BELIZE CITY, Belize — The Economic Commission for Latin America and the Caribbean (ECLAC) sub-regional headquarters for the Caribbean discussed the relationship between debt accumulation, the external sector deficit and lack of robust growth in the Caribbean at a recent meeting in Belize.
ECLAC’s deputy director, Dr Dillon Alleyne, attended the 49th Annual Monetary Conference, which took place in Belize City from 8-10 November 2017, and presented a paper on strategies to model Caribbean economies in light of the emphasis on the United Nations’ Sustainable Development Goals (SDGs).
The response to the Caribbean’s high debt burden has thus far focused on raising taxes and curbing expenditure, despite sluggish domestic and external demand, in order to reduce government’s borrowing requirements and stabilise the debt overhang.
Alleyne noted that since the global economic crisis, Caribbean economies – whether as goods producers or service producers – have been limping along with average growth of 1.8% in 2011, 0.4% in 2015 and less than 2% expected in 2017. Low growth has been accompanied by high unemployment, with rates varying between 12-15% from 2011 to 2015.
In particular, Alleyne argued that this low growth challenge reflects falling import capacity, which is a major constraint facing the small open economies of the Caribbean.
Against this backdrop, Alleyne highlighted that the aim of this study was to determine how trade deficit drives debt accumulation, and how said deficit may also impact on growth and income distribution in the region.
In order to do so, Alleyne explained that he utilized a modified Kaleck model – (named after the famous Polish economist Michal Kalecki) – to investigate whether debt accumulation is due to excessive fiscal spending, or whether it is linked to deeper structural challenges, such as falling competitiveness, which generates pressures on governments as the employer of last resort to maintain spending.