LIMITED LC/CAR/L.173 28 July 2008 ORIGINAL: ENGLISH ECONOMIC SURVEY OF THE CARIBBEAN 2007-2008 ______________________ This document has been reproduced without formal editing. i CONTENTS Executive summary.............................................................................................................................................1 Chapter I ...................................................................................................................................................4 Regional analysis.................................................................................................................................................4 A. The world economy.................................................................................................................................4 1. The continuous hike in oil prices...............................................................................................4 2. The subprime crisis in the United States ...................................................................................9 3. The escalation in food prices...................................................................................................10 B. Growth performance .............................................................................................................................13 C. Fiscal policy and public debt.................................................................................................................17 D. Monetary policy and inflation...............................................................................................................20 E. The external sector ................................................................................................................................24 F. Conclusion: Overall economic performance in 2007 and prospects for 2008.......................................31 Chapter II .................................................................................................................................................35 Topics in Caribbean economic development......................................................................................................35 A. Public debt sustainability in the Caribbean ...........................................................................................35 1. Introduction .............................................................................................................................35 2. Public debt level in the region .................................................................................................36 3. Fiscal sustainability in countries with access to market financing ..........................................37 4. Fiscal sustainability in Guyana and ECCU countries..............................................................40 5. Fiscal vulnerability to changes in exchange rates....................................................................41 6. Variability in revenue and fiscal vulnerability ........................................................................43 7. Conclusions.............................................................................................................................45 B. Tourism competitiveness in the Caribbean ...........................................................................................47 1. Introduction .............................................................................................................................47 2. Measures and determinants of tourism competitiveness .........................................................50 3. Empirical modelling ................................................................................................................49 4. Econometric results.................................................................................................................50 5. Conclusions: Main drivers of tourism competitiveness in the Caribbean ...............................58 Chapter III .................................................................................................................................................60 Country briefs .................................................................................................................................................60 A. Bahamas................................................................................................................................................60 B. Barbados................................................................................................................................................66 C. Belize .................................................................................................................................................72 D. Eastern Caribbean Currency Union.......................................................................................................78 E. Guyana .................................................................................................................................................84 F. Jamaica .................................................................................................................................................91 G. Suriname ...............................................................................................................................................98 H. Trinidad and Tobago...........................................................................................................................104 Annex ...............................................................................................................................................110 ii Tables, figures and boxes Table 1 GDP growth rate, 2001-2007...................................................................................................14 Table 2 GDP growth by economic sector, 2006-2007..........................................................................15 Table 3 Fiscal balance and public debt, 2003-2007..............................................................................17 Table 4 Main fiscal policy measures, 2006-2007.................................................................................20 Table 5 Inflation and credit expansion, 2003-2007 ..............................................................................20 Table 6 Main monetary policy measures, 2007....................................................................................23 Table 7 Liquidity and interset rates, 2006-2007...................................................................................24 Table 8 Trade and current account balance,2003-2007........................................................................25 Table 9 Remittances, 2003-2007 ..........................................................................................................27 Table 10 Foreign direct investment and financial capital, 2003-2007....................................................30 Table 11 GDP growth rate, 2008............................................................................................................34 Table 12 Public dept, 2006.....................................................................................................................37 Table 13a Primary fiscal balance for public debt sustainability, 2007.....................................................40 Table 13b Primary fiscal balance required to achieve fiscal sustainability, 2008-2020...........................39 Table 14 Currency mismatches between public debt and GDP, 2006....................................................42 Table 15 Primary expenditure affordable in a fiscal crisis, 2007 ...........................................................45 Table 16 Main subindex and component of the WTTC tourism competitiveness index........................50 Table 17 Main subindex and component of the WEF travel and tourism competitiveness index......... 50 Table 18 Summary description of variables ...........................................................................................53 Table 19 Regression results....................................................................................................................55 Figure 1 Oil prices, January 2000 - May 2008.........................................................................................5 Figure 2 American oil index, January 2000 - May 2008 ........................................................................6 Figure 3 FAO food prices index, 2000 - 2008 .......................................................................................10 Figure 4 World fertilizer prices, 2003/III - 2008/I.................................................................................11 Figure 5 International financial investment in commodities, December 2003 - December 2007..........12 Figure 6 Caribbean domestic consumption and production of grains and pulses, April 2007-2008 .....13 Figure 7a Headline, food and non-food inflation, 2007...........................................................................21 Figure 7b Headline, food and non-food inflation, 2007...........................................................................22 Figure 8a Economic misery index, 2006 - 2007......................................................................................32 Figure 8b Economic misery index, 2006 - 2007......................................................................................33