Turn of the Tides: the Caribbean Economy during COVID-19
When I think about the Caribbean, frankly I think about the beautiful beaches, friendly people and the sunny weather. When the COVID-19 pandemic hit, almost all tourism to these islands halted, cutting off an important source of jobs for the people and income for the government. Although the average Canadian might solely think about the Caribbean as an ideal vacation destination, millions of people live there; so what has the pandemic meant for countries in the Caribbean?
Background Information:
Before the pandemic hit, the Caribbean region was stagnating, seeing GDP (gross domestic product) growth of an average of 0.3% between 2014 and 2019. In some countries, such as Antigua and Barbuda, the Bahamas, tourism accounts for over half of the national GDP. In other nations, such as Saint Kitts and Nevis, Guyana and the Dominican Republic, tourism is somewhat important but other sectors such as non-tourism services, agriculture, mining and natural gas and petroleum exports. The diversity of the economies across the Caribbean is notable, meaning that the pandemic induced changes have had very different impacts on different countries.
As for the COVID-19 Pandemic in the Caribbean, the majority of countries have seen very low case numbers through the first wave of the pandemic and are weathering the second wave admirably on a case per capita basis; though it is notable that their is less testing capacity among Caribbean countries. For much of the first wave, Caribbean countries closed their borders to most foreign travellers, which helped mitigate the importation of the virus. Since, many have had no choice but to begin opening up their borders to provide some degree of support to their economies.
What now?
Adverse Shocks
Multiple Caribbean islands are significant producers and exporters of commodities. As the pandemic has resulted in fluctuations in the value of those commodities, Caribbean economies predictably have fluctuated as well. Trinidad and Tobago and Guyana are significant exporters of oil and natural gas, while Suriname is a significant exporter of gold. Jamaica’s largest merchandise export is aluminum. Thus the decline in oil and gas and aluminum prices have piled on to coronavirus induced shutdowns in further damaging the economy.
In tourism dependent countries, there has obviously been a severe drop in economic activity. In Jamaica, for instance, even when the government decided to reopen airports to allow for tourists, over a span of two months there were only 90,000 arrivals, twenty percent of the normal volume of travellers. This has many adverse effects on the economy, beyond high unemployment (which is an average of 10%, though labor participation dropped greatly as well).
Caribbean economies generally are import dependent for food; almost all member states in CARICOM (the Caribbean Community) import more than 60% of their food consumption — in comparison, according to Statistics Canada less than 30% of Canadians food consumption comes from domestic sources. The result of continued demand from Caribbean countries for imports, while the big buyers of foreign currencies, in large part tourists, has completely plummeted has resulted in the steep depreciation of many Caribbean currencies, which has added further pressure on the population by sparking inflation.
Remittances are another interesting feature in many Caribbean economies. A remittance is a payment from an overseas worker back home. For instance if someone from Jamaica immigrated to Canada and has been working here, he might send money to support family in Jamaica — this is a remittance. Remittances are remarkably important in Jamaica and Guyana: roughly 15% of Jamaica’s GDP is composed of remittances, among the highest rates in the world. The World Bank estimated that remittances world wide would be down 22%, including a 19.3% drop in the Caribbean region.
Although in Jamaica, remittances have been remarkably strong and increased over previous years helping dampen adverse economic shocks, remittances to the region more generally are down. This has limited the amount of of income the average citizen has to spend, which obviously has negative effects on aggregate demand and subsequently general economic activity.
Mitigating Factors
Although for oil exporting countries, oil price drops have harmed the economy, for oil importing Caribbean countries, the drop in oil prices has helped mitigate some of the other COVID induced economic shocks. Specifically, in the Caribbean, excluding Trinidad and Tobago (the big oil exporter), the terms of trade have improved 3.4%, meaning that imports became 3.4% cheaper compared to their exports; this means that those countries could afford comparatively more imports than they could before.
Additionally, many countries have injected considerable stimulus into their economies, sometimes with the help of international organizations. These include tax cuts, subsidies and a variety of rent programs. This has helped keep the economy afloat, though it is notable that for many Caribbean countries, there fiscal situation before COVID-19 was not good, so after pandemic spending, they will be hard pressed to implement large programs in a potential third wave, or if lockdown and a lack of tourists continues.
What next?
In 2021, it is estimated that Caribbean countries will have an average economic growth of +3.7 percent. GDP for the region, however, is not estimated to return to pre-pandemic levels until 2024. Although tourism will be extremely important for many Caribbean countries, it is possible that as economies re-open, that if tourists do not start returning many economies will shift away from tourism and will focus on manufacturing and agriculture while also continue to develop an expanding tourism sector.
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