BRIDGETOWN, Barbados — “The Caribbean is finally exiting the recession,” declared David Vegara, the deputy director of the International Monetary Fund’s Western Hemisphere department, as he launched the latest regional economic outlook yesterday. “But the recovery remains weak, with downside risks to growth.”

The two main threats to the region come from the US, where the possibility of a double-dip recession is strong, and Europe, which is still struggling with the sovereign debt crisis in Greece and other smaller members of the eurozone.

The IMF’s baseline projections — which assume that the Europeans take decisive action on Greece, that the Americans balance the need for fiscal adjustment and economic stimulus, and that Asia’s growth remains strong – still see a rough time ahead for the Caribbean.

“With few exceptions, the performance of Caribbean countries depends on international markets,” Vegara said.

Tourism countries will see slower growth

Significantly, countries with high exposure to tourism will have slower economic growth this year than was forecast as recently as April.

On average, such economies will grow by 1.25 per cent in 2011-12, down from an estimated 2.25 per cent forecast just six months ago, Vegara told an audience of 200 in Bridgetown’s Frank Collymore Hall.

Although the number of tourists arriving in the region is strong, almost 15 per cent higher than in 2000, their total spending is below the level of a decade ago, the IMF reported.

This slowdown in tourism revenues during what Vegara called a “deep and prolonged economic recession” has exacerbated the region’s fiscal problems.

Public debt increases

“Public debt in most Caribbean countries has increased sharply,” he said. And that in turn limits their room to manoeuvre.

“Despite reductions in real government expenditures in most countries, primary balances deteriorated almost across the board as revenue losses more than offset efforts to curb spending,” the report said.

Vegara also warned that too much of the spending cuts (which amount to just 0.3 per cent of GDP) come from capital spending rather than government wage bills. “Cuts in current spending are more effective than capital spending cuts, he said.

“Greater efforts are necessary to generate fiscal savings to stabilise and reduce public debt over the medium term,” the report said.

One glimmer of good news for the region was that mineral exporting countries can expect to do somewhat better as commodity prices dip only slightly from the record highs they reached in recent years driven by Asian demand.

But Haiti’s growth, which had been forecast at 8.5 per cent in April, will instead reach just 6 per cent as reconstruction efforts following the devastating 2010 earthquake have not kept pace.

St Vincent and the Grenadines had the worst GDP growth projection for 2011 as its economy shrinks by 0.4 per cent. Outside Haiti, the Dominican Republic is expected to grow the fastest at 4.5 per cent. Jamaica’s growth is forecast to be 1.5 per cent in 2011 and 1.7 per cent in 2012, matching growth rates in the US.

St Kitts and Nevis tops the regional tables for public sector gross debt at 149 per cent of GDP this year, with Jamaica a close second at 143 per cent. The IMF’s rule of thumb for emerging economies calls for a public debt load of 60 per cent.

Haiti has the lowest debt in the region at 13 per cent of GDP, largely because the IMF wrote off its loans after the earthquake. The next lowest was the Dominican Republic, at 29 per cent.

A panel of experts assembled by the IMF to discuss the report accepted the main thrust of its argument on the dangers ahead and the need to reduce debt.

But Michael Mansoor, executive chairman of FirstCaribbean International Bank, warned that debt reduction was not a “magic pill” and that there would be no miracle.

“We have to be careful that we do not shut down the economies of the region by taking very austere measures,” he warned.

He also noted that most major banks were well capitalised and would be able to survive this difficult period.

Dr Denny Lewis-Bynoe, director of economics at the Caribbean Development Bank, said the region should put more emphasis on using technology to drive economic development, pointing out that she was the only one of the panellists to use her iPod to take notes.

Dr Justin Robinson, head of management studies at the University of the West Indies, Cave Hill campus, said he was more pessimistic than the IMF.

When the global crisis began three years ago only households and institutions were affected, but now governments are too, he said. And some of those governments, such as Spain or Italy, may be too big to save.

He also noted that much of the ammunition that the authorities had in 2008 to deal with the crisis is running out.

And like Mansoor, he warned against too much austerity. “Overzealous credit rating agencies and bond market vigilantes are pushing for front-loaded short-term fiscal adjustment,” he warned.

“This is a great time to be an opposition politician.”

Both he and Lewis-Bynoe suggested that Caribbean countries should rebalance some of their programmes to emphasise efficiency over equality, with targeted rather than universal benefits.