Four signs of a brighter economic future for the Eastern Caribbean

June 23, 2015


Growth is expected to accelerate in the medium term in the OECS

World Bank

“Two years ago, I stood on stage at the Caribbean Growth Forum in the Bahamas and said we need a regional mindset, training for the youth and investment in the digital industry,” remembered Israel Mallet, a young entrepreneur from Barbados. “Now it’s time for action.”

Years of low growth has taken its toll on many youth in the Caribbean. Close to half of their peers in Grenada and St Lucia are unemployed, and at 28.1%, the average unemployment for Caribbean small states is close to three-times that of Latin America as a whole.

However, recent figures released by the World Bank, indicate there may soon be a light at the end of the tunnel for the eastern Caribbean.

 Here we detail four ways in which the future may be brighter for the OECS, and youth like Israel:

1. Growth is expected to accelerate in the medium-term

With close financial links to North America and Europe, the Caribbean was hit hard by the last global financial crisis. But, as the markets rally, so have the region’s two main sectors - tourism and construction - contributing to growth of 1.5% in 2014. This upward trajectory is expected to continue in the OECS over the medium term, reaching 2.1%.

“There is significant potential for boosting trade,” highlighted Jorge Familiar, World Bank Vice President for Latin America and the Caribbean. “Continued efforts to improve trade facilitation and step up investments in research and innovation, as well as quality education, will help improve skills and generate well paid jobs in the Caribbean.”

Private consumption was the main driver of this growth in 2014 as domestic demand strengthened amidst the economic recovery.

2. Tourism is recovering but challenges remain

Millions of people flock to the wider Caribbean each year, in search of white sand beaches, turquoise seas and the pleasant tropical climate for which the region is famed.

Consequently, tourism and travel is a major source of employment in the OECS, accounting for close to 70% in countries such as Antigua & Barbuda and Anguilla.

The sector showed a resurgence in 2014 with an increase in visitors from the USA, UK and Canada, however the type of tourism is undergoing a transformation. Efforts to increase air visitors to the region reaped the benefits in 2014 with an increase of over 6%, however at the same time cruise arrivals have declined sharply.

“Movements of goods and services between islands are limited,” stated Familiar.  “Improving connectivity through air and sea could unlock the potential for tourist’ island hoping and facilitate intra-regional trade.” 

" There is significant potential for boosting trade, "

Jorge Familiar

World Bank Vice President for Latin America and the Caribbean.

3. Strategies are needed in the medium-term to restore debt sustainability

High public debt is a common denominator across the Caribbean, and the OECS is no exception. At 89.2%, aggregated public debt is a major source of vulnerability in the sub-region.

With the exception of St Kitts and Nevis, which has enjoyed relatively robust growth, reducing this debt to 60% of GDP by 2030 is an elusive target for all OECS countries. However, if medium term debt reduction strategies are implemented, debt sustainability can be restored in the region.

 4.   The current account deficit is expected to improve over medium-term

While gradual, World Bank research predicts an improvement in the OECS’ current account deficit by 2017 -- reaching 17.5% in GDP.

The recovery of the tourism industry over the coming years is expected to be a main driver in shrinking this expenditure gap. However lower fuel import bills through investment into alternative energy along with falling oil prices will also contribute to improving the current account balance. As net oil importers, the global drop in oil prices could favorably impact economies in the OECS, easing inflationary pressures in the region.

Regional integration to boost exports in the Caribbean