The Global Economic Crisis and its Impact on Caribbean Development: A Caribbean Perspective

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Structure of Presentation. Global Economic Uncertainty - The Biggest Challenge for Economic ManagementGlobal Economic Integration and ContagionRegional Economic ImpactEconomic Prospects of CARICOM Countries in this EnvironmentRoom for Counter-Cyclical Policy?. Uncertain Global Economic Outl

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The Global Economic Crisis and its Impact on Caribbean Development: A Caribbean Perspective

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1. The Global Economic Crisis and its Impact on Caribbean Development: A Caribbean Perspective Commonwealth Caribbean Business Media Workshop June 3-5, 2009 Crowne Plaza Port of Spain, Trinidad and Tobago by Dave Seerattan CARIBBEAN CENTRE FOR MONEY AND FINANCE Established under the joint auspices of the Central Banks of the Caribbean Community and The University of the West Indies

2. Structure of Presentation Global Economic Uncertainty - The Biggest Challenge for Economic Management Global Economic Integration and Contagion Regional Economic Impact Economic Prospects of CARICOM Countries in this Environment Room for Counter-Cyclical Policy?

3. Uncertain Global Economic Outlook

4. Uncertain Global Economic Outlook

5. Global Economic Integration The way the region is integrated into the global economy - commodity markets - capital flows - tourism demand - remittances The terms of integration? little discretion The solutions to the problems Joint international action and bigger role for multilateral institutions

6. Impact Analysis Most countries have escaped the worst of the negative outcomes from the crisis Most vulnerable countries include those with little fiscal space, high dependence on international finance and those reliant on a few or single industry/market Extent of negative impact highly dependent on duration of recession in developed economies

7. Impact Analysis Economic Growth Economic growth has fallen off in most countries. These performances were due largely to the global economic crisis resulting in falling demand for tourism, manufacturing and commodity exports, as well as lower levels of FDI and remittances The projections for 2009 is for contraction or slower growth The projections are subject to considerable uncertainty

8. Impact Analysis Financial System Many jurisdictions registered lower credit growth Regional stock market indices have declined sharply A major regional financial institution was intervened Banks are the dominant financial institution in the region and have little exposure to the type of assets that caused much of the problems in developed markets Banks exposure comes largely from non-financial subsidiaries of financial conglomerates and unregulated transfers from subsidiaries of financial conglomerates In T&T and Jamaica the amount of financial liabilities in mutual funds, brokerage houses and other NBFIs is relatively high compared to banking system assets these are more subject to market risks and potential problems emanating from the current crisis Exchange rates have been relatively stable with the exception of Jamaica Foreign exchange reserves have generally increased (except Jamaica) albeit with many using debt issuance to increase reserves

10. Economic Prospects The Bahamas, Barbados, ECCU Expected large contraction in growth in 2009 driven by lower tourist arrivals and investment in tourism plant. Unemployment is expected to increase , FX reserves fall and FD &CABOP to weaken Belize, Guyana, Suriname, T&T Expected positive growth in 2009 but at a slower pace. FD and CABOP expected to worsen as commodity prices weakens Jamaica Expected contraction in growth as alumina and bauxite industry weaken on commodity price declines. Unemployment to rise and FD , CABOP and FX reserves to weaken

11. Scope for Counter-Cyclical Fiscal Policy Caribbean has 7 of the 10 most indebted countries in the World reflecting the build-up of fiscal and BOP deficits This situation does not necessarily pose a problem if countries have access to financing at reasonable costs and/or there are income streams to comfortably cover debt service payments Countries such as Jamaica and St. Kitts & Nevis which have high debt burdens, large deficits on the fiscal and external accounts and large debt service obligations in the context of the negative spillovers from the crisis may have no room for counter-cyclical policy The policy options for these countries may therefore be limited to fiscal consolidation whereas other countries such as T&T have room for counter-cyclical fiscal policy

12. END

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