CARIBBEAN-IMF warns that the Middle East war will have an uneven impact on the Caribbean.

WASHINGTON, CMC – The International Monetary Fund (IMF) Friday said that Caribbean Community (CARICOM) countries will register mixed economic growth over the next two years, ranging from 3.1 percent among the region’s tourism-dependent countries to 19.1 percent among the region’s commodity exporters.

Director of the IMF’s Western Hemisphere Department, Nigel Chalk, said the Middle East war will have an uneven impact on the Western Hemisphere, including Latin America and the Caribbean, and that economic activity will vary across countries, but inflation will rise for all.

“The conflict carries unambiguously negative economic impacts for both economic activity and the population,” he said, adding, “the tourism-dependent Caribbean economies are likely to be the hardest hit. Their debt is high, and their net energy imports are large, averaging around 6 percent of gross domestic product”.

Regarding the Caribbean, the IMF said the region will register average growth of 5.7 percent in 2026 and 8.6 percent in 2027. Caribbean tourism-dependent countries will register growth of 0.9% and 2.5% over the next two years.

The non-dependent tourism countries will have growth rates of 7.9% and 11%. 3 percent over the 2026 and 2027 period, according to the IMF projections.

Among the tourism-dependent countries of the Caribbean, Jamaica is expected to register a minus 1.2 percent growth this year, increasing to 3.1 percent in 2027, the same as Grenada, which is expected to register the same percentage this year.

Antigua and Barbuda will record growth of 2.6 and 2.4 percent over the next two years, while The Bahamas will register growth of 2.1 percent this year, declining to 1.9 percent in 2027, while Barbados will record growth of 2.5 and 2.2 percent.

Belize will register economic growth of 2.2 percent this year, decreasing slightly to 2.1 percent in 2027, while Dominica’s growth of 3.1 percent this year will decline slightly to 2.8 percent the following year.

The twin island Federation of St. Kitts and Nevis will register growth of two per cent this year, increasing slightly to 2.5 percent the following year, while St. Lucia’s two per cent growth will decline to 1.7 percent next year.

St. Vincent and the Grenadines will also register a decline in economic growth to 2.7 percent in 2027, down from 3 percent this year.

For the commodity-exporting countries of CARICOM, Guyana will lead the way with growth of 16.2 percent this year, increasing to 19.7 percent next year, while Suriname’s growth of 3.9 percent this year will increase to 4.4 percent next year.

Trinidad and Tobago will register growth of 0.8 percent this year, rising to 3 percent the following year. Haiti will move from negative economic growth of 1.7 percent this year to positive growth of 0.5 percent next year.

Chalk said that the Western Hemisphere started 2026 on a solid footing. In most countries, growth was at potential and inflation was close to target. Last year’s shocks from US tariffs were well managed, and export growth accelerated despite policy uncertainties.

“Encouragingly, some countries were making progress in tackling distortions and bottlenecks in an effort to boost productivity and raise living standards.”

But he said the war in the Middle East has important ramifications across the Western Hemisphere.

“Countries are being affected by shifts in global financial conditions and capital flows, by swings in investor risk aversion, and by volatile commodity prices. Given the diversity of the economies in the region, the effects of this changing global environment will vary across countries and be highly dependent on the duration of the conflict and its associated disruptions.”

According to the IMF official, oil producers – Argentina, Brazil, Canada, Colombia, Ecuador, Guyana, Trinidad and Tobago, the United States, and Venezuela – are benefitting from high energy prices.

“The commodity shock is strengthening their balance of payments, supporting growth, and helping government finances. Even though some are also facing tighter financial conditions, on balance, many of these countries are likely to see net economic gains.

“However, even in these oil-producing countries, we should not lose sight of the fact that the most vulnerable will be hit hard by higher energy and food prices,” Chalk said, noting that for others, “a very different story is already unfolding.

He said countries with sizable current account deficits and a reliance on global financing, even those that are energy exporters, are contending with higher financing costs and reduced market access as the war reduces investors’ risk appetite.

Chalk said while the impact on economic activity will differ greatly across countries, the impact on inflation is more uniform. Inflation will be higher for all. The region will face much higher fuel, transport, food, and other input costs. This will create hardship for those families that can least afford the higher cost of these essential goods.

“This conflict creates a renewed, highly unpredictable challenge at a time when the region was working to recover from the consequences of COVID-19. As a consequence, downside risks have increased for the Western Hemisphere region, especially given that it is difficult to have a clear picture of whether the current cease-fire will endure.”

The IMF official said countries with the strongest institutional macroeconomic frameworks will be best positioned to withstand the shock.

“Anchored inflation expectations, credible fiscal plans, and low debt are most valuable in situations such as the one the world economy currently faces. Countries that have built fiscal space should now use it judiciously.

“Those with less space, though, face the prospect of having to tighten both fiscal and monetary policies. Energy exporters with low international reserves, high debt, or weak economic fundamentals should save most of the windfall.”

Chalk said that, after successfully controlling inflation following its post-pandemic surge, the region’s central banks are once again being called upon to ensure price stability. Encouragingly, many central banks in the region have solidified their credibility over the past 20 years, as demonstrated by well-anchored inflation expectations.

“However, some countries have less well-articulated monetary frameworks and are likely to face more challenges in countering the second-round effects of higher commodity prices. Inevitably, for this group, containing wage and price inflation will impose a higher cost on economic activity.

“Fiscal authorities will have to resist political pressure to contain or delay the inevitable food and fuel price increases. Many countries in the region have, in recent years, taken courageous decisions to replace untargeted fuel and food subsidies with well-designed safety nets. These gains must be preserved. ”

Chalk said countries’ limited fiscal space now needs to be used strategically to focus help on vulnerable families, farmers, and businesses.

Given high debt levels, the region has little scope to further increase fiscal deficits. Instead, the priority will need to be in reducing less critical outlays or raising revenues from those firms and households with the greatest capacity to pay.

“For our member countries that now face the challenge of managing the macroeconomic implications of this war, our message is that the IMF is here to help,” Chalk said, adding that the support will be provided in a bespoke way that is most useful for each country “providing advice, sharing insights from what other countries are doing to contend with the economic implications of the war, and—where needed—deploying the Fund’s ample lending capacity”.