Survival mode on as pandemic ramps up Caribbean debt
The Caribbean’s fragile economy is being battered by the pandemic that is keeping tourists from its tropical beaches and leaving heavily-indebted countries ill-prepared to cope with violent hurricanes and other emergencies, say experts.
Gnawing away at the disaster contingency funds countries have struggled to save, the pandemic is forcing many to ramp up their borrowing and slash investments designed to make communities and infrastructure more resilient, they say.
“The economic fallout from the pandemic has placed a lot of our borrowing member countries in survival mode,” says Issac Solomon, the Caribbean Development Bank’s vice president of operations.
“Resilience building has always taken a backseat… it will now be secondary to basic survival risk. As a result, we expect vulnerabilities to increase at least in the short-run,” says Barbados-based Solomon.
As the cost and intensity of hurricanes and other events rise, finance experts have long urged Caribbean countries to layer-up their risk financing by mixing fast-paying disaster insurance policies with lines of credit and funds shaved from their national budgets.
But while pay-outs from facilities such the Caribbean Catastrophe Risk Insurance Facility (CCRIF) can help cover immediate disaster response, investing in resilience is crucial to driving down both damage and costs, they say.
ROOM FOR MANOEUVRE
In the short-term, experts worry that rising Caribbean debt will reduce countries’ ability to borrow more money in the case of a major hurricane while forcing them to spend even more on servicing their borrowing costs.
Burdened by some of the world’s highest public debt levels even before COVID-19 hit, many countries have borrowed more to bolster their health programs while providing support for families and businesses impacted by the pandemic.
Borrowing to pay for social protection measures during the pandemic helped inflate Barbados’ debt levels to 144 percent of GDP in 2020. In Jamaica, debt was forecast to be 111 percent of GDP by March 2021, according to ratings agency Fitch.
“The issue of disaster risk financing is a very significant one, the situation is very challenging. It’s a tight fiscal time all round,” says Elizabeth Riley, executive director of the Caribbean Disaster Emergency Management Agency (CDEMA).
“We have a very real situation where countries are financially constrained in terms of budget allocations available for preparedness actions.”
As the region’s development partners see their own budgets squeezed by the pandemic, there is a risk that funding packages could also be reduced which would add to the financial pressure on Caribbean countries, she cautions.
The Economic Commission for Latin America and the Caribbean (ECLAC) forecasted a 6.7 percent drop in growth in 2020 after border closures, national lockdowns and supply chain disruptions hurt economies.
In tourism-dependant Antigua and Barbuda, it expected growth to tumble 18 percent and by nearly 15 percent in the Bahamas.
While the focus has long been on finding ways to fund the impact of headline-grabbing hurricanes, Caribbean countries need to pay more attention to lower-profile crises such as flooding or droughts which can also have devastating impacts, say experts.
“It’s those smaller events that happen every year, every two years that are eating away at any gains that you’re getting,” says Evangeline Inniss-Springer, director of the University of the West Indies’ Disaster Risk Reduction Centre in Jamaica.
“The conversation now has to be not so much about financing for disaster risk reduction but financing for the resilience of the country.”
For Raul Salazar, chief of the United Nations Office for Disaster Risk Reduction, Regional Office for the Americas and the Caribbean (UNDRR), more needs to be done to tackle these smaller events that are often exacerbated by poverty, urbanization and environmental degradation.
“This is why it is so important to develop and finance multi-sectoral, national disaster risk reduction policies that are integrated into all sectors so we can effectively reduce disaster risk on every level,” says Salazar.
"We can't leave anyone behind.” When it comes to risk financing, governments alone cannot shoulder the responsibility - the private sector has a vital role to play. Now, more than ever, companies need solid business contingency plans in place to better protect their people, profits and property, say experts.
To expand risk financing in the region, CCRIF is looking at creating parametric insurance to help Caribbean farmers deal with drought. After granting funds to St. Vincent and the Grenadines to help deal with the impact of the La Soufriere eruption, it is also considering new policies for volcanic eruptions.
The far-reaching impact of the pandemic alongside crises such as the eruption has raised the need for Caribbean countries to consider establishing a regional contingency fund to help tackle systemic events, says Solomon.
“I don’t think there’s any better justification for it than what we’ve experienced in the region,” he says.