COVID-19 and Caribbean Economies

COVID-19 is one of the deadliest pandemics experienced over the last 50 years. Almost two months since the World Health Organisation (WHO) defined the virus as a pandemic, the rate of infection has exploded with approximately 3.1 million cases and 217 thousand deaths recorded across 196 countries/regions, as at April 28, 2020.

The virus has strained the global healthcare system, taking advantage of the vulnerable and overwhelming underprepared medical care facilities that lacked the equipment to cope with a virulent infectious disease. Reduced economic activity, increased unemployment, threats to food security and rising poverty are some of the costs of this virus.

The effects of this crisis are far reaching. The International Monetary Fund (IMF) forecasts that global economic activity will contract by at least 3 percent this year, given the disruption in production and distribution chains, the weakening of consumer and investor confidence and volatility in international markets. At its nadir, the Dow Jones Index fell 36.4 percent, relative to its mid-February performance, while the Emerging Market Bond Index fell by 23.4 percent. Commodity prices, including for crude oil have also plummeted. Indeed, three-month oil futures reached USD $19 in the second half of April, levels not seen since November 2001.

The disruption of supply chains manifests itself in stark declines in international trade and commerce. The World Trade Organization (WTO) has noted that the outcome is largely dependent on the duration of the outbreak and the effectiveness of policy responses. However, the decline will likely exceed that experienced in the 2008/09 global financial crisis. Estimates for world trade in 2020 range between 13 percent and 32 percent.

The effects of this crisis are potentially devastating for Caribbean economies many of which suffer from low growth and high indebtedness and which are extremely vulnerable to climatic events such as hurricanes. Many islands rely on tourism which contributes directly on average 13.9 percent of GDP. The World Tourism Organisation (UNWTO) estimates that the industry could witness a 20 to 30 percent decline in global international tourist arrivals in 2020[1]. The World Travel and Tourism Council (WTTC)2 warns of the potential loss of 50 million jobs worldwide and that it could take 10 months for the sector to return to normalcy.

The crisis has also affected intra-regional travel. The direct and indirect lost contribution of the tourism sector will impact government revenues and foreign exchange earnings, creating domestic and external financing gaps. The crisis spreads beyond tourism, however, and, with the exception of Guyana, all CARICOM economies are expected to contract this year and register worsened external current account balances. Already, several countries and financial institutions have had their credit ratings and/or their outlook downgraded by the rating agencies.

These economies are providing varying levels of support through supplementary income for displaced households and enhanced social safety nets but they do not have the fiscal space to engage in some of the counter-cyclical measures adopted by more advanced economies. Indeed, some countries are already facing severe cash-flow difficulties. The magnitude of the impact will therefore depend on the ultimate severity of the pandemic and the degree of support provided by the multilateral institutions as regional economies navigate this crisis.

1 https://www.unwto.org/tourism-covid-19

2 World Travel and Tourism Council: https://wttc.org/en-us/Research/Economic-Impact

Adapted from the Central Bank of Barbados’ Review of Barbados’ Economic Performance: January-March 2020