Caribbean economies urged to invest in infrastructure to secure post-COVID growth

Statement from the Inter-American Development Bank (IDB). 

In the face of rising COVID-19 cases, Caribbean economies will need more aggressive fiscal actions to protect their productive assets and invest in ways that ensure more sustainable growth in the future, according to a new report by the Inter-American Development Bank.

While fiscal space is a constraint, as a nascent economic recovery emerges additional resources should be channeled to high-productivity infrastructure products to further stimulate growth, the study notes.

The report – “A Pandemic Surge and Evolving Policy Responses ” – is part of the Quarterly Bulletin Series put together by the economics team of the Caribbean Department of the IDB. It includes detailed analysis for Guyana, Jamaica, Barbados, The Bahamas, Suriname and Trinidad and Tobago. It comes at a time when COVID-19 cases are rising worldwide and in most Caribbean countries, negatively impacting the tourism industry just as it enters its peak season.

“First and foremost, countries need to stop the coronavirus from spreading,” said David Rosenblatt, regional country economist for the Caribbean at the IDB, noting that the number of virus cases was rising everywhere with the exception of Barbados. “Countries will need to use sophisticated tools that look at closure or reopening of their economies with decisions based on susceptible, infected and recovered models, both at source and destination countries.”

Looking ahead, Caribbean economies face a challenging peak tourist season with double digit contractions, plus commodity shocks on non-tourist economies of Trinidad and Tobago and Guyana, though Suriname and Guyana will see a boost from high prices for gold. Early tourism booking data suggest sharp declines for Jamaica, The Bahamas and Barbados.

Governments have drawn on existing programs to ramp up social assistance as well as created new instruments to address the crisis.

“A well-designed public investment program can help stimulate a lasting economic recovery, and several governments are already considering the options,” said Henry Mooney, the Research Economics Advisor for the Caribbean department. “Fiscal space will remain an important constraint, but as a nascent economic recovery emerges, additional resources could be channeled to productivity-boosting infrastructure projects to further stimulate near term growth, and long-term development.”

Better roads or airports facilitate the transport of goods and services to market. Improved water and power infrastructure enable industries to operate at lower costs and improves an economy’s productive capacity.

Over time this drives higher levels of private investment, incomes, and consumption. Importantly, both economic theory and empirical evidence suggest that countries with relatively less public capital, or where the stock of capital is in need of improvement, stand to benefit most, according to the report.

About the IDB

The Inter-American Development Bank is devoted to improving lives. Established in 1959, the IDB is a leading source of long-term financing for economic, social, and institutional development in Latin America and the Caribbean. The IDB also conducts cutting-edge research and provides policy advice, technical assistance, and training to public- and private-sector clients throughout the region.