By: Staff Writer
August 12, 2025
The International Monetary Fund (IMF) in a recent Working Paper argued that economic growth and medium-term growth prospects for the Caribbean have weakened in recent decades.
The Working Paper, “Potential Growth and Productivity in the Caribbean,” said: “.Five-year-ahead growth forecasts, which tend to be highly correlated with the assessment of potential growth, have declined in the last two decades from around 3.5 percent to 2 percent. The actual growth outturn has also correspondingly declined. For tourism dependent countries, growth has been on a downward trend in the last four decades before the COVID-19 pandemic, while for commodity-based exporters, growth is more volatile yet also remains at a low level on average historically.
“Growth in the post-2000 period has been lower than in the two decades prior in almost all Caribbean countries, except for two commodity exporters, Suriname and Guyana. In a broader context, income levels in the Caribbean relative to those in the United States show no convergence since 1990, in contrast to emerging markets in Asia and Europe, which have seen clear convergence.”
The paper added: “… after the Global Financial Crisis, there has been divergence relative to the United States for the Caribbean region. Previous studies on Caribbean economies have highlighted the growth deceleration and suggested that declines in productivity may be a contributing factor.”
The paper continued: “Forecaster growth expectations on the Caribbean have been declining over time, and robustness checks show this is not driven by rising forecaster pessimism or income convergence. Second, potential growth, estimated through a growth accounting framework, has been declining over the past few decades across all countries…
“Average potential growth in the region declined from 4.2 percent between 1981-1990 to 1.2 percent between 2011-2019.
“Third, the decline in potential growth is largely driven by declining contributions of total factor-productivity (TFP) and human capital, as opposed to developments in the population or the capital stock. If the TFP and human capital contributions remained the same as in 1981-1990, then potential growth would increase from 1.2 to 3.7 percent in the most recent period.
“We find aggregate TFP is significantly affected by firm-level resource misallocation, and this varies across countries in the Caribbean. If firm-specific distortions producing misallocation could be removed, our estimates show large TFP gains, ranging from 34 percent in Grenada to 107 percent in Guyana. In terms of convergence, this would imply a narrowing of the GDP per capita gap with the United States between 9 and 36 percentage points. Fifth, there are structural obstacles reported by firms to both TFP and human capital.”