The economy of St. Vincent and the Grenadines is expected to contract by 4% this year following growth of 0.4% in 2019, the World Bank says in its semiannual report, The Economy in the Time of COVID-19.
However, economic growth is projected to return in 2021, when the worst of the negative impact of the COVID-19 pandemic is expected to pass.
After several years of minimal budget deficits and primary surpluses, the new port investment and the Covid-19 response will exert pressure on public finances,” the World Bank said in the report.
“Prudent fiscal management will be required over the short to medium term to maintain fiscal and debt sustainability. An extreme weather shock combined with the impact of COVID-19 adds to the downside risk and could increase poverty,” the report further says.
In a virtual press conference on Monday, Martin Rama, the World Bank’s chief economist for Latin America and the Caribbean said countries have to be clear, from early on, about the mechanisms that identify the national emergencies.
He said this would help to avoid decisions that seek to return political favours as this could lead to acrimonious debate and a delay in recovery.
“… we need to make sure that any decision, big decision of this sort, like, ‘Oh, we will help this group or that group’ will not be perceived like, ‘Oh, I’m friends with this group or I’m friends with that group; they supported my political campaign; I owe you favours and now I return [them]’,” Rama said as he gave some policy recommendations for the region amidst the crisis.
He said that this perception would be extremely damaging going forward.
“In past crises, it has resulted in acrimonious debates for a very long time, undermining legitimacy, undermining trust in government and in institutions, even in advanced economies. We have seen that the fear that ‘oh, I may be prosecuted, if I take the decision’, has made the crisis much worse, because they are huge decisions,” he said.
“The thinking is of a mechanism that is institutionally strong, reputable, that involves some of the most respected professional economists in the country in advising the decision, start thinking how we will handle things. If they become really bad, maybe they will not, but I suspect they will. That is one of the most important messages.”
He said that one of the first messages, across the region, is to respond to immediate needs.”
This includes the needs of people for whom just being locked down becomes a problem.
“… because it’s not like they have a formal job and you give them unemployment insurance or they work for formal companies and you support their companies and that will protect your jobs,” he explained.
The economist noted that these are people who live on a day-to-day basis and will need help.
“There are, across the region, kids that depend on school meals for the nutrition and schools are closed,” he further pointed out.
Rama added that the first line of emergency response is to know within, the means governments have, to try to address these needs.
He said there is also in that immediate response a part that is related to the health sector.
Rama said the World Bank is mobilising across countries a line that makes money available to buy equipment, supplies, masks, and to help with procurement.
“Because, these days, it has become very difficult. Of course, every country is trying to keep their medical supplies for themselves. To buy in international markets is proving tricky. There are things that seem to work and then don’t work,” he said.
Rama said the second line of response is a bit longer term.
He noted that in the context of COVID-19, the longer term is measured in weeks and months.
“I’m not talking years,” he said.
“And it’s how the prices will hit domestically. For now, we are seeing the hit that is coming mainly from outside and mainly from the fact that people cannot work, so we have less help with demand and supply shock at the same time.”
He said the simultaneous impact on demand and supply makes the COVID-19 pandemic different from previous crises.
“Typically you have either one or the other. Now, we have both. But the point I was making that effects will start cascading through the economy, that firms will be unable to pay their bills, will start laying off workers and that will affect aggregate demand, will give us a new demand shock because there would be people who have the means to consume and they will be in trouble.
“There will be firms that will not be paying their debt to the banks, because they cannot afford it. But that will touch on the banks and we know that the worst crises, the ones where job suffered the most, are financial crises.”
He said that countries without the scaffolding of institutions like European Central Bank or the Federal Reserve, countries in Latin America and the Caribbean, with their limited means, cannot say, “Don’t worry, we will cover the losses and we’ll see later.”
“We cannot do. If you have limited means, how will they be used? And that is both an economic question and institutional question.”
He said this is an economic question “because you want to do the best possible thing.
“You want to protect your strategic sectors,” he said, adding that for some countries, that might be tourism and airlines for another.
“Many airlines will be bankrupt in just weeks across the world. Should they save the airlines? And it will happen next to banks and financial institutions.”