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IMF reports mixed outlook for Latin American, Caribbean economy

365px-International_Monetary_Fund_logo.svgFrom Shanghai Daily

MEXICO CITY, April 28 (Xinhua) — The International Monetary Fund (IMF) Wednesday predicted a 0.5 contraction in the GDP growth of Latin American and Caribbean region for 2016, marking the first time for the area to see a dip for two years in a row since 1983.

In a newly released report on “Regional Economic Outlook for Latin America and the Caribbean,” the IMF said that the “deceleration in activity reflects weak external demand, further declines in commodity prices, volatile financial conditions and important domestic imbalances and rigidity.”

However, the global financial body predicts that the region will return to growth in 2017 with a GDP rate of 1.5 percent.

According to the report, the best South American players for 2016 are Panama, which is expected to grow by 6.1 percent, Dominica, St. Kitts and Nevis and Nicaragua.

The fate of major regional economies is divided, with Mexico set to grow 2.4 percent and Colombia 2.5 percent. However, other regional powerhouses will tumble, with Argentina predicted to contract by 1 percent, Brazil by 3.8 percent and Venezuela by a staggering 8 percent.

Mexico received a mild endorsement by the agency, which said that the country will be supported by “healthy private domestic demand and spillovers from a strong U.S. economy. The depreciation of the peso and lower electricity prices should boost manufacturing production and exports.”

As for other major South American economies, the IMF report forecast that Brazil and Venezuela face similar economic and political problems, while Argentina can be more optimistic about the future.

“Brazil is mired in a deep recession,” it said, adding that “Argentina’s medium-term growth prospects have improved noticeably as a result of an ongoing transition to remove domestic imbalance and distortions and correct relative prices.”

Venezuela is expected to see its economy shrink by 4.5 percent in 2017, the report said.

Ecuador will contract by 3.8 percent, but the situation is likely to worsen once the influence of the recent earthquake on the country’s economy is factored in, the IMF said.

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Caribbean countries urged to focus on tourism value

By K. Quincy Parker From Nassau Guardian Business Editor

NASSAU, Bahamas — The International Monetary Fund (IMF) has published its Regional Economic Outlook: Western Hemisphere and recommends that tourism economies 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.

imf-logo.jpg 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 was prepared by a team led by Hamid Faruqee and S. Pelin Berkmen. It 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.

Developments and outlook

According to the report, the protracted period of low commodity prices continues to be favourable for the tourism-based countries in the Caribbean. Combined with steady tourist inflows from the United States – Caribbean Tourism Organization (CTO) records show arrivals to The Bahamas grew by just under five percent from 2014 to 2015, while Barbados grew by around 15 percent, almost three times the regional average – the IMF said lower energy prices have allowed a significant reduction of external imbalances.

Also, Faruqee, Berkmen et al reported that fiscal deficits in many Caribbean countries have also been reduced, reflecting both higher revenues — on the back of stronger economic activity — and deliberate adjustment efforts. The Christie Administration’s introduction of the value-added tax (VAT), which has significantly outperformed government’s expectations, is one such adjustment.

“Growth prospects continue to be favourable 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 deteriorating for commodity-based economies.

“Overall, growth in the Caribbean region is expected to register about 3.5 percent in 2016 and 2017. Immediate downside risks from real effective exchange rate appreciation, further US monetary policy tightening, 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,” said Faruqee and Berkmen.

Tourism policy

The report notes that addressing fiscal vulnerabilities remains an overarching objective for most Caribbean 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 favourable external financial conditions to make significant inroads toward ensuring debt sustainability.

“In this regard, countries prone to natural disasters should explicitly consider the costs associated with these events in their macroeconomic and fiscal frameworks, while their investment in public infrastructure should aim at improving the economy’s resilience to disasters,” the IMF said.

The authors advise tourism-based economies to take advantage of the current tourism upswing to push through structural 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 consumed 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 commensurate with their high-end brand. In lower-cost destinations, where price elasticities are greater, a focus on lowering the costs of energy, labour, and transportation is key,” Faruqee, Berkmen et al said, pointing out that the index does not incorporate non-price factors like tourist attractions or security issues.

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