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The Caribbean Region Quarterly Bulletin: Volume 2: Issue 4: October 2013 {IADB]

The Caribbean Region Quarterly Bulletin: Volume 2: Issue 4: October 2013 {IADB]

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The Caribbean Region Quarterly Bulletin discusses recent economic developments and analyzes the topic of energy for the 6 IDB-member Caribbean countries, as well as the Organization of Eastern Caribbean States (OECS). The countries are: The Bahamas, Barbados, Guyana, Jamaica, Suriname and Trinidad and Tobago. This issue highlights fiscal developments for 2013, which may outperform expectations in Guyana and Trinidad and Tobago. In contrast, high fiscal deficits have forced the governments of The Bahamas, Barbados and Jamaica to adopt further expenditure cuts and new tax regimes. In Suriname, authorities remain committed to reducing the fiscal deficit, despite falling gold prices. This issue also assesses debt sustainability under different gold prices in Suriname. It also analyzes the existing energy structure in each of the Caribbean countries and discusses possible alternatives to resolve the high cost of energy and import dependency for the region as a whole.
The Caribbean Region Quarterly Bulletin discusses recent economic developments and analyzes the topic of energy for the 6 IDB-member Caribbean countries, as well as the Organization of Eastern Caribbean States (OECS). The countries are: The Bahamas, Barbados, Guyana, Jamaica, Suriname and Trinidad and Tobago. This issue highlights fiscal developments for 2013, which may outperform expectations in Guyana and Trinidad and Tobago. In contrast, high fiscal deficits have forced the governments of The Bahamas, Barbados and Jamaica to adopt further expenditure cuts and new tax regimes. In Suriname, authorities remain committed to reducing the fiscal deficit, despite falling gold prices. This issue also assesses debt sustainability under different gold prices in Suriname. It also analyzes the existing energy structure in each of the Caribbean countries and discusses possible alternatives to resolve the high cost of energy and import dependency for the region as a whole.

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11/27/2013

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Regional Report: In the Caribbean, Energy Matters!
 
In this issue, we analyze the existing energy structure in theCaribbean countries and discuss possible alternatives toresolve the high cost of energy and import dependency. Weconsider whether a range of renewable energy technologiesare economically and commercially viable and how theycould be implemented.At present, the IDB’s Caribbean Country Department andEnergy Division are working together with
Compete Caribbean 
to develop country-specific and regionwidecommercially viable solutions to the region’s energyproblems.
Fiscal results for 2013 could outperform expectations in Guyana and Trinidad and Tobago. In contrast, high fiscal deficits have forced the governments of The Bahamas, Barbados, and Jamaica to adopt further expenditure cuts and new tax regimes. In Suriname, authorities remain committed to reduce the fiscal deficit, despite falling gold prices.
Summary of Recent Developments by Country
In The Bahamas,
results for the first 11 months of 2012/13 fiscal yearrevealed a widening in the government's deficit by almost 50 percentbecause of lower tax revenues. The government plans to reverse thedownward trend of revenues by implementing a value- added tax inJuly 2014.
In Barbados,
the government presented the Barbados
Growth and Development Strategy 
2013–2020, which focuses not only on fiscalconsolidation measures but also on growth initiatives. The governmentis targeting a fiscal deficit of around 3 percent of GDP by the end of 2014/15 and an acceleration of growth thereafter, to 4 percent by2020.
In Guyana,
authorities reduced the expected real growth in 2013 to 4.8percent from 5.3 percent after lower-than-expected output in the sugarindustry.
 
Workers' remittances decreased during the first half of theyear and are projected to be mostly flat this year.
In Jamaica,
the
 
economy contracted 0.4 percent in the second quarterof 2013. The authorities expect a resurgence of growth in the thirdquarter, which would result in a weak 0.8 percent rise during this fiscalyear. S&P upgraded Jamaica's long-term rating to B– from CCC+ afterrecent progress in stabilizing the economy.
In Suriname,
despite an increase in capital expenditures and fallinggold prices during the first half of the year, the government continuesto show its commitment to achieve a fiscal deficit of 3 percent in 2013,compared with 4.1 percent considered in the 2013 Budget. The 2012Census results were published in September.In
Trinidad and Tobago,
the
 
Cabinet presented the 2013/14 budget,which projects a fiscal deficit of 3.6 percent of GDP, down from the 4.6percent of GDP projection in the 2012/13 budget but somewhat aboverecent outcomes. Among other measures, the budget incorporatesmore tax incentives for new oil exploration and eliminates the fuelsubsidy to Caribbean Airlines Ltd for international flights.In the
Eastern Caribbean Countries,
the economies display signs of recession in the first quarter of 2013. According to the EasternCaribbean Central Bank, real growth could reach 1.5 percent in 2013,accelerating to 2.2 percent in 2014.
In This Issue, We Focus on Energy Policies and Challengesin the Caribbean
 
With the exception of Trinidad and Tobago and to a lesserextent Suriname, Caribbean countries depend on importedfossil fuels.
Expensive energy imports contribute importantly tothe large current account deficits. The private sector hasindicated that the high cost of electricity and inadequateinfrastructure is one of the main constraints to sustainablegrowth.In this issue, we discuss the
main energy challenge
s in TheBahamas, Barbados, Guyana, Jamaica, and Trinidad and Tobago.Some of the current projects aimed at reducing oil energydependency include the
reform of the electricity sector
in TheBahamas, the increase of 
solar energy infrastructure
inBarbados, and the installation of 
energy-efficient equipment
inJamaica's public sector buildings. In Guyana, energy policieshave been directed to increase
investment in low-carboninfrastructure.
As a net energy exporter, Trinidad and Tobagoenergy challenges are related to adjusting to the leveling-off of oil and gas
 
reserves. High
fuel subsidies
have a large fiscal costand reduce the incentives to implement renewable energyalternatives. In addition, we analyze the
debt and fiscalsustainability in Suriname under different gold pricesscenarios
. The results show that by effectively managing itsresources, Suriname can improve its fiscal position andmitigate the effect of gold prices.
QUARTERLY BULLETIN
Volume 2, Issue 4October 2013
SELECTED INDICATORS2013
Real GrowthRateAnnualInflation (%,end of period)GeneralGovernmentPrimary Balance(% of GDP)GeneralGovernmentOverall Balance(% of GDP)CurrentAccountBalance(% of GDP)GeneralGovernmentDebt(% of GDP)
1) High-debt countries
Jamaica0.410.57.5-0.5-11.4142.7Barbados-0.82.6-4.0-8.8-5.292.0
2) Medium-debt countries
The Bahamas1.91.0-5.4-7.6-14.956.1Trinidad & Tobago1.64.00.4-1.48.633.4
3) Low-debt or FSO countries
Suriname4.73.0-1.6-2.9-3.737.1Guyana5.34.8-1.5-2.7-19.658.2
Caribbean average2.24.3-0.7-4.0-7.769.9
Note: 
For Guyana, most debt is on concessional terms. FSO = Fund for Special Operations.
Source: 
World Economic Outlook, October 2013.
 
For questions or comments, please e-mail: cet@iadb.org
 
 
QuarterlyBulletinOctober2013
Highlights
 Lower revenue collections resulted in a widened deficit for the month of July because collections from the international trade taxes component were lower than expected.The reduction in the high value-added air arrivals continued to persist, thereby undermining overall tourism performance in the country.Noteworthy declines in the consumer price index were the result of significant deceleration in the transportation and communications component of the basket of goods and services, resulting in overall inflation of 0.83 percent for the 12 months to July 2013 period.
Recent Developments
Economic activity for the beginning of the third quarter wassluggish across most sectors, resulting in softness in overallactivity.
Tourism performance from January to June 2013remained weak with slowed growth of 1.4 percent. Adeceleration in inflation by 2.4 percentage points was recordedfor July 2012 to July 2013 to 0.83 percent, as transport costsdeclined. Fiscal developments featured a widened deficitcaused by low revenue collections and higher expenditure.Unemployment stands at 14.0 percent for 2012 (latest dataavailable) with participation rates at 74.6 percent. In 2013, thegovernment’s financial initiatives, designed to improve itsfinancial sector and ensure consistency with internationalstandards, include forward movements with The BahamasCredit Bureau Project and the transition of the Credit UnionProject. In 2012, according to the Central Bank of The Bahamas,The Bahamas Credit Bureau Project made significant progresstoward the creation of the legal, regulatory, and technicalframework for a national credit reporting system. Furthermore,the International Finance Corporation assisted with a draft of the Credit Reporting Bill, the selection of a credit bureauoperator, and the creation of the consumer education programs.The Central Bank is continuing its work to transfer credit unionsinto its regulatory and supervisory regime to ensure financialsector stability.
The current account deficit for the first quarter of 2013 (mostrecent data available) reflected a 54.7 percent contraction, asthe merchandise trade deficit revealed a decline in imports,while the surplus on the services account expanded
. Thesurplus on the capital and financial account was reducedbecause of declines in the level of the domestic banks’ short-term foreign liabilities and private loan financing. Thesetransactions offset the direct investment inflows during the firstquarter.
Tourism growth showed positive results for the first 4 monthsof 2013, growing by 4.3 percent over 2012, despite thechallenging global economic climate.
Reports indicate thattravel to the Americas was weaker at 1 percent growth versusthe 6 percent growth to Asia and the Pacific region. Growth intravel to emerging economies has been trending higher thantravel to advanced economies, according to statistics from theWorld Tourism Organization. Tourism to The Bahamas has notregained pre-crisis levels of arrivals, particularly in the airsegment. Tourism arrivals for the first 6 months of 2013exhibited protracted growth of 1.4 percent primarily because of a 6.2 percent contraction in air arrivals that offset the advancesin sea arrivals by 3.7 percent. Air arrivals, the high-luxurycomponent of overall arrivals, registered for the period wereslightly below totals for the corresponding period in 2012,demonstrating the challenges to achieve pre-crisis levels. Incontrast, totals for the sea component advanced marginallyabove 2013. Consequently, total room revenues declined by 6.6percent because of lower arrivals, lower occupancy rates, andhigher average daily room rates. However, the $3.5 billionBahamar project will be open in December 2014, adding 2,200hotel rooms to the current room stock of 14,430 rooms in thecountry, plus an additional 307 private, freehold residences.
Figure 1. Tourism Arrivals
Source 
: Ministry of Tourism.
Fiscal developments for the 11 months of FY2012/13 revealed awidening in the overall deficit by 49.3 percent to $444.0million as a result of lower tax revenue, in particular, from taxesfor international trade.
Total expenditure increased by 4.5percent to $1,393.6 million reflecting higher transfer paymentsand increases in personal emoluments. By the end of March, the
01234567
   B    $   M   i    l    l   i   o   n   s
Air Sea Total Visitor Arrivals
THE FLUCTUATIONS OF THE RECOVERY PROCESS
2
 
 
QuarterlyBulletinOctober2013
direct charge on the government grew by 3.0 percent on aquarterly basis, totaling $4,525.5 million (55.5 percent of GDP),while contingent liabilities totaled $593.3 million (7.3 percentof GDP). Total national debt at the end of June stood at $5,226.8million (64.1 percent). The government is moving toward theimplementation of value-added tax. Improved revenuecollections and administration are critical for the properfunctioning of the upcoming value-added tax regime. As its July2014 implementation date approaches, the government hasbegun its public information campaigns on value-added tax andthe implications of this tax on the economy for goods andservices.
Figure 2. Central Goverment Operations and Financing
Source: 
The Central Bank of The Bahamas, Ministry of Finance and TreasuryAccounts.
Leaders in the private sector have voiced concerns about thepossible harmful effects on business growth and developmentin The Bahamas. Their main concerns include lack of completeinformation on the value-added tax and its implications, whichwould enable businesses to assess the overall effect on costs;businesses thus are unaware of how they should prepare for itsimplementation. By the end of September, the government isexpected to release to the general public all relevant details of the legislative framework, the regulatory structure, and thequantitative analysis on the overall effect on revenue.
Asoutlined by the government’s fiscal medium-term framework,the value-added tax implementation is expected to result in afiscal surplus in FY2016/17, with a corresponding increase inrevenue by 4 percentage points between FY2013/14 toFY2016/17.
For recurrent expenditure, the goal is to reducerecurrent outlays by 0.5 percent of GDP each year to reach to19.1 percent by FY 2016/17; for capital expenditure, theGovernment will target an execution rate of 3 percent of GDP.
The consumer price inflation for the 12 months to Julydecreased to 0.83 percent; this decrease was supported by asignificant lowering in average transportation costs—theheaviest weighted component of the basket—to 0.35 percentfrom 6.2 percent in the corresponding period last year.
 Consistent with the average lowering in the OPEC basket priceover the review period, prices at the pump for gasoline anddiesel registered a deceleration in costs by 1.5 percent and 3.8percent, month on month, to $5.31 and $4.86, respectively.Similarly, official reports indicated that the fuel surchargelevied by the electricity company fell by 3.8 percent to 27.32¢per kilowatt hour (kWh) monthly, and by 4.2 percent annually.
The Bahamas and the IDB
The IDB has been working with the Government of TheBahamas to assist with value-added tax implementation
. Usingan econometric model, the IDB has provided specific input onthe effects of the changes in revenue of the proposed value-added tax rates and the base on which the value-added tax willbe charged. An economic impact study that assesses the effecton prices, economic growth, poverty, and income distribution iscurrently underway. Consultations on the creation of the CentralRevenue Agency, which will administer the value-added tax andselect the IT system, are currently underway.Following the elections of May 2012, the newly electedgovernment, the PLP, began working on a new Country Strategywith the IDB for the upcoming 5 year period. The proposed newCS will be presented to the Board of Directors of the IDB forapproval in late October 2013. The priority areas outlined inthe CS, which covers the 2013-2017 period, include: (1) PublicFinances and Management; (2) Citizen Security and Justice; (3)Energy; (4) Private Sector Development; and (5) Coastal RiskManagement and Climate Change Adaptation.
BudgetBudget-0.50.00.51.01.52.02.5
FY2008/09 FY2009/10 FY2010/11 FY2011/12 FY2012/13 FY2013/14
   B    $   M   i    l    l   i   o   n   s
Revenue & Grants Expenditure GFS Surplus/(Deficit)
High-Frequency Macroeconomic Indicators
Last dataPeriodPrior dataPeriod
Annual GDP growth (%)1.820122.02011Tourism arrivals (annual % change)6.3Dec-136.3Dec-12Exports (12-month growth)6.6Q1 201327.3Q3 2011Imports (12-month growth)7.3Q1 201313.9Q3 2011Private sector credit growth (%)-1.5May-13-1.4Feb-13Inflation2.0Dec-123.3Nov-12Exchange rate (end of period)1.00May-131.00Apr-13Unemployment rate (%)14May-1314.7May-12
THE FLUCTUATIONS OF THE RECOVERY PROCESS
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