Caribbean Development Dynamics 2025

Overview

The Caribbean region is exposed to unique challenges but is also full of development opportunities

Caribbean countries face specific threats and vulnerabilities, including high exposure to climate change impacts, limited access to external financing, and connectivity challenges. These issues are, to a large extent, linked to geography. They also reflect the fact that these countries are – or share characteristics with – Small Island Developing States (SIDS). Caribbean Development Dynamics (CDD) 2025 calls for a shift in perspective: from facing the challenges to actively acknowledging the region’s assets and seizing the associated opportunities to boost the development of Caribbean countries.

To that end, the report adopts both a regional and multi-dimensional perspective. The regional lens helps emphasise common challenges and opportunities, pointing to areas with potential for greater co-operation and integration among Caribbean nations. While heterogeneity across Caribbean countries is notable and can be an obstacle, diversity is a valuable asset. A regional perspective helps capitalise on such diversity by identifying areas where countries stand to benefit from each other’s experiences and comparative advantages.

The report focuses its analysis on 15 Caribbean countries: Antigua and Barbuda, Barbados, The Bahamas, Belize, Dominica, the Dominican Republic, Grenada, Guyana, Haiti, Jamaica, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Suriname, and Trinidad and Tobago. These 15 countries are part of the 39 SIDS. The report analyses them alongside the Latin America and OECD averages. When relevant, the analysis also incorporates the perspective of the “Greater Caribbean”, including other countries and territories in the Caribbean basin.

The report also analyses the region from a multi-dimensional perspective, focusing on six key areas of action and exploring the synergies and trade-offs among them. The first three dimensions address the “what”: examining the core aspects of development in the Caribbean, including i) environmental; ii) social; and iii) economic conditions. The latter three focus on the “how”: i) stronger institutions; ii) increased financing; and iii) enhanced regional integration and international partnerships.

Build climate resilience and harness the potential of natural endowments

Caribbean countries are highly vulnerable to the effects of climate change

The Caribbean is among the world’s regions most prone to climate-related extreme weather events. The region is increasingly exposed to climate hazards, including extreme heat, droughts, storms, hurricanes, wildfires and excessive flooding (CSGM/UWI, 2020[1]). From 1980 to 2020, Caribbean countries have suffered 322 disasters triggered by climate-related natural hazards, affecting 24 million people. The number of extreme weather events in the Caribbean in 2001-20 was 85% higher than in 1980-2000 (EM-DAT, 2024[2]). Haiti, the Dominican Republic and Jamaica experienced 60.2% of total climate hazard events in the region during that period.

The economic costs of climate-related extreme weather events in the Caribbean between 1980 and 2020 represent an annual average of 2.13% of gross domestic product (GDP) (Figure 1).

Figure 1. Average annual economic losses linked to climate-related extreme weather events in the Caribbean (1980-2020)

As a percentage of GDP

Note: The figure shows the average annual economic costs of climate-related extreme weather events as a percentage of GDP on average from 1980 to 2020. The Caribbean average includes 15 countries: Antigua and Barbuda, The Bahamas, Barbados, Belize, Dominica, Dominican Republic, Grenada, Guyana, Haiti, Jamaica, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, and Suriname.

Source: Authors’ elaboration based on (EM-DAT, 2024[2]; World Bank, 2024[3]).

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The Caribbean shows, on average, higher vulnerability to climate change than Latin America and the OECD, according to the Notre Dame Adaptation Initiative (ND-GAIN) vulnerability index. Caribbean countries tend to be more exposed (due to their geographical location), more sensitive (given the magnitude of population and sectors affected) and have less adaptive capacity (institutional and infrastructural) to respond to climate hazards (ND-GAIN, 2021[4]). Other metrics – notably the European Investment Bank’s Climate Risk Country Scoring Model – also place the Caribbean, alongside the Pacific islands, as facing the highest physical risks globally (EIB, 2021[5]). In addition, Caribbean countries experienced the highest temperature increases in the last three decades in Latin America and the Caribbean (LAC), and rising sea levels are a major threat to the region.

The region is also particularly vulnerable to biodiversity loss, as many of its main economic drivers, such as tourism, agriculture and mineral extraction, are linked to natural resources and the quality of ecosystems (OECD, 2023[6]).

Vulnerable populations are the most affected by climate change consequences. The effects of global warming are accentuating forced migration trends, as well as spatial and gender inequalities. In the Caribbean, environmental disasters caused 5.3 million new internal displacements between 2012 and 2022 (IOM, 2023[7]). High urbanisation rates, unregulated urban expansion and socio-economic residential segregation have forced vulnerable groups into high-risk zones without adequate infrastructure. The increasing effects of droughts on agricultural areas also exacerbate the socio-economic rural-urban divide.

The Caribbean contributed only 0.23% to total GHG global emissions in 2021, a figure closely aligned with the region’s share of global GDP (around 0.22%) in that same year (World Bank, 2024[3]). Yet, Caribbean countries have engaged in important mitigation commitments. Under the principle of common but differentiated responsibility, they seek to advance a sustainable and just green transition, which will come with transitional risks1 (EIB, 2021[5]).

Adaptation measures are central to tackling climate vulnerabilities and fostering climate resilience in the Caribbean

Building climate resilience entails different climate risk management interventions, including resilient infrastructure, early warning systems (EWS) and climate adaptation policy instruments.

Climate-resilient infrastructure is crucial for economic stability, as it can significantly reduce GDP losses by minimising the destruction of capital during natural disasters. Latin American countries perform better than the Caribbean in terms of infrastructure vulnerabilities, with Antigua and Barbuda, Jamaica and Saint Vincent and the Grenadines presenting the highest risks (Figure 2). Several countries in the region are taking steps to develop more climate-resilient infrastructure, enhance the reliability of service provision and extend the lifespan of strategic assets. For instance, Saint Lucia has implemented long-term infrastructure planning strategies; Grenada has a Disaster Vulnerability Reduction Project; and Barbados has developed the Coastal Infrastructural Programme.

Figure 2. Infrastructure Vulnerability Index 2021: Caribbean and Latin American selected countries

Note: The ND-Gain Infrastructure Vulnerability Country Index captures the vulnerability of coastal and energy infrastructure to climate change.

Source: Authors’ elaboration based on ND-GAIN (2021[4]).

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EWS are a key element of disaster risk reduction, contributing to protecting communities and infrastructure from natural hazards, minimising disaster losses and boosting resilience (OECD, 2023[6]). Caribbean countries have been frontrunners in developing EWS. Antigua and Barbuda, Dominica, the Dominican Republic, Saint Lucia, and Saint Vincent and the Grenadines have implemented projects to create EWS national assessments and roadmaps with support from different international organisations. Barbados has also implemented EWS projects for several years, adopting a community-based approach to disaster management (UNDRR, 2022[8]).

Several Caribbean countries have advanced their adaptation commitments through National Adaptation Plans (NAPs). These serve as a comprehensive framework to reduce vulnerability from climate change, strengthen resilience and increase adaptive capacity. Grenada (2009), Haiti (2023), Saint Lucia (2018), Saint Vincent and the Grenadines (2019), Suriname (2020) and Trinidad and Tobago (2023) have submitted their NAPs under the United Nations Framework Convention on Climate Change. Saint Lucia and Grenada went further by submitting sectoral NAPs that detail concrete adaptation actions for specific sectors (OECD, 2023[6]).

Unlocking the Caribbean’s sustainable development potential: Key areas of opportunity

The rich biodiversity and natural endowments that characterise Caribbean countries provide opportunities for accelerating a green transition that generates economic, social and environmental benefits. These include the energy transition, the blue economy, sustainable tourism, the circular economy, sustainable transport, nature-based solutions to sustainable development challenges and digital transformation.

Transitioning to a more diversified and sustainable energy mix in the Caribbean could yield USD 6.1 billion in net benefits, cut fuel oil imports by 260 million barrels, and reduce CO₂ emissions by 41 million tonnes by 2040 with the required investments (USD 11 billion) (Masson, Ehrhardt and Lizzio, 2020[9]). Sustainable transport can reduce dependency on fuel imports, promote energy diversification and efficiency, increase air quality, improve daily commutes and reduce GHG emissions.

The Caribbean is particularly well placed to benefit from the blue economy due to its rich marine biodiversity and reliance on ocean-based industries like tourism and fisheries. The region hosts almost 10% of the world’s coral reefs, approximately 45% of its fish species and 25% of its coral species (UNEP, 2019[10]). Nature-based solutions, such as wetland restoration and forest conservation, offer robust natural defences against climate risks by reducing the risks of coastal flooding during storms, improving access to water, increasing available fish stock and introducing sustainable agriculture practices (GCF, 2022[11]).

Tourism is a cornerstone of the Caribbean economy, representing on average 25.4% of its GDP between 2015-19. Over the next decade, the sector is expected to grow twice as fast as the regional economy, presenting an opportunity to develop sustainable tourism around the Caribbean’s unique biodiversity (WTTC, 2022[12]).

The circular economy promotes sustainable production and consumption, contributing to formal job creation, waste transformation, resilient infrastructure and sustainable business models. For example, circular business models are working to transform sargassum, a major threat to local ecosystems and the tourism and fishery sectors, into an economic opportunity. Sargassum could be transformed into different by-products such as fertilisers, raw material for biodegradable plastics, cosmetics, electricity and biomass. Key tools to advance the circular transition include economic incentives, green public procurement, regulatory improvements and data monitoring.

Digital transformation can drive economic growth, improve governance, and enhance disaster resilience, connecting island nations with each other and with global markets and services. However, high infrastructure costs demand innovative solutions. At least 11 Caribbean countries are already developing digital policy frameworks to address these challenges.

Foster social inclusion and strengthen social protection systems

Well-being has improved, yet poverty, inequality and food security are enduring challenges

Over the last three decades, the Caribbean has experienced an increase in the Human Development Index (HDI), similar to that of the Latin American region. In 2022, the average Caribbean person could expect to live 72.6 years (an increase of 4.2 years since 1990), the average child could expect to complete 14.1 years of education (an increase of 2.9 years) and the mean gross national income (GNI) per capita stood at 17 280 constant 2021 international USD (66% increase in that period) (UNDP, 2024[13]). Although social protection systems are far from universal in the Caribbean, they show better coverage and adequacy than in Latin American countries (IDB, 2021[14]).

Despite this, important and lasting gaps remain across socio-economic groups, territories and genders. For instance, poverty and inequality are persistent challenges. Almost one in four people are poor in the Caribbean, according to the latest data available. Within this broader picture there is large heterogeneity: poverty levels range from 11% to 58.5% among those countries with available data. Inequality is also relatively high in the Caribbean. The average Gini coefficient in the region was 0.40, slightly below the average of 0.45 in LAC. In this context, there is also heterogeneity across Caribbean countries, ranging from 0.48 in Antigua and Barbuda to 0.32 in Barbados (ECLAC, 2023[15]). The most recent Gini coefficient for the OECD average was 0.33 (World Bank, 2024[16]).

The share of people living in moderate or severe food insecurity in the Caribbean – 37% on average – is high. This is more than the Latin American average of 33%, ranging from 20% in The Bahamas, Grenada and Saint Lucia to around 50% in the Dominican Republic and Jamaica and more than 80% in Haiti (Figure 3). The region is unique in having a generally high cost of food. Around 57% of the Caribbean population does not have access to a healthy diet due to its high cost, which is 42% higher than the OECD average (FAO, 2023[17]). This is largely because of the high dependency on food imports: 80-90% of all food consumed in the region is imported, mostly from outside the Caribbean region (IICA, 2018[18]; Turnbull, 2021[19]). In fact, intra-regional food trade accounts for only 16.6% of total food imports.

Figure 3. Prevalence of moderate or severe food insecurity in Caribbean countries, 2022

Note: The indicator measures the percentage of the population that has experienced food insecurity at moderate or severe levels during the reference period. Food insecurity at moderate levels of severity is associated with the inability to regularly eat healthy, balanced diets. Severe levels of food insecurity imply a high probability of reduced food intake and therefore can lead to more severe forms of undernutrition, including hunger. Comparable data by gender was not available for Saint Kitts and Nevis.

Source: Authors’ elaboration based on the United Nations SDG Indicators Database (2024[20]).

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Fostering formalisation will improve working conditions and extend the coverage of social protection to vulnerable groups

Labour market outcomes in the Caribbean have room for improvement. In 2022, less than 6 out of 10 of the working-age population (57.5%) were employed, slightly lower than the Latin America average (58.2%) (ECLAC, 2024[21]; ILO, 2024[22]). Women and youth are especially vulnerable. Women are less likely to be employed (50.1% held a job in 2022) than men (65.1%). In 2022, the employment rate among youth (15‑24 years old) was 33.4%, compared to 39.6% in Latin America. In addition, 22.9% of the youth labour force was unemployed in 2020 (25.6% for women and 21.6% for men) (ILO, 2024[22]). Similarly, in 2020, and for 6 countries with available data, almost one-third of young people (31%) were not engaged in education, employment, or training compared to 19% in Latin America (ECLAC, 2024[21]; ILO, 2024[22]).

Labour informality is widespread in the Caribbean. On average, in the latest year with available data, almost 1 worker in 2 in the region held an informal job (47.2%), a rate of informality lower than across Latin America (57%). At the household level, for 6 countries with available data, 6 out of 10 people in the Caribbean (59.6%) on average lived in a household that depended solely or partially on informal work (below the Latin American mean of 67.3%). There was high heterogeneity across countries (Figure 4). On average, more than a third (34.1%) of the total population lived in households where all workers were informal.

Figure 4. Distribution of population by household informality, latest available year

Note: Household types are defined according to the formality status of a household’s principal earners. If all the earners are formal or informal, the household is defined as completely formal or informal, respectively. If at least one earner is informal while the other is formal, the household is defined as mixed.

Source: Authors’ elaboration based on The Household Expenditure Survey (HES) 2013 for The Bahamas, the Barbados Survey of Living Conditions (BSLC) 2016, the OECD KIIbIH database (OECD, 2024[23]) for the Dominican Republic, the Jamaica Survey of Living Conditions (JSLC) 2019, the Suriname Survey of Living Conditions (SSLC) 2022, and the Trinidad and Tobago Survey of Living Conditions (TT-SLC) 2014.

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Informality in the Caribbean affects younger and older workers disproportionately. More than 6 out of 10 children under 15 and 6 out of 10 people older than 65 lived in completely informal or mixed households. Informality is also deeply entangled with poverty and income inequality. On average, 17.9% of informal workers in the Caribbean lived under the national poverty line in the latest period with available data, while 8.4% of formal workers were poor.

Social protection, health care and education systems must be strengthened and adapted to emerging challenges

The Caribbean need stronger social protection systems to address and mitigate the pervasive effects of informality and support vulnerable groups, including women, youth, and the elderly. Regarding old age pensions, the active coverage rate of the population (i.e. the share of people who contribute to the pension system) was 63% in the Caribbean around 2018. This was almost 20 percentage points higher than the average of Latin American countries around the same year, with important differences across Caribbean countries (Arena De Mesa, 2019[24]; IDB, 2021[14]; OECD et al., 2024[25]).

Labour and social protection policies must consider the implications of a changing population structure and the accelerating pace of population ageing. The Caribbean’s old-age dependency ratio (i.e. the number of people over 65 years relative to the working-age population) was 13.5% in 2021. It is expected to increase to 26.1% by 2050 (United Nations, 2022[26]). This means that many Caribbean countries will complete their demographic bonus in the coming years, underscoring the importance of promoting access to decent, formal jobs with adequate pay and social protection coverage.

Access to – and quality of – health and education must be improved. Health status in the Caribbean is highly heterogeneous. Life expectancy at birth varies from 80 years in Barbados to 64 years in Haiti. On average, infant mortality improved from 20 for 1 000 live births in 2000 to 24 in 2020. Educational attainment has progressed in the Caribbean. On average, in 2022, Caribbean people aged 25 or more had spent more time in education (9.6 years) than their Latin American peers (8.9), adding 1.4 additional years of education between 2002 and 2022 (UIS, 2024[27]). However, in many countries of the region, young people entering upper secondary education have unsatisfactory completion outcomes due to high dropout rates (UIS, 2024[27]). Evaluating learning outcomes, possibly through internationally comparable mechanisms like the Programme for International Student Assessment (PISA), can inform education policy making in the region.

Boost productivity, strengthen macroeconomic stability, and upgrade production

Caribbean economies show modest potential growth and are highly exposed to shocks in the global economy

Potential growth in Caribbean economies is relatively low and has been declining in recent years. Potential GDP per capita growth in the region is estimated at around 1.4%. This is slightly above the Latin American average (1.1%) and below the 1.8% estimated for the average of advanced economies (Figure 5). With these modest potential growth levels, Caribbean economies will not be able to converge with the per capita income levels of advanced economies. Historically, the region has experienced greater GDP growth volatility than Latin America and advanced economies.

Relatively low productivity levels are at the core of modest potential growth. Average labour productivity in the Caribbean was almost 50% of the OECD’s in the early 1990s, but this level declined to around 38.3% in 2021. There was improvement in 2022 and 2023 to 42% and 46%, respectively, largely driven by Guyana’s extraordinary economic growth due to a surge in oil production.

Several factors explain such low productivity levels: an economic structure highly dependent on external demand, inadequate infrastructure limiting market access and knowledge spillovers, limited access to finance for innovative and productive activities, high informality in the labour market, and significant vulnerability to natural disasters (ILO, 2023[28]; Rosenblatt et al., 2023[29]; Ianchovichina, 2024[30]). However, structural heterogeneity is a significant feature in the region, with low-productivity economies co-existing with higher-productivity ones.

Figure 5. Potential GDP per capita growth in the Caribbean, Latin America and advanced economies

As estimated by different methods since 1980

Note: Potential GDP growth is the growth rate that the economy can sustain over the long run, excluding short-term effects linked to a difference between demand and the potential level of supply. The variable refers to the growth in potential output, which is the maximum output level an economy can reach without putting strain on production factors that translate into inflationary pressures. Average growth is a simple average of growth in all countries for each region, over the period analysed. Caribbean countries included are: HP=the Hodrick-Prescott filter, which was used as an alternative model due to its resilience to short-term shocks to create a smoothed curve (lambda 100); AR=autoregressive model, which uses GDP per capita growth data. The number of lags (one) was determined by analysing the autocorrelation function and choosing the model that maximised the log-likelihood.

Source: Authors’ elaboration based on IMF (2024[31]).

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Sound economic policies are needed to ensure macroeconomic stability in a region markedly exposed to the variation of global economic conditions. Effective fiscal policies are crucial for overcoming high deficits and public debt while building resilience to economic shocks and fostering macroeconomic stability. Though still high in several countries, fiscal deficits are being reduced. They narrowed on average from 2.4% in 2022 to 1.6% of GDP in 2023.

On the monetary front, as Caribbean economies are generally small, poorly diversified and highly dependent on imports, they are particularly vulnerable to inflation driven by the pass-through of international prices. Credible monetary regimes committed to anchoring inflation expectations and keeping inflation rates low are fundamental to ensuring macroeconomic stability in these countries.

High public debt levels remain a challenge in many Caribbean economies

In 2022, central government total public debt remained high, averaging 78.8% of GDP (Figure 6). This was well above the average for Latin America (52.9%). It was also higher than central government public debt 10 years before (69.2% of GDP in 2012).

Substantial heterogeneity is evident across countries, both in the level of public debt and in recent trends. In 2022, Barbados and Suriname showed levels of public debt higher than 100% of GDP, but both countries have made important efforts to improve fiscal conditions. For its part, Suriname’s public debt fell to 93% in 2023 following debt restructuring agreements. Meanwhile, debt in Barbados fell to 116.5% in 2023, in line with pre-pandemic levels, and with a commitment to bring it down to 60% for the financial year 2035/36. This followed its 2018-19 sovereign debt restructuring and fiscal consolidation under the Economic Recovery and Transformation Plan (IMF, 2024[32]; IMF, 2024[33]). Trinidad and Tobago, the Dominican Republic, and Saint Kitts and Nevis showed public debt levels below 60%, the latter being, together with Jamaica, two notable cases of public debt reduction in the region.

Figure 6. Central government total public debt, selected Caribbean countries and regional averages, 2012 and 2022

As a percentage of GDP

Source: Authors’ elaboration based on CEPALSTAT (ECLAC, 2023[34]).

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High debt principal and interest payments constrain fiscal space for public investment and social spending. In 2022, the Caribbean’s average debt service-to-tax revenue ratio reached 12.9%, above Latin America (11.5%) and much higher than the OECD average (4.8%) (Figure 7). Some Caribbean countries have significantly reduced their debt burden, including Jamaica, Saint Kitts and Nevis, Grenada, Barbados and Guyana. However, the burden of debt service as a share of tax revenues has increased in several Caribbean economies in the context of higher interest rates internationally.

Figure 7. Debt service-to-tax revenues ratio, 2012 and 2022

Source: Authors’ elaboration based on WEO (IMF, 2023[35]).

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Fiscal frameworks are an essential tool to preserve medium- and long-term stability. They establish regulations, such as fiscal rules, that can help fiscal policy to be countercyclical, reducing discretionary public spending and guaranteeing debt sustainability. They can also help protect public investments that are essential for production transformation. In the Caribbean, countries have adopted various fiscal rules to enhance economic stability and manage public debt. Jamaica's Fiscal Responsibility Framework includes balanced budget and debt rules, and an escape clause for emergencies like natural disasters and economic downturns. Grenada's Fiscal Responsibility Act targets a primary surplus and debt-to-GDP ratio, allowing for rule suspensions during economic shocks. Similarly, The Bahamas’ Fiscal Responsibility Act sets deficit and debt ceilings, with provisions for unexpected external shocks.

The economic structure reflects limited levels of diversification and sophistication of the production matrix

Caribbean countries are mostly service-based and commodity-exporting economies. In 2022, services represented 55-78% of the total GDP for most countries, with tourism as the main economic activity for many (Figure 8). Tourism represented on average 25.4% of the Caribbean GDP between 2015 and 2019. It had a broad impact on the economy as it supported the hospitality and entertainment industries and created backward linkages with agriculture, trade, transportation and construction (Gomez Garcia et al., 2021[36]). Nevertheless, tourism depends highly on external economies. It is also seasonal and vulnerable to climate shocks.

Tourism in the Caribbean has experienced significant growth. Between 1995 and 2018, tourist arrivals in the Caribbean increased from 10 million to 27 million per year. This growth was followed by a major decline due to the pandemic, although pre-pandemic levels have almost been recovered, with 22 million tourists arriving in the Caribbean in 2022. The main recipients of tourists are The Bahamas, the Dominican Republic, Jamaica and Barbados, which collectively account for 75% of arrivals during this period. Moreover, financial services play an important role, accounting for between 8% and 27% of GDP for countries in the region. The highest shares are observed in The Bahamas (27%), Barbados (26%) and Saint Lucia (21%) (ECLAC, 2023[34]).

Figure 8. Contribution of economic sectors to total GDP, 2022

Note: Calculations based on GDP at constant dollar prices. “Other” includes taxes on products minus subsidies on products and statistical discrepancy of GDP by sector of origin.

Source: Authors’ elaboration based on CEPALSTAT (ECLAC, 2023[34]).

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Natural resources also play a significant role in Caribbean economies. The oil and gas exploration and production sector in Guyana contributed markedly to the 62% real GDP growth in 2022. The economy of Trinidad and Tobago is also driven by oil and gas production and the associated petrochemical sector. For its part, Suriname relies on mining but has a large potential to develop the oil and gas industry following the successful recent exploration of offshore reserves. Agriculture remains important for Belize, the Dominican Republic, Guyana and, most notably, Dominica. Historically focused on sugar and banana exports, the sector now faces slow productivity growth due to high trade costs and limited capacity to meet modern food safety standards. This has led to a higher reliance on imports to meet the growing demand from tourism, processing and retail industries. Challenges within the food sector include inadequate technology, low credit availability, high labour costs and insufficient infrastructure (FAO, 2019[37]).

Most Caribbean countries experience current account deficits. Limited domestic production results in significant dependence on imports to meet internal demand and support manufacturing and services like tourism. In terms of trade in goods, the region is a net importer. Exports are concentrated in primary products and resource-based manufactures, such as crude and refined petroleum, alcoholic beverages, cereals, food preparations, chemical elements, minerals, and tobacco. These accounted for 57% of total goods exports in 2022. Imports are dominated by resource-based manufactures (29%) and medium-technology manufactures (27%), including processed food, automotive vehicles, and machinery and equipment (UNCTAD, 2022[38]; ECLAC, 2023[39]).

Strengthening investment and connecting it to development goals are fundamental to drive production transformation, build resilience, and adapt to climate change impacts. Investment levels in the Caribbean increased between 2015 and 2023, on average, from around 23% to almost 27% of GDP, with important variation across countries. This compares to averages ranging from 20-22% in Latin America and 23-24% in OECD countries in the same period. The region has been successful in attracting foreign direct investment (FDI), mainly towards the energy and services sectors. Between 2013 and 2021, FDI net inflows were on average above 6% of GDP; in 2022, they represented close to 4.2% of GDP, similar to the level in 2023 of 4.3% (excluding Guyana, which saw an extraordinary increase of FDI in 2023, reaching 42.8% of GDP). FDI flows to the Caribbean in 2023 were higher than in Latin America (2.7% of GDP), the OECD (0.1% weighted average) and the world (0.7% weighted average) (OECD et al., 2023[40]; World Bank, 2024[16]).

Relatively low levels of diversification and sophistication are also observed at the level of firms in the Caribbean. Such firms show limited levels of internationalisation and innovation and face persistent barriers to doing business. Caribbean firms identify important obstacles to their business operations, including access to finance (69.3% of firms report this as a major or severe obstacle), navigating customs and trade procedures (63.3%), and finding workers with adequate skills (59.8%). In parallel, Caribbean firms’ innovation activities are limited. Only one firm out of ten reported having introduced at least one innovation in the major areas of their operations between 2018 and 2021.

Build trust, improve evidence-based policy making and public services

Citizen satisfaction with democracy and with the quality of key public services has fallen in the last decade

In 2023, more than 65% of people in the Caribbean, on average (for eight countries with available and comparable data), expressed low levels of satisfaction with the democratic system, an increase of 22.6 percentage points in the last decade (LAPOP Lab, 2023[41]). The satisfaction of Caribbean citizens with the quality of key public services has fallen in the last decade. In 2023, only 40% of Caribbean people were satisfied or very satisfied, on average, with health services, a decline of 15.4 percentage points in the last decade. Moreover, this decline was almost 3 times more than in Latin American countries, where satisfaction decreased 5.6 percentage points in the same period (from 55.6% to 50%). Satisfaction with the quality of education is higher (65.2%, on average, in 2023), although it has been declining in the last decade, falling 9.5 percentage points (LAPOP Lab, 2023[41]).

Strengthening citizen security is paramount as crime and violence represent an important challenge in some Caribbean countries

Caribbean countries exhibit per capita average murder rates amongst the highest globally, with significant levels of homicidal violence associated with organised crime (Figure 9). This situation varies across countries but poses a common challenge in the region. The average cost of crime in the Caribbean is estimated at 3.7% of GDP (IDB, 2017[42]). Young people, particularly men aged 15-29, are disproportionately affected by and involved in violent crime, both as victims and perpetrators. Meanwhile, women are more affected by homicides linked to domestic violence and intimate partner violence.

Figure 9. Intentional homicides rate in the Caribbean, 2022

Note: The OECD average considers all OECD member states except Finland, New Zealand and the United Kingdom. The Latin American average considers: Argentina, the Plurinational State of Bolivia, Brazil (2021), Chile, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala (2021), Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru (2020) and Uruguay. The Caribbean average considers Antigua and Barbuda, The Bahamas, Barbados, Belize, Dominica (2021), the Dominican Republic, Grenada (2021), Guyana (2021), Haiti, Jamaica, Saint Kitts and Nevis (2021), Saint Lucia, Saint Vincent and the Grenadines, Suriname, and Trinidad and Tobago.

Source: Authors’ elaboration based on UNODC (2022[43]).

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Citizens’ perception of security risks in the Caribbean shows similar levels to those in LAC (5.7 compared to 5.4, respectively, based on a 0-10 index where 0 refers to an absence of security risks). However, this is more than double the rate of OECD countries (2.4). Trinidad and Tobago (7.3), Jamaica (7), Haiti (6.8), Belize (6.8) and Guyana (6.5) show perceptions of security risks above the Caribbean average (5.7). Moreover, on average, in 2022, 37% of Caribbean firms considered crime, theft and disorder as severe or very severe obstacles to their operations, on average (IDB, 2021[44]).

Women are largely under-represented in political and business life

Women in the Caribbean region face different obstacles – from gender-based violence to unequal pay and limited access to education and health care. Women’s representation in politics in the Caribbean is also low. In 2022, women held only 23.7% of parliamentary seats compared to 33.8% in Latin America, on average (Figure 10). Guyana (35.4%) and Dominica (34.4%) show the highest female parliamentary representation, surpassing Latin America’s average. At the firm level, respondents in 6 Caribbean countries2 consider that, on average, 70.3% of the owners and shareholders of the firms where they work are all male or predominantly male. This ranges from 60% in Jamaica to 76% in Trinidad and Tobago and 78% in Barbados (IDB, 2021[44]). Moreover, only 18.5% of Caribbean firms actively seek to employ, retain, train and promote women, ranging from 8% in Barbados to 28% in Guyana (IDB, 2021[44]).

Figure 10. Women’s political representation in Caribbean countries, 2022

The Latin American average considers Argentina, the Plurinational State of Bolivia, Brazil, Chile, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay and Venezuela. The Caribbean average considers Antigua and Barbuda, The Bahamas, Barbados, Belize, Dominica, Dominican Republic, Grenada, Guyana, Haiti, Jamaica, Suriname, and Trinidad and Tobago.

Source: Authors’ elaboration based on OECD (2023[45]).

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Stronger and more inclusive public institutions, coupled with more evidence-based public policies, can contribute to advancing a new social contract

Caribbean countries face a range of socio-economic and environmental challenges in their pursuit of sustainable development. High poverty levels, informal employment, and inequalities across socio-economic and age groups, territories and genders, combined with low social protection and high violence and homicide rates, pose significant social and political challenges to Caribbean societies. In this context, Caribbean countries should consider whether and how to rethink their social contracts to address these intertwined challenges.

Strengthening institutions is essential to improve policy effectiveness, enhance public services and foster a legitimate social contract. Public institutions must strategically balance economic, social and environmental objectives while ensuring consistent implementation of long-term strategies. A Centre of Government (CoG) Approach will be crucial in aligning policy planning, budgeting, stakeholder engagement and performance management with citizens’ needs and expectations. Inclusive public policy requires active participation from the private sector, academia, civil society and local communities in every phase of the public policy cycle. National Development Plans (NDPs), already adopted by 13 Caribbean countries, provide a useful existent tool for fostering consensus on a renewed social contract. While NDPs differ in structure, common priorities include governance, human capital development, environmental sustainability, social equality and cultural identity.

A new social contract will require broad political consensus and a rebalancing of the roles of the state, market, society, and environment. Sustainable development must be central, along with welfare systems and financing models, putting citizen well-being at the centre. As policies will affect socio-economic groups and territories differently, an intersectional approach is essential to balancing costs and benefits fairly and building support for the sustainable agenda.

Improving the quality and availability of data is paramount for informed policy design, implementation, and monitoring. In 2021, only half of the Caribbean countries with data available were implementing a statistical plan.3 The Open Data Inventory reveals Caribbean countries (40.9) lag behind Latin America (48.5), the global average (50.1) and the OECD (67.8) in data coverage and openness (0-100 index, where 100 means total data coverage and openness). Strengthening national statistical offices, adopting open government practices, and embracing digital transformation will be instrumental actions, although non-exhaustive, for promoting citizen engagement, improving public services delivery and, ultimately, increasing trust in the Caribbean.

Mobilise more financial resources to finance development

Domestic resource mobilisation needs to be revamped through more efficient and equitable tax systems and continuous commitment to fight tax avoidance

Tax revenues in the Caribbean can be strengthened to enhance domestic resource mobilisation and better finance the development agenda. In 2022, average tax revenues in the Caribbean amounted to 21% of GDP – slightly below the Latin American average of 22.4% and significantly lower than the OECD average of 34% – with significant variation across nations (Figure 11).

Figure 11. Tax structure in selected Caribbean economies and Latin America and OECD averages, 2022

Note: The Latin America average excludes Venezuela due to data issues. Due to data quality issues, Ecuador is excluded from the Latin America average for PIT and CIT revenues. The OECD average represents the unweighted average of the 38 OECD member countries. Chile, Colombia, Costa Rica and Mexico are also part of the OECD (38).

Source: Authors’ elaboration based on OECD (2024[46]).

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Tax collection and efficiency can be improved by rendering tax structures more equitable. Currently, tax revenues rely heavily on indirect taxes, often with a regressive impact. Indirect taxes (VAT plus other taxes on goods and services) accounted for an average of 55% in the Caribbean. This was higher than the Latin American average of 48%. It was also significantly above the OECD average of 32%. Corporate income tax (CIT) represented a larger share for the Caribbean than for the OECD, although with heterogeneity across countries. On average, CIT revenues represented 17.5% of total tax revenues in the Caribbean, compared to 12% in the OECD average.

To enhance revenue generation and equity, Caribbean countries could focus on improving the progressivity of the taxation system by enhancing, for instance, revenues from direct taxes, particularly personal income taxes, and rethinking inefficient tax exemptions that place a greater burden on lower-income groups. Additionally, to further strengthen their fiscal capacity, some countries can rationalise tax expenditures, carefully explore non-tax revenue sources, such as citizenship-by-investment programmes with enhanced oversight, and implement environmentally related taxes, including carbon pricing mechanisms.

Strengthening tax systems in the Caribbean will also require continuing efforts to address tax avoidance issues through greater international co-operation and implementation of global tax standards. Caribbean nations are increasingly engaging with frameworks such as the OECD’s Base Erosion and Profit Shifting (BEPS) measures and the Global Forum on Transparency and Exchange of Information for Tax Purposes. These frameworks aim to enhance tax transparency and ensure that multinational corporations pay taxes where their profits are earned. Improving tax administration, increasing participation in international tax initiatives and building regional co-operation are essential for modernising Caribbean tax systems, improving compliance, and fostering economic development.

Several Caribbean countries have pioneered the use of innovative financing instruments

Innovative debt instruments being developed in the Caribbean can effectively channel resources towards social, green and blue development goals. Notably, green, social, sustainability, sustainability-linked and blue (GSSSB) bonds collectively amassed a cumulative value of USD 1.5 billion in the region from 2019 to November 2024 (Figure 12). In 2019, Williams Caribbean Capital, based in Barbados, issued the first certified green bond in the Caribbean region, valued at USD 2 million. This was followed by another issuance in 2021, amounting to USD 7 million. Both bonds were earmarked for solar energy projects and certified under the Climate Bonds Standard Solar Energy Criteria (Climate Bonds Initiative, 2022[47]; Climate Bonds Initiative, 2019[48]).

Blue bonds are crucial for marine conservation and the development of sustainable “blue economies”. In 2022, The Bahamas issued two blue bonds for a total of USD 385 million to support marine-focused businesses. The bonds were oversubscribed, indicating high investor interest (Ministry of Finance of The Bahamas, 2022[49]). Other blue bonds have been issued in the context of debt-for-nature swaps, for instance in Barbados. Corporates or quasi-sovereign entities are also issuing sustainability-linked bonds and social bonds. This is demonstrated by the USD 44.2 million social bond issued by Trinidad and Tobago in 2020 and the USD 300 million sustainability-linked bond issued by EGE Haina, an energy company in the Dominican Republic.

Other important financial tools can help address pressing needs. For example, catastrophe (CAT) bonds offer a strategic means for managing natural disaster risks and enhancing borrowing capacity. In 2021, the World Bank issued Jamaica a USD 185 million CAT bond, providing coverage for 3 hurricane seasons. In addition, natural disaster clauses in debt contracts also provide critical fiscal resilience by allowing for payment deferrals following disasters. The IDB was the first to offer one of these to three Caribbean countries – Belize, The Bahamas and Barbados. These countries have activated the option for loans totalling over USD 1.1 billion (IDB, 2024[54]). Subsequently, in 2024, in a world first, Grenada was able to pause debt repayment due to a hurricane debt suspension clause after Hurricane Beryl, saving the country USD 28 million.

Debt-for-nature swaps present an opportunity to advance environmental goals while reducing debt. These swaps involve issuing a guaranteed instrument (loan or bond) at more favourable terms and using the proceeds to repurchase more expensive sovereign debt. Such a swap thus generates savings on interest rates and/or principal, which are then used to finance nature conservation and climate change mitigation or adaptation activities. To maximise the effectiveness of these mechanisms, it is crucial to enhance regulatory frameworks and develop comprehensive sustainable finance taxonomies (OECD, 2024[50]). These measures should ensure transparency, attract investment and foster regional financial stability.

To date, the Caribbean region has executed four debt-for-nature swaps amounting to more than USD 400 million destined for marine conservation. In 2021, Belize conducted a debt-for-nature conversion, retiring USD 580 million in debt for Belize (8.7% of GDP) and generating an estimated USD 178 million for marine conservation. In late 2022, Barbados completed a debt-for-nature conversion backed by a USD 100 million guarantee from the IDB and a USD 50 million guarantee from The Nature Conservancy (TNC), resulting in USD 50 million allocated to marine conservation initiatives. In November 2024, the Bahamas launched a new debt conversion project that is expected to save an estimated USD 124 million over the next 15 years and enable improvements in ocean conservation and the management of the Bahamas Protected Areas System. Finally, in July 2024, the European Investment Bank and the IDB approved USD 300 million in guarantees for an innovative debt-for-climate-resilience swap, structured as a sovereign sustainability-linked loan. This initiative will save USD 125 million for new resilience investments and marks the first such loan tied to a sovereign water security project. It features an innovative design in which, if the sustainability targets are not achieved, the government will incur a financial penalty.

Figure 12. International GSSSB bond issuance in the Caribbean by type and issuer, 2019 - August 2024

Note: GSSSB=Green, social, sustainability, sustainability-linked and blue bonds. Quasi-sovereign issuers are defined as companies with full or partial government ownership.

Source: Authors’ elaboration based on official figures and Núñez, G., H. Velloso and F. Da Silva (2022[51]); ECLAC (2023[52]); and OECD (2023[40]).

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Financial markets require further development to channel resources towards sustainable and inclusive development effectively

Financial depth in the Caribbean has been historically low, constraining households and business participation in the financial system. Domestic credit to the private sector as a percentage of GDP stood at an average of 42% for the Caribbean in 2022, lagging behind the averages in Latin America (55%) and OECD countries (149%) (Figure 13). Efficiency in the banking sector is characterised by high profitability. The sector boasts a net interest margin (NIM) of 4.8%, above the OECD average of 1.7%. A high NIM also signals costly credit due to various factors that vary between countries, such as high market concentration, high risks, and inadequate regulatory frameworks. Stability is reinforced by strong capitalisation and liquidity levels in most Caribbean banking systems. However, asset quality remains a potential risk in some countries.

Figure 13. Domestic credit to private sector by region 2000-22 and domestic bank credit and deposits as percentage of GDP in the Caribbean, 2022

Note: Panel A – OECD and upper middle-income belong to World Bank data classification. Panel B – Figures for bank deposits as a percentage of GDP correspond to 2021 due to data availability.

Source: Authors’ elaboration based on World Development Indicators (World Bank, 2022[53]).

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Deepen regional integration and expand international partnerships

Caribbean countries have room to improve intra- and extra-regional trade

Despite progress in liberalising trade within the region, intra-regional trade represented 6.7% of total trade in 2015-18, which is low compared to other trade blocs, in part due to limited diversification and complementarity among Caribbean economies. The region has a relatively high Export Concentration Index score of 0.432, with 52.5% of exports comprising primary products and resource-based manufactures, while only 4.1% are high-technology goods. Simultaneously, the Caribbean relies heavily on the import of essential goods, with 80-90% of food sourced from abroad. Non-tariff barriers (NTBs) continue to affect intra- and extra-regional trade, reflected in the region's low average score in the OECD’s Trade Facilitation Indicators. Existent trade agreements have not yielded the expected benefits, as many countries still show a concentration of export destinations, particularly to the United States. Overall, the Caribbean’s participation in world exports has been decreasing, representing 0.23% of total in 2022 (Figure 14). Meanwhile, despite geographic proximity and potential complementarities, trade with Latin America remains an under-exploited opportunity. The Caribbean can improve its trade performance by developing regional value chains in strategic sectors, integrating into global value chains where it holds comparative advantages, reducing NTBs, improving trade facilitation, deepening market penetration with existing partners and expanding into new international markets.

Figure 14. Participation in world exports (percentage) of the Caribbean, Latin America and ASEAN, 1981-2022

Note: ASEAN=Association of Southeast Asian Nations.

Source: Authors’ elaboration based on World Bank (2023[54]).

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Regional co-operation can support the region in addressing outstanding challenges like transport and digital connectivity and disaster risk reduction

Transport connectivity continues to be a major obstacle to the development of Caribbean countries. Transport cost intensity is relatively high compared to other regions (Figure 15), with logistics costs representing 16-26% of GDP, significantly above the OECD average of roughly 9%. This is primarily due to regulatory hurdles, including the tax structure, limited competition in the transport sector, and insufficient airport and port infrastructure. Furthermore, the region’s geographic isolation, dis-economies of scale, inefficient shipping routes, and poor inter-island connectivity increase transportation costs and reduce trade efficiency. Further initiatives based on public-private partnerships are needed to enhance intra- and extra-regional trade through market integration and higher efficiency. New efforts could include enabling a financially sustainable regional airline, developing a fast-ferry service between Caribbean islands or designing new regulations that promote more effective competition among private transport providers.

Figure 15. Transport cost intensity, selected regions and country groups (2016-21)

Note: Average transport expenditure in USD per 1 000 km as a ratio to their Free on Board (FOB) value of the traded goods. Formula ([transport expenditure] / [transport work in terms of value]) x 1 000. This dataset is experimental.

Source: Authors’ elaboration based on UNCTADStat (2024[55]).

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The region has made significant strides in co-operation on EWS and disaster recovery efforts through the Caribbean Disaster Emergency Management Agency. To that end, it has generated economies of scale and facilitated logistics throughout all phases of the disaster management cycle. However, additional regional initiatives are required to tackle other urgent environmental challenges and capitalise on the opportunities of the just green transition. For instance, co-ordinated efforts are necessary to establish region-wide environmental policies, regulations and standards aimed at reducing marine pollution caused by the shipping industry or for creating incentives for investments in renewable energies.

Caribbean nations have strong incentives to develop a more integrated and resilient green energy network. Energy imports make up nearly 7% of the region’s GDP, which restricts public sector investment in climate adaptation and social services. The Caribbean is already taking concrete steps towards an energy transition through a Regional Energy Policy prioritising renewable energy. Further efforts should focus on advancing harmonised regulatory frameworks and scaling up energy interconnection projects to encourage investment in resilient and renewable energy systems.

Digital technologies offer a significant opportunity to enhance connectivity in the Caribbean, where physical connectivity is complex and costly. In 2021, 78% of the Caribbean population used the Internet, compared to 72% in Latin America and 89.3% in the OECD. A region-wide digital transition can spur substantial development by boosting productivity, supporting industry diversification and fostering economic integration. Digitalisation lowers transaction costs, improves information flows, and increases competition, helping micro, small and medium-sized enterprises compete and integrate into global value chains. Further, digital tools can improve climate resilience through better disaster preparedness and response. Caribbean nations are advancing digital initiatives, including through regional projects like CARICOM’s ‘’Single ICT Space’’ and the work of the Association of Caribbean States to digitalise the transport sector, as well as through the support of international partners like the Inter-American Development Bank (IDB) which has invested USD 480 million over the last decade. Improving regional co-operation regulatory dialogue, infrastructure investments, improved connectivity, and enhanced cybersecurity would assist the region in fully benefiting from the digital transition.

Renewed international partnerships can help channel financing for development towards the region and raise the Caribbean’s voice globally

Most Caribbean countries depend on external flows to finance development. This reliance is due to several factors, including their limited size, limited domestic financial resources, vulnerability to external shocks and major development needs. Official development assistance averaged 2.53% of the region’s GNI from 2000 to 2022. FDI represented 4.3% of the region’s GDP in 2023. Meanwhile, remittances represented the biggest international financial flow that year, accounting for 6% of GDP in 2023 (Figure 16).

Innovative international partnerships can help the Caribbean region make more efficient use of finance and leverage more international development funding. Specifically, they can provide co-ordination mechanisms between development actors and more tools like blended finance and blue and green bonds to leverage private investments. Further, following a Development in Transition approach, partnerships are crucial to ensure alignment of international financing with the Sustainable Development Goals and national and regional development objectives. They also enable equal-footing platforms in which Caribbean countries can engage with other partners as peers and foster a cohesive voice in multilateral negotiations towards transforming the international financial architecture. This will help the region seize the global momentum for rethinking international finance, including in the discussions around the Paris Pact for People and the Planet and the 2025 4^th UN Conference on Financing for Development in Spain.

Figure 16. Main external financial flows to the Caribbean, 2000-23

Note: FDI=foreign direct investment; GDP=gross domestic product; GNI=gross national income; ODA=official development assistance. Graduation out of ODA recipient status for Barbados and Trinidad and Tobago after 2010, Saint Kitts and Nevis after 2013, and Antigua and Barbuda after 2022. Portfolio investment liabilities based on authors’ calculations. In 2023, Guyana was excluded from the FDI average calculation due to its significantly higher FDI inflows as a share of GDP, making it an outlier. Including Guyana in the calculations, the regional average FDI net inflows in 2023 amount to 6.8% of GDP.

Source: Authors’ elaboration based on (IMF, 2024[56]; World Bank, 2024[57]; World Bank, 2024[3]; World Bank, 2023[58]).

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The IDB’s One Caribbean initiative encapsulates this approach, leveraging resources, encouraging co‑operation and exploiting economies of scale to tackle shared challenges across the region. One Caribbean represents a multi-year, multi-sector approach to promoting sustainable and inclusive development. The initiative is organised around four pillars: (1) climate resilience, adaptation and disaster risk management; (2) citizen security; (3) private sector development; and (4) food security. Two cross-cutting areas complement the initiative: strengthening institutions and digital transformation. As such, this partnership tackles the critical regional challenges and opportunities set out in this report.

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[12] WTTC (2022), Travel and Tourism in the Caribbean: Prospects for Growth, World Travel and Tourism Council, London, https://wttc.org/Portals/0/Documents/Reports/2022/Travel-and-tourism-in-the-caribbean.pdf.

Notes

← 1.  Transition risks refer more specifically to the financial risks that could arise from the transition to a lower-carbon economy. For insurance firms, this risk factor is mainly about the potential repricing of carbon-intensive financial assets, and the speed at which any such repricing might occur. To a lesser extent, insurers may also need to adapt to potential impacts on the liability side resulting from reductions in insurance premiums in carbon-intensive sectors (Caldecott et al., 2016[59]).

← 2.  The Bahamas, Barbados, Guyana, Jamaica, Suriname, and Trinidad and Tobago.

← 3.  Antigua and Barbuda, Belize, the Dominican Republic, Grenada, Jamaica, Saint Kitts and Nevis, and Suriname.