Unlocking finance for growth in the Caribbean

Governor-General of St Kitts and Nevis

Prime Minister Timothy Harris

Prime Ministers

Sir Governor Dwight Venner

President Warren Smith

Deputy Managing Director Min Zhu

Ministers, partners and colleagues

Unlocking finance for growth in the context of a less favorable global economy is key for Caribbean countries, many of which are facing gaps in financing, heavy debt burdens, and high vulnerability to economic shocks and natural disasters.

Just a couple of months ago, Prime Minister Kenny Anthony of St Lucia hosted the third regional Caribbean Growth Forum to discuss new strategies and tools to achieve growth.  One key take away from the discussions in St Lucia was that being small has a number of advantages. For instance, small states can be more agile in ensuring high competitiveness. A number of small states ranked at the top of the 2014 Global Competitiveness Index including Singapore, Mauritius and Malta.

In the western hemisphere, a good example is Costa Rica that some years ago took a proactive public policy approach and embarked on a comprehensive set of reforms to transform an agricultural based economy into a high tech export economy to address an unsustainable debt problem. 

Given the large debt burdens faced by many Caribbean countries, financing growth calls for combining public and private finance.

To free up greater public financing for growth, continued efforts on fiscal consolidation and structural reforms are essential: There is no doubt that putting the fiscal house in order is a must. But high debt burdens also stem from weak competitiveness, low productivity, low skill levels, high logistics costs and poor connectivity. In this context, St Kitts, Jamaica and Grenada have continued on a path of reforms that are contributing to reduce their high debt burden.

However, in view of the large infrastructure gaps and other investment needed, it is clear that financing growth calls for significant private sector participation.

So far, levels of Foreign Direct Investment have remained high, but have not translated into much growth. There have been few successful public-private partnership projects, and the local private sector has suffered from low levels of access to finance for investments.

Attracting private finance in the face of global headwinds and increasing volatility is not easy, but I see four main areas of interventions that can help unlock private sector led growth: 

1.   First, a conducive environment for private businesses is critical:

• To attract private investments in productive sectors, Caribbean governments can enhance competitiveness by continuing to improve the investment climate.
• Last year, Caribbean economies adopted a record number of reforms aimed at improving the business environment. For instance, Jamaica had a remarkable jump of 27 spots in the Doing Business Index.
• But more needs to be done in reducing the constraints to doing business and the World Bank Group will continue supporting the Caribbean Governments’ efforts in this regard.
• Resilience against natural disasters is also essential for the private sector to thrive and undertake long-term investments. In this area, the Caribbean Catastrophe Risk Insurance Facility remains an effective and attractive risk pooling mechanism able to mobilize emergency funds within the first two weeks of a disaster.

2.   Second, the private sector can play an important role in financing infrastructure through Public Private Partnerships:

Policymakers in the region are increasingly turning to PPPs to develop and maintain infrastructure that supports national economic growth and delivers basic services to their citizens.

• The World Bank Group has been supporting many PPPs in the region. In Jamaica, the World Bank’s Multilateral Investment Guarantee Agency issued about US$80 million in risk-mitigation guarantees to support the earlier development phases of the Kingston Container Terminal.
• A regional Public Private Partnership Support Facility was recently launched in Bridgetown by the Caribbean Development Bank, in cooperation with the World Bank and other development partners to develop and implement sound policies and transactions, and provide hands on training to increase technical capacity among governments.

3.  Third, high and volatile energy costs have been one of the key bottlenecks for competitiveness and private sector development. The recent Enterprise Survey shows that costly & unreliable electricity supply are the two most significant impediments for businesses in the region.

• Most Caribbean countries depend almost entirely on oil to supply their electricity needs. Oil and gas expenditures represent between seven to 20 percent of some countries’ GDPs. Even with oil prices cut by nearly half, the average price for electricity has fallen by less than one-third in most countries and remains four times higher than in the United States. 
  
• Now is not the time to slow down our efforts. There has been a substantial push in recent years to build a diversified power sector in the region including renewables and other sources of cleaner energy such as natural gas.  Solar power continues to expand as technology costs have plummeted. There is greater utilization of wind energy due to increasing commercial viability.  Geothermal development, especially in the OECS, has also provided hope for a reliable and cost-effective clean energy solution to meet the countries’ needs. 
  
• PPPs are also critical to finance the energy sector. In Dominica and Saint Lucia, the World Bank is helping de-risk power generation investments to attract qualified developers, and facilitate bankable PPP deals.
  
• In Jamaica, a 36 megawatt wind farm has received $63 million in funding from the World Bank’s International Finance Corporation and the governments of the United States and Canada.
  
• Tropical Storm Erika, which particularly affected Dominica, also stressed the need for investing in energy resilience.  This means ensuring that investments in energy infrastructure and systems are robust and well protected when natural disasters occur.

4.   Finally, strong financial sectors that grant access to credit, especially for local firms, is another key condition for growth and shared prosperity:

• Significant progress has been made to improve financial infrastructure and help banks better manage their credit risks. Credit bureaus are currently operating in Jamaica, Dominican Republic, Guyana, Trinidad and Tobago and Barbados.  Jamaica, Trinidad and other countries have also recently reformed their insolvency framework to facilitate the faster rehabilitation of borrowers.
  
• To enable banks to better manage credit risk when lending to SMEs, the World Bank is supporting the development of a Guarantee Facility in the OECS countries.
• Going forward, we need to look for other solutions to finance SMEs and diversify financial instruments. Credit unions are very active in the region, but are mostly focused on consumer lending. There are very limited financial instruments available to SMEs besides collateralized lending, such as leasing, factoring or guarantees.

Let me conclude by saying that at the World Bank Group, we are committed with our partners in the Caribbean to play a role as catalyzers in further leveraging public and private resources to finance sustainable growth in the region, to eradicate poverty and boost shared prosperity.

Thank you