Long-term impact of world cup hosting unclear - IMF
-says growth will rely heavily on tourism
April 18, 2007
With the long-term impact of the region's hosting of the Cricket World Cup unclear, prospects for growth will hinge on its ability to market itself as a tourist destination and to realise incremental revenues from the additional hotel rooms that have been constructed.
The Caribbean will also have to address macro-economic vulnerabilities, including high levels of public debt, according to the International Monetary Fund's (IMF) Regional Economic Outlook for the Western Hemisphere, which was released on April 13.
The report said the long-term impact of the region's hosting of the Cricket World Cup was unclear, especially in the light of the associated fiscal costs.
"The economic benefits of the 2007 CWC are likely to be diluted as the matches are spread across multiple countries and are taking place in the midst of the peak winter tourist season when occupancy rates are already very high," it said.
According to the report, while the positive effects on the tourism sector could extend into the medium term, there is the concern that the net effect of the CWC could be negative in the face of its heavy fiscal costs and already high public debt burdens on the region. The IMF document noted that preparations for the CWC had led to accelerated economic activity in the region, particularly since 2005, but this has been costly in terms of direct government expenditure and provision of new tax concessions.
The Ninth CWC, being held in the Caribbean from March 5 to April 28, is the largest sporting event ever held in the region. The report noted that five new stadiums were built and others upgraded at a total cost of US$250 million.
There was additional public expenditure for the upgrading of roads, hotels, airports and partly as a result of this, primary balances have deteriorated in most countries and average public debt remained 100 per cent of GDP at the end of 2006 for host countries.
The report said there was strong expansion in private sector construction to increase tourism capacity, which is expected to continue into the medium term.
And it noted that private investors have received generous tax concessions in most countries for such investment, which will erode the tax base going forward.
The report said that overall, growth for Latin America and the Caribbean remains robust. Although there are significant differences across countries, the near-term outlook for Latin America and the Caribbean remains broadly favourable. "Growth overall is expected to ease slightly to a little below 5 per cent in 2007 and 4.25 per cent in 2008, reflecting a deceleration from historically high rates in a number of countries, the slowdown in the US economy and some decline in commodity prices," the report said.
"For the region as a whole, growth in 2006 reached 5.5 per cent."
Last year's outturn brings average growth in the last three years to 5.25 per cent, the best performance since the 1970s, it added.
With recovery now at a more mature stage, expansion has become increasingly reliant on domestic demand as the main engine of growth. It said too that import growth has rebounded and net exports have exerted a downward pull on growth as several economies emerged from the crisis earlier in the decade.
According to the IMF, growth in the Caribbean has been supported by the strong performance of construction and tourism. It said that in Trinidad and Tobago, which it called the fastest growing economy in the Caribbean, activity expanded at double-digit rates in 2006, benefiting from high energy prices, increased capacity in the gas processing industry, and a construction boom led by public expenditure.