Caribbean Recovery Confronts Commodity Headwinds: Barbados IMF Progress and Jamaica GDP Gains — May 2022

Publication Date: 3 May 2022  |  Coverage Period: 3 April – 2 May 2022

Morning Briefing

• The IMF published its April 2022 World Economic Outlook showing markedly downgraded global growth forecasts, with Caribbean tourism-dependent economies caught between positive recovery momentum and the inflationary headwinds transmitted through global energy and food markets from the Russia-Ukraine conflict.
• Jamaica’s Statistical Institute reported GDP growth for the third quarter of fiscal year 2021-22 that exceeded government projections, driven by tourism sector recovery and strong domestic construction and services activity, reinforcing the island’s status as one of the Caribbean’s most resilient economies.
• Barbados completed a successful review of its IMF Extended Fund Facility programme, with Fund staff praising the government’s fiscal consolidation track record and its management of energy price pass-through pressures, unlocking the next tranche of programme financing.
• Caribbean hotel development pipeline reached a multi-year high in April, with STR Global reporting that the number of hotel rooms under construction or in active development across the region exceeded 25,000 — the largest development pipeline since 2019 and a sign of investor confidence in the tourism recovery.
• The Inter-American Development Bank approved emergency budget support for several Eastern Caribbean island states severely affected by fuel and food import cost inflation, providing critical fiscal relief to Antigua, Grenada, and St Kitts and Nevis at a moment of acute external pressure.
• Guyana’s Liza Phase 2 FPSO vessel reached a significant construction milestone at its Singapore shipyard, with the operator ExxonMobil confirming that the development remains on track to begin production by end-2022, which would add approximately 220,000 additional barrels per day of capacity.

Caribbean Economic Recovery: Progress Meets New Headwind

April 2022 captures the Caribbean in a moment of acute tension between two powerful forces. On one side is the region’s genuine and accelerating economic recovery from COVID-19 — tourism is returning strongly, property markets are active, fiscal positions are improving, and the mood across much of the region is the most optimistic since the pandemic began. On the other side is an inflation and commodity price shock of a severity not seen since the oil crises of the 1970s, driven by Russia’s war in Ukraine and compounding the supply chain pressures that were already burdening Caribbean economies through 2021.

The IMF’s April 2022 World Economic Outlook laid out the global stakes with characteristic directness: the organisation cut its global growth forecast for 2022 to 3.6%, down from the 4.4% projected in January, attributing the revision primarily to the Russia-Ukraine conflict’s impact on commodity markets, the tightening of global financial conditions as central banks respond to inflation, and the lingering effects of COVID-related supply disruptions. For the Caribbean, the IMF’s regional assessment noted the dual challenge: tourism recovery was delivering growth momentum that was stronger than earlier forecasts suggested, but the commodity price shock was imposing an external cost that was eroding fiscal positions and household purchasing power.

Jamaica’s GDP performance through the third quarter of its fiscal year 2021-22 provided a concrete example of the recovery’s reality. Tourism sector value-added returned strongly, driven by the Q1 2022 improvement in arrivals even through the Omicron period. Construction activity — while constrained by material cost inflation — remained elevated, driven by both public infrastructure programmes and the private sector’s robust development pipeline. Business services and financial services both contributed positively. The headline growth figure, which exceeded the government’s own projections, provided validation of Finance Minister Nigel Clarke’s budget framework and of Jamaica’s IMF programme targets.

Barbados’s IMF review outcome was similarly positive. The Fund’s staff assessment praised the Mottley government’s consistent adherence to the Extended Fund Facility’s fiscal targets, noting that debt-to-GDP reduction was on track and that the government’s management of the energy price pass-through — difficult given the island’s acute import dependency — had been handled with appropriate attention to both fiscal sustainability and social protection. The unlocking of the next EFF tranche provides a useful budget support buffer as Barbados manages through the commodity price environment.

Hotel Development Pipeline: Investor Confidence in Caribbean Tourism

One of the most compelling indicators of Caribbean economic confidence in April 2022 is the state of the hotel development pipeline. STR Global’s data for the region shows more than 25,000 hotel rooms in active development across the Caribbean basin — in various stages of construction, permitting, or committed investment — representing the deepest development pipeline since the pre-pandemic peak of 2019.

The geographic concentration of the pipeline is instructive. Jamaica accounts for a significant share, with several major resort expansions underway along the north coast and new luxury all-inclusive properties in development in the Montego Bay and Negril corridors. The Dominican Republic — always the Caribbean’s largest tourism market by visitor volume — has an extensive pipeline of branded resort properties, many linked to the Cap Cana and Punta Cana expansion zones. Barbados, The Bahamas, and several Eastern Caribbean islands including St Lucia and Antigua also feature meaningfully in the development data.

The pipeline data reflects two distinct investment theses that are operating simultaneously in the Caribbean hotel market. The first is the revenge travel thesis: developers and their investors believe that the extraordinary pent-up demand being expressed in 2022 booking data represents a structural shift in the priority travellers place on Caribbean holidays — that the pandemic has permanently elevated the Caribbean in leisure travellers’ mental hierarchy of destination choices. The second is the remote-work amplifier thesis: the emergence of digital nomads and long-stay workers as a substantial demand category creates an opportunity for resort-adjacent residential products that blend hospitality amenities with residential tenure.

The risk to the pipeline is, of course, construction cost inflation. Projects that were financially modelled at pre-2021 construction cost assumptions face significant margin compression at current input prices. Several developers have disclosed that they are either absorbing higher costs through reduced returns, renegotiating with equity investors on revised equity contribution requirements, or, in some cases, delaying groundbreaking until they have greater confidence in cost trajectory. For the region’s hotel supply outlook, the question of how much of the announced pipeline actually breaks ground in 2022 versus slides into 2023 will be an important determinant of future supply-demand balance.

IDB Support for Eastern Caribbean: A Lifeline for Small Island States

The Inter-American Development Bank’s approval of emergency budget support for Antigua and Barbuda, Grenada, and St Kitts and Nevis in April 2022 reflects the acute fiscal pressure that smaller Eastern Caribbean island states are experiencing as a result of the Russia-Ukraine commodity price shock. These islands — entirely dependent on imported petroleum for power generation and transport, and equally dependent on imported food for the vast majority of their nutritional needs — have essentially no buffer between global commodity price movements and their public finances.

The IDB support packages, while modest in absolute terms, provide critical bridge financing that allows these governments to meet essential expenditure commitments while commodity price pressures persist. The Caribbean Development Bank has similarly been active in the period, approving several emergency balance-of-payments support loans to OECS member states and beginning a dialogue about longer-term energy transition financing that could, over time, reduce the islands’ exposure to imported fuel price volatility.

The Eastern Caribbean Currency Union — encompassing most of the OECS — provides the smaller island states with the significant macro stability anchor of the EC dollar’s peg to the US dollar. The Eastern Caribbean Central Bank has maintained this peg with complete consistency since its establishment in 1976, and the current commodity price environment, while creating fiscal stress for individual ECCU members, is not threatening the currency framework’s integrity. The peg provides predictability for mortgage lending and real estate transactions denominated in EC dollars, and its maintenance through the current turbulence is itself a positive signal for investor confidence.

Guyana Oil: Liza Phase 2 Advances Toward Year-End Production

Guyana’s energy sector story continues to advance on its remarkable trajectory. The milestone achieved by the Prosperity FPSO — the vessel that will produce oil from the Liza Phase 2 development — at its Singapore shipyard brings Guyana’s next major production milestone closer to reality. ExxonMobil’s confirmation that the project remains on track for production by end-2022 implies that Guyana’s total Stabroek Block output could approximately double over the next twelve months, from current levels of approximately 130,000 barrels per day to a combined Liza Phase 1 and Phase 2 total of around 340,000 barrels per day once Phase 2 reaches capacity.

At current oil prices — which remain elevated by historical standards even after retreating from the $130 early-March spike — the fiscal implications of this production expansion are transformational. Guyana’s government receipts from the oil sector are already substantially above 2022 budget assumptions, and the Phase 2 ramp-up will add further revenue that will need to be carefully managed through the Natural Resource Fund to prevent the inflationary and currency appreciation pressures that have afflicted other emerging oil exporters.

Georgetown’s real estate market continues to reflect these economic dynamics. Office and commercial rents in the capital remain at elevated levels driven by oil sector demand, and the residential market for quality housing shows no sign of cooling. The government’s large-scale housing development programmes in East Bank Demerara and East Coast Demerara are delivering new affordable units at scale, which is beginning to provide some relief to the supply constraints that have pushed market prices beyond the reach of many local families. However, with oil sector growth expected to accelerate further, the housing supply challenge is likely to remain acute for the foreseeable future.

Caribbean Leaders This Month

Barbados earns recognition this month for its successful IMF programme review — an institutional achievement that reflects genuine fiscal discipline over a sustained period and provides the island with the credibility and financial support to navigate the current commodity price environment from a position of relative strength.

Jamaica continues to post above-expectations GDP growth data, with tourism recovery and domestic construction and services activity combining to deliver stronger-than-forecast performance. The island’s NHT mortgage data and luxury property market activity remain supportive.

Guyana advances toward the Phase 2 production milestone with the certainty of transformational revenue growth ahead. The challenge of managing this wealth for broad-based social benefit while maintaining fiscal discipline and managing real estate affordability pressures is the defining governance test for the Ali administration.

Dominican Republic maintains its position as the Caribbean’s deepest and most liquid property market, with the hotel development pipeline particularly robust and foreign investor interest sustained at high levels despite global economic uncertainty.

Trinidad and Tobago is benefiting from elevated LNG and oil revenues while managing the domestic political challenges associated with windfall energy proceeds. The government’s housing development programme is showing improved delivery metrics in the coverage period.

St Lucia is reporting strong pre-summer booking data and continues to attract high-value hotel investment, with several luxury resort projects either breaking ground or advancing through planning approvals during the coverage period.

Antigua and Barbuda received IDB emergency support while maintaining its CBI programme’s attractiveness, and is reporting strong forward bookings for the summer season that should provide meaningful foreign exchange and fiscal relief.

Overall Performer of the Month: Barbados. The IMF programme review success, combined with continued Welcome Stamp programme momentum and a resilient luxury property market, makes Barbados the standout performer for this coverage period.

Looking Ahead

May marks the final weeks of the Caribbean’s traditional shoulder season before the summer peak begins in June. The critical question is whether the extraordinary booking data for summer 2022 will translate into equally strong actual arrivals — early May data suggests it will, with airlines reporting strong load factors on Caribbean routes and hotels beginning to report sold-out periods even in advance of the formal summer season start.

The commodity price environment will continue to shape Caribbean fiscal and economic dynamics through the second quarter. Oil prices remain elevated, food commodity costs continue to exert upward pressure on Caribbean household budgets, and construction material costs show no sign of near-term relief. Caribbean governments that have successfully accessed IDB, CDB, and IMF support have the strongest buffers; those that have not will face increasingly difficult trade-offs between fiscal consolidation and social protection spending.

The US Federal Reserve’s next rate decision in early May is expected to see a 50 basis point increase — its largest single move in decades — as the Fed attempts to rein in inflation that has proved more persistent and elevated than initially anticipated. Caribbean mortgage markets are not directly linked to Fed rates in most cases, but the broader signal of an aggressive US tightening cycle will inform how Caribbean central banks, developers, and mortgage lenders approach the second half of 2022.

The Caribbean Property & Investment Review is published monthly and covers developments during the preceding calendar month. All factual statements reflect information publicly available at the time of publication.