Regional integration and international partnerships are vital for Caribbean countries to foster economic resilience and productivity, improve global market positioning, and enhance responses to climate change and other development challenges. The Caribbean has room to improve intra- and extra-regional trade by diversifying partners and improving transport connectivity. Harnessing regional co-operation, the Caribbean can extend successful disaster risk strategies to promote a resilient green transition, leverage digital advancements to tackle common challenges, unlock renewable energy potential and enhance intra-regional mobility of persons. Further, the chapter highlights the relevance of advancing a Development in Transition approach to international partnerships to leverage different sources of international funding, while improving their development impact in line with nationally determined priorities. New partnerships can be particularly helpful in aiding the Caribbean’s climate adaptation needs by providing the Caribbean with equal-footing platforms in the multilateral sphere, introducing innovative financial instruments and enhancing support from global climate funds.
Caribbean Development Dynamics 2025
Abstract
Caribbean countries face several common challenges and opportunities that underscore the strategic relevance of collective action. These challenges include small territorial and population sizes, which limit economic scale and diversification, making the region vulnerable to shocks and crises. This vulnerability has contributed to high levels of international debt and significant impacts of climate disasters. At the same time, the Caribbean possesses abundant assets, including its rich biodiversity and large ocean resources. These assets offer significant development opportunities, particularly in the context of the green transition.
Deepening regional integration and co‑operation among Caribbean nations – and with the rest of the world - is instrumental to address vulnerabilities and potentially generate new development opportunities. First, greater integration can enable economies of scale for production transformation, increased productivity, and job creation. This, in turn, improves intra-regional trade and the position of the region in global markets and global value chains (GVCs). Second, co-operation can allow for more efficient responses to development challenges like climate change, digitalisation, indebtedness and the energy transition. Third, international partnerships can help in amplifying the Caribbean's voice in multilateral fora and advancing the region’s interest in relation to global public goods.
Regional integration has been a long-standing strategy in the Caribbean, yet there is room to harness the potential of existing integration and co‑operation mechanisms
For decades, Caribbean countries have pushed for regional solutions to overcome development challenges through collective action. Since the 1960s, they have fostered regional integration and co‑operation, conforming today to a rich weave of organisations working towards shared goals (Figure 6.1). This includes well-grounded integration and co‑operation schemes, including the Caribbean Community (CARICOM), the Association of Caribbean States (ACS) and the Organisation of Eastern Caribbean States (OECS), among others. Other sub-regional organisations focus on co‑operation and/or development financing, like the Caribbean Development Bank (CDB) or the Caribbean Export Development Agency. Simultaneously, all Caribbean states form part of the Community of Latin American and Caribbean States, the largest Latin American and Caribbean organisation for regional political and policy co‑ordination. Some are also part of other integration mechanisms, like the Centro American System of Integration (SICA), of which the Dominican Republic and Belize are members.
Note: Dashed borders indicate co‑operation and/or financing organisations, while continued borders indicate integration blocs.
Source: Authors’ elaboration.
CARICOM, OECS and SICA are regional intergovernmental organisations that have advanced the integration process, achieving significant milestones since the early 2000s. In 2001, the 15 member states of CARICOM set the goal of establishing its Single Market and Economy (CSME). This would include a customs union, a common market with free movement of capital, labour, goods, and services, and an economic union with co‑ordinated sectoral and macroeconomic policies (Allub and Schliesser, 2023[1]). In 2010, the OECS approved the revision of the original Treaty of Basseterre. This created an economic union and a single market with a customs union where the seven OECS countries agreed to trade without tariffs or other barriers.
While progress has been made in liberalising the movement of goods, services and skilled labour within the region, the pace of integration has been slow and remains incomplete (IDB, 2020[2]). The region has concluded only 57% of the required actions to complete the CSME since its agreement more than 20 years ago (IMF, 2020[3]). Persistent non-tariff barriers (NTBs) to trade, such as distance and culture, bilateral exchange rates, transfer fees, and required documentation, have negative effects on trade and could erase trade gains achieved through the removal or reductions of tariffs. Addressing this issue in the Caribbean is particularly relevant as intra-CARICOM NTBs, measured by the variations in non-tariff costs (the percentage increase in trade cost compared to the average domestic cost of goods), increased 35% between 2000 and 2015 (Allende López et al., 2020[4]).
Regional integration is particularly relevant for Caribbean countries for several reasons. These countries have small territories and populations with associated limited economic scale. They are also remote from international markets, with high levels of external openness and high exposure to external shocks and climate change. Additionally, most countries have elevated public debt and are highly dependent on external capital.
Regional integration can enhance welfare, productivity, and resilience through the expansion of market opportunities, specialisation gains, economies of scale, and pooled power to negotiate and trade with international partners. Advancing regional integration appears even more relevant, primarily in the context of free-trade areas and customs unions among Caribbean nations (Giordano, 2012[5]). In recent years, value chains have been turning more regional and less global. Furthermore, the COVID-19 pandemic prompted companies worldwide to implement a variety of localisation strategies, including relocation, nearshoring and reshoring (Lund et al., 2019[6]; OECD/UNCTAD/ECLAC, 2020[7]). Considering the institutional network in place in the region, the Caribbean could make efforts within and between regional organisations, optimising results through increased inter-institutional synergies.
Expanding intra-regional trade can bring resilience and productivity gains, although it will have to be accompanied by diversification and upgrading of production
The progress in liberalising the trade of goods and services has not been enough to foster intra-regional trade. While progress has been made in the CSME, intra-regional trade in CARICOM is relatively low and has decreased in recent years (Figure 6.2) (IMF, 2020[3]). Total intra-regional trade in CARICOM, measured as a proportion of total trade, decreased from around 8% in 1995-99 to 6.7% in 2015-18 (Allub and Schliesser, 2023[1]). In contrast, the regional bloc comprised of SICA and the Dominican Republic showed a higher level of intra-regional trade, increasing from 12.4% in 1995-99 to 14.1% in 2015-18. Both sub-regions show lower levels of intra-regional trade than other regional blocs like the European Union (EU) and the Association of Southeast Asian Nations (ASEAN).
Notes: ASEAN = Association of Southeast Asian Nations; CARICOM = Caribbean Community; EU = European Union; MERCOSUR = Southern Common Market; SICA+DR = Central American Integration System + Dominican Republic.
Source: Authors’ elaboration based on (Allub and Schliesser, 2023[1]).
Intra-regional trade is further limited by the low diversification and complementarity of economies in the Caribbean. The region continues to specialise in relatively low value-added segments of GVCs, both in the service sector (tourism) and natural resources (agricultural products, minerals, and fossil fuels). Indeed, 52.5% of exported goods are primary products and resource-based manufactures, while only 4.1% are high-technology manufactures. Most intra-regional trade is between commodity and non-commodity exporting economies, while trade within each group is less than 1% of gross domestic product (GDP) (IMF, 2020[3]). In addition, the CSME has not been able to reverse regional asymmetries. Countries with stronger manufacturing economies have benefited most from the CSME. Trinidad and Tobago, for example, accounted for 62% of intra-regional trade in 2019 (ECLAC, 2022[8]).
Advancing trade integration across Caribbean economies requires addressing NTBs and fostering regional value chains. Current challenges related to NTBs include the co‑ordination of investment codes, harmonisation of sanitary and phytosanitary measures, and the free movement of skilled people.
Building production capacity through regional value chains in strategic sectors can help Caribbean countries diversify their production, reduce over-dependency on extra-regional imports, and lower vulnerability to disruptions in GVCs while potentially creating more jobs. Some strategic areas of opportunity are linked to the green, blue, and circular economy (see Chapter 3), as well as the food sector, as Caribbean economies look for potential trade solutions to their food security challenges (Santamaría, 2024[9]). Indeed, the Caribbean relies on imports for 80% to 90% of its food needs to satisfy both local consumption and the demands of tourists (IICA, 2018[10]). Hence, intra-regional trade for food security can increase production efficiency and give consumers access to a greater variety of food at lower prices (Campos, 2024[11]) (see Box 6.1).
Food production represents an interesting area to boost intra-regional trade. This is a sector where the Caribbean is losing share in a global growing market. At the same time, it presents inter-related challenges, including excessive dependency on imports, high relative costs and food insecurity (Allub and Schliesser, 2023[1]). While many Caribbean economies export agricultural products, 80-90% of all food consumed in the region comes from abroad. Meanwhile, intra-regional food trade accounts for only 16.6% of total food imports (IICA, 2018[10]; Turnbull, 23 April 2021[12]). The average cost of a healthy diet in Caribbean countries in 2021 was estimated at USD 4.4 per person per day in purchasing power parity terms, which is 42% higher than in the OECD average (Arias, Brown and Hassiner, 2024[13]).
By tapping into its comparative advantages and introducing technology, the region could upgrade its agricultural and food processing value chains, the latter creating eight times more output per worker than jobs in farming (Dessina, Minsat and Delana, 2022[14]; ECLAC, 2022[8]). Agri-tech is an opportunity to increase productivity and resilience towards climate vulnerability and extreme weather events. The Inter-American Development Bank (IDB) is promoting adoption of technology use in agriculture and agro-food sectors in the Caribbean. It supports entrepreneurs and start-ups in the sectors of fruits and vegetables, coffee and cocoa, and sauces and spices (Competitiveness, 2021[15]).
The Caribbean Export Development Agency (CEDA) is advancing a positive integration agenda by working to promote value chains across Caribbean economies. For example, CEDA is helping strengthen the cocoa or chocolate value chain between the Dominican Republic and Haiti by promoting dialogue and co‑operation and providing technical support to the private sector. In this context, two firms from the value chain – Makaya (Haiti) and Definite Chocolate (Dominican Republic) – collaborated to produce the first bi-national chocolate. Together, they created a chocolate collection that combines the history of cocoa and common traditions from both countries, while using recipes that highlight organic indigenous ingredients, such as coffee, cashews, and peanuts.
Source: (Caribbean Export, 2022[16]).
Caribbean countries have room to improve their position in global value chains through targeted policies in production transformation, trade facilitation and trade partnerships
The Caribbean has decreased its participation in GVCs over the past few decades. Caribbean economies have a high degree of trade openness, with an average trade-to-GDP ratio above 90% (ECLAC, 2022[8]). Nevertheless, the Caribbean’s participation in world exports of goods and services fell from a peak of 0.35% in 1984 to a record low of 0.15% in 2020 before slightly recovering to 0.23% in 2022 (Figure 6.3). While Latin America also shows a declining trend, the ASEAN region has more than doubled its share in global exports, from 3.35% in 1981 to 7.45% in 2022.
Source: Authors’ elaboration based on (World Bank, 2023[17]).
The Caribbean faces a variety of challenges to integrate into the global market. These include: inadequate export readiness among producers; limited creation, transplant, and diffusion of technology; weak production systems; low levels of trade competitiveness; and high energy, shipping, and connectivity costs (ECLAC, 2022[8]).
Product diversification is a critical area to improve integration of the Caribbean into GVCs. The region has high levels of concentration in the number of exported products in the Export Concentration Index (UNCTADStat, 2024[18]). Ranging from 0 to 1, higher values in this index reveal that a small number of countries in the Caribbean dominate commodity exports and thus have market concentration. In 2022, the Caribbean scored 0.432, which compares to scores of 0.128 in Central America, 0.137 in South America, 0.215 in Small Island Developing States (SIDS) and 0.067 in the OECD. Nevertheless, there are significant country differences within the Caribbean average – from a low 0.177 score in Barbados and the Dominican Republic to a high 0.742 in Suriname. With the exception of oil-exporting economies, such as Trinidad and Tobago, Suriname, and more recently Guyana, goods exports in the region are often centred on tropical agricultural products and related agro-industries, including sugar, rum and tropical fruits (Allub and Schliesser, 2023[1]). With respect to services, which represent 58% of total exports in the region (see Chapter 1), the travel sector – closely linked with tourism – is the main exported service in most countries of the region. In 2023, it represented more than 50% of the total trade in services in 12 Caribbean countries and, in particular, more than 90% in The Bahamas, Barbados, Grenada, Saint Lucia and Saint Vincent and the Grenadines (UNCTADStat, 2024[18]).
Efforts to enhance production integration and global competitiveness in the Caribbean should be geared towards globally expanding sectors where the region has demonstrated potential, like the cultural and creative sector (CCS). Currently, creative industries contribute around 5% to the region's GDP and employ, on average, 3% of the region's workforce (Bauer, 2023[19]). With well-targeted regional policies, the Caribbean can seize the opportunities of this rising sector. From 2002 to 2020, global exports of cultural and creative goods more than doubled in value, reaching USD 524 billion in 2020, while global exports of creative services were estimated at USD 1.1 trillion in 2020, with a prominent role in the digital creative economy (UNCTAD, 2022[20]). Additionally, global foreign direct investment (FDI) in CCS has more than doubled over the past 20 years, growing by 118% from 2003 to 2021 (OECD, 2023[21]). The Caribbean can leverage its comparative advantages in tourism to support growth in CCS, which, in turn, can have positive externalities in its tourism sector.
An analysis of the EU Outermost Regions (ORs) shows the potential to enhance global competitiveness in the Caribbean through leveraging strategic sectors. The EU ORs include Guadeloupe, Martinique, Saint Martin, and French Guiana. They are natural partners with their Caribbean neighbours, with which they share comparable challenges – such as limited size, geographical isolation, and climate change vulnerability – and opportunities – including the rich biodiversity, cultural traditions, and natural assets. Strategic sectors in the EU ORs, like ocean economies, the agro-food sector, and the CCS, coincide with sectors where the broader Caribbean region has demonstrated potential (Box 6.2). By leveraging their local strengths, the EU ORs could collaborate with other Caribbean countries to boost these sectors and improve participation in the global economy.
Leveraging competitiveness through the ocean economy, agro-food, and the cultural and creative sector
Oceans are a key factor of competitiveness and internationalisation for EU ORs. Ocean-related economic activities are projected to double in 20 years, from USD 1.5 trillion in 2010 to USD 3 trillion by 2030 (OECD, 2023[22]). These estimates include both traditional industries, like the extraction and exploitation of marine living and non-living resources, maritime transport, and coastal tourism, as well as fast and innovative growth activities related to oceanic renewable energy, biotechnology and bio economy (Jolliffe, Jolly and Stevens, 2021[23]). Representing 75% of their territories, EU ORs can harness oceans and position themselves in emerging high-value activities within the ocean economy (OECD, 2023[22]). French Guiana has established a Blue Economy Strategy, while other EU ORs are in the process of developing theirs. With support from France, Guadeloupe and Martinique have initiated innovative projects and enterprises focused on repurposing sargassum for agricultural use and transforming algae into environmentally sustainable building materials.
Given their vast maritime areas, favourable climate, and biodiversity, the EU ORs are well-positioned to improve their participation in international agro-food value chains (OECD, 2023[24]). Agro-food is already among the main economic activities in EU ORs and food processing is their main industrial activity. With the global market for natural and organic food growing, Caribbean EU ORs can expand their global market share by producing high quality, traceable, and sustainable agro-food products. Guadeloupe is already promoting activities that combine sustainable farming with local high-value food products via the Agropark Caraïbes Excellence Programme, which includes an agro-processing platform, a business incubator, and a commercial hub (OECD, 2023[24]). To unlock their potential, these regions should strengthen quality infrastructure, focus on quality branding, invest in sustainable practices and new farming techniques, and connect with innovation ecosystems.
The CCS can contribute to the comparative advantage and local development of EU ORs, generate wealth through international exports, and create cultural employment (OECD, 2023[21]). Between 2002 and 2020, global exports of cultural and creative goods more than doubled in value, reaching USD 524 billion in 2020, while world exports of creative services were estimated at USD 1.1 trillion that year, a sizeable increase from the USD 487 billion value in 2010 (UNCTAD, 2022[20]). The CCS is not yet consolidated in EU ORs. Nonetheless, given that tourism is already the leading export service for most of these territories and is often deeply intertwined with the CSS, inter-sectoral synergies could be established to seize the potential that both sectors offer for internationalisation (OECD, 2023[21]).
Caribbean countries could apply co‑ordinated and targeted strategies to improve trade facilitation. With the exception of the Dominican Republic, trade facilitation performance scores in the Caribbean are lower than those of LAC, the European Union and ASEAN (Figure 6.4) (OECD, 2024[25]). Trade facilitation covers the full spectrum of border procedures. It ranges from the electronic exchange of data about a shipment to the simplification and harmonisation of trade documents, to the possibility of appealing administrative decisions by border agencies (OECD, 2024[25]). Areas that need more attention in the Caribbean are automation, procedures, internal and external border agency co‑operation and governance, and impartiality.
Note: The Trade Facilitation Performance is the average of the Trade Facilitation Indicators (TFI). These take values from 0 to 2, where 2 designates the best performance that can be achieved. TFIs include the following: a) Information availability; b) Involvement of the trade community; c) Advance rulings; d) Appeal procedures; e) Fees and charges; f) Documents; g) Automation; h) Procedures; i) Domestic border agencies co-operation; j) Cross-border agency co-operation; k) Governance and impartiality.
Source: Authors’ elaboration based on (OECD, 2024[25]).
Although the region has several trade arrangements; there is room to improve their impact, establish agreements with new trade partners and improve market penetration. Three non-reciprocal agreements have translated into higher market penetration for the region: agreements between CARICOM countries and Canada; between OECS and the United States; and the Central America Free Trade Agreement with the United States (CAFTA-DR) (ECLAC, 2022[8]). Several countries in the region have a high concentration of exports to the United States, notably The Bahamas, Dominican Republic, Guyana, Jamaica and Saint Kitts and Nevis (Figure 6.5). In contrast, the Cariforum-European Union Economic Partnership Agreement signed on 15 October 20081 has not delivered the expected benefits for the Caribbean. The value of Cariforum-EU merchandise trade decreased from EUR 9.5 billion in 2008 to EUR 8.828 billion in 2020.
Note: Overseas territories not included in EU total. Most recent year available.
Source: Authors’ elaboration based on (World Bank, 2024[26]).
The trade relationship between the Caribbean and Latin America remains an under-exploited opportunity (Figure 6.5). The two regions are close geographically and have potential complementarities. Furthermore, the Caribbean needs food imports, industrial goods and fuels. All these factors make them potentially suitable trade partners (UN Comtrade Database, 2024[27]). However, most Latin American countries do not have trade agreements with CARICOM and thus pay high tariffs (Allub and Schliesser, 2023[1]). As a result, Latin America is not a main destination for Caribbean exports. Updating the regional integration agenda through new trade agreements with Latin America could be an interesting avenue to pursue. Estimates of a potential Latin American and Caribbean-wide free trade agreement suggest that the Caribbean would experience an 8.8% increase in such a scenario, driven by agriculture and by better access to most of the region, particularly to the Southern Common Market and Mexico (Mesquita Moreira, 2018[28]).
The potential for enhancing agro-food trade between CARICOM and SICA is significant and currently underutilised. Despite their geographic proximity and economic complementarities, trade between these regions account for just over 0.1% of LAC’s agricultural trade (Santamaría, 2024[9]). SICA countries export nearly 50% of their agro-food products, while CARICOM export only 8.1% (Santamaría, 2024[9]) High tariffs on agricultural products, deficient infrastructure, and inadequate institutional response capacity hinder the development of this trade. To realise its full potential, establishing a regional trade agreement between SICA and CARICOM could help reduce tariffs, improve market access, and improve logistics and infrastructure, ultimately reducing food insecurity and supporting economic growth (Santamaría, 2024[9]).
A renewed regional agenda should prioritise the outstanding challenge of transport
Transport connectivity remains a critical challenge for the development of Caribbean nations. The transport cost intensity – or cost per ton of exporting goods – is relatively high for the Caribbean compared to other regions and country groupings, a trend that has increased in recent years (Figure 6.6). Regional logistics costs account for about 16-26% of GDP in the Caribbean compared to the OECD average of around 9%. This renders Caribbean products relatively more expensive and therefore less competitive (Nicholson, n.d.[29]). The relatively high transport costs are primarily due to regulatory challenges, limited competition within the transport industry, and outdated transport infrastructure (Bhattacharya, 2024[30]). This, in turn, has a direct negative impact on foreign investment, trade levels and trade diversification. Indeed, estimates suggest that a 1% decline in ad valorem transport costs could increase exports from 1.5% to 8% across various sectors in LAC, demonstrating the significant impact that lower transport costs can have on boosting trade in the region (Bhattacharya, 2024[30]).
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]) * 1 000. This dataset is experimental.
Source: Authors’ elaboration based on (UNCTADStat, 2024[18]).
Some challenges that lead to high transport costs are structural, while others relate to policy interventions at the national and, above, regional levels. The geographic isolation and dis-economies of scale of Caribbean SIDS are key factors driving high transport costs. According to the UN Liner Shipping Connectivity Index, which measures connectedness to global shipping networks, remoteness is, on average, a bigger challenge for Pacific than Caribbean SIDS, though some Caribbean SIDS are still very affected (OECD, 2018[31]). While the Dominican Republic and Jamaica score comparatively well on the Index, Caribbean SIDS like Dominica, Grenada, Antigua and Barbuda, Saint Vincent and the Grenadines, Saint Lucia, and even non-island Caribbean states like Guyana and Suriname score well below. Long distances are required to transport exported goods, while ports and public administrations have high fixed costs. The low efficiency of infrastructure is another key factor, accentuated by the high costs of recovering transport infrastructure after climate disasters. The limited development of a regional vision results in inadequate transportation infrastructure, competition between Caribbean countries and poor inter-island connectivity.
Maritime inter-island connectivity is a challenge among OECS economies, where direct formal freight transport is generally unavailable. Formal maritime transport in these countries comprises large international shipping lines operating between the United States or Europe and their regional hubs in Barbados, and Trinidad and Tobago. These hubs only serve other Caribbean islands through designated feeder lines, which leads to higher freight costs between islands compared to the costs from these islands to the United States (OECD, 2022[32]). Exports of goods that rely on formal maritime transport need to be shipped through the United States, highlighting the ongoing problem of the directionality of shipping services in the Caribbean (IDB, 2018[33]). Additionally, the tax structure in the region hinders regional integration and short-sea shipping, further complicating efforts to improve connectivity and consequently trade (IDB, 2018[33]). Hence, informal maritime transport plays an important role, yet it remains fragmented and lacks organisation (IDB, 2018[33]). An analysis of different potential scenarios indicates that two viable proposals could be considered for improving inter-island trade connectivity, given their relative simplicity and low implementation costs. One proposal involves modifying an existing shipping service to run south to north through the Eastern Caribbean islands, with a liner service from Kingston to Trinidad and Tobago. The other proposal is to reduce port handling charges for Less-than-Container-Load containers (IDB, 2018[33]).
Air transport – both freight and passengers – also faces challenges. The Caribbean has several airports and routes to large origin hubs for tourism (mainly in North America and Europe). However, the overall small volume of operations and lack of large airport hubs lead to higher fixed operational costs to the region’s airports, requiring higher taxes to support air transport infrastructure (Fioravanti, Granada and Veverka, 2015[34]). This can make Caribbean islands less cost-competitive with respect to larger tourism destinations. In addition, except for a recent partnership between Caribbean Airlines and Air Jamaica, airlines that serve the intra-regional market have remained as separate entities with little co‑operation. This, in turn, leads to a poor level of service between islands (ACS, 2024[35]).
The Caribbean is advancing initiatives to address bottlenecks to boost transport efficiency. The ACS is steering projects for the “Mapping of Maritime Routes in the Greater Caribbean”, aiming to provide information on players in the shipping industry and facilitate trade linkages between countries. It also manages the Caribbean Maritime and Port Strategy, which is building a comprehensive strategy to develop ports across the region (ACS, 2024[35]). Within the context of ACS, the Air Transport Agreement provides the legal framework for member countries to negotiate with each other for more air service options at reduced costs and prices, as well as more routes (ACS, 2008[36]). This agreement is expected to complement other tools, such as the CARICOM Multilateral Air Services Agreement.
Further initiatives are needed to optimise both intra- and extra-regional trade through integrated, resilient, and sustainable transportation systems. This calls for scaling up planning, investments and management of quality, reliable and resilient infrastructure (UN, 2024[37]). These developments should aim both to improve the connectivity of the Caribbean with the rest of the world and to improve inter-island connectivity for regional economic and value chain integration. To that end, developing a fast-ferry service between OECS islands would be an interesting policy option, although it could require public support (OECD, 2022[32]). In the case of air transport, public-private partnerships could promote regional market integration through profitable and financially sustainable regional airlines. These could provide connection routes within the Caribbean and with the rest of Latin America, which is a faster-growing market (Fioravanti, Granada and Veverka, 2015[34]). Indeed, public-private collaboration could also be useful in designing new regulatory frameworks that turn unproductive competition between Caribbean countries into better competition between private transport providers. Capacity building, or even the creation of new regional institutions, can improve co‑ordination among agents, investments in technology, better data collection and analysis, and the harmonised adoption of international standards.
Enhanced regional co‑operation is essential to address shared challenges more inclusively, effectively and efficiently. In addition, regional co‑operation can help seize development opportunities and provide quick wins, creating greater momentum to achieve full integration in the region (IMF, 2020[3]). CARICOM has 19 community institutions that promote horizontal co‑operation between member states, while the ACS provides technical assistance, capacity building and promotes policy dialogue.
Some topics in this section are common to all Caribbean countries, like climate and environmental challenges or the digital transition. Others are experienced differently across countries, such as the renewable energy transition for oil-producing and oil-importing countries or intra-regional migration for origin and destination countries. In these latter cases, regional co‑operation could progress through coalitions of countries having common interests.
The Caribbean can leverage its extensive co‑operation in disaster risk reduction and prevention to expand towards other areas for a resilient green and just transition
Despite their relatively low carbon footprints, Caribbean countries are highly vulnerable to extreme weather events and other impacts of climate change, such as rising sea levels and changing precipitation patterns (OECD, 2024[38]) (Chapter 3). The present-day expected annual damage (EAD) for all SIDS is USD 1.64 billion (2020 values). This figure corresponds to 0.13% of total GDP in SIDS, with 49% of this EAD occurring in the Caribbean Sea. Meanwhile, half of the expected annual flooded area is in the Caribbean, where 61% of people exposed to coastal flooding for all SIDS live (Vousdoukas, Athanasiou and Giardino, 2023[39]). On top of the high human risks, high climate vulnerability affects growth rates and tourism in the Caribbean. The 6.8% contraction in GDP in Dominica immediately after “Maria”, the category 5 hurricane in 2017, illustrates this impact on growth (OECD, 2022[32]).
Regional co‑operation in the Caribbean is highly developed around early warning systems, and recovery and reconstruction after disasters. The Caribbean Disaster Emergency Management Agency co‑ordinates emergency response for CARICOM members, generates economies of scale and facilitates logistics more systematically than would be possible by individual countries. The agency has a comprehensive strategy that supports all phases of the disaster management cycle. In addition, it is developing a regional information system for greater risk awareness and preparedness and evidence-based decision making (IMF, 2020[3]). For its part, the Caribbean Tourism Organization of CARICOM has implemented a regional monitoring and evaluation system for disaster risk management and climate change adaptation in the tourism sector with the support of the IDB. The Caribbean Catastrophe Risk Insurance Facility also provides an innovative and necessary financial mechanism to mitigate the financial costs of disasters.
Further regional efforts are needed to address other pressing environmental issues and seize the opportunities presented by the green transition. The Caribbean lacks a regional strategy to address the increasing problem of sargassum, a seaweed that has inundated shorelines in the region each spring and summer since 2011. The seaweed affects people, biodiversity (including reefs), and sea-based economic sectors, especially tourism and fishery (Rogers et al., 2023[40]). However, sargassum also presents opportunities, including its transformation into different by-products such as fertilisers, raw material for biodegradable plastics, cosmetics, electricity and biomass, and could become a resource to boost local economies’ resilience (see Chapter 3).
Regional co‑operation is also needed to implement Caribbean-wide policies and environmental standards to address the marine pollution of the ship industry, including from cruise ships. Individual OECS member states have levied an environmental tax for cruises as well as accommodation taxes to finance programmes that build climate resilience, but a regional strategy is still missing (Morris, 2020[41]; Virgin Islands News, 2022[42]; CNG, 2020[43]) Leveraging regional co‑operation in these areas is needed to seize the high potential of the region in strategic sectors for the green transition (like the blue economy), and to enable initiatives like the Caribbean Sustainable Tourism Zone of the ACS.
New regional environmental endeavours in the Caribbean should adopt a green and just transition approach to maximise their development impact and leave no one behind. Green and just transitions are the ongoing and upcoming transitions towards achieving carbon neutrality and net zero greenhouse gas emissions by or around the mid-century, coupled with a focus on ensuring climate adaptation, resilience, and inclusiveness for all (OECD et al., 2024[44]). This concept entails maximising the positive economic and social gains of adopting more sustainable models of development while mitigating the potential negative impacts through new socio-economic opportunities, including quality jobs, enhanced public services, social protection systems, sustainable infrastructure development, new sources of affordable finance, and safe, orderly, and regular migration pathways (OECD, 2021[45]).
The digital transformation is an opportunity for the Caribbean to overcome various development challenges
Digital technologies represent an interesting opportunity for improving connectivity in a region where physical connectivity is complex and costly. In 2021, the percentage of internet users in the Caribbean region was 78% of the total population. This includes internet access from any device and connection, encompassing both fixed and mobile options (ECLAC, 2022[46]). This compares to 72% in Latin America and 89.3% in OECD countries in 2021 (Figure 6.7). While the Caribbean has made significant progress in internet adoption, the region still lags behind the more developed OECD countries.
Note: This indicator includes internet use from any fixed or mobile device and connection.
Source: Authors’ elaboration based on (ECLAC, 2022[46]).
Advancing a region-wide digital transition can bring enormous development opportunities for the Caribbean. Digitalisation enhances productivity and growth in existent services and industries and supports diversification into new, higher-technology sectors. This is the case, for instance, of digital services, including financial and insurance services, IT services, digital marketing, and consultancy (OECD, 2022[32]). Digital transformation also plays a pivotal role in economic integration by reducing transaction costs, enhancing information flows and boosting competition. It can empower micro, small and medium-sized enterprises to compete better and integrate into GVCs. New, digitally-enabled technologies can also contribute to raising climate resilience by providing tools for natural disaster preparedness and emergency response, while digital connectivity can help create carbon markets (OECD et al., 2022[47]; Blanco, 2024[48]). To close the digital gap with the OECD, an estimated USD 68 billion investment is needed, with private investment playing a key role, while the public sector’s involvement will be crucial in establishing public-private partnerships to reach remote areas (García Zaballos, 2020[49]).
Caribbean countries are already engaging in several digital initiatives with a regional perspective. The “Single ICT Space Project” of CARICOM is viewed as the digital layer of the CSME. It aims to create an enabling environment for regional infrastructure projects and systems through regionally harmonised ICT policy, legal and regulatory regimes (CARICOM, 2017[50]). The ACS is focusing on the digital transformation of the transport sector to increase levels of operational efficiency, build resilient supply chains and develop more integrated regional logistics. It will do this through supply chain traceability and improved connectivity among border control agencies. The United Nations Development Programme (UNDP) is leading the “Digital Support Facility for the Caribbean”, which supports the development of Digital Action Plans so Caribbean SIDS can become Small Island Digital States (SIDS 2.0). The IDB confirmed its commitment to digital transformation across the region, having already mobilised some USD 480 million in the last decade for the region in this area (UNDP, 2024[51]). OECS countries are improving digitalisation policies through the Caribbean Digital Transformation Project (CARDTP). It aims to increase access to digital services, technologies, and skills by governments, businesses and individuals (OECD, 2022[32]).
However, further regional co‑operation is needed for the Caribbean to fully reap the benefits of the digital transition. Some key areas where regional efforts should focus include regulatory dialogue, infrastructure investments, connectivity and free and safe data flows, cybersecurity, integrated innovation ecosystems, and space services (OECD et al., 2022[47]).
Energy co‑operation can help untap the Caribbean’s potential in renewables
Most Caribbean countries have relevant incentives to develop a more integrated and resilient green energy network. The Caribbean has one of the highest prices for electricity in the world, which is almost double the cost paid in the Latin American average (Figure 6.8), and it is double and sometimes triple the cost paid by average consumers in the United States (Mowla, 2024[52]). This affects export competitiveness and the cost of living for households. Energy imports account for nearly 7% of the region’s GDP, limiting public sector investment in climate adaptation and social sectors. Relatedly, except for hydrocarbon-rich Trinidad and Tobago, Guyana and Suriname, most Caribbean states depend importantly on fossil fuel imports. They are therefore more exposed to external global energy shocks. In addition, the region’s exposure to worsening extreme weather events can cause widespread blackouts and power outages (Goldwyn, Tiah and Mowla, 2023[53]).
Source: Authors’ elaboration based on (Cable.co.uk, 2024[54]).
Embarking on a green energy transition is a sustainable development opportunity for which the Caribbean has great potential. While installed capacity per capita in the region doubled to 100 W per capita between 2015 and 2021, this is far below its potential capacity. Moreover, it is far behind Central America and Mexico at 240 W per capita and South America at over 500 W per capita (ECLAC, 2023[55]). There is great untapped potential for growth in renewables in the Caribbean. With over 300 days of sun each year, the Caribbean could generate a potential 1 900 kWh/m2 annually, double the capacity of Germany (CDB, 2022[56]; Goldwyn, Tiah and Mowla, 2023[53]). The Caribbean basin is estimated to have up to 751 GW of wind power (World Bank, 2020[57]). As a volcanic region, the Eastern Caribbean could also generate up to 6.29 GW of geothermal energy (Goldwyn, Tiah and Mowla, 2023[53]). With significant agricultural production, the Caribbean has an untapped potential for biomass energy. In addition, an energy transition would enable Caribbean countries to achieve their Paris Agreement commitments and generate USD 16 billion in net economic benefits in CARICOM countries by 2040 (ECLAC, 2021[58]). Nevertheless, the insufficient economies of scale, due to the small individual size of national energy markets and the lack of integrated regional energy grids, hampers the economic feasibility of many renewable energy projects (OECD, 2023[59]).
The Caribbean is taking concrete steps towards a regional energy transition. In 2013, CARICOM approved an energy policy with renewable energy and energy efficiency targets. Through the Caribbean Centre for Renewable Energy and Energy Efficiency Centre, the organisation helps member states implement the regional Energy Policy and the Caribbean Sustainable Energy Roadmap and Strategy. This aims to achieve a renewable energy electricity of 47% by 2027 (CARICOM, 2013[60]). The Caribbean Energy Working Group, established in 2023 as part of the Caribbean Initiative at the Atlantic Council, brings together stakeholders across the region to address the primary energy security challenges and enable the energy transition. Planned initiatives within the region include an undersea cable between Dominica and the EU ORs Guadeloupe and Martinique, which aims to pool the electricity grids to create a large enough demand base for the cost-effective development of geothermal power (OECD, 2023[59]).
Through regional co-operation, Caribbean countries can further advance strategies to promote regional energy integration and shared regulatory frameworks that scale up investment in renewable and resilient energy systems. The Caribbean needs USD 11 billion in investments over the next decade for the energy transition. At the same time, the necessary policy, regulatory and financial measures are similar across the region. With these observations in mind, a collective approach to creating standard tools will reduce learning and transaction costs for private suppliers and investors (Masson, Ehrhardt and Lizzio, 2020[61]). Connectedly, further focus should be given to strengthening the complementarity, integration and interconnection between the energy systems of the region. This is relevant to increasing the size of the market and making renewables more profitable, as the current small size of individual economies prevents many renewable projects from achieving the economies of scale necessary to achieve economic feasibility (OECD, 2023[62]). Further collaborative efforts could be directed towards pooling expertise, establishing concrete knowledge transfer mechanisms, and promoting scientific exchanges within the Caribbean basin and throughout the broader Latin American continent (OECD, 2023[59]).
Specifically, Eastern Caribbean SIDS, including the EU ORs, can benefit from strengthening co-operation in the development of renewable energies. Some important steps that the OECS countries, along with the EU ORs in the region, should consider to foster this regional integration are: increasing access to finance for long-term renewable projects; adopting regulatory frameworks to channel private investment; reducing red-tape to fast-track operations; improving incentive schemes for renewable energy; and harmonising standards and norms (OECD, 2023[59]). The experience of SICA’s Central American Regional Electricity Market (of which Dominican Republic and Belize do not take part) could serve as a guiding example.
Leveraging co‑operation for the intra-regional mobility of persons can benefit social inclusion, productivity and climate resilience
Although most Caribbean migration moves outward to North American and European countries, intra-regional migration is growing for economic and environmental reasons. The intra-regional share of immigrants in the total immigration flow to the Caribbean grew from 46% in 2000 to 56% in 2020 (Figure 6.9) (Lacarte et al., 2023[63]).
Much intra-region migration occurs for economic reasons. Countries and territories with thriving tourism industries and higher incomes attract nationals from poorer economies in the region. Haitians, for example, are by far the largest immigrant population (Lacarte et al., 2023[63]).
The growing impact of climate disasters is another cause of such migration. Three additional climate disasters annually over a five-year period are associated with an estimated 1% increase in people leaving their home countries in the Caribbean (Beltran and Hadzi-Vaskov, 2023[64]). Comparatively, the impact in South America is relatively smaller. Considering that 70% of the Caribbean population lives in coastal cities, and approximately 4.2 million people reside in low-elevation coastal areas, this cause of migration is expected to persist or worsen (UNDRR-ROAMC, 2021[65]).
Source: Authors’ elaboration based on (Lacarte et al., 2023[63]).
Migration plays a significant role in the development of both origin and destination countries (OECD, 2017[66]). Strengthening regional co‑operation in relation to the mobility of persons in the Caribbean can support the social inclusion of migrants, while bringing labour productivity gains and building climate resilience. Well-managed migration can be a powerful force for social inclusion, contributing to a more culturally diverse, resilient and cohesive society. Productivity is gained through increased access to specialised workers, knowledge and innovation spillovers, and lower costs for cross-border services. For instance, in the Dominican Republic, immigrants contribute between 3.8% and 5.3% to the country’s added value, while they represent 4.2% of the population (OECD/ILO, 2018[67]). Additionally, immigrants in the Dominican Republic have a positive net fiscal impact, paying more indirect taxes and using fewer public services compared to native-born citizens (OECD/ILO, 2018[67]).
The mobility of persons also supports a smoother response to disasters and emergencies. This is true as much for people fleeing emergencies as for the temporary labour migration associated with rebuilding in the aftermath of such events (IOM, 2021[68]). This is important for two reasons. First, the Caribbean lacks regional institutions and regulatory frameworks for asylum and refugee protection. Second, some of the top-receiving countries are also highly vulnerable to climate disasters (Lacarte et al., 2023[63]). This is the case of The Bahamas, where 80% of the population lives in vulnerable coastal areas (UNDRR-ROAMC, 2021[65]).
Caribbean organisations have taken concrete strides towards more co‑operation. The OECS Revised Treaty of Basseterre (2010) established complete free movement for nationals of Protocol member states. This includes authorising work without the need for a permit (Lacarte et al., 2023[63]). In a comparison between OECS and non-OECS Caribbean countries, labour productivity grew 6-7% in the OECS since the establishment of its economic union (IMF, 2020[3]). For its part, CARICOM has completed 70.6% of the required actions for the free movement of persons included in the CSME (IMF, 2020[3]).
Three key gaps must be addressed to enhance the free movement of people. First, only two countries certify service providers. Second, five of the ten categories for skilled labour still require a permit to work in all member states. Third, the Protocol Amending Agreement on Social Security still requires action before it can enter into force (IMF, 2020[3]). Challenges include non-compliance, lack of harmonised processes, inconsistent operationalisation and duplication of processes, leading to persistently high levels of irregular migration.
Regional co‑operation between origin and receiving countries should focus on implementing tools throughout the migration cycle to ensure shared gains. For labour migrants, the cycle includes the stages of recruitment, the period of working abroad, and the return and reintegration phase. This final stage is crucial for enabling migrants to return to their home countries, integrate into the labour market, leverage the skills acquired abroad and achieve economic stability (IOM, 2021[68]). To capitalise on the potential productivity gains of intra-regional human mobility, new mechanisms should expand the narrow focus on high-skilled work. This would allow for more categories of high-skilled workers to seize the opportunities of intra-regional migration. Simultaneously, new mechanisms for all worker categories, including seasonal workers, should include an intersectional perspective. For instance, these should consider gender issues in human mobility, like the prevention of and protection against gender-based violence.
As a small developing region, mainly composed of SIDS, and in a context of global uncertainty and compounding crisis, the Caribbean relies importantly on effective international partnerships to advance its sustainable development goals. Innovative partnerships can help the region make more efficient use of finance and leverage more public and private international development funding. Some key needed solutions include new institutional arrangements, financing frameworks adapted to the needs of Caribbean SIDS, and standards to ensure a positive impact on the region’s development, particularly in relation to climate change adaptation. In addition, the Caribbean, as part of the SIDS group, has proven to have great capacity for international advocacy in the multilateral sphere. This could be catalysed in upcoming negotiations related to financing the development agenda.
Furthermore, following the Development in Transition (DiT) framework, which is mindful of the multi‑dimensionality of development and the need for more inclusive international co-operation schemes, new international partnerships can play a key facilitator role in the Caribbean’s development. This not only aids in catalysing additional financial resources for development but also ensures their alignment with the SDGs and the adaptation of international efforts to each country’s development challenges and specific context.
The role of international partnerships to mobilise financing for development in the Caribbean
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. Indeed, external financial flows have played a critical role in the Caribbean in recent decades, with differentiated impacts across different sources of finance.
Official development assistance (ODA) remains an important source of external finance
ODA has been an important source of external financing for Caribbean countries, averaging 2.53% of the region’s gross national income (GNI) from 2000 to 2022, and with some increases associated with the impact of specific natural disasters or the COVID-19 pandemic (Figure 6.10). This percentage is higher than the Latin American average of 1.54% (OECD, 2024[69]; World Bank, 2024[70]).
Note: GDP refers to gross domestic product, and GNI refers to gross national income. FDI refers to foreign direct investment. In 2023, Guyana was excluded from the average calculation due to its significantly higher FDI inflows as a share of GDP compared to other Caribbean countries, making it an outlier. Including Guyana in the calculations, the regional average FDI net inflows in 2023 amount to 6.8% of GDP. Countries are excluded from ODA figures when they graduate from their recipient status, specifically: Barbados and Trinidad and Tobago after 2010; Saint Kitts and Nevis after 2013; and Antigua and Barbuda after 2022. Portfolio investment liabilities are based on the authors’ calculations.
Source: Authors’ elaboration based on (IMF, 2024[71]; World Bank, 2024[72]; World Bank, 2024[73]; World Bank, 2023[74]).
In 2022, 54% of ODA to the Caribbean went to Haiti. By that date, Antigua and Barbuda, The Bahamas, Barbados, Saint Kitts and Nevis, and Trinidad and Tobago were no longer eligible for ODA (OECD, 2024[69]). This underscores the importance of the ongoing discussions on the criteria for graduation from ODA. Some Caribbean countries continue to graduate as their GNIs per capita rise. As they do, they lose access to ODA even if they continue to face important development challenges and high levels of vulnerability (ECLAC/OECD, 2018[75]; Cattaneo and Piemonté, 2021[76]). In fact, the official development finance inadequately aligns with the region’s evolving needs (Piemonté, Kim and Cattaneo, 2024[77]). If alternative financial resources do not adequately compensate for countries’ heavy reliance on ODA, Caribbean SIDS could experience socio-economic regression and widespread negative impacts, considering the Caribbean’s geostrategic significance and their key role in safeguarding oceans and biodiversity (OECD, 2024[78]).
Countries and international organisations should continue advancing discussions for the adoption of more comprehensive criteria for the allocation of ODA. In current debates and considerations of development metrics, new options, like the United Nations Multidimensional Vulnerability Index (UN MVI), are increasingly being considered pertinent for SIDS, including those of the Caribbean. The UN MVI can help reveal the heightened vulnerability of SIDS and perform better resource allocations, aligning more effectively with the priorities and financing needs of Caribbean countries (Piemonte, 2024[79]). In fact, there is no significant correlation between the UN MVI scores and GNI per capita data, showing that these two indicators are complementary (Piemonte, 2024[79]). Thus, these indexes can provide clearer insights and a deeper understanding of the risks that Caribbean countries face. In addition, international partners can also support countries in transition through the provision of tools, like the transition finance toolkit, to help them better understand, anticipate and respond to the financing challenges faced at each stage of their development, enabling them to reap the full potential of the emerging opportunities (OECD, 2024[80]).
Total Official Support for Sustainable Development (TOSSD) serves as an international standard for capturing the full range of financial flows aimed at promoting the sustainable development of developing countries. Aside from ODA, TOSSD includes financing from providers beyond DAC members and other ODA providers, activities of traditional donors that fall outside the scope of ODA, such as non-concessional loans, or outflows from multilateral organisations, both concessional and non-concessional. Moreover, TOSSD comprises expenditures for international public goods and mobilised private finance (OECD, 2024[81]). In this context, TOSSD includes South-South and Triangular Cooperation from a growing number of new and emerging providers.
To enhance the impact of limited development funds, TOSSD has focused on refining how these flows are measured, specifically in terms of their contribution to sustainable development and the 2030 Agenda more broadly (OECD, 2024[81]). Between 2019 and 2022, the Caribbean received its largest share of TOSSD flows for SDG 13 on taking urgent action to combat climate change and its impacts, which accounted for 17.2% of total resources allocated to the region. This was followed by SDG 17 on revitalising the global partnership for sustainable development, which received 15%, and SDG 10 on reducing inequalities within and among countries, which received 14.8% (Figure 6.11). These percentages for each SDG are based solely on the resources allocated, considering only TOSSD activities that align with one or more SDGs and excluding resources that may not be linked to any particular goal.
Note: The graph displays the percentage of TOSSD resources allocated to the sustainable development goals. The grey colour refers to TOSSD activities exclusively allocated to one sustainable development goal, while the blue indicates TOSSD activities allocated to multiple sustainable development goals. Hence, percentages do not sum up to 100%, as resources can be allocated to more than one SDG at the same time, resulting in overlapping allocations. The Caribbean countries in the analysis are Antigua and Barbuda, Belize, Dominica, Dominican Republic, Grenada, Guyana, Haiti, Jamaica, Suriname, Saint Lucia, and Saint Vincent and the Grenadines. The Bahamas, Barbados, Saint Kitts and Nevis, and Trinidad and Tobago are not TOSSD recipients according to the applicable method.
Source: (OECD, 2022[82]; OECD, 2024[83]).
TOSSD data shows that South-South Cooperation (SSC) remains a relevant framework of collaboration for the Caribbean, especially with Latin American partners and, in particular, some partners from the Greater Caribbean,2 such as Mexico and Brazil. Of the eight providers that submitted data on SSC to the Caribbean in 2022, six were Latin American countries, and another was the Central American Bank for Economic Integration (CABEI). In 2022, Brazil implemented the largest number of TOSSD activities with the Caribbean in the context of SSC (213 activities), followed by Mexico (26 activities) and Chile (14 activities). An example of the impact of these SSC efforts is the project facilitated by Brazil in 2022 for developing a method for irrigated rice planting in the Dominican Republic, which contributed to the SDGs 2 (Zero hunger), 6 (Clean water and sanitation), and 12 (Responsible consumption and production). The project aimed to establish production systems that optimise irrigation water uses by incorporating high-yielding rice varieties and environmentally sustainable technologies.
Foreign direct investment represents an important source of finance
FDI to the Caribbean has remained one of the most relevant external financial flows in recent decades. After a 10% peak in 2008, FDI as a share of GDP in 2023 stood at an average of 4.3% for the Caribbean (Figure 6.10) (excluding Guyana, which saw an extraordinary increase of FDI in 2023, reaching 42.8% of GDP), above the 2.7% average for Latin America, the OECD average of 0.1% and the world average of 0.7% for that year (World Bank, 2024[84]). The United States, the EU, the United Kingdom and Canada remain the main sources of FDI in the region, but China’s FDI has been gaining ground in recent years. China has invested over USD 10 billion in the Caribbean between 2005 and 2022, both through public and private institutions (Foreign Affairs Committee, 2022[85]).
FDI shows heterogeneous trends across Caribbean countries. Guyana recorded the highest FDI inflows in the region due to foreign interest in the country’s hydrocarbon sector, which concentrated 99% of FDI to the country in 2022 (ECLAC, 2023[86]). The Dominican Republic recorded FDI growth of 25% in 2022, primarily due to investments in services, which represented 76% of total FDI inflows into the country. Meanwhile, FDI to The Bahamas was up 19%, driven by intercompany loans. In contrast, FDI declined by 20% to the OECS, while Trinidad and Tobago recorded negative FDI flows as it repaid significant intercompany loans (ECLAC, 2023[86]). Citizen-by-investment programmes play an important role in attracting investments in some countries, particularly in OECS members (see Chapter 5).
Remittances are a major source of income
Remittances are significant in the Caribbean, and they have been the largest international financial flow in the region since 2020. In 2022, emigration accounted for more than half of the population in six Caribbean countries, with only The Bahamas having a net positive migration rate (Jaupart, 2023[87]). Income from these emigrants is a major flow for the region, helping to stabilise family consumption and enable investments in housing, education, food, and healthcare. Communities also invest remittances in long-term sustainability projects, including supporting small businesses, water projects, or building hospitals, counteracting some negative effects of emigration. In 2023, remittances accounted for 6.02% of the region’s GDP, which was higher than ODA and FDI flows combined (Figure 6.10). These private flows have primarily originated from the United States (50.4%), though intra-regional remittance transfers are increasing, mostly from the Dominican Republic (IDB, 2023[88]; IDB, 2023[89]). Caribbean emigrants are therefore key contributors to the region’s sustainable development.
New international partnerships can unleash the power of international financing for development
Following the DiT framework, the Caribbean can promote and engage in new international partnerships to catalyse international financing, ensuring its alignment with national development priorities and contributing to the SDGs and global public goods. Securing access to concessional financing for countries graduating towards higher income levels will be vital to help them address persistent vulnerabilities or specific natural disasters. International partnerships are essential to favour the positive impact of investments in key development dimensions like formal job creation, productivity growth or environmental sustainability, as well as to support aid as a catalyser for additional and varied funding sources (OECD et al., 2019[90]).
New international partnerships can provide co-ordination mechanisms to work with more tools and actors, supporting the Caribbean’s efforts to raise public and private external financing and improving their development impact. For instance, the role of private finance in the Caribbean can be strengthened by mobilising it through official development interventions. This type of “blended finance” has remained relatively low in the Caribbean3 until the significant mobilisation in 2021 of USD 1.22 billion by EU institutions towards economic infrastructure, notably for renewable energy (OECD, 2024[91]). International partnerships can have a strategic role in incentivising the flow of private finance through “de‑risking instruments” that aim to share risks among multilateral, public and private actors, steering it towards key development sectors that yield profits in the longer term. New mechanisms will be needed to enhance co-ordination between different development actors and Caribbean countries, to more effectively leverage private investments and ensure their alignment with national and regional development plans.
Innovative mechanisms could be explored to engage the Caribbean diaspora to maximise the impact of remittances in development. For instance, a regional-level mechanism could promote migrants’ investment in their countries of origin. The International Fund for Agricultural Development has put such a mechanism in place through its multi-donor Financing Facility for Remittances (IFAD, 2024[92]).
International partnerships can complement national development efforts by facilitating locally driven processes, promoting equal peer exchange, leveraging existing capacities and fostering the creation of new ones (OECD et al., 2019[90]). An example of this new generation of international partnerships is the IDB’s One Caribbean strategy, which aims to address interconnected challenges in climate adaptation, citizen security, private-sector engagement, and food security, with a regional focus and through the inclusion of public and private stakeholders (Box 6.3).
One Caribbean is an IDB programme for advancing sustainable and inclusive growth across the Caribbean and SIDS, notably Barbados, Belize, Guyana, Jamaica, Suriname, The Bahamas, and Trinidad and Tobago. It addresses regional challenges including frequent natural disasters, import dependency, and security issues through a unified approach that maximises resources and co‑operation. This regional framework prioritises regional solutions mainly for four common challenges: climate adaptation, citizen security, private-sector engagement and food security.
The Caribbean faces a high risk of tropical storms and hurricanes, which are expected to become more frequent and severe due to climate change. This will also bring higher temperatures, longer droughts, intense rainfall and greater flooding. To tackle these issues, countries need to invest in resilient infrastructure and shift towards renewable energy to lessen their dependence on imported fossil fuels.
Secondly, citizens have consistently identified public security as the most pressing social issue in their countries, impacting public safety and domestic violence. Security concerns also burden businesses, which must allocate resources for prevention and cover costs associated with incidents.
Thirdly, limited investment and low productivity drive low growth rates in the Caribbean. The region’s structure, featuring a few large enterprises alongside many small and medium-sized businesses, faces issues to increase productivity. Improved regional integration could offer economies of scale and capitalise on varied regional strengths, fostering greater private sector engagement.
Lastly, the region relies heavily on food imports, which are costly and subject to fluctuating international prices. Enhancing local agricultural production and improving trade infrastructure could lower expenses, while strategies to manage price volatility could mitigate risks to increase access to nutritious food.
In addition to these four priorities, strengthening institutions and digital transformation emerge as cross-cutting issues, as good institutions and technology are necessary conditions for project success.
Source: (IDB, 2024[93]).
Finally, new international partnerships can support the Caribbean in engaging on equal footing as peers, building and participating in multilateral and multi-stakeholder partnerships to tackle shared multi-dimensional development challenges with multi-dimensional responses (OECD et al., 2019[90]). As explained next, developing these types of partnerships will be crucial for the Caribbean’s efforts towards ensuring international support for climate action, particularly for their climate adaptation needs.
The role of international partnerships to support climate action in the Caribbean
Climate action is highly relevant in Caribbean economies, as they are rich in biodiversity and largely exposed to climate threats (see Chapter 3). With USD 22 billion estimated in losses annually by 2050 caused by more frequent and intense impacts of climate change, the cost of inaction is high (UNDP, 2023[94]). However, Caribbean countries cannot address their significant mitigation and adaptation challenges alone. Moreover, they should not bear the vast financial costs of these efforts as their contribution to global greenhouse gas emissions is limited. International partnerships must seek ways to recognise the specific needs of Caribbean economies and support them in advancing their climate agenda, both through financing and technical co-operation.
Financing needs for climate action in the Caribbean are large, particularly for adaptation. For instance, the region needs approximately USD 175 billion by 2030 to fortify marine biodiversity, enhance sustainable fishing practices and bolster coastal defences against climate change (GCF, 2023[95]). ODA flows towards climate change objectives are insufficient for the region’s climate financing needs. These flows have been highly variable, both in total volumes and in their distribution between mitigation and adaptation objectives. In 2022, ODA towards the Caribbean for climate change mitigation was USD 333 million (constant 2022 prices). Meanwhile, ODA for climate change adaptation reached almost USD 168 million (constant 2022 prices) (OECD, 2024[96]). In addition, adaptation projects like drought-resistant seeds, resilient buildings, environmental restoration and sea walls have struggled to attract private-sector financing.
Renewed international partnerships can help Caribbean countries harness opportunities to access vast financial resources for climate action. Three key strategies, described below, are: developing new finance instruments; providing greater access of SIDS to global climate-related funds; and mobilising the private sector.
More innovative financial instruments can support climate adaptation and build resilience
Renewed international partnerships can have a fundamental role in supporting Caribbean countries in seizing the opportunity to access vast financial resources for climate action. Emerging instruments offer innovative opportunities to raise financial resources aimed at climate goals. International co-operation and innovative financing approaches can be crucial for their development. For example, financing instruments, such as blue and green bonds, blended financing, and debt swaps, can help fund climate adaptation and resilience building (see Chapter 5).
Innovation in international partnerships is crucial. For instance, more collaboration between multilateral development banks can better support countries in developing debt operations by providing official guarantees (e.g. example of the IDB/EIB joint guarantee to a debt-for-climate operation in Barbados – see Chapter 5). Meanwhile, other partnerships can support the development of homogeneous and inter-operable green taxonomies and standards.
SIDS need more support from global climate funds
Caribbean countries should be provided with appropriate metrics and tools to access climate-related funds. Several funds have been established to support climate action, including the Green Climate Fund (GCF), the Adaptation Fund, the Climate Investment Fund and the Global Environment Facility. Indeed, green financing for SIDS has risen in recent years compared to other developing nations (Piemonte and Cattaneo, 2022[97]). However, these mechanisms often use proposed CO2 emission reductions as criteria for investment (Piemonte and Cattaneo, 2022[97]). Consequently, as SIDS tend to have low absolute levels of CO2 emissions, they can be disqualified from accessing these funds, even when their mitigation objectives are ambitious (OECD, 2024[38]). This suggests the need for these funds to consider new metrics that address the specific nature of SIDS.
Similarly, SIDS have significant needs for climate adaptation, biodiversity protection and land preservation. However, it is more difficult to measure the financial returns of adaptation projects and technically difficult to quantify adaptation needs. Hence, more support for SIDS is needed to make the case for adaptation and to attract more funds to these objectives (Piemonte and Cattaneo, 2022[97]). In addition, tapping into existent funds remains a challenge, given the limited administrative and technical capacities at the national level, compounded by the array of complex accreditation and project proposal procedures, which makes SIDS dependent on intermediary accredited agencies (OECD/World Bank, 2016[98]).
Renewed international partnerships to mobilise private financing
New international partnerships for climate action feature the mobilisation of private sector funds as a core element. The renewed EU-LAC partnership, for example, presents specific opportunities for the Caribbean. The European Union has led on a range of financing tools that can help address specific financing needs of the region. These include the Global Green Bond Initiative and the Caribbean Investment Facilities (now blended into the Latin America and Caribbean Investment Facility, or LACIF). These initiatives aim to provide the Caribbean and the broader LAC region with technical assistance and significant financial resources to de-risk capital market instruments towards the SDGs (Présidence de la République, 2023[99]).
The EU-LAC Global Gateway Investment Agenda (GGIA) is an ambitious initiative to promote investments in the LAC region. This initiative aims to support a fair green transition, an inclusive digital transformation, human development and health resilience. It can leverage significant additional financing for the Caribbean and favour a better alignment of private investments with the region's development priorities.
The GGIA seeks to de-risk private investment by crowding in financial actors and promoting co‑operation between development institutions and private actors. To that end, it provides instruments such as guarantees, grants and loans (European Commission, 2024[100]). In this way, the GGIA aims to overcome perceptions of risk that deter private investment and help improve the investment environment for Caribbean states, both for those with and without credit ratings.
The GGIA has 39 initiatives in the Caribbean with clear areas of targeted partnership. These initiatives align with the Caribbean Maritime Intra-Regional Transport programme and the Digital for Development Hub. They also complement priorities such as promoting renewable energy systems, developing health systems and tackling sargassum issues.
The LACIF will use the European Fund for Sustainable Development Plus (EFSD+) to mobilise the GGIA. Notably, the European Union helps the Caribbean Export Development Agency to establish investment-focused initiatives. The Regional Private Sector Development Programme III, for example, supports firm competitiveness, diversification and export potential. It places a strong focus on green transition and digital transformation. For its part, the Caribbean Investment Forum has attracted the active involvement of the CARICOM Secretariat and the CDB. It explores development opportunities in agricultural technology, transitioning towards a green economy, embracing ICT, and enhancing transportation, logistics and shipping in the region.
The US-Caribbean Partnership to Address the Climate Crisis 2030 (PACC 2030), established in 2022, seeks to support climate adaptation, resilience building and the development of clean energy in the Caribbean (US Department of State, 2024[101]). The Green Shipping Challenge, launched at COP28 by Norway and the United States, seeks to align the shipping industry with the Paris Agreement. With the IDB, the United States is supporting collaboration between The Bahamas, Jamaica, the Dominican Republic, and Trinidad and Tobago to address key maritime sector emissions. These include improved port efficiencies, the development of low-emission vessels and broader associated decarbonisation (US Department of State, 2024[101]).
Other multilateral actors have also pushed forward with new mobilisation efforts. The 40th Board meeting of the Green Climate Fund (GCF), the world’s largest multilateral climate fund, held in October 2024, approved more than USD 1 billion of GCF investment for 16 projects across developing countries (GCF, 2024[102]). One of these projects is the Barbados Climate Resilient South Coast Water Reclamation Project, which aims to increase Barbados’ water resilience to climate change, given it is among the world's most water-scarce countries. This is a ground-breaking “debt for climate conversion” project in partnership with the IDB and the European Investment Bank, which provided guarantees. It will create fiscal space and generate savings over time, allowing the country to invest in climate-resilient infrastructure.
Equal-footing platforms can heighten the development needs of Caribbean SIDS
The Caribbean, as part of the SIDS group, has channelled common vulnerabilities into collective action in the context of international climate change negotiations. In 1990, Caribbean countries created the Alliance of Small Island States (AOSIS) that successfully lobbied for recognition of the special needs of SIDS in the text of the 1992 UN Framework Convention on Climate Change (AOSIS, 2024[103]). Since then, AOSIS has worked to place adaptation on an equal footing with mitigation and to ensure funding to help countries adapt to climate change through the Adaptation Fund and the GCF. Through AOSIS, Caribbean countries forged a unified front demanding what would then become one of the most important outcomes of COP28: the establishment of the Loss and Damage Fund, with new and additional support of at least USD 100 billion annually (UNCC, 2023[104]).
Caribbean countries have recently been active in ongoing discussions on multilateral financial architecture reforms. The Bridgetown Initiative, led by Barbados and launched in 2022, seeks to mobilise support for climate-resilient development in the Caribbean. It seeks to make more funding available for climate-vulnerable countries and emphasises the importance of financing mechanisms tailored to the specific needs and vulnerabilities of Caribbean nations, particularly in light of the increasing frequency and intensity of climate-related disasters. The Bridgetown Initiative aims to change some terms around how funding is loaned and repaid, including through Climate Resilient Debt Clauses (CRDS), through which debt repayments are automatically deferred in case of a hurricane or an extreme weather event. In this way, it seeks to stop developing nations from spiralling into a debt crisis when successive disasters like floods, droughts and storms force up their borrowing (Masterson, 2023[105]).
An array of views on critical issues related to the reform of the international financial architecture could complement the Bridgetown Initiative, as the current debt issue in the Caribbean extends beyond temporary liquidity issues and is more deeply rooted (Piemonte, 2021[106]). Jamaica, for instance, has strengthened domestic resource mobilisation and worked closely with the OECD towards improved tax mobilisation (see Chapter 5). Thanks to its progress on indebtedness, the country has achieved macroeconomic stability (Permanent Mission of Jamaica to the United Nations, 2023[107]). Antigua and Barbuda has been calling for a reconsideration of debt instruments and the need for structural reforms to upgrade policy coherence for sustainable development in the international financing architecture. This includes a Multidimensional Vulnerability Index that would allow SIDS to access concessional financing, the creation of a debt mechanism for SIDS to achieve debt sustainability and state-contingent debt instruments with disaster clauses (Government of Antigua and Barbuda, 2023[108]). The Caribbean could combine these efforts and leverage its voice in global discussions towards the transformation of the international financing architecture for sustainable development.
Building consensus among Caribbean countries would enable them to seize the opportunities presented by the main reforms to the international financing architecture. This is the case of the Paris Pact for People and Planet (4P), which was agreed upon in the context of the “Summit for a New Global Financing Pact” hosted by France in Paris in 2023 (France Diplomacy, 2023[109]). The 4P provides an inclusive forum where the 66 participating countries can discuss and build a strategic agenda, helping to guarantee that negotiations and discussions held in other multilateral forums coherently approach development, climate, and nature. It has already succeeded in improving considerations for environmental and climate issues in international financing, for example, through the World Bank’s decision to devote 45% of all its financing to climate-related projects. The 4P is currently working with the United Kingdom, France, Canada and other countries to map the application of CRDS to support scale-up based on good practices. Currently, Barbados, Haiti and Jamaica are the only Caribbean members of the 4P. Enhancing alignment between Caribbean countries in the multilateral sphere is much needed in view of increasing financing needs and upcoming international negotiations, particularly the Financing for Development Conference to be hosted by Spain in 2025.
Regional integration and international partnerships are crucial for driving resilient and sustainable development in the Caribbean. The region has untapped potential to boost its international position, enhance intra- and extra-regional trade, and provide innovative responses to pressing challenges like climate change. Box 6.4. presents key policy messages to help Caribbean countries focus their regional integration and international co-operation efforts towards improving development outcomes, addressing common challenges, and supporting financing for development and climate action.
Target trade strategies to improve development outcomes
Strengthen co-ordination efforts across regional organisations to accelerate the implementation of regional agreements.
Enhance trade facilitation prioritising challenging areas like automation, procedures, border agency co-operation or impartiality, and reducing non-tariff barriers, for example, through regionally co-ordinated investment codes or harmonised sanitary and phytosanitary measures.
Promote regional value chains in strategic sectors, like the green and blue economy, or agrifood, to diversify production, reduce dependency on imports, and lower GVC vulnerability.
Foster insertion into GVCs by targeting sectors with global growth potential, such as the cultural and creative industries.
Strengthen market penetration within existing trade agreements and seek new agreements, particularly with Latin American countries.
Harness the potential of regional co-operation to address common challenges
Improve intra- and extra-regional transport connectivity adopting regional strategies to scale up investments in resilient infrastructure, revise tax and regulatory frameworks to improve competition and promote agreements between national transport companies.
Reinforce regional co-operation on disaster risk reduction and prevention incorporating digital technologies, and develop Caribbean-wide policies to address environmental challenges, such as sargassum and marine pollution.
Advance a regional digital transition with a focus on regulatory dialogue, infrastructure investment, connectivity, data flows, cybersecurity, innovation ecosystems, and space services.
Harmonise policy, regulations, and financial mechanisms to create an enabling environment for renewable energy investments to leverage the region’s potential in this field.
Engage in international partnerships to support financing for development and climate action
Leverage FDI and other sources of private finance, through blended finance and other risk-sharing instruments, with the support of official development interventions.
Establish co-ordination mechanisms among development actors and Caribbean countries to mobilise private investments ensuring alignment with national and regional development plans.
Engage in international partnerships that promote nationally driven development processes, foster knowledge exchange in equal footing, and build on existing capacities to foster new ones.
Foster regional dialogue for a cohesive Caribbean voice in multilateral discussions, for instance on the reform of the international financial architecture for sustainable development.
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← 1. Except Guyana (20 October 2008) and Haiti (10 December 2009).
← 2. The Greater Caribbean is a political concept created by the ACS member countries, being the most inclusive of those that define the zone bordering the Caribbean Sea. The concept therefore coincides with the ACS membership, comprising: Antigua and Barbuda, The Bahamas, Barbados, Belize, Colombia, Costa Rica, Cuba, Dominica, Dominican Republic, El Salvador, Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica, Mexico, Nicaragua, Panama, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Suriname, Trinidad and Tobago, and Venezuela.
← 3. Overall mobilisation for the Caribbean (USD 1 158 million) is still lower compared to larger economic regions such as Central America (USD 3 201 million) or South America (USD 13 670 million) between 2020-22.