Business View Caribbean | May 2016

16 May 2016 - Business View Caribbean Business View Caribbean - May 2016 17 Opening Lines Caribbean Countries Urged to Focus on Tourism Value The International Monetary Fund (IMF) has pub- lished its Regional Economic Outlook: Western Hemisphere, and recommends that tourism econo- mies like The Bahamas use what the fund deems a “tourism upswing” to push through structural measures that would ensure that tourists get value for money from high-end destinations. Given that, in the Caribbean, only in Antigua and Barbuda is a holiday more expensive than The Bahamas, these recommendations resonate in this jurisdiction. The April 2016 Regional Economic Outlook: Western Hemisphere reports that economic activity in Latin America and the Caribbean has been hard hit and is likely to contract for the second consecutive year in 2016. The regional recession, however, masks the fact that most countries continue to grow, modestly but surely. According to the report, the protracted period of low commodity prices continues to be favorable for the tourism-based countries in the Caribbean. Com- bined with steady tourist inflows from the United States – Caribbean Tourism Organization (CTO) re- cords show arrivals to The Bahamas grew by just under five percent from 2014 to 2015, while Barba- dos grew by around 15 percent, almost three times the regional average – the IMF said lower energy prices have allowed a significant reduction of exter- nal imbalances. “Growth prospects continue to be favorable for the tourism-based economies. Tourist arrivals have been on the rise since early 2015 in most countries, led by Barbados, Grenada, St. Kitts and Nevis, and St. Lucia. These inflows are expected to continue and possibly expand as economic activity in the origin countries gradually gains strength,” the report said. In contrast, the IMF said growth prospects are dete- riorating for commodity-based economies. “Overall, growth in the Caribbean region is expected to register about 3.5 percent in 2016 and 2017. Im- mediate downside risks from real effective exchange rate appreciation, further U.S. monetary policy tight- ening, and failure to contain the zika virus epidemic outweigh the upside risk related to citizenship by investment programs. Other risks include potential tourist diversion to Cuba and natural disasters,” The report notes that addressing fiscal vulnerabili- ties remains an overarching objective for most Ca- ribbean countries. The Bahamas is among a handful of countries including Grenada, Guyana, and Haiti that have strengthened their overall fiscal balances in 2015. In addition, Jamaica finalized the buyback of PetroCaribe debt, instantly reducing its debt by 10 percent of GDP in 2015, and Grenada successfully completed a debt restructuring operation, which would lower its debt by 13 percent of GDP by 2017. “Despite this progress, public debt remains high, particularly in tourism-dependent economies. These economies should use the opportunity offered by still favorable external financial conditions to make significant inroads toward ensuring debt sustainabil- ity. In this regard, countries prone to natural disas- ters should explicitly consider the costs associated with these events in their macroeconomic and fiscal frameworks, while their investment in public infra- structure should aim at improving the economy’s resilience to disasters,” the IMF said. Tourism-based economies should take advantage of the current tourism upswing to push through struc- tural measures that would improve the quality of the tourism product while lowering costs. “Consumers already pay a premium to holiday in the Caribbean when compared with beach-goers in other parts of the world. As measured in the ‘Week-@-the-Beach’ index – borrowing from The Economist’s Big Mac Index – a typical basket of goods and services con- sumed during a one-week beach holiday costs about 50 percent more in the Caribbean, on average, than in some destinations in Central America or Cuba. “For some Caribbean countries classified as ‘high- end’ destinations, where consumer price elasticities are lower or negligible, efforts are needed to ensure that product and service quality remain commensu- rate with their high-end brand. In lower-cost destina- tions, where price elasticities are greater, a focus on lowering the costs of energy, labor, and transporta- tion is key.”