2 months ago
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Caribbean countries need to digitalise government and banking services to reduce the cost of financing and doing business in the region, says Deputy Managing Director of the International Monetary Fund Dr Nigel Clarke.
Noting that the region has some of the highest electricity costs in the world, Clarke also called for more investments in renewable energy whose costs have plummeted in recent years, while delivering the annual 25th William G. Demas Memorial Lecture on Tuesday at the annual meeting of the Board of Governors of the Caribbean Development Bank, held this year in Brazil from June 9-12.
Clarke, the former finance minister of Jamaica, noted that risks to global financial stability have increased significantly, according to the most recent global financial stability report.
“In our latest World Economic Outlook published earlier this year, we already projected tepid growth in the Caribbean region overall, even before accounting for the US tariff and trade policy adjustments,” Clarke said.
The IMF projects that growth will slow from 12.1 per cent in 2024 to 4.2 per cent in 2025 for the Caribbean but redouble to 8.6 per cent in 2026.
Speaking on the topic ‘The Caribbean Challenge: Fostering Growth and Resilience Amidst Global Uncertainty’, the IMF deputy said the region has made significant progress in building resilience against natural disasters, while calling for investments to increase productivity and reduce business costs.
“To achieve higher growth, in addition to stability, policymakers have to decisively address factors that elevate growth potential, beginning with the productivity gap. Addressing the growth challenge requires reversing the decline in the Caribbean’s growth potential by improving total factor productivity and boosting investment in human and physical capital,” he said.
“Our analysis for the ECCU shows that the bulk of total factor productivity losses come from the high cost of finance, from cumbersome tax administration, from inefficient business licensing and permits, and from skills mismatches in the workforce.”
If the challenges outlined were appropriately addressed throughout the Caribbean, he continued, productivity gains could range from 34 per cent to 65 per cent and would close the gap in income per capita with the United States by between nine and 27 percentage points.
The promotion of digitalisation of Caribbean societies was one step that could significantly boost productivity, he added, and would require a multifaceted strategy, including investing in digital infrastructure, digital transformation of government, reducing the cost and increasing the availability of data services, and improving digital literacy.
“As an obvious example, further enhancing taxpayer access to digital government services through e-payment, e-filing and e-registration would not only reduce the administrative burden on businesses, but encourage compliance, fostering a better environment for entrepreneurship. In much of the Caribbean region, businesses have to navigate a complex labyrinth of licensing and permitting and regulatory regimes. Anybody who has been in business in the Caribbean region can give you copious examples as to this unnecessary complexity,” Clarke said.
Citing the need for increased access to finance for Caribbean business, the IMF deputy managing director said there were many factors hindering this, including the legacy weaknesses in banks’ balance sheets, limiting access to credit, investment and growth.
“Progress is happening. Banks are building buffers and reducing non-performing loan ratios, but more work is needed to ensure that all banks meet regulatory minimums,” he said.
As for the cost of electricity, Clarke said there were few regions in the world that use as much oil for electricity as the Caribbean.
“The high cost of electricity fundamentally undermines competition, particularly for the tourism industry, at the expense of potential growth,” said the IMF official. “For energy importers, diversifying into renewable energies with fast declining costs can reduce reliance on expensive and volatile oil and hydrocarbon imports. It would also offer relief from some of the highest electricity costs in the world. Consider this key fact: electricity in many Caribbean countries costs a minimum of twice as much as in advanced economies,” he said.
Noting that renewable energy costs have plummeted over the past decade, Clarke said the transition to renewables “would enhance external sustainability for energy importers while making them more competitive, more resilient to shocks, and more likely to go faster on a sustainable basis”.
English (US) ·