Mr. Daniel Leigh, Mr. Krishna Srinivasan, and Alejan Dro Werner
Since attaining independence in the 1960s and 1970s, Caribbean countries have registered strong economic and social outcomes. Per capita incomes have risen, with most Caribbean countries now in the top 25 percent of all emerging market and developing economies (EMDEs).1 Median life expectancy is 73 years, compared with 70 years for other EMDEs; infant mortality is relatively low; and female labor force participation relatively high (Figure 1.1). Poverty rates are comparable to other EMDEs. Beyond these achievements, Caribbean countries have developed strong democratic traditions, with public policies actively debated and influenced by the aspirations of their people.
Mr. Elie Canetti, Ms. Kimberly Beaton, Qiaoe Chen, Fabio Di Vittorio, Udi Rosenhand, and Mr. Kalin I Tintchev
The global financial crisis of 2008–09 and, in the Caribbean, the crisis stemming from the collapse of Trinidad and Tobago–based CL Financial Group in 2009, raised awareness of risks to financial stability from financial interconnectedness. Even though interconnectedness can promote international risk sharing, competition, and efficiency (Claessens and others 2010), it can also spread adverse shocks in unexpected directions, and sometimes in an unexpectedly virulent manner (Kaminsky and Reinhart 2000). For instance, when CL Financial Group, which had assets of US$16 billion at the end of 2007 (about 30 percent of the Caribbean’s regional GDP), collapsed, the adverse impact spilled over to all the Caribbean Community and Common Market (CARICOM) member states except Jamaica and Haiti, with claims on CL Financial as high as 17 percent of GDP in the Eastern Caribbean Currency Union (ECCU).1
Mr. Elie Canetti, Ms. Kimberly Beaton, Mr. Thomas Dowling, Dmitriy Kovtun, Franz Loyola, Ms. Alla Myrvoda, Joel Chiedu Okwuokei, İnci Ötker, and Mr. Jarkko Turunen
The Caribbean region weathered the global financial crisis relatively well, but the quality of bank assets gradually deteriorated during the subsequent economic recession, leaving many countries with elevated levels of problem loans. Notwithstanding significant heterogeneity across the region, the share of non-performing loans (NPLs) in total loans, which was relatively low before the global financial crisis, rose to more than 10 percent in 2016 across several Caribbean countries, peaking around 15 percent for many countries over the period 2007–16 (Figures 11.1 and 11.2).1 The increase in NPLs was more significant in tourism-dependent countries compared with commodity exporters. NPL ratios in many countries have been slow to decline from their elevated levels owing to structural and institutional impediments to resolution, as well as subdued or declining loan growth and sluggish economic activity, while in a number of countries, NPL ratios have started to fall from their peaks, owing to increased efforts undertaken by country authorities and banks to reduce impaired assets.
Mr. Trevor Serge Coleridge Alleyne, Mr. Jacques Bouhga-Hagbe, Mr. Thomas Dowling, Dmitriy Kovtun, Ms. Alla Myrvoda, Joel Chiedu Okwuokei, and Mr. Jarkko Turunen
A correspondent banking relationship (CBR) is a bilateral arrangement between banks, often involving a cross-border relationship in multiple currencies. According to Erbenová and others (2016), a correspondent banking arrangement involves one bank (the correspondent, for example, a major international bank) providing a deposit account or other liability accounts and related services to another bank (the respondent, for example, a bank located and doing business in the Caribbean). The arrangement requires the exchange of messages to settle transactions by crediting and debiting those accounts. Correspondent banking relationships are a key component of a well-functioning international financial system. They enable a range of crucial transactions and services, including the execution of third-party payments such as wire transfers and credit card transactions, trade finance, and transactions related to the banks’ own cash-clearing, liquidity management, and short-term borrowing or investment needs.
The cost of electricity in the Caribbean has been persistently high over the past two decades, and has eroded competitiveness. This situation is largely due to serious inefficiencies in the power sector and dependence on expensive imported petroleum products, reflecting limited energy diversification. In turn, these problems have contributed to the region’s high cost of doing business and increased external sector vulnerabilities, and have undercut growth in many Caribbean economies.
Outward migration has been an important phenomenon for countries in the Caribbean, where emigrants account for more than 20 percent of the region’s population, compared with about 2 percent, on average, for emerging market and developing economies and 5 percent for Latin America and the Caribbean (LAC) overall. Caribbean emigrants typically emerge from the younger and more productive segment of the population—an average emigrant is between 20 and 25 years old with a higher education level. Emigrants remit substantial funds, averaging about 7 percent of the region’s GDP, to support family members back home. Remittances are now the most important external flow for the region, dwarfing foreign direct investment and official aid (Figure 14.1).
Heather Sutton, Laura Jaitman, and Jeetendra Khadan
Crime—particularly violent crime—is pervasive in the Caribbean and imposes a serious economic and social burden on the countries in the region. An average of 40 percent of the Caribbean population identifies crime and security-related issues as the overarching problem facing their countries, even more so than poverty or inequality.1 In several Caribbean countries, crime has risen sharply since 2007, with homicide rates more than doubling (UNODC/World Bank 2007; UNDP 2012).
Mr. Marcos d Chamon, Mr. Joshua Charap, Qiaoe Chen, Mr. Daniel Leigh, Franz Loyola, and Lulu Shui
Growth in the Caribbean has been disappointing in recent decades. Averaging 2.1 percent per year since 2000, real GDP growth for the Caribbean has been half that of other emerging market and developing economies (EMDEs) and two-thirds that of non-Caribbean small states (Figure 2.1 and Table 2.1).1 The growth weakness is concentrated among tourism-intensive Caribbean economies, which grew annually by only 1.6 percent (0.8 percent in per capita terms). Such low rates of growth complicate job creation, the raising of Caribbean wages and social conditions toward advanced economy levels, and management of the region’s significant burden of public and private sector debt. Commodity exporters have seen faster growth during this period (3.7 percent per year), largely reflecting positive effects from the commodity price boom in the 2000s. More recently, however, growth in the commodity-exporting countries has also slowed or turned negative.
Sebastian Acevedo, Nicole LaFramboise, and Joyce Wong
The Caribbean region is highly dependent on tourism. The role of tourism in economic activity in the region increased steadily following the dismantling of the system of agricultural trade preferences in the late 1980s and early 1990s, and the tourism industry has proved to be resilient even as traditional output and export sectors waned. Beginning from a base of about 4 million tourists in 1970, the region now receives more than 26 million visitors a year. The sector accounts for a large share of many economies in the region, ranging from 7 percent to 90 percent of GDP, and 32 percent as a simple average (Figure 3.1). According to the World Tourism and Travel Council, the sector also directly accounts for, on average, almost 12 percent of total employment, and indirectly for another 20 percent.
The growth of Caribbean tourism other than to Cuba is partly a post–Cuban revolution phenomenon. After the Cuban revolution in 1959, U.S. travel restrictions in 1963 closed U.S. tourism to one of the preferred Caribbean destinations of U.S. travelers. In 1953, the last year of tourism statistics in Cuba before the revolution,1 Cuba received almost half of all tourist arrivals to the Caribbean; by 1980 Cuba had less than 3 percent of the market compared with the same set of countries.2 For example, in The Bahamas—despite a long history of tourism promotion that started with the Tourism Encouragement Act of 1851—it was the U.S. embargo on Cuba that provided “the main stimulus to the tourism industry,” with U.S. tourists switching to The Bahamas (The Bahamas Ministry of Tourism 2016). Tourist arrivals to The Bahamas grew from about 150,000 in 1954 to more than a million in 1968. Mexico also followed suit with the directed development of Cancun as a tourism destination.