Countries in the Caribbean must work together to ensure that problems in some economies do not spread to their neighbours, a senior minister told Emerging Markets.
The Caribbean received more bad news this week after Grenada announced that it would restructure its public debt. Prime Minister Keith Mitchell said the global financial crisis had had a serious impact on the country’s financing, aggravating “the severe debt overhang that continues to weigh down our economy. It is now time for Grenada to confront the fact that it cannot continue to pay its debts on current terms.”
Bhoe Tewarie, Trinidad and Tobago’s planning and sustainable development minister told Emerging Markets in an interview: “The countries in the Caribbean are so connected, these problems have implications for the countries around it.
“If there is a problem in Grenada, which is our nearest neighbour, obviously it will have an impact. There is a responsibility in the region to ensure that the Caribbean moves out of the challenges we now face.”
Marla Dukharan, group economist for RBC Caribbean Banking headquartered in Trinidad and Tobago, said the fact that St. Kitts, Belize, Jamaica and Grenada had all entertained sovereign debt restructures did not imply there was an “element of contagion” within the Caribbean.
Dukharan said “the severe fiscal and liquidity shortages being experienced in Grenada since 2012 are a direct result of weak tourism numbers and declining grant inflows, based on a high dependence on European countries for the same”.
The primary driver in the region, with a few notable exceptions, such as Trinidad and Tobago, is tourism. Tourism nosedived with the international financial meltdown and is just now beginning to bounce back to pre-crisis levels.
Grenada began meeting with local and regional investors on Wednesday. The move came on the same day that Standard and Poor’s (S&P), the credit ratings agency, downgraded Grenada. It also lowered Puerto Rico’s general obligation rating to BBB- with a negative outlook. The agency made the decision based on Puerto Rico’s estimated fiscal budget gap for 2013.
Grenada joins other economies in the Caribbean with major debt problems. Jamaica announced this month that it had reached a deal with bondholders to swap approximately $9 billion for lower-yielding bonds.
Moody’s downgraded Jamaica’s debt rating on March 7 to Caa3. S&P has Jamaica at CCC+, while Fitch has the debt rating at CCC.
“Most of the bad news in the region is centralized in the Caribbean,” Joydeep Mukherji, managing director sovereign ratings at S&P, told Emerging Markets. “These are small, open economies (and) most of them have high debt-GDP ratios.”
The Caribbean Development Bank reported that a third of Caribbean economies slipped into recession in 2012.
Mukherji said the region faces a difficult road ahead. “These are countries with high debt, low growth and natural disasters. That is the context today,” he said.
- Like every year, Emerging Markets daily newspaper covers the Inter-American Development Bank’s annual meeting, held in Panama in mid-March. Pick up your copy at the meeting, read the news on our website and follow us on twitter @emrgingmarkets