Photo by Ihor OINUA
18th March 2022
With the conflict now into its third week, Caribbean leaders are bracing for the economic impact following Russia’s invasion of Ukraine last month.
Even as most condemned Russia’s role in the conflict, regional leaders are faced with the challenge of mitigating the fallout of surging fuel and commodity prices on world markets on their economies.
Juan José Daboub, Former Managing Director of the World Bank, warned that most Caribbean governments may have to revise national budgets by at least 20% this year, to adjust for prior assumptions.
“While it is still the early phase of the crisis, we expect that the impact on Jamaica could be through the global energy prices, oil prices… and possibly through some commodities, wheat, flour prices,” said Jamaican Prime Minister Andrew Holness.
Despite calls to completely remove the special consumption tax on fuel, the Holness Government has opted to keep the tax at JM$7 (US$0.04) per litre. Instead, Finance Minister Nigel Clarke last week revealed a US$13.06mn support package to assist those who will be hard hit by the rising fuel prices.
In Trinidad and Tobago, Prime Minister Keith Rowley has indicated that there may have to be some changes in fuel subsidies since the global rise in oil prices will not actually result in more revenue for the country given reduced production. With a subsidy of approximately US$103.2mn, Rowley said that the recent rise of oil prices will see the Government re-evaluate the fuel subsidy. He warned that it may not be possible to completely insulate the population from increasing prices.
Having warned that his government may be forced to adjust fuel subsidies if the conflict continued for too long, Antiguan Prime Minister Gaston Browne announced that prices at the pump will increase for the first time in several months. Browne also cautioned that utility prices on the island may also increase.
Barbados Prime Minister Mottley, in her 2022/2023 budget presentation delivered earlier this week, announced measures to contain the impact on the cost of fuel and food, and disruptions in the global supply chain.
The Government moved to cap the dollar value of tax payable on petrol to US$0.24 per litre from the previous US$0.30, as well as introduce a cap on freight costs to pre-covid levels when calculating import duties and charges until March 2023. Mottley also announced a reduction of customs duties on electric vehicles and a one-off 15% “pandemic contribution levy” on corporate profits in select sectors in addition to their regular corporate tax obligations.
Analysts are expecting the trend of rising prices to continue in the short run, with harmful effects on food security and business activity as cost push inflation takes hold. With Russia and Ukraine accounting for approximately a third of all wheat exports, a fifth of the global corn trade and half of the world’s sunflower products (USDA), Caribbean food producers such as Jamaica Flour Mills and Trinidad’s National Flour Mills are warning of further price hikes. Prices of imported goods will also likely increase.
Regional tourism is also being impacted by the conflict.Cuba received 40% of its total arrivals in 2021 from Russia. “Losing the Russian market in 2022… will have quite a significant negative effect for the Cuban economy,” warned Paolo Spadoni, who studies the Cuban economy at Augusta University. The Dominican Republic is also fearful that the estimated 50,000 Russian tourists and 14,000 Ukrainians who visited the country in January 2022 could disappear.
The Export and Investment Centre of the Dominican Republic (ProDominicana) projected that the country would lose approximately US$33.7mn per month in tourism revenue. This could climb to as much as US$202.2mn if the conflict extends for six months. In 2021, the country welcomed 183,700 tourists from Russia and 85,912 from Ukraine. With an average expenditure of US$150 per tourist per night for 10 nights, estimated revenue from those countries was US$404.4mn.
Meanwhile, despite international pressure for sanctions against Russia, CARICOM leaders decided against a unified position. During the recent CARICOM Intercessional meeting, it was agreed that member states would decide on their response unilaterally.
Antigua and Barbuda, Dominica and Grenada have suspended applications from nationals of Russia and Belarus under their Citizenship by Investment programme. While St Lucia has not banned the sale of passports to Russians, the programme has reportedly stopped accepting funds from Russian banks.
Additionally, Antigua and Barbuda and The Bahamas have announced that they will implement sanctions on those Russian entities and individuals listed by Western nations. The Bahamas Government ordered its financial institutions to halt all transactions with such entities and advised local companies to take caution when conducting business with any Russian entity in The Bahamas.
Ronald Sanders, Antigua and Barbuda’s Ambassador to the US has downplayed the prospect of Russian retaliation against Caribbean states. However, noted University of the West Indies international relations academics Kristina Hinds and George Brathwaite have cautioned regional leaders against imposing “symbolic” sanctions on Russia at the expense of their economies. It is unclear if other Caribbean states will join the growing list of countries applying sanctions on Russia.
This is a lead article from Caribbean Insight, The Caribbean Council’s flagship fortnightly publication. From The Bahamas to French Guiana, each edition consists of country-by-country analysis of the leading news stories of consequence, distilling business and political developments across the Caribbean into a single must-read publication. Please follow the links on the right-hand side of this page to subscribe, or access a free trial.