by Kevon Browne
St. Kitts and Nevis (WINN) – The World Bank Group (WBG) – International Monetary Fund (IMF) Spring Meetings are currently underway in Washington DC, USA.
World leaders, finance ministers, central banks from across the globe, economists and media have all converged on the US capital to address the economic outlook for the rest of 2023 and projections for 2024.
Prime Minister of St. Kitts and Nevis, Hon. Dr Terrance Drew, has attended several meetings thus far, including the Caribbean Ministerial Meeting with the IMF’s Director of the Western Hemisphere Department in Washington DC and IMF’s in-person Roundtable on CARTAC Strategy and Financing.
In a press conference, Nigel Chalk, Acting Director of the Western Hemisphere Department within the IMF, started with some good news for the region, with Latin America and the Caribbean having a comfortable output and employment above pre-pandemic levels.
“In the region, the western hemisphere has proven to be very resilient in the face of multiple shots over the last few years, and growth is repeatedly surprised on the upside. After growing by 7% in 2021, Latin America and the Caribbean grew by a respectable 4% in 2022—output and employment and now comfortably above pre-pandemic levels. Nonetheless, we expect growth to decelerate to 1.6% this year, although we expect most of the region will avoid a recession. This slowdown is not surprising, given that the region’s main trading partners are also slowing. The favourable terms of trade that we saw in the aftermath of COVID is less than somewhat, and global financial conditions are less friendly than they were a year ago.”
The bad news, inflation remains high across the region.
“We know this high inflation disproportionately hurts lower-income households, particularly as it has been concentrated in large increases in food prices and because wages have been unable to keep up with these higher prices. After peaking at around 10% and mid-2022 for the average of the region, headline inflation in the largest Latin American economies has now decelerated to around 7% in March. However, progress in bringing down core inflation appears to have stalled. Core inflation in these economies averaged 8.4% in February, and for most countries, inflation remains well above the central bank’s target range. Nevertheless, we have to commend the central banks in the region for their quick and assertive response to inflation, which has been effective in anchoring medium-term inflation expectations and creating an environment for disinflation to eventually take hold.”
Chalk said the Central banks in the region would need to keep interest rates high for the rest of 2023 and much of 2024 to combat high inflation until it unambiguously winds down.
What is the way forward from the perspective of the IMF?
“We see scope to reduce inefficiencies in public spending. We also believe the population is more likely to embrace a more prudent public finance if government services are seen to be provided efficiently. We also think that taxes can be redesigned to both raise revenue and make the tax systems more progressive. The wealthy and the more fortunate should pay more of their fair share to help maintain social cohesion and also to invest in long-term growth. This is a challenging agenda, but well-designed policies can restore macroeconomic stability, can tackle inflation and can bring down the debt in a socially equitable way.”
The IMF has also projected that financial stresses on more advanced countries will have little to no effect on our region.
“Let me say a word on the recent banking stresses in advanced economies. So far, we see these problems have had little impact on Latin America in the Caribbean. In part, this is because the direct linkages between Latin America and the troubled institutions in the US and Europe are relatively limited. Also, in part, this is a payoff from past investments in the region to strengthen supervision and regulation and hold the region’s banks to a high standard.”
Journalist Jermin Abel raised concern over tourism-dependent countries in light of high inflation and rising interest rates.
Chalk said the shift from goods consumption to services consumption in the US bodes well for the Caribbean region, but contingencies must be in place if interest rates continue to rise.
“On the general advice on tourism-dependent economies… you will see in our global forecast we think the US economy is going to slow, but it’s still growing pretty strongly. And one of the aspects that’s going on in the US economy right now is there’s a shift from goods consumption to services consumption. So even though the whole economy is slowing, that shift from goods and services is actually good for the Caribbean. It’s good for tourism-dependent economies because Americans are travelling more; they’re investing more in leisure activities and so forth. And so that’s proven, I think we’ve seen across the region, the Caribbean, that’s proven quite a big boost to the economies. We don’t see a recession, so we feel that that potential flow of tourism is going to be maintained. But I think it would be prudent for the countries in the region to think about what would they do if it were to slow – if the US were to slow down, if interest rates in the US had to go higher in order to bring down inflation, not as a baseline scenario but more as contingency planning in case the US were to slow down and the same is true for Europe as well because they are very reliant on Europe.” – Nigel Chalk, Acting Director of the Western Hemisphere Department within the IMF.