2022 economic highlights

by Kari Grenade, PhD, Caribbean Economist and Macroeconomic Advisor

That 2022 was a year of veritable economic turbulence is putting it mildly.

As Caribbean countries were limping out of the Covid-19 pandemic in January, buffeted by its devastating socio-economic impacts, they were rocked by a series of economic shocks that came fast and furious. But 2022 also proved to be a year of resilience. Caribbean countries were knocked down, but certainly not knocked out.

Caribbean countries started the year in a precarious socio-economic position with weak growth, which undoubtedly would not have helped to regain ground on the regional poverty-fighting agenda that was lost in the previous 2 years. Weak growth, coupled with overly-strained public finances and new borrowings during the Covid-19 era, translated into elevated public debt-to-GDP ratios. Moreover, scarring effects from the pandemic manifesting themselves in high unemployment, underemployment, social dislocation and increased gender and income inequalities, compounded the region’s challenges.

As if those challenges were not enough, in February Russia invaded Ukraine, with profound consequential impacts for the world. Prices of energy, food, fertilisers and other commodities skyrocketed and supply chains were severely disrupted, stoking global inflation. Indeed, Caribbean countries had to deal with high inflation during the year. Prices of food, fuel, lumber, steel, appliances, cars, clothing, electricity, you name it, increased significantly. Importers and businesses also experienced the shock and awe of freight charges, which went through the roof, putting Caribbean countries in an untenable economic situation of higher import bills while their national incomes were still below 2019 levels.

Food inflation was particularly challenging as it fueled food insecurity risks. In May, a global food crisis seemed imminent. Indeed, the pillars of the global food system were shaken as a consequence of an unprecedented convergence of disruptions caused by supply chain challenges, climatic events, and Russia’s invasion of Ukraine. The implications of all of this for the Caribbean were immense, so much so that Caricom convened a special Agri-Food Investment Forum and Expo in May, ultimately aimed at addressing the region’s food import bill and promoting food and nutrition security.

As Caribbean countries grappled with high inflation, they also had to deal with the implications of rising interest rates in the US and a strong US dollar. On 5 May, the US Federal Reserve (FED) increased its benchmark interest rate by 0.5%, the first interest rate hike of that magnitude in 2 decades. The FED kept on increasing its benchmark interest rate throughout the year, which meant that interest rates on debt instruments rose for Caribbean countries with US-denominated instruments of variable rates. It also meant that rates on investment instruments also rose, benefitting countries and firms with holdings of US fixed-income financial investments.

Rising interest rates in the US contributed to a marked appreciation of the US dollar against other major currencies including the Euro and British pound, which meant that it became more expensive for non-US tourists to visit the Caribbean. For tourism-dependent Caribbean countries whose currencies are fixed against the US dollar (Barbados and those that comprise the Eastern Caribbean Currency Union) the appreciation of the US dollar against the pound sterling or Canadian dollar for example, automatically meant an appreciation of the Barbadian dollar and the EC dollar against those currencies as well. As such, the pound sterling would not have stretched as far as it otherwise would have in Barbados or St Lucia for example, given its depreciation against the US dollar.

As if the economic shocks were not enough, Caribbean countries also had to deal with natural shocks. The Atlantic Hurricane season included 8 hurricanes with 2 major ones resulting in an estimated 337 deaths and US$57.0 billion in damages. It was quite apt that Caribbean countries were well represented at COP27, which took place in Egypt over the 2-week period 6-18 November. COP27 was a historic one to the extent that loss and damage funding was finally an explicit agenda item for the first time in the history of the UN’s climate negotiations. There was an agreement to establish a loss and damage fund to provide tangible and explicit support for developing countries, such as those in the Caribbean that contribute the least to global greenhouse emissions that heat our planet, but bear the burden of its devastating effects.

On a positive note, despite the bundle of debilitating exogenous shocks, Caribbean governments were able to soften the economic pain on their people as far as was feasible to do. While dealing with the extant challenges, they remained focused on strengthening resilience and advancing their sustainable development agendas to build modern, competitive, many-sided economies with inclusive and progressive societies.