ReportNo. 6442-CRG CaribbeanRegion CurrentSituation, Issues and Prospects Public Disclosure Authorized Otober 17,1986 LatinAmerica and the CaribbeanRegional Office FOR OFFICIAL USE ONLY Public Disclosure Authorized U Public Disclosure Authorized Public Disclosure Authorized Documentof the Ubrld Bank Thisdocument has a restricteddistribution and may be usedby recipients onlyin the performanceof theirofficial duties. Its contents may not otherwise bedisclosed without World Bank atithorization. FOR OMCIL UseONLY 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