There is urgentneed to reducethe overallfiscal deficit and reduce the public sector'sdemands upon domesticcredit, to the detrimentof credit availabilityto the privatesector.

(d) In additionto the tourismsector, non-traditional exports will be the main sourceof futuregrowth, supplemented in part by efficientimport substitution production. To achievethis goal, furtherreforms are necessaryin trade and incentivepolicy, particularlywith respectto the tariff system. The coverageof the presentsystem needs to be broadenedand the dispersionof tariff ratesnarrowed.

(e) The need for furtherfiscal austerity will put greatpressure on the public sector investmentprogram. Therefore,there is great need to ensurethat this programis efficientlytargeted and concentratesupon those infrastructureneeds necessaryto support growth in the leadingexport sectors.

(f) While improvementshave been made in the performanceof the public enterprisesector, efforts must continueto eliminatethe need for any CentralGovernment transfers. In this regard,an appropriate food pricingpolicy needs to be developedthat offersappropriate incentivesto domesticagriculture, and more efficientlyfocused subsidiesor supportfor the lowestincome groups need to be put in place.

ProiectPriorities

3. The difficultfiscal and balanceof paymentsissues over the next few years suggestthat the public investmentprogram should focusupon furtherrehabilitation of the supportingeconomic infrastructure (such as utilities)end the provisionof creditto fosterprivate investment in appropriateactivities in agricultureand industry.

Creditworthiness

4. There is an urgent need to eliminatethe current level of external paymentsarrears and to reschedulecommercial and Paris Club membersdebt.

Bank/IDAFinancing:

40 loans (of which 28 are fully disbursed) Total outstandingand committed- US$556.0million. - 59 -

5. There are currentlysix Bank projects,including two sector adjustmentloans that are presentlyunder preparation. These include EducationIV, Sugar RehabilitationII, Populationand Health,Power IV# Trade and FinanceSector Adjustment and PublicEnterprise Sector Adjustment.

AdditionalCapital Requirementst (US$ million)

Estimatesfor FY1986/87and FY1987188are preliminarypencding agreementupon an appropriatemacroeconomic framework and final definition of the public investmentprogram. FY1985186 FY1986/87 PY1987/88 (Actual)

Total 674.8 855.9 718.1

Project 117.9 162.1 138.0 Non-project 325.1 328.0 210.0 Rescheduling 231.8 228.1 158.1

ex ante financinggap 137.7 212.0 - 60 -

ST. CHRISTOPHERAND NVIS

Population: 43,200 (end 1984) IBRD/IDALendint: See below

GNP per capita: US$1,390(1984 Atlas Most Recent methodology) EconomicMission: August 1986

The Economy

t Real GDP at factorcost increasedby only 1% in 1985,following a declineof nearly22 in 1983 and an increaseof 3.42 in 1984. Adverse weatherconditions brought about a drop in sugarcaneproduction of more than 10X in 1985,while difficultiesin CARICOMtrade that affectedmainly the garmentand shoe industriesresulted in a declineof manufacturing output of nearly 10. These negativeeffects were partiallyoffset by higher growth rates in construction,tourism and the distributivetrades. However,the averageannual growth rate was less than 12 in 1983-85versus more than 52 in 1980-82.

2. The currentaccount deficit of the FederalGovernment More than doubledto 72 of GDP in 1985,while the overalldeficit of the public sectorincreased fivefold to 182 oS GDP. In the first half of 1986,the Governmentassumed the EC$53million debt of the NationalAgricultural Corporation(NACO), which was merged into the St. Kitts SugarManufacturing Corporation(SSMC) to consolidatethe sugar industry. Consequently,the domesticdebt of the FederalGovernment would amountto roughlyEC$120 million (about652 of GDP) in 1986. The resultinghigher debt service paymentscoupled with a higherwage bill could push the Governmentcurrent accountdeficit to 102 of GDP in 1986.

3. The currentaccount of the balanceof paymentsimproved significantlyin 1984,when the deficitwas cut by one third to US$11.5 million,and it did not change in 1985. In both years therewas a steep increasein tourismrevenues, but this positiveeffect was offset in 1985 by a drop in sugar exports. The currentaccount deficit is projectedto declinefurther in 1986 becauseof a higherthan expectedsugar production and continuoustourism growth. The estimatedoutstanding external debt at the end of 1985 was US$20million, nearly 30% of GDP. Debt service amountedto less than 42 of total exportsor 92 of the currentrevenue of the FederalGovernment. Total debt (domesticand external)would amountto aboutEC$175 million (952 of GDP) in 1986.

Policy Issues

4. (a) The narrow revenuebase of the FederalGovernment; current revenuesdeclined from 332 of GDP in 1981 to 252 of GDP in 1985.

(b) The huge domesticdebt of the FederalGovernment, which doubledto roughlyEC$120 million in 1986, and imposesa heavy burdenon the fiscalbudget.

(c) The situationof the sugar industry,where productionhas been decliningsince 1979. - 61 -

(d) The solutionof the land tenureissue, which would enablethe Governmentto obtainclear title to sugar lands. Settlementof this issuewill enablethe Governmentto undertakea long-term agriculturaldiversification program.

GovernmentPolicy

5. The Government'sdevelopment strategy is to continuepromoting growth in the tourismsector, particularly by grantingincentives for furtherdevelopment in the FrigateBay area and by the new developmentof the SoutheastPeninsula, which has the strongesttourism potential in the island. The Governmentis also committedto improvingthe efficiencyof the sugar industryand diversifyingagricultural production by handingover land to farmersand expandingirrigation.

6. The Governmentis aware of the difficultfiscal situation, which would not changeunless expenditures are curbed and alternativesources of revenuesidentified in order to reducetde currentdeficit and achieve positivepublic savings.

ProlectPriorities

7. The main projectpriorities are the expansionof the sewerage system in FrigateBay and the developmentof the Southea,tPeninsula, Includingthe penetration road and accompanyinginfrastructure. The PSIP for 1986-88amounts to US$36 million. About 75% of this programhas identifiedexternal financing either as grantsor loans. Of the remaining 25Z, about US$5 millionwould come from domesticsources, leaving a financinggap of nearlyUS$4 million.

Creditworthiness

8. Notwtthstandingthe relativelow debt serviceto exportsratio, the difficultfiscal situation in St. Kitts and Nevis and in particularthe large domesticdebt of the FederalGovernment makes the countryonly very marginallycreditworthy for borrowingon non-concessionalterms. Therefore,it shouldcontinue to rely on highly concessionalcapital flows for most of its investmentprogram.

Bank Group Strategv

9. The Bank plans to:

(a) Continuechanneling resources to St. Christopherand Nevis (as to other OECS countries)mainly throughCDB.

(b) Supportthe Government'sstructural adjustment efforts and strengthencreditworthiness.

(c) Maintaina policy dialogueon macroeconomicissues and assistthe Governmentin mobilizingexternal financing, project and non- project. - 62 -

AdditionalCapital Recauir.m.nts (USS million)s

1986 1987 1988 AdditionalExternal Financing Required for: Public SectorInvestment Program 0 1.0 2.8 Balanceof Paymentsand BudgetarySupport 10.0 6.0 6.0 TOTAL 10.0 7.0 8.8 - 63 -

ST. LUCIA

Pouulgtion: 136,771(mid-1985) IBRDIIDALendint: See below.

GNP Rer cavitat US$1210 (1985Atlas Most Recent methodology) EconomicMissiont June 1986

The Economy

1. In 1985, St. Lucia experienceda real growth rate of GDP of almost 62, the highestsince 1980 followingthe devastationof HurricaneAllen that year. The strong economicperformance in 1985 is attributablemainly to the substantialexpansion in bananaproAuttion and construction activities. While the currentaccount of the publicsector finances improvedsubstantially in 1984S85,that of the CentralGovernment continued to be weak. Publicsavings in relationto GDP rose from 1.3% in 1983 to 3.92 in 1985; neverthelessthe CentralGovernment current account deficit stood at 1S of GDP. The CentralGovernment fiscal problems result from inadequaterevenue sources, weak expenditurecontrols and the failureto make adequateprovision for the recurrentbudget implicationsof its investmentprogram. St. Lucia'sbalance of paymentshas strengthened significantlyin recentyears and the currentaccount has narrowedfrom the annualaverage of 34% of GDP during 1980-82to 12% in 1985. St. Lucia's externalpublic debt outstanding,at the end of December1985, stood at US$28.7million or 17% of GDP. Becauseof the concessionalterms of the outstandingdebt, the debt serviceratio is below 5% of exportsof goods and non-factorservices.

Policy Issues

2. The main policyissues are as follows:

(a) The need to implementa programto arrestthe build-upof domestic and externalarrears as well as to furtherimprove public savings. This would requirefinancial reforms in the public enterprises, improvedrevenue mobilization and expenditurerationalization in the CentralGovernment, and overallreform of the administrative structureof the publicsector.

(b) The need to pursueefforts at exportmarket diversification (essentiallyin manufacturing)in an effortto reducethe country'sheavy dependenceon the CARICOMmarket. In this connection,there needs to be a greaterfocus on issuesrelating to local value added,quality, price, market intelligence,etc.

(c) The need to introducerestraint in the grantingof high wage and salary increasesto the public sector.

GovernmentPolicy

3. The Government'sdevelopment thrust aims at strengtheningthe three main sectorss agriculture,tourism, and manufacturing,as well as diversifyingthe economy. With respectto agriculture,the broad objective Is to restructurethe sector,through the adoptionof meth-modsto increase - 64 - productivity,in an effort to improvefarm incomeand standardsof living. The strategyfor tourismfocuses on increasedlocal value added and less leakageof foreignexchange. Finally,the activeencouragement of manufacturingis part of the Government'sexport diversification and promotionstrategy. The Government'sdevelopment strategy is basically sound but the supportingpolicies and measuresneed to be articulatedmore clearly.

ProiectPriorities

4. The compositionof the publicsector investmentprogram (PSIP)is heavilygeared in favourof the infrastructurenecessary to supportprivate sector activitiesin the three main sectors: agriculture,tourism, and manufacturing. The PSIP for 1986/87-1988/89is projectedto reach approximatelyEC$40 million a year. A large part of the programaims at completingongoing projects. With regardto new projects,expenditures have only been projectedfor those that are in a sufficientlyadvanced stage of preparationand for which donorshave been identified.

Creditworthiness

5. From a creditworthinesspoint of view, St. Lucia shouldcontinue *:orely on concessionalfinancing for most of its developmentneeds. Bank Group Strategy

6. The Bank plans to:

(a) Continuechannelling resources to St. Lucia (as to other OECS countries),mainly throughthe CDB.

(b) Supportthe Government,shall it so wish, to addressthe country's domesticand externaleconomic imbalances in an effortto help the countrymove towardscreditworthiness.

(c) Maintaina policy dialogueon macroeconomicissues and assistthe Governmentin mobilizingexternal financing, project and non- project.

AdditionalCapital Requirment (US$ million):

1986 1987 1988

For PSIP 4.16 5.35 4.33 Balanceof PaymentsSupport 1.30 1.30 1.30 Total 5.46 6.65 5.63 - 65 -

ST. VINCENTAND THE GRENADINES

Population: 110,000(mid-1985) IBRD1IDALeading: See below.

GNP Per Capita: US$840 (1985Atlas Most Recent methodology) EconomicMission: July 1986

The Economy

1. Followingtwo major naturaldisasters--a volcanic eruption in 1979 and a hurricanein 1980--economicactivity rebounded, and real GDP grew at an averagerate of 6% p.a. during 1981-83,mainly becauseof the strong recoveryof agricultureand expansion in transportand communications.The growth rate, however,returned to the normal trend of 3% p.a. during 1984- 85, since the expectedgrowth in new sectorssuch as manufacturingfailed to materializeand public investmentcontracted substantially in 1984 though it recoveredin 1985. Public sector financesimproved significantly duringthe past four years,with publicsavings increasing from 1% of GDP in 1982 to 6% in 1985. This improvementresulted largely from the good financialperformance of the CentralGovernment and the rest of the general Government,which compensatedfor the poor financialperformance of the public enterprises. Substantialimprovements in the balanceof payments also occurred,and the deficiton the currentaccount narrowed from 212 of GDP in 1980 to 5% in 1985. St. Vincent and the Grenadine'soutstanding externalpublic debt declinedsteadily from 27% of GDP in 1981 to 23% in 1984, but increasedto 28% in 1985. As a resultof the concessionalterms, debt serviceremained at a modest 42 of exportsof goods and non-factor servicesin 1985.

PolicyIssues

2. The main policy issuesare as follows:

(a) In the agriculturalsector, solution to the marketingproblem of the arrowrootindustry; early action is neededto (i) disposeof the existingstock at the best possibleprice obtainableand therebyreduce the industry'sdebts and the cost of holdingstock, and (ii) lower the price paid to the farmerto a level at which the ArrowrootIndustry Association would incur no losses.

(b) In the contextof the public enterprises,continue efforts to improvethe financesof the non-financialpublic enterprises, especiallyin that of the CentralWater and SewerageAuthority.

(c) In manufacturing,speedy solution to the issue relating to infrastructuredevelopment for the proposedindustrial estates in an effortto promoteenclave manufacturing.

GovernmentPolicy

3. The Governmentis in the processof finalizingits three-year DevelopmentPlan, which outlinesthe main developmentobjectives, strategiesand policiesfor 1986-88. The objectiveof the Government, which is basicallysound, is to generate,over the medium term, conditions - 66 - conduciveto the continuedimprovement of the economy. This it hopes to achievethrough increasing exports and employmentbased on growth in agriculture,manufacturing and tourism. The GovernmentIntends to broaden the productivebase of the economythrough crop diversificationin agriculture,continued emphasis on industrialestate development and the promotion of specializedtourism.

ProiectPriorities

4. As part of its three year DevelopmentPlan, the Governmenthas put togethera publicsector investmentprogram (PSIP) covering 1985/86- 1987/88. The PSIP is projectedto amountto EC$144million for the three year period,59X of which is accountedfor by the Cumberlandhydroelectric project. A large part of the PSIP aims at completingongoing projects. With regardto new projects,expenditures have only been projectedfor those that are in a sufficientlyadvanced stage of preparationand for which donorshave been identified.

Creditworthiness

5. Despitethe substantialstrengthening of both public sector financesand the balanceof payments,as well as the Government'simproved abilityto servie its externaldebt, St. Vincentand the Grenadinesshould continueto rely on concessionalcapital flows for the major part of its investmentprogram in the medium term; it could be consideredmarginally creditworthyfor limitedamounts of non-concessionalassistance.

Bank Group Strategy

6. The Bank Group strategyis to:

(a) Continuechannelling resources to St. Vincentand the Grenadines (as to other OECS countries)mainly throughthe CDB,

(b) Assist the Governmentin its effortsto restructurethe agriculturalsector; and

(c) Maintaina policy dialogueon macroeconomicissues and assistthe Governmentin mobilizingexternal financing, project and nonproject.

Bank Group Lending (Since1978)

7. IDA Credit 1479-STVand SpecialCredit SF-21STV (SDR 5 million) for Power Project-- approvedMay 24, 1984.

AdditionalCapital Requirement (USS million):

1986 1987 1988

For PSIP 0.71 6.35 4.14 Balanceof PaymentsSupport 2.40 2.30 2.30 Total 3.11 8.65 6.44 - 67 -

SURINAME

Populations 393,000 (mid-1985) IBRD/IDALending: See below.

GNP per Capita: US$2,570(1985 Atlas Most Recent methodology) EconomicMission: February1986

The Economy

1. Suriname'seconomic performance deteriorated substantially during 1981-85. GDP declinedat about 2S a year; the CentralGovernment's current deficitsrose from 2% of GDP to 191 of GDP; and the foreignexchange reserveswere depleted. Continuedweakness in the bauxitemarket and the suspensionof developmentaid from The Netherlandsare the principal adverseexternal developments. Domestic policies have been Inappropriate to cope effectivelywith the foreignexchange and financingproblems.

2. The main policy issuesconfronting the Governmentares

(a) FiscalPolicy. Fiscalpolicy continuesto be expansionarydespite the scarcityof resources,leading to continueddependence on the CentralBank. The Governmentneeds to implementa tightly monitoredfiscal program of expenditurereductions and revenue increases.

(b) AdministrativeControls. Exchangecontrols have been expandedand a restrictiveimport licensing system has been introduced.These administrative controls and regulations on price and employment need to be relaxed.

(c) Foreign Exchange Reserves, which exceeded four months of imports during 1978-81,became negativein 1984 and the Government accumulatedexternal payment arrears in 1984 and 1985. The Government will have to formulate ar,adjustment program to gain international donor support to bolster the foreign exchange position, including adopting an appropriate policy for adjusting real wages and the real exchange rat.e.

(d) BauxiteSector Competitiveness. The sector'scontribution to the domesticeconomy has declinedsubstantially, and its share of the internationalmarket has declined. The industryis seekingto make adjustmentsin certaincost elements,the wage bill and the bauxite levy, in order to stay competitive. A fruitful dialogue between the Government and the bauxite companies would have to be pursued.

(e) Agriculture and other sectors. Agriculture, especially rice, has the best prospectsfor growthin the medium term. However,these prospectsdepend critically on full utilizationof the Multipurpose Corantijn irrigation project and on reduction of - 68 -

Government'sdirect involvementin the sector,specifically marketing,input supplyand price controls. Problemsthat are commonto all sectorsare relativelyhigh wage costs,regulations on pricoingand employmentand the foreignexchange shortage which is causingunderutilization of plant capacityand plant shutdowns.

GovernmentPolicy

3. A new cabinetwas installedin July 1986. The Governmenthas yet to formulateits developmentstrategy.

ProiectPriorities

4. Surinamehas made large investmentsin irrigationinfrastructure for the rice sector,particularly the constructionof the Corantijncanal. It is Importantthat the distributionworks and empolderingnecessary for full utilizationof the irrigationwater be carriedout. Decisionsmust also be made about the feasibilityof alternativeenergy sectorprojects for substitutingfor importedfuel in electricitygeneration.

Creditworthiness

5. The recentaccumulation of arrearson externalpayments represent a marked deteriorationof Suriname'sexternal debt position. Moreover,the economicoutlook is not favorablewithout stabilization and growth-oriented policies. It is urgentthat the Governmentformulate a stabilizationand structuraladjustment program that could gain the supportof the internationalcommunity and improvethe country'screditworthiness for conventionallending.

Bank Group Strategy

6. The Bank intendsto maintaina dialogueon policy issueswith the Governmentof Suriname. Lendingby the IBRD could only be considered followingrestoration of Suriname'screditworthiness. - 69 -

TRINIDADAND TOBAGO

Populations 1,187,000(mid-1985) IBRD Lendints See below

GNP per capita: US$6,050(1985 Atlas Most Recent methodology) EconomicMission: May 1982

The Economy

1. The economyof Trinidadand Tobagohas experienceddeclining output,employment and revenuesin recentyears owing to a levellingoff in crude oil productionand weak world oil prices,the completionof large constructionprojects, the inherentlag betweencompletion and full productionof the major export-orientedenergy-based industries (liquefied ammonia,fertilizers, methanol), which also face weak international markets,and the erosionof competitivenessin othermanufactured exports. Favorableproducer pricing policies and Increasedavailability of labor helped the growthof agriculturefor the domesticmarket in 1985; however, this being a relativelysmall sectorof the economy(4X of GDP), its positivegrowth could not offsetthe declineselsewhere. Conformingto the trend which began in 1982, real GDP in 1985 fell by 4%, unemploymentrose from 132 of the labor force in 1984 to 15% in 1985, and central administrationrevenues declined by 4Z in 1985. With petroleumaccounting for two-thirdsof Trinidadand Tobago'sexports of goods and services,the weakeningoil market led to a steadydecline of total exportreceipts, from a peak of US$3.4 billionin 1981 to US$2.7billion in 1985. Despitecuts in importsand increasedforeign borrowing, Trinidad and Tobagohas had to draw down its internationalreserves annually since 1982. Net reservesat the end of 1985 stood at US$1.1billion (equivalentto 8 months' imports), comparedto US$3.4billion at the beginningof 1982.

2. During 1983-85,Government response to the financialdifficulties includedsubstantial increases in publicutility rates, containment of currentexpenditure growth, cuts in capitalspending, credit controls, restrictionof importsand a devaluationof the Trinidadand Tobago dollar. Thus, comparing1982 and 1985, the public sectorbudget deficit was reduced from 132 of GDP to 7%; the externalcurrent account deficit, from 10 of GDP to 0.4%; and domesticinflation, from 14% to 7%. While this outturn representssuccessful adjustment, the prospectsfor 1986 indicate continuingdifficulties, leading to a deteriorationof the above performanceindicators, and hence pointingto a need for furtherpolicy adjustments.

PolicyIssues

3. At present,the major policy issuesconfronting the Governmentare the maintenanceof short-termmacroeconomic stability, and promotionof wider, structural reforms towards a stage of limited dependence on petroleum. In this contexts

(a) Public finances need to be strengthened by greater mobilization of nonpetroleumrevenues te*g*, through a general sales tax and phasingout exemptions)and by reductionsof currentexpenditures - 70 -

(especiallytransfers to publicutilities and enterprises,which need to enhancecost recoveryefforts). Togetherwith appropriate monetarymanagement, such fiscaleffort would be necessaryto attain a viablebalance of payments.

(b) The balanceof payments,moreover, needs to be strengthenedwith an incentivesframework designed to promotethe growthof nonpetroleumexports, efficient import substitutes and tourism over the medium term. This would call for an activeexchange rate policy,an appropriatetariff policy, and concommitantremoval of trade licencesand controls.

(c) Particularattention needs to be directedtowards efficient managementof the energy-basedheavy industriesnow on streamto ensure realizationof the benefitsexpected from the investments in place.

(d) The high level of unemploymentwill need to be addressedthrough a realisticreal wages policy,provision of relevanttraining, and policiesto expandopportunities for productiveemployment in the privatesector.

Bank Group Operations

4. RecentBank Group activitiesin Trinidadand Tobagohave included an IFC investmentin the TrinidadNitrogen Co., Ltd., approvedduring FY85, and a Joint UNDP/WorldBank Energy SectorAssessment Report prepared this year. - 71 -

ANNEXII

STATISTICALAPPENDIX - 72 -

Table 1.1i CARIBBEAN- BRONTHOF GOP (X)

(Constantmarket prices)

------__------_ 1977 1978 1979 1980 1991 1992 1983 1984 1985 ------__------_ Antiqua 7.5 9.1 7.8 8.7 4.6 1.6 4.9 6.6 6.7 Bahamas 3.4 3.4 8.0 6.7 -9.0 7.5 3.2 6.4 3.0 Barbados 3.7 6.1 7.7 4.3 -2.8 -5.0 0.2 3.5 0.3 Belize ... 7.9 -3.9 5.8 6.3 -8.5 5.0 6.5 2.4 Doninica 3.4 12.3 -16.9 10.5 10.1 4.1 3.0 6.9 1.5 Grenada 5.8 5.1 2.1 -1.5 8.0 0.6 -2.9 2.0 3.7 Guyana -2.9 -2.2 -1.6 1.8 1.5 -12.8 -7.2 2.0 0.9 Jamaica -2.5 0.5 -1.5 -5.8 2.5 1.0 2.0 -0.5 -5.0 St. Kitts 0.0 0.8 6.7 -10.6 3.8 -1.0 -0.3 3.8 2.1 St. Lucia 5.9 10.6 5.3 -2.0 1.5 3.0 4.1 6.2 6.9 Bt. Vincent 3.5 12.2 3.7 3.4 6.3 8.0 6.1 4.9 3.0 Suriname 8.5 7.9 -7.7 -6.6 6.9 -4.6 -3.7 -0.4 -3.9 Trinidad 7.8 7.9 5.3 3.0 -1.0 -1.3 -5.9 -6.9 -3.7

DominicanRep. 5.0 2.2 4.7 5.8 3.5 1.7 3.9 1.0 -1.2 Haiti 0.5 4.7 3.6 6.4 -2.7 -3.4 0.8 0.3 1.1 ------__------_ C...)indicates not available.

Source:IBRD EconomicMemoranda. - 73 -

Table 1.2. CARIDBEAN- PUBLICSECTOR SAVINGS a/

(US$ million)

1977 1978 1979 1980 1981 1982 1993 1984 1985 ------__------_ Antigua -2.2 -0.4 0.4 1.3 2.9 0.7 1.3 7.3 5.6 Bahamas 23.4 40.9 63.0 91.7 80.4 46.9 57.9 97.0 119.2 Barbados 14.9 37.0 39.3 38.1 27.5 39.7 59.7 45.5 47.0 Belize 2.9 6.7 5.8 7.8 -4.2 -0.5 -3.8 6.6 10.9 Dominica -1.6 -1.9 -12.8 -9.7 -2.5 -1.3 1.2 2.2 4.1 Grenada 2.7 -1.5 0.3 -0.3 -0.2 3.0 6.3 13.7 10.8 Guyana -3.8 28.9 21.4 12.7 -104.7-105.4 -157.2 -189.1 -243.0 Jamaica -103.2 -59.7 -101.0-205.6 -137.6 -164.6 -312.5 -151.0 -41.7 b/ St. Kitts 2.7 1.4 1.4 2.1 -2.8 -2.6 -2.7 -0.9 -2.9 St. Lucia 2.5 3.9 1.7 5.1 1.3 -0.4 4.2 5.4 7.9 St. Vincent 0.1 -0.1 -0.7 -1.2 0.8 1.0 -0.2 4.8 8.4 Suriname -26.8 12.9 4.9 7.5 -22.4 -42.9 -118.3 -102.1 -196.4 Trinidad 755.3 653.8 743.3 1188.3 1496.7 519.9 124.1 92.6 158.4

DominicanRep. 335.8 165.0 27.4 97.8 31.6 -33.4 45.9 25.3 -33.8 Haiti 29.0 29.4 19.9 3.3 -13.8 9.4 19.1 11.3 20.2

As X of GDP

Antigua -3.6 -0.8 0.5 1.3 2.4 0.4 0.9 4.6 3.1 Bahamas 3.9 6.0 6.2 7.7 6.3 3.3 3.7 5.7 6.0 Barbados 4.0 9.0 7.9 5.9 3.9 5.4 7.6 5.3 5.1 Belize 1.4 6.3 4.1 4.6 -2.4 -0.3 -2.2 3.6 5.7 Doainica -4.4 -4.2 -29.3 -16.5 -3.9 -1.8 1.5 2.5 4.3 Srtnada 5.4 -3.2 0.5 -0.5 -0,2 3.7 7.7 11.2 11.2 Guyana -0.9 5.9 4.1 2.1 -18.4 -21.9 -32.4 -42.6 -61.0 Jamaica -6.4 -2.8 -4.2 -7.7 -4.7 -5.1 -7.7 -2.5 -1.0 St. Kitts 11.2 5.0 4.7 4.3 -5.0 -4.4 -4.5 -1.4 -4.2 St. Lucia 3.7 4.8 1.7 4.5 1.0 -0.3 3.0 3.5 3.9 St. Vincent 0.3 -0.2 -1.3 -2.1 1.1 1.2 -0.2 4.e 6.0 Suriname -3.7 1.6 0.6 0.0 -2.2 -4.1 -11.5 -10.1 -18.7 Trinidad 24.1 19.1 16.2 18.1 20.3 6.3 1.5 1.1 1.9

DominicanRep. 7.4 3.5 0.5 1.5 0.4 -0.4 0.5 0.1 -0.8 Haiti 3.0 2.9 1.8 0.2 -0.8 0.6 1.2 0.6 1.0 …------__------_ a/ Data are uniformfor a given countrybut are not completely comparable acrosscountries due to differenceosin scope (somedata are for central governmentonly) and timingof fiscalyear. b/ Based on officialpreliminary figures.

Sources IBRD Econosic Nemorands. - 74 -

Table 1.3. CARIBBEAN- BALANCEOF PAYMENTSONW CURRENT ACCOUNT

(US$ million)

1977 1970 1979 1980 1981 1982 1983 1964 1985 Antigua -9.6 -3.7 -17.4 -25.4 -40.0 -41.7 -7.6 -3.0 -11.4 Bahamas 24.9 -8.3 -40.4 -33.0 -87.9 -84.2 -50.0 -64.9 -63.5 Barbados -34.3 -4.4 -24.0 -37.4 -86.0 -41.3 51.3 17.5 54.0 Belize -8.8 -11.1 -9.5 -9.3 -10.4 -25.6 -19.5 -22.7 -15.9 Dominica -5.5 -6.6 -14.3 -33.1 -23.4 -14.6 -10.9 -18.7 -20.4 Grenada 5.3 -0.5 -5.2 -13.3 -25.2 -33.8 -29.4 -*0.3 -29.4 Guyana -98.8 -31.7 -78.9 -109.2-189.2 -141.5 -155.6 -86.9 -100.0 Jamaica -26.9 -86.8 -142.6-166.2 -375.2 -367.9 -456.4 -311.7-275.2 St. Kitts -1.2 1.0 -3.5 -2.4 -6.2 -10.4 -17.3 -11.5 -11.7 St. Lucia -18.0 -29.6 -36.1 -40.7 -50.0 -36.4 -20.2 -23.*6-20.6 St. Vincent -6.5 0.0 -6.4 -13.2 -8.0 -10.0 -8.7 -4.4 -5.4 Surinase -61.1 -46.0 -37.0 -56.2-122.5 -153.3 -190.5 -81.5 -59.7 Trinidad 214.8 35.9 -29.2 345.0 445.0 -834.8-993.5 -534.8 -35.1

DominicanRep. -264.5-311.9 -331.3 -669.6 -405.9 -441.9 -421.9 -210.1 -217.4 Haiti -37.5 -35.4 -48.9-107.9 -106.7 -48.9 -B2.4 -139.0-133.7

As X of soP

Antigua -15.2 -5.2 -20.1 -23.8 -33.6 -32.0 -5.3 -1.9 -6.3 Bahamas 3.3 -2.3 -4.0 -2.8 -6.9 -5.9 -3.2 -3.6 -4.6 Barbados -6.9 -0.8 -3.6 -4.3 -9.0 -4.2 4.9 1.5 4.4 Belize -9.4 -10.4 -6.7 -5.4 -5.9 -16.1 -11.6 -12.6 -6.6 Dominica -15.1 -14.6 -31.6 -56.2 -35.4 -20.2 -13.8 -21.2 -21.4 Srenada 10.7 -1.1 -9.0 -21.2 -33.9 -42.2 -35.7 -22.6 -30.5 Suyana -22.4 -6.4 -15.2 -18.5 -33.3 -29.4 -32.1 -19.6 -21.8 Jamaica -0.9 -3.3 -5.9 -4.2 -12.7 -12.2 -14.5 -14.0 -13.9 St. Kitts -5.0 3.6 -11.8 -5.0 -11.1 -17.6 -29.1 -17.7 -17.0 St. Lucia -26.4 -34.4 -36.4 -34.1 -39.0 -27.2 -14.4 -15.4 -12.1 St. Vincent -18.7 0.0 -12.3 -22.9 -11.2 -12.0 -9.5 -4.5 -5.3 Suriname -11.3 -5.6 -4.2 -6.5 -12.1 -14.5 -18.5 -6.0 -5.7 Trinidad 6.9 1.0 -1.0 5.3 4.0 -10.1 -12.2 -6.4 -0.4

Dominican Rep. -5.6 -6.6 -6.0 -10.1 -5.4 -5.6 4.8 3.9 -4.9 Haiti -3.8 -3.4 -4.4 -7.8 -7.4 -3.3 -5.0 -7.7 -4.9

------e------Sources 18RD Econosic Nemoranda. ; +4 tte . t; PfliY96s 1983 1984 1985

' 4 7 9.5S *456@ .8 90.0 101.6 e14 .5 770.2 801.5 979.4

* -. . ~, ;Vt 2156.t 284.2 509.1 v "3 ,. 9.3 10.7 11.8 .Ls,'.A f8.2 10.8 9.9 . * . ~4it 14.6 17.9 25.8 I "4f¢4 *"b !' 399.2 435.2 441.4 4.. 8.9 15.4 20.5 . $ - *4 *L,4 39.7 42.4 45.6 .'! 4 13.7 14. 15.0 .' 01.8 98.2 99.1

, . . [ .,8t.ts. t 320'O.5 388.2 450.0 t;* '~ F &UJ. .7 68.0 68.0

'ie

s ' 4

* - - i *&. . 1983 1994 1995

; .;-. , * Že:4. I IbS.O 208.4 253.5 4 : S4t 2224.1 2325.2 * * - '*. 4 t4;ti a t414.5 430.8 466.8 481.4 '. a st64.2 88.4 93.4 .*. ; 6 't -i ' .1.i 28.5 27.0 28.9 - ^3.3 .9^ ;t 82.7 73.8 142.7 - - +. .; e'67B2 . , 9 843. 4 841. 3 r ,; * * ^ .; ,!. 5 7,l 73.9 79' 1 S} 7t51112.9 126.0 150.4 % >wK} r < 4 ' n 7*t\ ~~~~~72.791.1 77.2 hlh13! 207.3 198.1 190.1 b/

* Afft* 4 A, 4 tc 4 J 598.6 680.6 816.7 ,)f* # 't, ' 819.9 227.3 214.6 210.3

4 . . g .-- :. d,n 9 cruissehippafssengers.

ft~ ~~~~~~ ft 'I t. .t- '- ' '-'t I -. 2t._ , tejlr

1**. *-7 ; w . itit $ ...' $z- Gt 4 5 r* V f # - -t-*---t6t- -- - 76 -

Table 1.6: CARIBBEAN^ VALUE OF SUGAR EXPORTS

(US$ million)

1977 1978 1979 1980 1981 1982 1983 1984 1985

Barbados 37.5 32.7 36.8 57.9 31.7 35.5 26.8 32.1 31.5 8eliz 23.9 32.9 31.5 47.7 42.6 32.8 34.2 32.5 22.9 Buyana 92.8 91.8 90.4 120.6 108.8 87.7 71.5 71.0 66.0 Jamaica 63.4 59.5 56.9 54.7 46.5 49.3 57.3 66.0 49.8 St. Kitts 9.4 11.8 11.3 14.4 14.7 12.2 10.0 11.6 8.9 Trinidad 34.8 22.4 35.2 28.0 27.1 21.9 25.8 28.7 22.0

DominicanRep. 218.6 172.0 190.9 290.2 513.2 265.5 263.6 216.6 208.1 Haiti - 2.3 - 6.4 - - 1.7 6.4 4.3

(-) indicates nil.

Sources:IBRD EconomicNemoranda and staff estimates.

Table1.7: CARIBBEAN- VOLUME OF SUGAREXPORTS

('000 long tons) …------__------_ 1977 1978 1979 1980 1981 1982 1983 1994 1985

Barbadosa/ 108.3 88.1 101.2 119.6 63.0 89.0 73.5 85.9 83.4 Belizc 111.6 91.6 97.2 90.4 98.1 109.1 93.9 85.5 6uyana 207.7 280.4 264.0 248.1 264.6 250.2 212.2 205.9 214.4 Jamaica 209.8 193.0 187.7 131.9 121.3 13B.' 153.7 157.1 151.6 St. Kitts ... 3b.3 36.9 31.5 29.1 32.7 22.8 28.0 24.0 Trinidad 141.7 102.9 88.1 64.0 66.8 50.2 62.5 73.3 68.2

DooinicanRep. 1098.7 904.7 992.4 902.0 847.5 833.3 917.7 .. . Haitib/ - 5.3 - 19.2 - - 7.1 15.2 10.8

a/ Includes sugar, molasses and vacuum pan. MIHetric tons. i-)indicates nil. (...) indicatesnot available.

SourcessIBRD EconomicMemoranda and staff estimates. - 77 -

Table 1.9s CARIBBEAN- VOLUMEOF BANANAEXPORTS

('000TONS) ------__------_ 1977 1978 1979 1990 1981 1982 1993 1984 1985

Belize 10.4 9.9 16.0 15.0 10.5 10.0 10.1 10.6 10.3 Dominica 30.4 37.0 16.0 8.1 27.1 27.5 29.3 32.6 33.9 6renada 14.0 14.2 14.1 12.5 11.5 10.0 10.5 8.6 7.9 Jamaica 74.9 72.7 63.9 33.1 31.0 21.2 23.0 10.8 12.7 St. Lucia 41.4 47.8 48.2 32.8 42.9 41.7 46.9 64.0 73.7 St. Vincent 26.2 31.0 22.3 18.8 29.8 25.0 27.1 31.S 40.6 Suriname 27.3 28.0 27.3 33.2 36.5 37.5 32.2 34.9 37.3

SourcessIBRD EconomicMemoranda and staff estimates.

Table 1.93 CARIBBEAN- VALUE OF BANANAEXPORTS

(US$ million)

1977 1978 1979 1980 1981 1982 1983 1984 1985

Belize 1.5 1.7 3.4 3.5 2.2 2.1 2.4 3.1 3.3 Dominica 6.9 9.2 4.4 3.0 9.1 10.0 11.2 11.1 13.3 Grenada 3.2 3.4 3.7 4.1 3.7 3.3 3.0 2.9 3.1 Jamaica 13.9 17.3 18.2 9.2 4.3 4.7 6.8 1.5 4.2 St. Lucia 9.5 12.1 13.5 10.5 14.7 15.6 18.6 23.8 30.2 St. Vincent 5.6 7.3 5.9 6.3 10.1 9.0 11.0 11.8 16.9 Suriname 3.4 3.7 4.3 5.7 6.8 7.4 7.4 8.9 10.3

Sources:IBRD EconemicMemoranda and staff estimates. - 78 -

Table 1.102 CARIBBEAN- VALUE OF BAUXITEEXPORTS a/

(US$ million)

1977 1978 1979 1980 1981 1982 1983 1984 1985

Guyana 99.1 98.2 107.1 144.3 120.1 92.4 70.6 91.7 98.6 Jamaica 205.3 234.0 213.5 197.4 172.1 170.0 109.2 159.7 77.5 Suriname 65.3 72.1 56.3 64.5 63.0 29.4 24.9 39.4 35.9

DominicanRep. 22.0 23.1 20.9 18.5 15.7 5.3 - - 0.0 Haiti 17.3 17.2 18.1 19.6 16.6 21.3 - - 0.0

------__----_ 1/ Includescalcined bauxite. (-) indicatesnil.

SourcessIBRD EconomicMemoranda and staff estimates.

Table 1.11t CARIBBEAN- VOLUMEOF BAUXITEEXPORTS a/

('000 Tons)

1977 1978 1979 1980 1981 1982 1983 1984 1985 …------__------_ Guyanab/ 1575.01577.0 t553.11591.5 1483.3 1056.6 1139.3 1271.0 1604.2 Jamaica 6400.06400.0 6400.0 6060.0 5294.0 4079.0 3009.0 4559.0 2325.0 Suriname 2172.02241.0 1737.0 1767.01269.0 500.0 448.0 942.0 992.0

DominicanRep. 774.1 756.7 634.7 605.8 457.2 140.6 - - 0.0 Haiti 701.0 629.5 613.0 579.0 480.0 622.0 - - 0.0 a/ Includescalcined bauxite. b/ Long tons. (-) indicatesnil.

SourcesiIBRD EconomicMemoranda and staff estimates. - 79 -

Table 1.12: CARIBBEAN- VALUE OF ALU"INAEXPORTS

(US$ million)

1977 1978 1979 1980 1981 1982 1983 1984 1985

Guyana 30.9 32.2 21.1 43.7 32.7 12.0 2.3 0.0 0.0 Jamaica 323.2 348.3 368.2 534.7 588.1 343.8 314.6 283.8 212.2 Suriname 151.9 175.9 191.1 271.8 265.6 231.0 215.9 201.5 175.8 …------__------_ SourcestIBRD EconomicMemoranda and staff estimates.

Table 1.13:CARIBBEAN - VOLUMEOF ALUMINAEXPORTS

('000 Tons)

1977 1978 1979 1980 1981 1982 1983 1984 1995

Guyana a/ 263.0 248.0 145.0 226.2 149.6 64.1 28.8 0.0 0.0 Jamaica 2000.0 2100.02100.0 2395.0 2549.0 1755.01907.0 1713.01622.0 Suriname 1059.01125.0 1199.0 1329.01166.0 1055.01143.0 1097.0 1265.0 …------__------_ a/ Long tons.

Sources:IBRD EconomicMemoranda and staff estimates.