Update Country Report Curaçao 12 Jan 2021

The Caribbean heads into 2021 following a devastating 2020, when the region's tourism-dependent economies contracted sharply as a result of travel restrictions imposed to contain the spread of the coronavirus (Covid-19) pandemic. The evolution of Covid-19 and the rollout of vaccines will be the key determinants of the region's economic revival. However, 2021 will also be the year that the region begins to feel the damage of the pandemic on all fronts, including politics, policy and the economy. This article looks at some of the main issues that The Economist Intelligence Unit will be monitoring in 2021.

In terms of politics, several countries have elections scheduled in 2021, the most closely watched of which will be in Haiti. Covid-19 and its economic implications will be major electoral issues across the board. Meanwhile, on a regional level, political attention will be focused on the US administration of the president-elect, Joe Biden, and the US's policy stance towards the Caribbean.

Combating Covid-19

Although news of progress on multiple Covid-19 vaccines generated positive sentiment in the last quarter of 2020, in reality there is likely to be only a limited rollout across the Caribbean in 2021. This is because most countries are depending on the World Health Organisation's Covid-19 Vaccine Global Access (COVAX) Facility-a multilateral risk-sharing mechanism for pooled vaccine procurement and distribution that aims to ensure equitable access to vaccines-or the Gavi-COVAX Advance Market Commitment (AMC), which is designed for low-income countries. Broadly, these agreements mean that participant countries will receive vaccines to cover 20% of their populations by the end of 2021.

The upshot of this timeline is that Caribbean economies, especially those heavily dependent on tourism, cannot expect to return to normal for much of 2021. Very limited vaccine supplies are likely in the first half of the year, with the economic implications of maintaining restrictions on tourism during that period set to be compounded by the low season for tourism, which falls between June and November. Direct and indirect tourism revenue will therefore remain depressed, at least until the beginning of the fourth quarter, putting sustained fiscal pressure on governments.

Many islands will try to mitigate this revenue risk, for example by allowing tourists who have been vaccinated (for example from North America and Europe) to visit. Others, like Jamaica, will continue to encourage tourists to visit targeted destinations that have been isolated from local populations. Others still, like the Dominican Republic, have tried to attract tourists by putting in place a free health insurance scheme for visitors from abroad who reside in hotels during their stay. Nonetheless, we expect economic weakness to persist across the region for much of 2021, given that international tourists will remain wary of travel until the coronavirus pandemic comes under control. This will lead to more requests from Caribbean countries for international financial assistance (particularly from the IMF and the World Bank) or in the form of bilateral loan arrangements (such as financial support from the Netherlands to its constituent Kingdom countries in the Caribbean).

Persistent political uncertainty

The year 2021 will bring elections for some Caribbean countries, including Haiti, Aruba, Cayman Islands, Saint Lucia and Curaçao, but the most closely watched election will be in Haiti. Elections are traditionally tumultuous in Haiti, but this year will be even worse, as economic weaknesses (partly stemming from falling external demand as a result of the coronavirus pandemic) and disagreements over the mandate of the country's president will contribute to combative campaigns and a high likelihood of social violence. Adding fuel to the fire, the Haitian government is organising a referendum to change the constitution, which is likely to be hotly disputed, as many in the opposition have called the process itself into question.

US policy under Mr Biden will therefore be focused on Haiti, at least initially, as well as on regional issues such as coronavirus-related aid and policy towards Venezuela. An issue that could form the basis of a longer-term US-Caribbean policy initiative is the environment; there is a shared Caribbean desire for collective action to mitigate the impact of climate change, which has led to more intense natural hazard events such as hurricanes and tropical storms.

Beyond Haiti, elections in 2021 are likely to result in incumbent governments being punished for austerity measures imposed in response to the 2020 coronavirus recession, even if they had little choice in the matter owing to fiscal constraints. In Curaçao and Aruba, election campaigns are set to generate heightened anti-Netherlands rhetoric, reflecting the austerity conditions imposed by the Dutch government as part of its loan agreements. Such rhetoric could lead to a temporary suspension of financing from the Netherlands, which would exacerbate ongoing economic weakness in these countries.

More broadly, these electoral issues are likely to be symptomatic of a growing trend of polarisation and opposition to incumbent governments as austerity measures bite and voters become increasingly frustrated by the slow rollout of vaccination programmes. We expect these trends to result in increased protests and government criticism in 2021, undermining political stability in the Caribbean's more volatile countries.