As Oil Prices Fall, Caribbean Economies Begin to blossom

Thanks to sustained low oil prices and the region’s recovering tourism industry, the Caribbean economy has begun to break free of the shackles of debt incurred in the aftermath of 2008 global financial crisis.

Economies in the Caribbean registered average growth of 1.5%  in 2014 and Moody’s says that growth will extend to 2% this year.

“Government debt, which rose following the financial crisis, is slowly stabilizing or in some cases declining,” stated the US ratings agency, in a note to investors.

Debt ratios are stabilizing in Belize, the Bahamas, the Dominican Republic, Cuba, Bermuda, St. Maarten and Trinidad & Tobago. Debt pressures are easing in the Cayman Islands, Moody’s added, although they are increasing in Barbados and St. Vincent.

Tourism is the central pillar of the economy in most Caribbean countries. Barbados, Belize, the Bahamas and St. Maarten are among the most dependent on tourism. With the US and UK economies gradually returning to normal, the tourism industry in the region foresees a brighter future.

“Although the rebound in tourism will help all Caribbean nations that rely on this industry, the individual credit effects will reflect each country’s dependence on this industry,” says Gabriel Torres, Moody’s Vice President and Senior Credit Officer.

Lower oil prices have also helped spur tourism growth, with fuel costs for airlines dropping significantly in 2014 and expected to continue their decline in 2015. This will also support domestic demand and consumer spending by easing current and expected inflation levels.

However, lower prices hurt oil producer Trinidad & Tobago. “The sharp drop in energy prices will significantly reduce government revenues, the current account surplus and foreign direct investment flows,” Moody’s said.

While Belize is a net oil-importing country, the decline in its petroleum production will also reportedly have a significant negative effect on government finances.