Caribbean islands defy global risk spike

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The Caribbean was one of only three world regions – along with Australasia and to a lesser extent Latin America – with an improving average risk score in Euromoney’s latest Q3 2022 crowd-sourcing country risk survey of economists and political risk experts.

It is also the region showing the largest improvement over the past decade, with eight of its 13 constituent countries enjoying double-digit increases in risk scores over that time.

In the third quarter, there were six countries upgraded by the survey’s contributors.

Apart from Grenada and Haiti, showing only minor score upgrades, there were stronger rises for both Antigua & Barbuda and Barbados, plus substantial improvements for Jamaica and Trinidad & Tobago.

Dominican Republic, a lofty 44th in Euromoney’s global risk rankings of 174 countries, is still the safest option in the region.

However, risk score upgrades have seen Barbados climb six places so far in 2022, and 28 over the past five years, to 55th, with Jamaica one place behind in 56th, up seven and 52 places respectively.

Both countries are in the third of Euromoney’s five categories, indicating medium risk, as is Trinidad & Tobago, at 69th, up 14 places this year. Tier-4 Antigua & Barbuda is up three places to 100th.

Political and structural improvements are part of the explanation, as is adequate capital access for many countries seeking financing, but equally economic factors are a major consideration.

The region is rebounding strongly on the back of robust demand for commodities and the post-pandemic tourism revival.

The IMF in its latest World Economic Outlook depicts a regional average real GDP growth rate of 12.4% for 2022, up from 5.1% in 2021, while slowing to a still substantial 7.3% in 2023. Admittedly this is accompanied by high inflation, but with the balance of payments current account swinging from deficit to surplus.

Growth of this magnitude easily beats any other world region, and by some margin. Sub-Saharan Africa growth is predicted to be around 4%, as is Asia and Central America, with South America even less.

Barbados

“Barbados is not a surprise,” says ECR survey contributor Krishna Clarke, a risk analyst at the Caribbean Development Bank.

Clarke notes that there is a good deal of political stability under the administration led by prime minister Mia Mottley, which was elected in 2018 and subsequently re-elected at the beginning of this year, retaining all 30 seats in the Assembly.

Winston Moore, professor of economics and deputy principal at the University of the West Indies, agrees, noting that the government is popular and therefore the political situation is likely to be quite stable.

This is reflected in the risk metrics showing quite high scores for indicators such as government stability and the regulatory and policymaking environment, which also improved in the latest survey for Q3 2022.

Moore also explains the improvement for Barbados with reference to the recent approval of its updated Economic Recovery and Transformation Plan.

“This will continue to target a reduced fiscal deficit through many strategic reforms, while also supporting growth, primarily through foreign direct investment,” he says.

Moore notes that economic indicators for 2022 have also ameliorated.

Strong GDP growth has been reported by the Central Bank of Barbados for the year-to-date, the government is currently maintaining a primary balance surplus, and tourism arrivals are improving. The IMF is forecasting 10.5% real GDP growth for this year.

The country continues to forge the path to economic recovery and maintain social stability, while managing the inflationary pressures

 - Roxanne Gustave

Both Clarke and Moore go on to mention that the current government has recently signed a second IMF programme, involving a Resilience and Sustainability Trust programme with an accompanying 36-month extended fund facility, while adding that the sovereign debt ratio has improved and this will continue in the short to medium term.

Another survey contributor, Roxanne Gustave, a risk manager at the Caribbean Community (Caricom) Secretariat, says that in light of the satisfactory performance and momentum achieved in the implementation of significant structural reforms supported by the expiring IMF programme, she anticipates that the debt ratio can improve, “contingent on adherence to fiscal discipline and the consistent application of the new programme.”

She also envisages that political stability will be maintained into 2023, as the government continues to employ expansionary fiscal measures in areas including trade facilitation and renewable energy, and to provide financial safety nets to assist the most vulnerable segments of the population affected during the Covid-19 pandemic and after the passage of Hurricane Elsa in 2021. 

“The country continues to forge the path to economic recovery and maintain social stability, while managing the inflationary pressures emanating from higher global fuel and food prices and supply chain issues,” she says.

Jamaica

As for Jamaica, Moore says the government there responded swiftly to the pandemic to support growth, while putting the current fiscal responsibility law in place in the country.

“The focus on growth and poverty should support political stability,” he says, and “high energy prices have increased energy tax receipts and therefore resulted in a better-than-expected fiscal outturn.”

High energy prices have increased energy tax receipts and therefore resulted in a better-than-expected fiscal outturn

 - Winston Moore

Clarke adds that, overall, Jamaica is, “doing quite alright in comparison to some of its regional counterparts.”

Just a few weeks ago, he says, Standard & Poor’s affirmed Jamaica's sovereign credit rating and indicated that there is a continued downward trajectory for the debt burden.

There was improvement before the pandemic and, now that things are settling down, Jamaica seems to be back on track to maintaining its fiscal reforms, he says, adding that while inflation is easing slowly, it did peak in April.

Other examples

In the case of Antigua & Barbuda, the government has in place a medium-term fiscal strategy and growth recovery plan, says Moore, which has led to some fiscal improvements.

“For example, the primary deficit narrowed to 2% of GDP in 2021. This fiscal outturn is projected to improve in 2022 along with debt ratios.”

Gustave says the government continues to invest heavily in the tourism sector and the pace of recovery was steadily maintained during Q3 2022, with a recorded 7% increase in visitor arrivals during the month of July.

The mobilization of resources for the implementation of three reverse osmosis plants signals the government’s undertaking to “alleviate perennial water woes for the island”, Gustave says, and to enhance water capacity to meet the demand of households as well as the consumption required by key sectors such as the tourism industry.

As for Trinidad & Tobago, Clarke takes a more nuanced view. Although oil prices have gone up, so too have import prices, driving up inflation, worsened by the pandemic and now the war in Ukraine. Furthermore, annual natural gas production has also decreased, resulting in lower volumes exported, and as a result Trinidad has not been able to capitalize fully on higher fossil fuel prices.

There have been notable tax revenue shortfalls, too, causing the public debt to increase, although the fiscal deficit is expected to decline to 7.5% of GDP by the end of 2022.

Clarke mentions there was an issue in 2021 and early 2022 with the lack of natural gas output from one of the major liquefaction projects. However, due to the war in Ukraine, Trinidad has increased significantly its natural gas exports to Europe.

“The government since then has engaged major companies such as Shell and BP to bring more lines, especially offshore, into production for export,” he says.

Other positives, according to Clarke, have involved the government discussing the possibility of bringing a major liquefaction line that was previously abandoned back into production. It is implementing a supplemental petroleum tax regime to motivate more companies to produce oil, and has been issuing offshore exploration licences for 2023 to reverse the declines in output.

Oil is benefiting the balance of payments. Trinidad & Tobago’s deficit on the current account was reversed last year and the surplus is forecast by the IMF to increase to 14.3% of GDP in 2022 and 15.9% of GDP in 2023.