Caribbean Development Dynamics 2026

Executive summary

Boosting investment is central to advancing resilient and sustainable development in Caribbean countries. While the region is well positioned to leverage its comparative advantages, realising this potential requires addressing persistent structural constraints and actively seeking innovative financing opportunities. The Caribbean combines valuable natural and human capital with a strong integration into global markets, alongside small-scale market size, rising exposure to climate and external shocks, limited fiscal space, high financing costs and enduring infrastructure deficits. Responding to this complex set of opportunities and challenges calls for a renewed investment agenda centred on resilience and sustainability. The OECD Development Centre and the Inter-American Development Bank (IDB) continue to strengthen their engagement with the region, including through the IDB ONE Caribbean programme, a dedicated regional initiative to foster cooperation, leverage resources and deliver impact at scale.

Addressing environmental and socio-economic challenges

The Caribbean faces complex environmental and socio-economic challenges. The region is increasingly exposed to climate hazards despite contributing minimally to global greenhouse gas emissions. Climate-related extreme weather events increased by 84% in 2004-2024 compared to the previous two decades, generating average annual damages equivalent to 2.13% of GDP in the last four decades. Macroeconomic conditions further weigh on resilience. Potential GDP per capita growth is modest, estimated at 1.4% in 2025, below advanced economies (1.8%), reflecting persistently low productivity, at around 40% of OECD levels. High public debt is another constraint, averaging 68.6% of GDP in 2024, 14.5 percentage points above the Latin American average and almost four percentage points higher than in 2014. Economic structures remain largely service-oriented and insufficiently diversified at the sector level, which compounds their vulnerability. Services account for 63% of total exports, mainly tourism, which is on average 71% of total services exports. The few commodity exporters in the region rely mostly on oil-driven merchandise exports (over 80% of exports). Social challenges remain important: on average one-quarter of the population lives below the poverty line, and more than six out of ten people live in households depending solely or partially on informal work.

Strengthening the quantity and quality of investments to unlock development

Total investment has risen over the past decade, yet its level, composition and sustainability remain insufficient to meet the region’s development needs. In 2023, investment averaged 28% of GDP, above the OECD (23%) and Latin American (20.7%) averages, but driven largely by short-term or externally financed projects, including post-disaster reconstruction. Mobilising long-term finance remains challenging, as the local private debt and equity markets are small and unable to support long-term infrastructure projects, and international investors perceive elevated risks linked to economic volatility, high indebtedness and small market size. On average, the private sector finances nearly 80% of total investment, above the Latin American average (75.7%) but below the OECD’s (84.2%). Low levels of public infrastructure investment reinforce existing gaps. Foreign direct investment (FDI) plays a critical role, with net inflows reaching 6.3% of GDP in 2024 (4.2% excluding Guyana), above the 2.5% in Latin American countries. When excluding Guyana, the European Union is the largest investor, with 36% of total FDI, followed by the US (18%) and LAC (12%). FDI is concentrated in services, including accommodation and food, information and communication technology and financial services, which attracted more than half of investment. In the last decade, greenfield FDI announced projects generated 196 021 jobs, 65% in services, followed by manufacturing (22%) and mining (6%). Foreign firms tend to offer higher-quality jobs and wages, with a positive impact on digital transformation and renewable energies.

Investing in resilient and sustainable development

Building resilient and sustainable development is a strategic imperative for the Caribbean, where large infrastructure gaps and high exposure to climate hazards persist. Investments can contribute to these efforts by focusing on climate-resilient infrastructure and on early warning systems. This is both cost-effective and essential to safeguard development gains. Public-private partnerships (PPPs) can help mobilise private expertise and finance for infrastructure, yet PPP investment remained below 1% of GDP between 2010 and 2023, reaching 1.3% only in 2024.Translating investment into tangible development outcomes requires stronger institutional capacity, more robust data and statistical systems, and improved project preparation. The IDB’s ONE Caribbean Project Preparation Coordination Mechanism (PPCM) addresses a binding regional constraint by helping turn good concepts into bankable, investment-ready projects. Robust data and statistical systems are also needed but remain underdeveloped, despite a 29% increase in the Statistical Performance Indicator (SPI) score between 2016 and 2022. Strengthening regional integration and international co-operation can help mobilise investments through innovative financing instruments and improved access to global climate funds. Targeted investments in sectors where the region presents opportunities can unlock development, for example, in sustainable tourism and creative industries, activities to bolster the energy transition, sustainable transport, the blue and circular economy, sustainable agriculture and food systems, and digital transformation and artificial intelligence.

Promoting better financing to close development gaps

Advancing an ambitious investment agenda requires mobilising multiple sources of finance. Domestic resource mobilisation is key for fiscal sustainability and resilience. In 2023, tax revenues averaged 20.7% of GDP, slightly below Latin America (21.6%) and other small island developing states (SIDS) (21.4%) and significantly below the OECD average (34%). Indirect taxes accounted for 51% of total revenues, compared to 44% in Latin America and 32% in the OECD. Tax incentives are widely implemented in the region, eroding tax revenues. Rationalising these incentives requires identifying potential overlaps, prioritising expenditure-based over income-based incentives, and setting ex-ante and ex-post assessments of expected benefits, costs and unintended consequences. Non-tax revenues are also important, at 3.6% of GDP on average. International financial flows are a fundamental source of finance, including official development assistance and remittances, the latter representing 5.4% of GDP in 2024. Multilateral, regional and national development banks can help Caribbean countries access low ‑cost financing and technical assistance for complex projects. Innovative debt financing mechanisms are transforming the Caribbean’s ability to mobilise resources for environmental, social, and climate resilience objectives. Countries such as Barbados, Belize, the Dominican Republic and Jamaica have pioneered green, social, sustainability, sustainability-linked and blue bonds (GSSSB), debt-for-nature swaps and climate-resilient debt clauses. Between 2019 and 2024, the Caribbean’s international GSSSB bond market reached USD 2 billion, highlighting the importance of strong institutional frameworks. Regional co‑operation – including through the IDB’s ONE Caribbean programme – can help to unlock long-term financing in the Caribbean, including through risk pooling and risk mitigation from climate-induced natural disasters.