OECS states have taken a collaborative approach to respond to the pandemic.
The Outbreak and Measures
OECS countries1 indicated a trend of flattening of the epidemiological curve. For example, Dominica recorded zero active cases for a 60-day period whereas Grenada recorded no new cases since May 28 with no active cases since June 18. This trend has been interrupted by the re-opening of borders for repatriation and international travel across the region, specifically in Antigua and Barbuda confirming 39 new cases in 24 hours. From the first confirmed positive case on March 11 to July 13, there have been a total of 189 confirmed cases and 161 recoveries with only one country, Antigua and Barbuda, recording deaths due to the Coronavirus outbreak. (Figure 1).
OECS states have taken a collaborative approach to respond to the pandemic. Prior to COVID-19, the OECS countries were already vulnerable to health, social and economic risks, primarily stemming from external shocks. The commonalities and the potential for contagion, due to their small size, mandated a sub-regional approach to be adopted. The heads of government have committed to regional collaboration on national policy decisions that may have implications for neighboring states. On May 5, the CARICOM leaders held the “Tenth Special Emergency Meeting of Conference” to offer recommendations for a common public health policy. The draft policy will utilize existing structures of CARPHA2 and the PAHO3 and will work collectively with CDEMA, UWI and OECS PPS.4
Most countries have set strict measures to be implemented in different phases, with few implementing reopening strategies based on the risk of disease transmission, as classified by CARPHA. The sub-region has pursued containment and mitigation measures, as well as adopted contingency and preparedness plans: from expanding hospital capacity and quarantine facilities, to procuring medical supplies and training medical staff. In March 2020, strict prevention measures were adopted across these countries such as: the closure of borders to international flights and the suspension of worldwide cruise line operations. Social distancing protocols including school closures, quarantining policies, national zoning and the suspension of non-essential public and private sector operations were also implemented to slow the community spread of COVID-19 (Table 2). As of July 2020, the reopening strategies of five member states5 have been rolled out and amid the curfew restrictions St. Kitts and Nevis was able to carry out successful elections on June 5.
An injection totaling EC$4 million (EC$500,000 each) was approved by the ECCB6 in an effort to reduce the impact of COVID-19. Subsequently, a support program for customers and residents was also launched to assist during the period of uncertainty on March 20. The program allows options for loan repayment moratoriums for an initial period up to 6-months, waiver of late fees and charges to eligible customers and targeted supervisory flexibility. On March 27, the decision was made by the ECCB to the credit line limits for governments (by reducing those for banks), and on April 3, the discount rate was lowered from 6.5 percent to 2 percent.7 Additionally, temporary income support measures for households and individuals were rolled out by each member state as well as the expansion of social security programs in Grenada, St. Kitts & Nevis and St. Vincent & the Grenadines.
Economic Impact
COVID-19 has significantly impaired the economic growth prospects of the OECS member countries and emphasized pre-existing socio-economic vulnerabilities of the region. Prior to the emergence of the pandemic, these states faced slow development progress and high vulnerability to external shocks and natural disasters.8 The high level of dependence on tourism across the OECS has stymied any anticipated growth prospects, especially given the duration of the pandemic and the social distancing measures taken thus far. In 2019, the tourism sector accounted for almost 50 percent of GDP and the total percentage of employment due to tourism dependence ranged from 60.2 percent to 34.7 percent (Table 2). The closure of the borders, and the implementation of lockdowns have also led to lower consumption levels. The combined effect of the halt of economic activity has exacerbated fiscal and macroeconomic challenges in the sub-region with ripple effects across other sectors. Real GDP growth is projected to sharply decline by an average of 7.1% compared to the pre-crisis forecast of 3.3 percent. Subdued economic activity is also increasing unemployment levels, which were already high before COVID-19.9
The decline in real economic activity will negatively impact the fiscal position of each territory. The region is at risk of compromising the existing fiscal sustainability.10 In response to the crisis, fiscal packages ranging from 0.5 to 4 percent of GDP have been approved in Antigua & Barbuda, St. Kitts & Nevis and St. Lucia to increase health spending and provide tax relief.11 There were extra-budgetary demands to cover unexpected expenditures on containment measures, treatment facilities and to expand social sector support. The average primary fiscal balance of the OECS economies is expected to worsen from -0.1 percent of GDP in 2019 to -3.5 percent of GDP in 2020.
Falling revenues are being met by debt-led financing strategies. Debt-to-GDP ratios12 have increased from an average of 70.3 percent of GDP in 2019 percent to a projected 79.1 percent of GDP in 2020. In response to the COVID-19 pandemic, the OECS countries have procured funding from multiple multilateral organizations. The Caribbean Development Bank (CDB) has provided financing of EC$263.8m and have approved several projects: grants for personal protective equipment purchase (US$3m)13, social sector support, MSMEs and agriculture (US$25m), debt service/liquidity support (US$94m), policy-based loan support (US$140m) and repurposing of undisbursed balances (US$30m). The IMF has recently approved Rapid Credit instruments of EC$291.4m and the World Bank has provided a fast track/policy development loan of EC$212.3m. Additionally, the United Nations launched a joint initiative on May 6 of a COVID-19 Multi-sectoral Response Plan and US$29.7 million Funding Appeal.14
The region will experience a worse external balance due to COVID-19. The OECS is experiencing a substantial widening of the external current account deficit ranging from an average of -10 percent of GDP in 2019 to a projected -21.4 in percent of GDP in 2020 (Figure 2). This was the largest annual percentage change in deficit recorded in the last five years, with Grenada and Antigua and Barbuda projecting the most significant widenings. The current account deficit is also projected to remain above -10 percent of GDP in 2021. Remittances will also be severely impacted by the economic impact of COVID-19 in source markets. The USA accounts for nearly 50 percent of all remittances received throughout the member states and also accounts for 7 percent of GDP in the Caribbean.
The foreign reserves of the currency union stood strong with a backing15 of 99.7 per cent at the end of 2019.16 However, the COVID-19 shock has resulted in a reduction in income on the reserves due to lower interest rates by the Federal Reserve as the ECCB invests on the international market in various types of instruments including derivatives. Foreign exchange reserves will be the benchmark macroeconomic variable against which any economic support that governments or the monetary authorities implement during and after the crisis. The Citizenship-by-Investment programs, which have been an important revenue source of foreign direct investment, are at risk of falling as investors lose confidence during times of uncertainty. This would erode the foreign exchange earning capacity of the OECS.
The socioeconomic progress of the region has been undermined by the unexpected decline in economic activity. The effects of the pandemic threaten the vulnerable population. The vulnerable population is identified as those persons living in poverty, indigenous groups and the workforce in the informal sector who are the most affected during this crisis. The official poverty rates17 in the OECS region varied from 18 to 38 percent, prior to the pandemic. Grenada’s poverty rate was the highest in the region at 37.7%, followed by Montserrat (35.5%) and St. Vincent and the Grenadines (30.2%). Saint Lucia’s poverty rate stood at 28.8% which is the ECA average of 24.5%.18 The fallout of the COVID-19 outbreak is increasing poverty levels and worsening the living conditions of the vulnerable. For example, in Dominica, the indigenous group known as the Kalinago are likely to experience significant reductions in income levels due to the hit on the tourism sector. The Kalinago accounts for 4% of the country’s total population and tourism is the largest contributor to their livelihood.19
1 Protocol members: Antigua and Barbuda, the Commonwealth of Dominica, Grenada, Saint Lucia, St. Vincent and the Grenadines, St. Kitts and Nevis.
2 The Caribbean Public Health Agency (CARPHA) established by the Caribbean Community (CARICOM)
3 Pan American Health Organisation
4 https://caricom.org/statement-tenth-special-emergency-meeting-of-the-conference-of-heads-of-government-of-the-caribbean-community-caricom-via-video-conference-5-may-2020/
5 Dominica (August 7), Grenada (July 15), St. Vincent and the Grenadines (July 1), St. Lucia (June 4) and Antigua & Barbuda (June 4)
6 Eastern Caribbean Central Bank
7 https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19#E
8 These shocks have been primarily the Category 5 hurricanes: Hurricane Maria, Hurricane Irma and Hurricane Ivan which hit the islands of Dominica, Antigua and Barbuda and Grenada, respectively.
9 Pre-pandemic unemployment rates: Grenada 29%; Saint Lucia 21%; Saint Kitts & Nevis 2%; St. Vincent & the Grenadines 20%. (Source: “The Socio-Economic Impact of COVID-19 On Children and Young People in the Eastern Caribbean Area”, UNICEF)
10 Risk identified as medium given the region’s vulnerability to economic shocks, negatively impacts the economic growth and fiscal position of the OECS countries. The average Debt to GDP ratio is below 70 percent thus providing scope to borrow by the local governments. The state of affairs in each country must be closely monitored by keeping measures in place to minimize the severity.
11 Key Policy Responses – IMF, July 1, 2020.
12 Debt to GDP ratios (2019 to 2020): Antigua and Barbuda 82.0% to 92.9%; Dominica 87.6% to 89.6%; Grenada 59.1% to 68.7%; Saint Kitts and Nevis 62.8% to 74.7%; Saint Lucia 62.8% to 74.7%; St. Vincent & the Grenadines 74.6% to 84.4%. (Source: MOF, CDB Estimates and Projections).
13 1USD=2.70252XCD https://www.xe.com/currencyconverter/convert/?Amount=1&From=USD&To=XCD
14 https://www.unicef.org/easterncaribbean/press-releases/un-barbados-and-oecs-supports-eastern-caribbean-governments-social-protection
15 A nation’s backup funds in case of an emergency such as a rapid devaluation of the currency. The ECCB requires a backing ratio of 60 percent.
16 https://pressroom.oecs.org/communique-special-meeting-of-the-oecs-authority-and-the-monetary-council
17 The poverty rate is the ratio of the number of people (using each country’s national poverty line) whose income falls below the poverty line; taken as half the median household income of the total population.
18 Data from the 2017 Child Poverty Report in the Eastern Caribbean Area (ECA)
19 COVID-19 and Beyond Impact Assessment and Responses by the OECS. May 1, 2020
Ariel McCaskie
Ariel K. McCaskie, born in Barbados, earned a MSc in Finance, Investment and Risk from the University of Kent, United Kingdom; and a BSc in Economics and Accounting from the University of the West Indies. She is an Economics Consultant in the Barbados Office at the Inter-American Development Bank.