FINANCING FOR DEVELOPMENT IN THE ERA OF COVID-19 AND BEYOND: URGENT CONSIDERATIONS FOR THE CARIBBEAN - Alicia Bárcena
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FINANCING FOR DEVELOPMENT
IN THE ERA OF COVID-19 AND BEYOND:
URGENT CONSIDERATIONS FOR THE CARIBBEAN
Alicia Bárcena
Executive Secretary
Economic Commission for Latin America and the
Caribbean (ECLAC)
10 September 2020The economic impact of the Covid-19 pandemic across Caribbean
economies has been severe
• Caribbean GDP growth projected to decline to -6.9% (excluding Guyana) ; lower than emerging and developing economies
• Fiscal deficits in 2019: 2.7% of GDP in 2019 relative to 2.1% of GDP in 2018 and are expected to expand further in 2020
• Unemployment rates expected increase in 2020 after falling by 2.9 percentage points over the last five years
• Persistently high debt levels standing at 67.6% of GDP as of 2019 are expected to increase as gov’t’s address the fallout from
COVID-19 restrictions
PUBLIC DEBT vs. FISCAL BALANCE, 2019
GDP GROWTH PROJECTION FOR 2020 (Per cent of GDP)
15
(Per cent) KNA
4.0 10
AIA GRD
2.0 5
BRB
0.0 LCA
0 JAM
-2.0 TTO BLZ
GUY BHS
-4.0 -5 average ATG
-6.0 VCT
-10
-8.0 SUR
-6.9 -15 MSR
-10.0 -9.1
-20
DMA
-25
0 20 40 60 80 100 120 140
2Direct impact of COVID-19 on GDP growth in tourism is projected to be
between 6.6% to 8.5% while total impact for the energy sector expected to be
5.8% (TT) and 11% (Guyana)
TOURISM SECTOR ENERGY SECTOR
DIRECT IMPACT ON GDP GROWTH, 2020 DIRECT AND INDIRECT IMPACT ON GDP GROWTH, 2020
(Percentage) (Millions of US dollars and Per cent of Total GDP)
0 0
-177 -256 -112…
-377 (-4.6%)
-200 (-6.7%)
-594 (-1.6%) -102
-5
-400
(-2.6%) -859 -128 (-2.9%)
(-3.7%) -365 (-3.6%) -154
-10
-600 (-1.6%) (-4.3%)
-800 -429
(-1.8%)
-15 -1000
-493
-1200
(-2.1%)
-20
-1400
-1600
-25
Base Pessimistic Optimistic Base Pessimistic Optimistic
TTO
SUR
DMA
GRD
AIA
BLZ
BHS
BRB
JAM
GUY
LCA
VCT
KNA
ATG
Trinidad and Tobago Guyana
Base scenario Optimistic scenario Pesimistic scenario Direct impact (% GDP) Indirect impact (% GDP)
3Mitigating the Impact of Covid-19 on the Caribbean
Fiscal efforts in the selected Caribbean economies ranged
between from 0.5% to 5% of GDP (except Barbados) and eight Financial assistance from
of these countries fell beneath the LAC average of 3.9%. international donors to Caribbean
countries
SIZE OF FISCAL PACKAGE
(Per cent of GDP)
25 Inadequate international assistance by the
international community to mitigate the
20
19.2 impact of the pandemic on Caribbean
economies
15
10
Jamaica, Trinidad and Tobago, Barbados and
4.4 4.2
2.4 3.3 3.9 1.6
5
the Bahamas access upwards of $US 190
1.0 0.7 1.6 0.5 1.2 million in loans, while the remaining countries
0 access no more than $US 43 million
Collective Grants/Donations to the region, by
international community, no more than
$US 40 million
4Being liquidity the most urgent challenge facing the Caribbean,
the COVID-19 pandemic has stressed fiscal policy
Fiscal balance, 2019
(Per cent of GDP)
15
10
5
0
-5
-2.7
-10
-15
-20
-25
AIA
GRD
BRB
JAM
LCA
BHS
GUY
BLZ
TTO
Average
VCT
SUR
KNA
DMA
ATG
MSRIncreased borrowing to cope with the pandemic will lead to a
spike in the subregion’s public debt in 2020
Total public debt, 2019 Composition of external debt, 2018
(Per cent of GDP) (% of total debt)
140 90
80
120
70
100
60
80 50
60 40
5.5 24.5
30
40
20 6.3
20 8.9 0.6
10
17.0
0 0
MSR
DMA
GRD
AIA
GUY
BLZ
JAM
ATG
TTO
LCA
BRB
SUR
BHS
VCT
KNA
JAM
TTO
ATG
DMA
VCT
Total
GUY
LCA
BLZ
GRD
External Domestic Multilateral Paris Club Other Bilateral Private creditorsFinancing for Development in the Era of COVID-19 and Beyond
Six discussion groups co-led by Member
States
Initiative convened by Prime Ministers I. External
of Canada and Jamaica and the UN Finance.
IV. Debt
Secretary-General António Guterres Remittances. Jobs
Vulnerability
Key milestones: and Inclusive
May 28. 2020 High-level event on Financing for Growth
Development in the Era of COVID-19 and Beyond II. Recovering V. Private Sector
September 8. 2020 Meeting of Ministers of better for Creditors
Finance Sustainability Engagement
September 29. 2020 UN General Assembly-
Meeting of Heads of State III. Global Liquidity
VI. Illicit Financial
December 2020. Follow-up to benchmark and and Financial
place progress in the context of 2030 Agenda Flows
Stability
DeliveryBenefits and challenges of ECLAC’s proposals and
endorsements
New SDRs issuance and reallocation to MICs
• Issuance of US$ 500 billion would amount to $2 billion in extra international reserves
in the Caribbean
• SDRs issuance is subject to at least 85% of total votes
Expanding G20 Debt Service Suspension Initiative (DSSI)
• Extend the term; broaden scope of beneficiaries (middle-income SIDs); include
multilateral debt; enhance private sector participation
• Concerns over credit downgrades and cross-default triggers would likely mean only
limited participation
Debt-to-COVID response/SDG/or climate swaps
• Channel debt service payments into SDG-related investments
• Could undermine country ownership and autonomy
• Creditors and debtors have to agree to terms, which takes time
8Benefits and Challenges of ECLAC’s proposals
and endorsements
Creation of Regional Resilience Funds
• Quickly provide low-cost medium-term finance for small vulnerable economies
• Partners should be convinced to participate
Institutionalizing State Contingent Debt Instruments
• Provide fiscal space for middle income countries
• Politically unpopular during periods of high growth
International mechanism for orderly sovereign debt restructuring
• Establish a sovereign debt forum and sovereign debt authority/ standing body
• processes to set up a sovereign debt authority might be protracted, requiring
further legal and procedural clarification
9Benefits and Challenges of ECLAC’s proposals
and endorsements (3)
Reestablish Correspondent Banking Relations in the Caribbean
• Contribute to lower cost of remittance transfers and easier conduct of
legitimate transactions
• Find a balance between global regulation and the perspective of middle- and
low-income countries
Expand the role of UN Tax Committee
• Reduce country asymmetries in the global tax and financial debates
• Requires an important institutional coordination effort
Credit Rating regulation and a new public Credit Rating Agency (CRA)
• Incorporate longer-term SDG-aligned, social and environmental indicators
into agency ratings
• Creation of publicly owned CRAs was also proposed
10Five key policy recommendations
1. Special dispensation for the Caribbean through:
• Access to grant and concessional funding
• Debt relief/cancellation without conditionalities
• Access to enhanced DSSI (bringing in private creditors)
• Regional Development Banks
2. Issuance/reallocation of SDRs
3. Engage bilateral creditors including Paris Club (Antigua y Barbuda, and Dominica)
4. Establishment of Caribbean Resilience Fund
• Facilitate the necessary capital investment to build economic and climate resilience
• Initial capitalization in the order of US$6.9 billion (12.2% of regional debt) is being sought
• Need to be a regional facility with an appropriate member-based governance structure
5. Green Climate Fund’s involvement in the ECLAC Debt Swap Initiative
• Access to concessional/grant resources from GCF and establishment of the Resilience Fund
needs to be agreed to move the Initiative forward
11Urgent need to reform the international financial
architecture
Financial stability should be seen as global public good
Liquidity should reconnect with real economy.
The establishment of an independent agency in coordination with MDBs that could
assist in the liquidity and sustainability facility to improve market access for African
sovereigns and analyze applicability for Caribbean economies.
UN Tax Committee to become an intergovernmental body and include the voice of
small economies: to address the issues related to black/grey listing and correspondent
banking
Review income-per capita criteria for MICs/SIDS and include vulnerability indicators.
ECLAC will continue to advocate for greater financial support to build resilience for the
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