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CCMF Cautions Caribbean Countries on Fiscal Responses to International Economic Crisis
- By S Coward
- Published 13-Jan-09
- Financial Crisis/ Recession
- Unrated
........
Proceed with care
Port-of-Spain -- Jan. 13, 2009 -- Caribbean governments should be wary of attempting to make up for lost foreign exchange, jobs and income by expanding public works and public service employment.
Countercyclical fiscal policy can work in the US, because about 72 cents of every extra dollar spent by Americans buys products and services made in America by Americans, and only 28 cents goes for imported goods and services.
(The marginal import propensity of the US averaged 28 percent for the period 2003-2007.) In the Caribbean the proportion spent on local goods is much lower: in Trinidad and Tobago 40 cents of every extra dollar goes for imports, while in Jamaica the import share is 71 cents, and in Barbados it is 76 cents. Over the most recent five years some Caribbean countries spent more on average on imports
than the average inceases in their incomes. In St Lucia imports increased by $1.25 for every dollar of additional income, and for The Bahamas the import increase was more than double the increase in national income.
When Caribbean governments expand expenditure, therefore, they create jobs for foreigners at a faster rate than they do for residents (except in the case of Trinidad and Tobago). A consequence
of this is the deterioration of the countries’ foreign exchange reserve positions, unless the extra government expenditure is fully funded by foreign finance. The prime targets for any countercyclical government
activity on the part of Caribbean governments should therefore be those projects which are foreign
funded. Every effort should be made to accelerate the implementation of projects for which funding has already been arranged, to bring forward disbursements of projects already underway, and to conclude arrangements for foreign financed projects that are in the pipeline.
Beyond this, the prudent course would be to proceed with care, in view of the extreme uncertainty of the prevailing international economic climate. As recently as six months ago leading international economic and financial institutions and the world’s leading central banks expected a recession that would be short and shallow, but the outlook has since clouded beyond all expectations. Caribbean countries need to keep stocks of foreign reserves high, just in case the prospects for the global economy are as gloomy at the end of 2009 as they are at the beginning.
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Source: http://www.ccmfuwi.org/
Countercyclical fiscal policy can work in the US, because about 72 cents of every extra dollar spent by Americans buys products and services made in America by Americans, and only 28 cents goes for imported goods and services.
(The marginal import propensity of the US averaged 28 percent for the period 2003-2007.) In the Caribbean the proportion spent on local goods is much lower: in Trinidad and Tobago 40 cents of every extra dollar goes for imports, while in Jamaica the import share is 71 cents, and in Barbados it is 76 cents. Over the most recent five years some Caribbean countries spent more on average on imports
than the average inceases in their incomes. In St Lucia imports increased by $1.25 for every dollar of additional income, and for The Bahamas the import increase was more than double the increase in national income.
When Caribbean governments expand expenditure, therefore, they create jobs for foreigners at a faster rate than they do for residents (except in the case of Trinidad and Tobago). A consequence
activity on the part of Caribbean governments should therefore be those projects which are foreign
funded. Every effort should be made to accelerate the implementation of projects for which funding has already been arranged, to bring forward disbursements of projects already underway, and to conclude arrangements for foreign financed projects that are in the pipeline.
Beyond this, the prudent course would be to proceed with care, in view of the extreme uncertainty of the prevailing international economic climate. As recently as six months ago leading international economic and financial institutions and the world’s leading central banks expected a recession that would be short and shallow, but the outlook has since clouded beyond all expectations. Caribbean countries need to keep stocks of foreign reserves high, just in case the prospects for the global economy are as gloomy at the end of 2009 as they are at the beginning.
DOWNLOAD FULL NEWSLETTER BELOW
Source: http://www.ccmfuwi.org/
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