The Caribbean faces significant investment needs to achieve its development goals. This chapter explores key strategies from diverse sources on how to mobilise finance in the Caribbean. It begins by examining how strengthening domestic resource mobilisation through fairer tax systems, rationalising tax expenditures and enhancing international tax co‑operation can expand fiscal space. Sound fiscal frameworks are also essential to manage high debt levels and safeguard public investment. The chapter then discusses how mobilising private capital through deeper regional capital markets, and leveraging remittances and development assistance can help diversify financing sources. It also highlights the central role of development finance institutions in supporting project preparation, resilience building and investment efforts. Finally, it examines innovative debt and risk-financing mechanisms, which offer new opportunities to channel investment towards environmental, social and climate objectives.
Caribbean Development Dynamics 2026
Abstract
Meeting the vast investment needs of the Caribbean requires a diversified approach to financing. This chapter examines how the region can strengthen domestic and international resource mobilisation; expand access to finance through development finance institutions (DFIs); mobilise private capital via deeper regional markets and external flows, such as remittances and official development assistance (ODA) and harness innovative financial instruments.
Tax revenues remain an important source of development finance in the Caribbean. Strengthening tax systems can improve both efficiency and equity while reducing dependence on external resources. Rationalising tax expenditures, enhancing international tax co‑operation and reinforcing fiscal frameworks to manage high debt levels are essential steps.
Private sector investment is essential for addressing development challenges, yet access to finance remains limited. Caribbean capital markets are small and fragmented, limiting access to long-term financing. Greater regional integration could expand investment opportunities and reduce borrowing costs. External financial flows also play a key role, including remittances and ODA. Although remittances face challenges in supporting long-term investment, they can be harnessed as an important source of development financing. ODA remains essential for the most vulnerable economies, with new metrics and frameworks being explored to enhance its effectiveness and allocation.
DFIs can help close investment gaps by combining financing with technical assistance, including support for project preparation across public investments, private ventures and PPPs, ensuring projects are well-designed, bankable and aligned with national and regional priorities. Unlocking financing requires addressing market failures through policy innovations, partnerships and new forms of collaboration between multilateral development banks (MDBs), regional development banks (RDBs), development cooperation agencies and NDBs to further scale sustainable investment.
Caribbean countries have emerged as pioneers in adopting innovative financing instruments, such as thematic bonds, debt-for-nature swaps, carbon-pricing mechanisms, contingent disaster loans and grants, and climate-resilient debt clauses. There is room for greater uptake across the region as the suitability of each instrument depends on country-specific contexts and their implications for debt sustainability. Scaling these mechanisms effectively requires substantial international financial and technical support, which can help strengthen regulatory frameworks, institutional capacity and risk management strategies in Caribbean countries. Co‑ordinated regional action and knowledge sharing will be critical to achieving long-term financing goals.
Tax revenues in the Caribbean remain low with strong cross-country heterogeneity and a heavy reliance on indirect taxes
In 2023, average tax revenues in Caribbean countries were 20.7% of gross domestic product (GDP). This was slightly below the Latin American average (21.6% of GDP) and the average of other Small Island Developing States (SIDS) (21.4%), and significantly lower than the OECD average (34%) (Figure 3.1). The Caribbean average includes The Bahamas, Barbados, Belize, Cuba, the Dominican Republic, Guyana, Jamaica, Saint Lucia, and Trinidad and Tobago, the nine Caribbean countries for which comparable data are available (OECD et al., 2025[1]).
The tax structure in the region is characterised by a low contribution of direct taxes, notably personal income taxes (PIT) and social security contributions (SSCs), alongside a high reliance on indirect taxes. This is similar to the average tax structure of other SIDS and Latin American countries, and contrasts with OECD countries (Figure 3.1). As a percentage of total tax revenue, indirect taxes – value-added tax (VAT) plus other taxes on goods and services – accounted for an average of 51% in the Caribbean. This was lower than the average of other SIDS (65%) but higher than the Latin American average of 44% and well above the OECD average of 32%. In the Caribbean, corporate income tax (CIT) comprised a higher share of total revenues than in OECD countries. On average, CIT revenues accounted for 4% of GDP in the Caribbean (20.1% of total tax revenues). This compared to 2.8% in other SIDS (14.6% of total tax revenues) and 3.3% in the OECD average (10.2% of total tax revenues), with high heterogeneity across Caribbean countries (OECD et al., 2025[1]). In Trinidad and Tobago, CIT revenues accounted for 11.4% of GDP, although this share tends to vary across years depending on the price of oil. Meanwhile, in Antigua and Barbuda, CIT revenues accounted for 2.0% of GDP; The Bahamas does not collect any revenue from CIT as of 2023.
Although SSCs remain relatively low compared to the OECD, Caribbean countries collect much higher revenues from SSCs than other SIDS. SSCs in the region average 2.3% of GDP, compared with just 0.3% in other SIDS. SSCs have become central to financing Caribbean social insurance systems as these systems have historically relied heavily on employer and employee payroll contributions to fund their contributory pillars. Early surpluses allowed the accumulation of substantial reserves, providing financial stability in the initial decades. However, demographic changes, slower economic growth and maturation of these systems have made relying solely on contributions increasingly unsustainable. Many countries are now drawing on their reserves, which are rapidly declining. Strengthening the collection, administration and enforcement of contributions is therefore critical. Compliance reforms are particularly important, given the large shadow economies in the region, which range between 25% and 45% of economic activity and constrain SSC revenue (González Velosa and Villa, 2024[2]).
Note: The Latin America average excludes Venezuela due to data issues. Due to data quality issues, Ecuador is excluded from the Latin America average for personal income tax (PIT) and corporate income tax (CIT) revenues. The OECD average is for 2022 and represents the unweighted average of the 38 OECD Member countries. Chile, Colombia, Costa Rica and Mexico are also part of the OECD (38). Other Small Island Developing States (SIDS) represents the simple average of Cabo Verde, Cook Islands, Fiji, Kiribati, Maldives, Mauritius, Nauru, Niue, Papua New Guinea, Samoa, Seychelles, Solomon Islands, Timor-Leste and Vanuatu.
Source: OECD et al. (2025[1]), Revenue Statistics in Latin America and the Caribbean, https://doi.org/10.1787/7594fbdd-en.
Re-assessing PIT and indirect tax design in the Caribbean offers opportunities to enhance revenue and progressivity within national tax systems. Strengthening direct tax collection, particularly PIT, can boost revenues for some countries and improve the redistributive impact of tax systems. PIT performance varies widely: Jamaica, Barbados, and Trinidad and Tobago collect over 3% of GDP, while the Dominican Republic collects just 1.5%. Meanwhile, some countries, such as Antigua and Barbuda, have no PIT at all. For countries with low PIT and high indirect tax reliance, rethinking PIT design could increase both revenue and equity. Low PIT collection in the region stems from high tax relief, a narrow base limited to formal wages and significant evasion.
The region’s marked heterogeneity in tax structure supports tax design that varies across countries. In many tourism-based economies, a large share of indirect tax revenue comes from tourism-related activities that fall on visitors rather than residents. Because PIT is levied only on resident workers, increasing it may not yield substantial additional revenue. In principle, people working in the tourism sector could pay PIT. In practice, however, much of this employment is informal or low wage, limiting the potential tax base (ILO, 2020[3]). Indirect tax systems should be carefully reviewed with attention to allocation of public spending. When expenditure policies are progressive, the overall fiscal system can still promote equity. Tourism-based economies should aim to maintain a streamlined structure with a limited number of indirect tax rates and a broader base, while ensuring that public spending is targeted effectively to support redistribution.
Environmentally-related taxes have also been introduced to the region, with levels above other SIDS
CO₂ emissions from the Caribbean region remain close to zero. Caribbean countries are committed to increasing their share of renewable energy to enhance the reliability of their energy systems. As a result, policy efforts have focused more on climate change adaptation than on mitigation.
Environmentally-related tax revenues (ERTR) in the Caribbean reflect the region’s focus on climate change adaptation rather than mitigation. Unlike other SIDS that rely on pollution taxes, the Caribbean relies extensively on transport and energy taxes. Overall, the Caribbean slightly outperforms other SIDS in ERTR, with an average of 0.8% of GDP in 2023 – similar to Latin America (0.8%) and higher than other SIDS (0.6%), but still below the OECD average of 1.8% (Figure 3.2).
Within the Caribbean, ERTR variation across countries is significant, ranging from 1.7% of GDP in the Dominican Republic to just 0.1% in Belize. While most Caribbean nations rely mainly on transport taxes for ERTR, Barbados and the Dominican Republic depend more on energy taxation, generating 0.6% and 1.2% of GDP, respectively. This contrasts with the ERTR structure in other SIDS, which relies heavily on pollution taxes – an instrument rarely used in the Caribbean, aside from limited application in Guyana, and Antigua and Barbuda. In the Caribbean, the most common instruments are vehicle- and travel-related levies, followed by fuel and hydrocarbon taxes, although only the Dominican Republic and Guyana have introduced fuel or carbon taxes.
Note: The Caribbean average represents the unweighted average of nine Caribbean countries. The figure does not include Jamaica’s revenues from the special consumption tax on petroleum products (estimated to be more than 2.0% of GDP in 2018), as the data are unavailable. The OECD average represents the unweighted average of 37 OECD Member countries, excluding Costa Rica.
Source: OECD et al. (2025[1]), Revenue Statistics in Latin America and the Caribbean, https://doi.org/10.1787/7594fbdd-en.
Rationalising and improving the design of tax expenditures, especially CIT incentives and VAT exemptions, can contribute to stronger and fairer tax systems
Tax expenditures are one of the main reasons behind relatively narrow tax bases in the Caribbean (Reyes-Tagle, Ruprah and Baca Campodónico, 2024[4]; Ding et al., 2020[5]). The strong reliance on tax incentives in some small Caribbean economies – where these incentives represent an important share of overall tax expenditures – reflects their structural conditions. Limited domestic markets, high vulnerability and narrow production structures make attracting foreign direct investment essential. Given their similar tourism offerings and the small scale of their economies, some of these countries grant incentive packages such as CIT or VAT exemptions and customs duties to avoid losing potential investment to neighbouring jurisdictions. For many small island economies, these incentive schemes operate alongside citizenship-by-investment (CBI) programmes. These are important sources of external revenue that help compensate for low domestic tax yields. Although tax incentives can support investment and provide necessary financing if well designed, evidence shows that their long-term effects on investment, growth and employment is often modest, while their fiscal costs can be considerable (Van Parys, 2012[6]; Ding et al., 2020[5]). Caribbean countries have scope to rationalise these instruments. Negative externalities make unilateral reductions of tax expenditures difficult, so stronger regional co-ordination is needed to harmonise their use and address collective action problems (Ding et al., 2020[5]).
Total tax expenditures across all types of taxes in the Caribbean have resulted in significant foregone revenue. In 2023, they amounted to 4.6% of GDP in the Dominican Republic (0.6% from CIT and 2.5% from general consumption taxes) and 2.9% of GDP in Jamaica in 2022 (0.1% from CIT and 1.1% from general consumption taxes), representing substantial shares of government tax revenues (CIAT, 2025[7]). In Suriname, tax expenditures exceeded 6.5% of GDP in both 2019 and 2021, with import duty and sales tax concessions each accounting for nearly 45% of the total (Reyes-Tagle, Ruprah and Baca Campodónico, 2024[4]). In the Eastern Caribbean Currency Union – comprising Antigua and Barbuda, Dominica, Grenada, Saint Kitts and Nevis, Saint Lucia, and Saint Vincent and the Grenadines – total foregone revenue averaged an estimated 5.8% of GDP in 2010-2018, equivalent to about 21% of total tax revenue (Ding et al., 2020[5]). As tax expenditure benchmarks differ from one country to another, comparing revenue foregone across countries can be challenging.
Corporate income tax incentives
Corporate tax incentives are widely used in the Caribbean. These help countries in the region attract foreign direct investment (FDI), promote export-oriented industries, create jobs, facilitate technology transfer and diversify economies that are reliant on a narrow range of sectors (Agostini and Jorrat, 2013[8]; ECLAC/OXFAM International, 2020[9]; James, 2020[10]; Artana and Templado, 2015[11]). Some of these incentives are also designed to encourage investment in digitalisation, green technologies and emerging industries, thereby supporting long-term competitiveness and sustainable development. They can reduce the cost of capital, enabling governments to support export manufacturers and free-zone firms that generate employment, foreign exchange and stronger linkages with the domestic economy. Corporate tax incentives also provide some governments in the region with a flexible policy tool to promote specific sectors or policy objectives – such as housing, technology, rural development and green energy – without raising general tax rates or altering broad tax bases.
However, corporate tax incentives often entail high costs and offer limited effectiveness (IMF, OECD & World Bank, 2025[12]). Research on the Caribbean region shows that, in some cases, these can further narrow already limited tax bases – constrained by widespread informality in some Caribbean countries – reduce fiscal transparency, foster corruption, create inequities, undermine competition and fail to guarantee the attraction of FDI (Gupta, 2018[13]; Reyes-Tagle, Ruprah and Baca Campodónico, 2024[4]). CIT incentives can also reduce fiscal revenue, create windfall gains, distort markets and favour certain sectors or regions, potentially displacing more productive investments (OECD, Forthcoming, 2025[14]; James, 2020[10]).
Evidence suggests that other factors in the investment climate can be more influential than CIT incentives. Favourable investment climates can significantly amplify the impact of tax incentives, with studies showing up to eightfold greater effectiveness in such contexts (James, 2020[10]; IMF et al., 2015[15]). They may undermine tax equity by benefiting larger, well-connected firms over smaller ones and increase administrative burdens for both authorities and businesses, reducing transparency (Zolt and Schill, 2015[16]). Careful cost-benefit analysis is therefore essential, placing incentives within broader investment-promotion strategies (World Bank Group, 2020[17]; IMF et al., 2015[15]; IMF, OECD & World Bank, 2025[12]).
CIT exemptions and allowances are a common form of corporate tax incentives in the Caribbean (Figure 3.3, Panel A). Across six selected Caribbean countries, CIT exemptions vary in duration, but are generally designed to provide long-term investment incentives, typically ranging from 5 to 15 years, with some special programmes extending longer. For example, exemptions for approved tourism projects in some Caribbean countries last up to 10 years, while others grant 15-year exemptions that may be extended by ministerial order. The Dominican Republic offers 15‑20-year CIT exemptions for tourism and cinema projects (Gascon et al., Forthcoming[18]). In Guyana, pioneering industries may benefit from exemptions of up to 10 years, sometimes extended in exceptional cases. CIT allowances are also widely used and often take the form of accelerated depreciation and enhanced deductions. For instance, Trinidad and Tobago provides 150% allowances for technology start-ups, energy efficiency and property development, while Saint Lucia targets education, and research and development (R&D). Good practice for CIT incentives prioritises expenditure-based instruments (e.g. accelerations, allowances, credits) over income-based instruments (e.g. CIT exemptions, reduced CIT rates) as the former have been shown to encourage investment with lower revenue losses (OECD, Forthcoming, 2025[14]; Gascon et al., Forthcoming[18]).
Among Caribbean countries that apply sector-specific conditions, corporate tax incentives primarily target the electricity, tourism, manufacturing, and arts and entertainment sectors (Figure 3.3, Panel B). The electricity sector is targeted by multiple incentives, most of which relate to renewable energy; for instance, four out of seven incentives in the six selected countries focus on renewables, all three electricity-related incentives in Barbados support renewable energy and one out of four in Trinidad and Tobago does so. In Barbados, measures include a 150% deduction of energy audit costs (up to BBD 25 000 per year for five years) (≈ USD 12 500), a 50% deduction for retrofitting or renewable energy systems, a 150% CIT credit for interest on loans, staff training, marketing and R&D for 10 years and a 10-year income tax exemption for developers, manufacturers and installers involved in renewable energy generation and sale. Tourism is also widely targeted: in the Dominican Republic, tourism projects benefit from a 100% CIT exemption and a 20% tax allowance, while in Saint Lucia approved tourism investments may obtain a CIT exemption of up to 100% for 15 years. Manufacturing is targeted in the Dominican Republic through a permanent 100% CIT exemption for the textile industry and the arts and entertainment sector is also heavily incentivised, ranging from exemptions and tax credits in the Dominican Republic for new filming or recording studios and cinemas to CIT allowances for production companies in Trinidad and Tobago. In several cases, countries target the same sector with multiple incentives and such overlapping sectoral targeting suggests that countries could benefit from streamlining their incentive policies.
Note: The list of corporate tax incentives by country is non-exhaustive. CIT= corporate income tax. Panel B: The International Standard Industrial Classification (ISIC) of All Economic Activities, Rev. 4, was used to classify CIT incentives. Only CIT incentives with a sectoral condition are included. Within the “Other” category, Trinidad and Tobago has one incentive for activities of households as employers and undifferentiated goods- and services-producing activities of households for own use, and one for financial and insurance activities; the Dominican Republic has one incentive for waste management. The “Scientific research and development” category includes a single sector-specific incentive from Barbados, which applies only to R&D expenditures in specific industries, such as medical sciences, engineering and technology, natural sciences and financial technology. R&D incentives are granted by other countries but are economy-wide and therefore not included in this sector-specific grouping.
Source: Authors’ own elaboration based on (PwC, 2025[19]; Gascon et al., Forthcoming[18]).
Special economic zones (SEZs) and special development areas are also widely used. Five of the six countries analysed have incentives for SEZs or special development areas (Barbados, the Dominican Republic, Jamaica, Saint Lucia, and Trinidad and Tobago). Jamaica, for instance, offers two CIT exemptions for urban development projects in these areas or for approved large-scale or pioneer industries. In Saint Lucia, projects located in designated development zones benefit from up to 15 years of exemptions under the Special Development Areas Act. Trinidad and Tobago applies a reduced CIT rate for SEZ operators. In the right context SEZs can provide net benefits, but they can be costly and create domestic frictions. Evidence shows mixed results: while they can generate agglomeration and spillover benefits, they may also strain public finances, distort competition, encourage profit shifting, and risk creating a dual economy (Gascon et al., Forthcoming[20]).
Key policy objectives central to sustainable development are also targeted by several incentives: these include technology and innovation, R&D and small and medium-sized enterprise (SME) support. Some Caribbean countries are embracing digitalisation, with governments offering tax incentives to encourage technology adoption. For instance, Barbados offers the Productivity and Innovation Credit, which provides a 25% CIT credit for certified innovation expenditures, while Jamaica grants tax credits for IT infrastructure upgrades under the Digital Jamaica Initiative. In Trinidad and Tobago, tech start-ups and digitalisation initiatives benefit from 150% CIT allowances for both property development and employee training. In R&D, Trinidad and Tobago provides 140% CIT allowances for qualifying R&D expenditures and Guyana offers tax deductions for scientific research and accelerated depreciation on qualifying assets. SME support is also targeted: Barbados applies a reduced CIT rate and a CIT credit for micro, small, and medium enterprises (MSMEs), and Jamaica provides a non-refundable JMD 375 000 (USD 2 350) credit. If well designed, sustainability-policy-oriented incentives can help Caribbean businesses modernise their operations and strengthen long-term competitiveness and sustainable development.
General consumption tax expenditures and others
Consumption tax expenditures in the Caribbean primarily take the form of VAT exemptions. These exemptions are commonly used to stimulate tourism, housing and energy-related activities. For instance, Saint Lucia provides VAT exemptions on construction materials and equipment for approved tourism projects under the Tourism Incentives Act, while Jamaica offers VAT relief through the Productive Inputs Relief (PIR) programme for manufacturing, agriculture and tourism. In the Dominican Republic, approved tourism developments benefit from VAT exemptions under the Tourism Development Incentives (PwC, 2025[19]).
In addition to consumption tax expenditures, Caribbean countries employ a range of other tax incentives, including foreign trade and property tax expenditures. Foreign trade tax expenditures typically take the form of customs duty exemptions and other import-related relief, reducing the cost of imported goods used for production or investment. For example, The Bahamas provides customs duty exemptions for materials and equipment used in hotels and industrial projects through the Hotel Encouragement Act and Industries Encouragement Act, while Guyana, Barbados, and Trinidad and Tobago offer similar exemptions on imported machinery, plant and raw materials across multiple sectors. Property tax expenditures, on the other hand, includes real property tax exemptions, reduced income tax rates and sector-specific allowances. For example, The Bahamas grants up to 20-year property tax exemptions for approved tourism and industrial developments, Saint Lucia provides property tax relief under its Special Development Areas Act and Jamaica offers property and transfer tax exemptions under the Urban Renewal (Tax Relief) Act (PwC, 2025[19]).
Reforming the design of tax expenditures can enhance their effectiveness
To improve their effectiveness, incentive policies should be guided by clear objectives and sound design from the outset. Incentives must be based on a well-defined rationale, supported by ex-ante assessments of expected benefits, costs and potential unintended consequences. Clear, measurable and stable eligibility criteria – meaning rules that are predictable, consistent over time and not subject to frequent discretionary changes – combined with citizen engagement and transparent reporting can help build trust and strengthen tax morale. Regular evaluation and publication of tax expenditures, together with parliamentary ratification, Ministry of Finance oversight and effective inter-agency co-ordination, can ensure that incentives remain fit for purpose, transparent and well-targeted (Gascon et al., Forthcoming[18]; OECD, Forthcoming, 2025[14]).
International tax co‑operation in the Caribbean will be essential for enhancing domestic resource mobilisation
International tax co‑operation can be an important tool to increase domestic resource mobilisation. Tax evasion by high net-worth individuals, alongside base erosion and profit shifting (BEPS) by corporations, can significantly erode a country’s tax base. Caribbean jurisdictions have made progress in adopting international tax transparency standards, especially through their participation in the Global Forum on Transparency and Exchange of Information for Tax Purposes, which has 23 Members from the region. This includes initiatives like the automatic exchange of financial information, capacity-building programmes and legal reforms on beneficial ownership. For example, Trinidad and Tobago’s efforts resulted in its removal from the European Union (EU) list of non-cooperative tax jurisdictions, following a decision by the Economic and Financial Affairs Council of the EU on 17 February 2026 (EEAS, 2025[21]). However, challenges remain in several Caribbean countries to ensure effective implementation and enforcement of these standards across all jurisdictions (OECD, 2023[22]; OECD, 2023[23]).
The region is also engaged with the OECD/G20 Inclusive Framework, which supports countries in tackling BEPS and developing global reforms such as the Two-Pillar Solution. This initiative is particularly relevant in the region, given the high reliance on corporate tax revenues in many Caribbean jurisdictions, coupled with tax incentives that erode the corporate tax base described above. The widespread adoption of the global minimum corporate tax (GMT) under Pillar Two of the Two-Pillar Solution could help neutralise harmful tax competition and enhance corporate tax revenues (OECD, 2022[24]).
Essentially, the GMT provides for an interlocking set of rules that requires large multinational enterprises (MNEs) to pay a minimum effective tax rate of 15%. This effectively neutralises tax incentives that provide for lower effective tax rates (ETR) on corporate profits wherein the source jurisdiction does not tax profits and therefore another jurisdiction where the MNE operates can now, following GMT rules, impose a top-up tax.. Under these rules, the source jurisdiction may collect the tax first through a domestic minimum tax. GMT encourages developing countries not to resort to corporate tax incentives to the extent that the ETR becomes lower than 15%, thus, increasing their tax revenue without harming their ability to attract FDI.
Already, more than 50 jurisdictions worldwide have implemented GMT rules, including countries that invested significantly in the Caribbean (e.g. Canada, the United Kingdom and many EU states). In the Caribbean, The Bahamas, Barbados and Curaçao have implemented GMT rules. Because the application of the GMT will affect the operation of tax incentives, Caribbean governments are encouraged to re-assess them and align domestic policies with these international reforms.
In parallel, Caribbean governments are exploring the introduction of transfer pricing rules in line with international standards. Transfer pricing – which relates to the prices at which goods, services and intangibles are transferred between related parties – has been used to shift profits from high to low tax jurisdictions. Caribbean governments are aware that subsidiaries of multinational groups could pose transfer pricing risks and have expressed interest in exploring transfer pricing regimes. Six jurisdictions have implemented or are implementing transfer pricing rules in domestic legislation (Antigua and Barbuda, Barbados, Guyana, Jamaica, Saint Lucia, Suriname). A survey of jurisdictions in the region revealed that agriculture, banking and finance, and tourism are included in the main industries relevant for transfer pricing rules. Additionally, four respondents identified oil, gas and other extractive industries as another key area where these rules play an important role. To support transfer pricing, countries need capacity building such as bespoke technical assistance, peer-to-peer learning and programmes like the OECD/United Nations Development Programme (UNDP) Tax Inspectors Without Borders initiative (Box 3.1).
On 22-26 July 2024, the 26th Caribbean Organisation of Tax Administrators (COTA) General Assembly and Technical Conference took place. It was co-organised by the Caribbean Community (CARICOM) Secretariat with the Government of Saint Lucia under the theme “Tax Resilience in a Rapidly Changing Global Environment”. The event welcomed representatives from CARICOM Member States and Associate Members, international organisations and regional tax organisations to discuss an array of tax topics, such as the new international tax agenda, modernisation of the tax administration and updating of the CARICOM Double Taxation Agreement. The CARICOM Secretariat concluded the event with a regional roundtable in which jurisdictions and development partners outlined challenges faced by Caribbean tax administrations and the capacity building required to tackle them.
In response, development partners have offered a regional outreach programme to build tax capacity in the Caribbean with a view to enhancing domestic resource mobilisation. The initiative is led by CARICOM/COTA with the collaboration of the Commonwealth Association of Tax Administrators, the Inter-American Center of Tax Administrations (CIAT), the International Monetary Fund/Caribbean Regional Technical Assistance Centre (IMF/CARTAC), the Organisation for Economic Co‑operation and Development (OECD) and the World Bank Group.
In March 2025, development partners hosted a two-day Virtual High-Level Seminar on International Tax Developments in the Caribbean, exploring topics such as corporate tax, tax and crime, transformation of the tax administration, OECD/G20 Inclusive Framework updates and regional tax priorities. This event gathered 148 participants from 20 Caribbean jurisdictions. Similarly, in June 2025, another two-day virtual workshop showcased the fundamentals and benefits of introducing transfer pricing in the region, the Caribbean’s transfer pricing journey, issues related to the tourism industry, tax administration considerations and capacity-building support. The workshop, which brought together 307 participants from 18 Caribbean jurisdictions, benefited from the experiences of Antigua and Barbuda, Barbados, Grenada, Guyana, Jamaica, Saint Lucia and Suriname on their challenges with transfer pricing rules.
Development partners in the region hope the initiative continues to synchronise capacity-building efforts and strengthens the Caribbean’s voice in wider international tax fora. In response to the high demand for capacity building on tax issues, they anticipate holding a series of webinars and in-person events geared to the needs and priorities of tax administrators and policymakers in the region.
Source: OECD (2024[25]), Regional Tax Outreach, https://www.oecd.org/en/topics/sub-issues/tax-capacity-development-and-outreach/regional-tax-outreach.html.
Strengthening tax morale in the region requires building a more transparent, accessible and trusted fiscal system
Beyond technical reforms, tax morale – the willingness of individuals to pay taxes – is a critical determinant of how well a tax system performs. In many countries with persistently low compliance, weak tax morale contributes to underperforming systems that recover significantly less revenue than their potential (OECD, 2019[26]). Strengthening tax morale in the Caribbean could reduce evasion and enhance revenue collection, but it requires addressing deeper governance challenges, including low public trust in institutions. Trust is the foundation of the fiscal contract: citizens are more likely to pay taxes when confident that revenues fund essential public services. When trust diminishes, compliance suffers, undermining fiscal capacity and the government’s ability to invest in infrastructure, education, healthcare and other key enablers of economic transformation (OECD et al., 2022[27]). The Initiative to Promote Fiscal Justice in Latin America and the Caribbean, led by the Spanish Agency for International Development Co‑operation (AECID) in collaboration with partners, such as the OECD, the United Nations Economic Commission for Latin America and the Caribbean, and Oxfam, has been instrumental in advancing the tax morale agenda. One key outcome is the development of surveys such as Public Trust in Tax 2024 – Latin America and Beyond (OECD/IFAC/ACCA, 2024[28]), which covers 26 countries across Latin America, Africa and Asia. The survey shows that in 2023, 52.4% of Dominicans did not feel their public services and infrastructure represent a fair return on the taxes they pay. Some 35.6% viewed paying taxes as a personal cost rather than a contribution to the community (OECD/IFAC/ACCA, 2024[28]). Extending such initiatives to other Caribbean jurisdictions would provide valuable insights into how citizens view taxation in theory and in practice.
A deeper understanding of tax administrators’ perceptions is also fundamental for analysing tax morale in the region. It provides the perspective of public officials who are in constant, direct contact with citizens, offering insights that are essential for strengthening trust and improving compliance. A survey of more than 8 000 tax officials across 11 LAC countries, including 260 tax administrators from six Caribbean economies (Dominica, the Dominican Republic, Grenada, Jamaica, Saint Kitts and Nevis, and Saint Lucia) shows that tax administrations in the Caribbean continue to face persistent challenges, including high informality, low institutional trust and limited fiscal education. Despite these constraints, notable progress is emerging in staff professionalisation and a growing commitment to equity. This suggests that – with well-targeted reforms – Caribbean tax administrations have the potential to become stronger drivers of reduced inequality and enhanced voluntary compliance (OECD, Forthcoming[29]).
There is a gap between how the public views tax administrators’ enforcement focus and how tax officials see their own role. Some 48% of Caribbean tax officials believe the public sees tax agencies as focused primarily on law enforcement, while only 19% view them as supporting taxpayers (Figure 3.4.). This contrasts with Central America and South America, where tax administrators believe the public views tax agencies as more supportive of taxpayers – 50% in Central America and 27% in South America. Tax officials themselves report a more balanced perception between enforcement and taxpayer assistance. This suggests that the agency’s external image remains tied to its enforcement role, revealing a mismatch between internal and public perceptions. Bridging this gap may be key to strengthening public trust and encouraging greater taxpayer co-operation (OECD, Forthcoming[29]).
Source: (OECD, Forthcoming[29]).
Tax administrations in the Caribbean face compliance challenges, with root causes perceived by tax officials in the region as more severe than in Central or South America. The informal economy, tax avoidance, non-compliance with tax obligations, and corruption are widely viewed as very serious drivers of non-compliance, whereas tax officials in Central and South America typically consider these issues to be moderate or minor concerns (Figure 3.5, Panel A). The informal economy stands out as the most pressing challenge: some 84% of Caribbean officials rate it as serious or very serious, compared to just 5% of tax administrators in Central America and 4% in South America. Yet only 36% of Caribbean officials consider current measures to combat informality effective. Tax evasion is likewise viewed as a major problem by 65% of officials – far higher than in Central America (6%) and South America (1%). Notably, 78% believe that existing anti-tax evasion measures are effective. These contrasting perceptions highlight the need for more granular, issue-specific policy design rather than broad or generalised reforms (OECD, Forthcoming[29]).
Source: (OECD, Forthcoming[29]).
There is also strong consensus that strengthening voluntary compliance requires a greater role for tax administrations in policymaking, with 90% of officials agreeing that a more integrated and technically informed involvement in tax policy design would significantly enhance compliance (Figure 3.5, Panel B). Caribbean tax administrators view education as the central strategy for strengthening the formal economy and promoting compliance. Officials emphasise expanding tax education programmes – alongside greater transparency and citizen participation – as essential for building trust and supporting voluntary compliance. For informal workers, preferred approaches are explaining the benefits and obligations of taxation and simplifying procedures. This signals a preventive and inclusive strategy rather than reliance on sanctions. Tax officials also place strong emphasis on integrating tax education into school curricula. Other outreach tools, such as media campaigns and institutional visits, are seen as secondary, underscoring the importance of shaping tax attitudes from an early age (OECD, Forthcoming[29]).
Caribbean tax administrators believe they perform well in core functions but face persistent challenges and that this limits their broader effectiveness and equity goals. Officials reported strong performance in revenue collection and taxpayer services, yet note weaknesses in enforcement, technological capacity and cross-border collaboration (Figure 3.6, Panel A). They also acknowledged that current efforts tend to prioritise revenue generation over redistribution and fairness. At the same time, there is broad recognition of the need for reforms that reduce inequality and improve social welfare, with 79% of officials agreeing that tax reforms aimed at addressing socio-economic disparities would strengthen voluntary compliance (Figure 3.6, Panel B). Tax administrators increasingly view their role as promoting social equity and enhancing co-ordination, education and stakeholder engagement; however, initiatives related to gender equality and support for marginalised groups remain fragmented and underdeveloped. Overall, there is a need for a more coherent and integrated framework that advances fairness, inclusion and sustainable compliance across the region (OECD, Forthcoming[29]).
Source: (OECD, Forthcoming[29]).
Looking forward, strengthening tax morale in the Caribbean will require building a more transparent, accessible and trusted fiscal system. To this end, it is essential to expand tax awareness and education, recognising that informed taxpayers are more likely to comply voluntarily and engage constructively with the tax system. Simplifying tax procedures and reducing administrative burdens are also critical to promoting formalisation and improving operational efficiency. Equally important is strengthening institutional confidence through greater transparency and accountability. At the policy level, clearer communication on how tax revenues translate into public services can help reinforce the relationship between tax administrations and citizens. Investing in human capital and modern digital systems is also key, reflecting the need for well-trained staff and technologically advanced administrations. Finally, multi‑sectoral collaboration – with academia, the private sector and civil society – is vital for designing more effective and inclusive reforms that foster long-term trust and compliance across the region (OECD, Forthcoming[29]).
Caribbean countries rely significantly on non-tax revenues, deriving them mostly from rents, royalties and sales of goods and services
Non-tax revenues are a significant component of public finances in the Caribbean. They vary widely across countries and reflect structural differences between service-oriented and resource-exporting economies. On average, Caribbean non-tax revenues accounted for 3.6% of GDP in 2023, higher than Latin America (2.6%), but lower than in the Asia-Pacific region (10.4%) and Africa (6.2%) (Figure 3.7, Panel A). There is considerable heterogeneity within the Caribbean, ranging from 0.5% in Barbados and 0.8% in Belize (Government of Belize, 2024[30]) to 6.5% in Trinidad and Tobago, and 11.6% in Cuba. For service-oriented countries, such as Barbados, Saint Lucia, and Antigua and Barbuda, non-tax revenues come mainly from the sale of goods and services (99%, 91% and 67%, respectively). In these three countries, citizenship‑by‑investment (CBI) programmes also play a key role. By contrast, in resource‑oriented economies, such as Guyana, and Trinidad and Tobago, non-tax revenues stem primarily from rents and royalties on natural resources (96% and 76%, respectively, in 2023). In other cases, such as Jamaica and Cuba, the structure differs markedly from the rest of the Caribbean.
Non-tax revenues from grants provided by non-resident governments or international organisations are relatively low compared with those in other regions. On average, grants in the Caribbean contribute only 1.2% of total tax revenues, compared with 28% in Africa and 22% in the Asia-Pacific region. Only Jamaica exceeds 2% of total tax revenues from grants, contributing 8.6%, while other countries remain below 2%: Barbados at 1.4% of GDP, the Dominican Republic at 1.3%, The Bahamas at 0.3%, and Trinidad and Tobago at 0.1% (Figure 3.7, Panel B). In the Asia-Pacific region, grants represented a substantial share of non-tax revenues in countries such as Bhutan, Cambodia, Cook Islands, Marshall Islands, Papua New Guinea and Samoa.
Note: Figures for Belize and Cuba refer to general government non-tax revenues as disaggregation by government level is not available and thus may not be comparable with other countries. The Latin America average represents a simple average for 11 countries with non-tax revenue data excluding the four OECD Member countries (Chile, Colombia, Costa Rica and Mexico). The Africa average represents a simple average of 35 African countries reporting non-tax revenue data to Revenue Statistics in Africa. The Asia-Pacific average represents a simple average of 21 Asia-Pacific economies reporting non-tax revenue data to OECD's Revenue Statistics in Asia and the Pacific, excluding Tokelau due to data issues.
Source: OECD et al. (2025[1]), Revenue Statistics in Latin America and the Caribbean, https://doi.org/10.1787/7594fbdd-en.
CBI programmes have become an important revenue source for several Caribbean countries, supporting sustainable national development in some cases and helping others repay debt or strengthen fiscal positions. Government-run, CBI arrangements grant citizenship and a passport to foreign investors in exchange for contributions to the economy through approved investment channels. Caribbean countries, such as Antigua and Barbuda, Saint Kitts and Nevis, Grenada, Dominica and Saint Lucia, have implemented CBI programmes. Required investments range from USD 200 000 in Dominica to USD 250 000 in Saint Kitts and Nevis (Table 3.1). Processing times vary from 90 days in Dominica to six to nine months in Antigua and Barbuda, and Grenada. Most programmes do not require applicants to reside in the country. For most countries, investment options include national development funds and real estate acquisition. Only Saint Lucia offers investment in government bonds, and Antigua and Barbuda, and Saint Lucia allow business investment. Some CBI programmes offer investment options that support sustainable development objectives. In Dominica, for example, the Economic Diversification Fund (EDF) finances social infrastructure, climate resilience projects and hurricane recovery. CBI revenues have also helped improve fiscal sustainability in the region. Saint Kitts, Antigua and Grenada used proceeds to repay International Monetary Fund (IMF) loans, with Grenada reducing its debt from 103% to 60% of GDP between 2013 and 2019. The IMF credited inflows to Saint Kitts with supporting debt restructuring, economic growth and the buildup of fiscal buffers essential for small states (Surak, 2024[31]).
Source: Authors’ own elaboration based on Global Intelligence Unit (2025[32]), Global Residency and Citizenship by Investment Report: Full Report, https://www.globalcitizensolutions.com/intelligence-unit/reports/global-rcbi-report/global-rcbi-report-full-report/#the-cbi-index-where-to-secure-a-second-citizenship.
While CBI programmes can mobilise investment for certain sectors, this is typically short term, which limits their broader economic impact. Applicants overwhelmingly favour donations or real estate, often opting for the cheapest short-term option. Such an approach treats contributions as upfront fees rather than long-term investments – a pattern reinforced by the citizenship industry itself (Surak, 2024[31]). In Saint Lucia, changes to donation requirements, administrative fees and the introduction of a discounted COVID‑19 Relief Bond shifted demand, with donations and real estate capturing the bulk of applications (Surak, 2024[31]; Clerides, 2025[33]).
CBI programmes can also create significant vulnerabilities for countries that rely heavily on them. Before and during COVID-19, CBI income reached 33% of GDP in Dominica and 53% in Saint Kitts and Nevis. Heavy dependence on CBI exposes governments to risks from sudden drops in applications, slower sales or changes in source-country policies. Such shocks can strain their ability to fund basic public services. Furthermore, CBI programmes may permit an application to disguise or misrepresent its residency for tax purposes. Consequently, they may undermine international efforts on tax transparency, including the OECD’s automatic exchange of information on financial accounts pursuant to the Common Reporting Standard.
Additionally, financial crime risks, including money laundering, remain a concern, often exacerbated by inconsistent risk mitigation. Effective oversight and adherence to best practices, such as those outlined by the Financial Action Task Force, are crucial (OECD/FATF, 2023[34]). To that end, several Caribbean nations signed a Memorandum of Agreement (MoA) in 2023 to enhance regional co‑operation, transparency and standardisation. The agreement commits countries to a minimum investment of USD 200 000, prohibits discounting, mandates enhanced due diligence and lays the groundwork for a regional regulatory body (OECS, 2024[35]). In the case of Grenada, the country further strengthened regulation by restructuring its CBI programme in 2024 under the Investment Migration Agency, in line with the Grenada Citizenship by Investment Act (Global Intelligence Unit, 2025[32]).
In resource-rich Caribbean countries, non-tax revenues have risen due to higher income from commodities. Global commodity price fluctuations often create significant volatility in these revenues for countries heavily reliant on natural resources. In Guyana, and Trinidad and Tobago, increases in rents and royalties accounted for almost all changes in central government non-tax revenues (OECD et al., 2025[1]). Natural resource royalties were the largest component of non-tax revenues in countries with the highest non‑tax revenue‑to‑GDP ratios in 2023. In Trinidad and Tobago, over 75% of central government non‑tax revenues came from natural resource royalties, including extraordinary revenue from oil and gas companies. Similarly, more than 90% of Guyana’s non-tax revenues in 2023 were derived from the Natural Resource Fund, which manages the country’s fossil fuel wealth (OECD/IDB, 2024[36]).
High public debt continues to constrain fiscal space and social spending across the Caribbean. Debt servicing represented 15.8% of tax revenues in 2023 compared with 12.4% in Latin America and 4% among OECD Members. This constrained the public investment and crisis response, although debt servicing was still below the 16.8% recorded a decade earlier (Figure 3.8). Heterogeneity persists across the region. Countries, such as Jamaica and Barbados have reduced their debt burdens through fiscal consolidation efforts, fiscal rules and reforms. In contrast, others – including the Dominican Republic, The Bahamas and Trinidad and Tobago – have faced rising debt service pressures. High debt service burdens require many governments to allocate a substantial share of public revenues to debt repayments, potentially crowding out development-oriented public spending and investment.
Source: Authors’ elaboration based on IMF (2025[37]), World Economic Outlook, https://www.imf.org/en/publications/weo/weo-database/2025/April; OECD et al. (2024[38]), Revenue Statistics in Latin America and the Caribbean 2024, https://doi.org/10.1787/33e226ae-en.
The share of debt denominated in foreign currency remains high in most Caribbean countries. High exposure to external debt introduces challenges such as exchange rate volatility, which can increase the cost of debt servicing. In 2023, the Caribbean average share of external debt stood at 51.24%, up from 48.4% in 2013 (Figure 3.9, Panel A). For most countries, the share of external debt increased between 2013 and 2023. There were varying degrees of change – from a 4.1 percentage-point rise in the Dominican Republic and 5.1 percentage points in Grenada to as much as 70.8 percentage points in Suriname and 18.4 percentage points in Jamaica. By contrast, some countries recorded notable declines over the same period: in Guyana, the share fell by 26.9 percentage points (from 65.2% to 38.3%), while in Dominica, it declined by 20.6 percentage points (from 74.5% to 53.9%).
The composition and maturity of debt in some Caribbean economies expose them to significant financial risks. On average, 59% of external debt is owed to bondholders, 28% to multilaterals and 10% to bilateral creditors, with access to markets varying widely across countries (Figure 3.9, Panel B). Smaller, lower‑income countries tend to have a larger share of their debt with multilateral or bilateral agencies. Saint Vincent and the Grenadines, Dominica and Barbados have most of their debt with multilaterals. The wealthier Caribbean countries have about half or more of their debt with the private sector (through bond issuance).
Debt structures also differ by currency. Suriname, Jamaica and the Dominican Republic hold mostly foreign currency debt (63-80%), heightening exchange rate vulnerability. For their part, Trinidad and Tobago, Barbados, The Bahamas and Haiti rely more on domestic-currency debt. Longer maturities have helped mitigate short-term refinancing risks. However, in countries such as Suriname, debt maturing within five years represents about 40% of GDP, underscoring the need for stronger debt management strategies.
Note: Panel B: The Caribbean and LAC are simple averages.
Source: Panel A: (IMF-WEO, 2025[39]); Central Bank of Trinidad and Tobago, Adjusted General Government debt from 2015; (IMF, 2024[40]); and own calculations. Panel B: Authors’ calculations based on IMF (2025[41]), World Economic Outlook, https://www.imf.org/en/Publications/WEO/Issues/2025/04/22/world-economic-outlook-april-2025.
Public external debt service relative to total government revenues has been high in most Caribbean countries. This ratio provides a measure of credit constraint and fiscal space as it indicates the resources available for current and capital expenditures. For 11 countries with external debt data between 2012 and 2023, the average share of public external debt service to revenues was around 13%. It reached its highest level in 2021 at 19%. Several countries have experienced crises with exceptionally high levels of external debt service relative to general government revenue. This could be related to maturing loans and large bullet payments, as in the Dominican Republic in 2015 (almost 30%), or to sharp declines in general government revenues, such as in 2020 during the COVID‑19 pandemic (Figure 3.10, Panel A). In 2020, public external debt service to GDP reached 37.5% in the Dominican Republic and 13.9% in Trinidad and Tobago.
External debt repayment capacity has also been high during certain periods. Public external debt service relative to exports of goods and services, and primary income measures external debt payment outflows against external inflows. In small, open island economies, lower external debt service can ease balance of payments pressures and increase overall foreign exchange availability, thereby freeing resources and supporting the financing of imports, including capital goods related to investment. The average for the same 11 Caribbean countries was 10% over 2012‑2023. It peaked at 14% in 2020 and 2021, when exports, including tourism receipts, dropped significantly amid the pandemic. Some countries faced particularly high levels of external debt service relative to export flows in 2020, reaching 33% in Jamaica and 25% in Dominica (Figure 3.10, Panel B).
Note: The Caribbean average is based on 11 Caribbean economies, including Belize, Dominica, the Dominican Republic, Grenada, Guyana, Haiti, Jamaica, Saint Lucia, Saint Vincent and the Grenadines, Suriname, and Trinidad and Tobago.
Source: (IMF-WEO, 2025[39]); World Bank World Development Indicators; Central Bank of Trinidad and Tobago; and authors’ own calculations.
Well‑designed fiscal frameworks are critical to ensuring debt sustainability and maintaining fiscal space in the medium term to safeguard investment in the Caribbean. By setting clear rules, fiscal frameworks help anchor fiscal policy and stabilise debt‑to‑GDP ratios. In so doing, they protect capital investment essential for long-term growth and structural transformation. Without such protections, governments often cut capital spending during fiscal consolidation, undermining recovery and future productivity. Debt management institutions, such as fiscal rules, medium‑term fiscal frameworks, independent fiscal councils and sovereign wealth funds, have all played a role in strengthening the fiscal frameworks of some Caribbean countries.
Well-designed fiscal rules can help contain deficits and public debt. Fiscal rules mitigate debt accumulation, stabilise expectations and can even improve creditworthiness by lowering bond spreads and sovereign risk perceptions. Their effectiveness, however, depends on quality and compliance. Rules must be supported by robust legal and institutional frameworks, incorporate flexibility to respond to shocks and include credible enforcement mechanisms. Caribbean countries, such as Jamaica, Grenada and The Bahamas have adopted fiscal responsibility laws with escape clauses for natural disasters or economic downturns, recognising the region’s vulnerability to external shocks. Evidence suggests that countries with well-designed fiscal rules, which often include escape clauses for unforeseen events, can contribute to containing deficits and the levels of public debt (Beuermann et al., 2021[42]).
Similarly, several Caribbean countries have independent fiscal councils that play a useful role in promoting responsible and sustainable fiscal policies. In The Bahamas, the Fiscal Responsibility Act sets ceilings on the overall fiscal deficit. In Barbados, the Financial Management and Audit Act mandates the annual preparation of a rolling medium‑term fiscal framework for the next three fiscal years, supporting a prudent level of public debt. Finally, Jamaica successfully reduced its debt‑to‑GDP ratio from 135% to 62.4% over 2012‑2025 on the back of strengthening planning and setting fiscal objectives, enshrined in Jamaica’s Fiscal Responsibility Law. In 2025, it began implementation of the Independent Jamaican Fiscal Commission Report.
Sovereign wealth funds (SWFs) have also acted as a buffer to output fluctuations and a vehicle to support long‑term savings. SWFs can be particularly effective for Caribbean countries that export commodities. Trinidad and Tobago’s Heritage Stabilization Fund has provided a significant buffer and savings mechanism – with assets equivalent to more than 25% of GDP. Guyana and Suriname have also established SWFs. In addition to providing a mechanism to build up external assets, SWFs have been associated with an improvement in institutional quality (Al-Sadiq, 2023[43]). Moreover, SWFs could be used to set aside a portion of revenues collected through Citizenship-by-Investment (CBI) schemes where maintained to absorb volatile CBI income and strengthen fiscal buffers (IMF, 2025[44]).
Despite advances in fiscal frameworks, small Caribbean island countries face disproportionate challenges from climate events that place significant pressure on their fiscal sustainability. Countries can strengthen fiscal and planning frameworks, and introduce multi-year budgeting tools, such as medium‑term expenditure frameworks or medium-term debt strategies. However, navigating the fiscal challenges introduced by climate events requires even higher levels of planning, preparation and policy tools.
Natural disasters have greater effects on fiscal deficits and public debt levels in small states than in other emerging economies. Small states generally have a lower capacity to sustain debt compared to other emerging markets and developing economies (EMDEs). This is due in part to structural limits on growth and their heightened vulnerability to external shocks (Andrian et al., 2013[45]; Hill and Khadan, 2024[46]). This is evident in debt sustainability analyses, where small states tend to receive higher risk ratings at comparatively lower debt levels than their EMDE peers (World Bank, 2024[47]; Kling et al., 2025[48]). Recent research finds that three years after a natural disaster, debt to GDP was 6% higher in small states, which was higher than in other emerging economies. For the Caribbean, effects of the most damaging natural disasters are about 4%, once other effects are considered (Cavallo et al., 2024[49]). Global recessions were estimated to have similar impacts but not as strong as natural disasters (Hill and Khadan, 2024[46]) (Figure 3.11).
Note: EMDEs=emerging markets and developing economies. Chart shows differences in average debt as a percentage of GDP in EMDEs compared to those in the year preceding events occurring in year t=0. Events include natural disasters resulting in damages of at least 5% of GDP; that is, droughts, earthquakes, extreme temperatures, floods, storms, volcanic activity and wildfires. Based on a sample of 24 natural disasters in small states for 2000‑2022.
Source: EM-DAT (dataset); WEO (dataset); Hill and Khadan (2024[46]), Strengthening fiscal resilience in small states.
Deepening capital markets through regional integration can unlock long‑term financing
Capital markets are key mechanisms for mobilising long‑term financing for development. Capital markets include equity and debt markets, where funds can be raised either through the issuance of new securities in the primary market or through the trading of existing securities in the secondary market. These markets enable an efficient allocation of capital and firms to scale, innovate and modernise, while also providing governments with access to long‑term financing for development priorities. They also support the creation of innovative instruments that can channel resources towards strategic policy objectives. By broadening access to large‑scale and long‑term financing, capital markets can drive investment and productivity, and support economic growth and development (Fiorella and Didier, 2024[50]; OECD et al., 2024[51]). Strengthening these markets is therefore key to unlocking larger, more stable and diversified sources of financing for the region’s economic growth and resilience.
However, capital markets in the Caribbean remain insufficiently developed and liquid, constraining their ability to support long‑term investment. Individual economies operate small markets that lack the depth and liquidity required for efficient capital allocation. This reduces investment opportunities, raises transaction costs and restricts private sector access to long‑term financing. In equity markets, market capitalisation – the total value of listed shares as a share of GDP – averages 48.4% in the Caribbean, higher than Latin America (33.2%), but below the OECD (66.4%) (Figure 3.12, Panel A). However, this figure masks strong disparities, ranging from 91% of GDP in Trinidad and Tobago to just 3.4% in Suriname. Moreover, despite their relative adequate size, markets are highly concentrated, with only a limited number of issuing firms. Liquidity remains limited as the stock turnover ratio – which measures how frequently shares are traded relative to market size – stands at just 1.2% in the Caribbean compared to 31.6% in Latin America and 51.3% in the OECD (Figure 3.12, Panel B). Bond markets show similar limitations, remaining underdeveloped, dominated by government securities and with limited corporate issuance and secondary market activity.
Note: Data correspond to 2024 for Jamaica, Latin America and the OECD, and to 2020 for the remaining Caribbean countries.
Source: Authors’ elaboration based on Beuermann et al. (2024[52]), Are We There Yet? The Path Towards Sustained Economic Growth in the Caribbean, https://doi.org/10.18235/0013218; World Bank (2024[53]), World Development Indicators, https://data.worldbank.org/.
Regional financial integration could deepen capital markets in the Caribbean. By fostering a more interconnected financial system, integration can expand the availability of capital, improve efficiency, reduce transaction costs, strengthen liquidity and lower risks. In addition, it can create incentives for foreign investors to diversify their portfolios by acquiring assets across countries within a unified market (OECD et al., 2024[51]). Since governments largely dominate capital markets in the region, integration could broaden the issuer base and attract investment into diverse sectors (Bown, 2017[54]). In turn, increased demand for securities on a regional platform could lower borrowing costs for both firms and governments, while promoting competition, efficiency and risk sharing. Currently, cross-listing arrangements – which allow securities to be listed and traded on multiple exchanges simultaneously – exist among Barbados, the Eastern Caribbean, Jamaica, and Trinidad and Tobago. However, other CARICOM Members remain outside this system. Empirical evidence suggests that share prices of actively traded cross-listed firms in Barbados, Jamaica, and Trinidad and Tobago have converged over time, contributing to some extent to co-movement in stock market indices across these exchanges, likely reflecting active cross-border trading in the listed securities. In addition, the Eastern Caribbean Regional Government Securities Market provides a sub-regional platform for government debt, supporting low-cost financing and deeper financial markets, while the Eastern Caribbean Securities Market facilitates equity issuance and trading (Alhassan et al., 2020[55]). Despite these arrangements, further development is needed to create a robust, liquid and inclusive regional capital market that can fully support investment. To this end, under the IDB ONE Caribbean regional program, IDB and the CARICOM Private Sector Organization (CPSO) have established a partnership to explore the feasibility of, and support the steps needed to develop, a regional stock exchange.
Several barriers hinder regional integration in the Caribbean. Macroeconomic disparities, limited supply and demand in local markets, fragmented regulatory systems and incompatible infrastructures complicate harmonisation across the region. Varying levels of economic stability, different exchange rate regimes and the lack of consistent tax and legal frameworks further undermine integration efforts (Bonita et al., 2020[56]). Moreover, the limited number of active issuers and investors, combined with insufficient financial literacy, contribute to low market participation. Differences in tax regulations, legal frameworks and the use of separate trading systems across national exchanges further challenge integration across the region.
External flows remain an important source of financing in the Caribbean, although their significance varies across sources
Caribbean countries depend heavily on external financial flows to support development. This reflects their small size, limited domestic financial resources, exposure to external shocks, and substantial investment needs (Chapter 2). As a result, external financing has long been a defining feature of the region’s economies, although its importance varies across sources. Between 2000 and 2024, ODA averaged 2.5% of gross national income (GNI) (Figure 3.13). In 2024, FDI was the largest flow at 6.3% of GDP, followed by remittances at 5.4% of GDP.
Note: FDI=foreign direct investment; GDP=gross domestic product; GNI=gross national income; ODA=official development assistance. Graduation out of ODA recipient status for Barbados, and Trinidad and Tobago after 2010; Saint Kitts and Nevis after 2013; and Antigua and Barbuda after 2022. Portfolio investment liabilities based on authors’ calculations.
Source: Authors’ elaboration based on (IMF, 2024[57]; World Bank, 2024[53]).
Remittances
Remittances are cross-border transfers of money sent by migrants to their families in their home countries. Although they are private flows rather than public revenue, they play an important financial role for many economies and can be seen as an alternative source of financing alongside tax revenue. By increasing household income, remittances stimulate consumption, which, in turn, generates indirect tax revenue and supports domestic demand. Remittances also provide foreign exchange inflows that strengthen international reserves, improve a country’s external balance and reduce vulnerability to debt crises. In addition, remittances often expand savings and deposits in the banking system, which can then be channelled into lending or the purchase of government bonds, indirectly supporting public finance. Their countercyclical and relatively stable nature makes them especially valuable in small or vulnerable economies, where they can act as a buffer against shocks.
Remittances serve as an important macroeconomic stabiliser in the Caribbean. As one of the main sources of external financing, remittances help smooth private consumption. Because they are countercyclical, remittances tend to be much less volatile than FDI and other inflows, indirectly supporting a more stable investment climate. This contrasts with export revenues from commodities in some resource-rich countries. Remittance inflows also typically exceed ODA and FDI by a significant margin.
Remittance inflows to the Caribbean continued to grow in 2025, with an annual increase of 9.2% compared to the previous year, bringing total inflows to an estimated USD 20.9 billion by the end of the year (Maldonado and Harris, 2024[58]). This growth is mainly driven by strong remittance flows to the Dominican Republic and Jamaica – a trend that has persisted since last year – along with rising transfers to Haiti, particularly from the United States. However, this represents a clear deceleration from the surge observed during the pandemic, when migrants rapidly increased transfers to support their families amid the crisis.
While remittance inflows remain high in nominal terms in the region, their growth has dropped since the COVID‑19 pandemic. In 2021, following the pandemic, remittances to the Caribbean grew by 20% as migrants met the needs of households back home, partly supported by fiscal stimulus in host economies such as the United States. Since 2023, however, growth has moderated to pre‑pandemic levels. Per capita inflows remained high in nominal terms in 2024, averaging USD 533 per capita across the Caribbean. Jamaica leads the region with USD 1 255.4 per capita, followed by the Dominican Republic with USD 984.2 per capita (Figure 3.14, Panel A).
The Caribbean had the highest level of remittances as a share of GDP in 2024, at 5.4%, compared with other regions, such as South Asia (4.4%) and Sub‑Saharan Africa (3.3%). Remittances as a share of GDP were highest in Jamaica, the Dominican Republic, Saint Kitts and Guyana, and remained large when considered on a per capita basis. In 2024, the Caribbean had an average emigration rate of 18.7%, with Jamaica showing the highest at 44.0% and The Bahamas the lowest at 2.0% (Figure 3.14, Panel B).
While remittances hold significant potential as a source of development financing in the Caribbean, their contribution to long‑term growth and investment remains limited. Remittances are an important source of external financing in the Caribbean, helping families pay for consumption and reduce poverty. A 2019 survey of remittance flows in the Dominican Republic found that up to 10% of migrants sent remittances to bolster family savings and many appeared to be supporting older parents who likely lack appropriate pensions (Martin et al., 2019[59]). A total of 9% of survey respondents sent remittances to themselves, which they used for savings or investments in their homes. However, their impact on long‑term development and investment remains limited. While large in scale, remittances have not been strongly linked to higher per capita growth. This is partly because many skilled workers migrate abroad, reducing the stock of human capital at home and thereby inducing brain drain. In Caribbean countries, migrants are often young and highly skilled, such as doctors, nurses, or engineers. Their departure can reduce the country’s economic potential, as remittances do not fully offset the negative impact of emigration on growth (IMF, 2017[60]) Remittances are also mostly used for consumption rather than productive investment.
Studies show that, although remittances can improve welfare and provide financial stability for households, their contribution to economic growth has been modest (Lim and Simmons, 2015[61]; KBeaton@imf.org et al., 2017[62]). Even so, remittances play a vital social role. They help families cover education, housing and health expenses, and can indirectly support human capital development over time.
Understanding how to better channel remittance flows into productive uses – such as financing small businesses or supporting community investment – could significantly enhance their developmental impact across the Caribbean. There are different ways to maximise the benefits of the region’s diaspora to increase development financing. For instance, countries could leverage economic ties with their overseas populations to stimulate FDI and boost tourism revenues. Strengthening diaspora networks through targeted investment promotion could also help harness the knowledge, skills and financial assets of these communities. Best practices illustrate how remittances are being channelled towards sustainable development. In 2012, a project in Haiti channelled remittances to finance clean energy investments, increasing household access to sustainable products while creating a scalable business model for the remittance service provider (Fomin and Arc Finance, 2012[63]). More recently, Pacific SIDS are piloting a remittance-based financing mechanism to fund micro-infrastructure, such as roof strappings and solar panels, aimed at enhancing household resilience, with an expected mobilisation of USD 35 million and impact on 9 000 households (OECD, 2024[64]).
Source: Authors’ calculations based on World Bank (2025[65]) World development indicators, received remittances, https://databank.worldbank.org/source/world-development-indicators and United Nations (2025[66]) International Migrant Stock 2024, https://doi.org/development/desa/pd/content/international-migrant-stock.
However, mobilising remittances for production investment is challenging. It would require either finding mechanisms that encourage recipients – often elderly relatives – to channel funds into investment rather than essential expenses, such as rent or healthcare, or incentivising migrants to send additional remittances directed towards productive uses. Both approaches face practical and social constraints. Diaspora investments – such as the financing of housing for temporary stays like Airbnb properties in Jamaica – can stimulate local economic activity. However, they may also have trade-offs, including driving up housing prices for residents. More broadly, improving the business environment and reinforcing strong institutions remain essential to raising productivity and ensuring that diaspora engagement contributes to inclusive and sustainable development.
Official development assistance (ODA)
ODA remains a vital source of external finance for Caribbean countries. Between 2000 and 2022, ODA represented on average 2.53% of the region’s GNI, well above the Latin American average of 1.54%. ODA flows have spiked in response to crises, such as natural disasters and the COVID‑19 pandemic. In 2022, Haiti absorbed 54% of ODA to the Caribbean, while several countries – including Barbados, Trinidad and Tobago, Saint Kitts and Nevis, and Antigua and Barbuda – had already graduated from ODA eligibility. This underscores the challenge of graduation criteria as rising GNI per capita does not necessarily reduce vulnerability to external shocks. Moreover, higher GNI does not automatically imply an improvement in the population’s well-being. In many countries, high levels of multi‑dimensional poverty persist, reflecting deprivations in education, health, housing and access to basic services – beyond monetary income. Likewise, the United Nations Human Development Index (HDI) – which combines indicators of health, education and income – shows that some countries with elevated GNI still face significant structural challenges in terms of human development.
To address these vulnerabilities, new metrics and frameworks are being explored to improve ODA allocation. This includes efforts to develop a more comprehensive map of country‑specific and regional vulnerabilities. This information would then be incorporated into the different financing allocation processes followed by bilateral and multilateral donors and lenders. Also, it is important to anticipate and respond to financing challenges that may emerge as countries advance along their development paths. In that sense, tools like the OECD’s Transition Finance can help countries navigate the shift away from ODA by anticipating financing challenges and mobilising alternative sources of funding. This mechanism can help Caribbean ODA recipients optimise their access to financing to reap their development potential.
Beyond ODA, Total Official Support for Sustainable Development (TOSSD) provides a broader measure of financing flows for the Caribbean. Between 2019 and 2022, the largest share of TOSSD resources supported SDG 13 on climate action (17.2%). This was followed by SDG 17 on global partnerships (15%) and SDG 10 on reducing inequalities (14.8%).
South‑South co‑operation is an increasingly important part of TOSSD, with Latin American partners such as Brazil, Mexico and Chile playing key roles. Brazil has been a major actor in South‑South co‑operation, particularly through its Brazilian Co‑operation Agency (ABC), an entity of the Ministry of Foreign Affairs (MRE), with efforts focused on areas such as food security, family farming and sustainable development. In 2022, Brazil alone implemented 213 activities with Caribbean partners. This included a project to improve irrigated rice production in the Dominican Republic, contributing to SDGs on zero hunger, clean water and responsible consumption.
The Brazil‑Caribbean Summit held in 2025 underscored Brazil’s renewed commitment to South‑South co‑operation. The meeting culminated in the signing of several agreements and memoranda of understanding aimed at advancing regional integration and strengthening collaboration in key areas. These included social development, connectivity, technical knowledge exchange, public sector management, and science and technology.
Development finance institutions (DFIs), including national development banks (NDBs), regional development banks (RDBs), multilateral development banks (MDBs), and development co‑operation agencies play a crucial role in financing development efforts in the Caribbean. There is considerable heterogeneity among NDBs in terms of institutional and financial capacity, with several small countries lacking one altogether. Accordingly, each NDB contributes to advancing sustainable development in the region within its own capacity. RDBs, MDBs and development co-operation agencies, with their cross‑country presence, cross‑sectoral experience and ability to combine financial support with technical assistance, are well positioned to complement these efforts. Beyond mobilising resources and enabling private sector participation in investment initiatives, they also serve as knowledge hubs, offering technical expertise and helping to scale up investments by supporting sector‑specific project pipelines.
NDBs vary in size and purpose across countries and some face significant constraints
NDBs in the Caribbean vary widely in size and purpose, with several focusing on development of small and medium‑sized enterprises (SMEs) (Table 3.2). NDBs in the Caribbean – such as the Development Bank of Jamaica (DBJ), the National Export‑Import Bank of Trinidad and Tobago (EXIMBANK) and the Saint Lucia Development Bank (SLDB) – play a central role in improving access to finance for SMEs, infrastructure development and climate-resilient projects. These institutions use market and blended finance instruments, such as concessional loans, credit guarantees, interest rate buy‑downs and technical assistance to address financing gaps and market failures, particularly in underfinanced sectors like agriculture, renewable energy and tourism. For example, the DBJ has launched lines of credit for energy efficiency improvements and adaptation measures in SMEs and the SLDB offers concessional financing for student loans and small business recovery (Ministry of Infrastructure of Saint Lucia, 2020[67]). However, many NDBs face constraints in capitalisation, risk appetite and technical capacity, limiting their ability to scale up investment and respond to climate‑related shocks.
Multilateral and regional development banks, in close co-ordination with NDBs, can help facilitate access to low-cost financing and technical assistance, including project preparation
RDBs and MDBs, in close co‑ordination with NDBs, can help Caribbean countries access low‑cost financing and technical assistance for complex sustainable development and climate projects. Often referred to as “knowledge banks”, institutions such as the Caribbean Development Bank (CDB), the Inter-American Development Bank (IDB), the World Bank and the European Investment Bank (EIB) combine financial capacity with technical expertise to design, fund and implement projects tailored to the needs of SIDS. Among other services, they offer emergency and long‑term finance in the form of investment and policy-based lending, technical support and analytical tools. For example, the EIB and SLDB provided USD 5 million to support micro, small and medium-sized enterprises (MSMEs) affected by COVID‑19 in Saint Lucia. This was complemented by EU‑funded technical assistance to strengthen SLDB’s capacity and promote inclusive financial services for women and youth (EIB, 2022[70]).
RDBs and MDBs also facilitate blended finance structures that attract private investment by assuming part of the project risk. The IDB’s NDC Invest platform supports countries like Jamaica and The Bahamas in structuring projects aligned with their Nationally Determined Contributions (NDCs). Meanwhile, the 2024 Blue Green Facility brings together Jamaica, the DBJ, the IMF, IDB, World Bank, EIB, US Aid for International Development and the United Kingdom to mobilise up to USD 500 million over five years. Through a mix of blended finance instruments, including grants, concessional loans, guarantees and equity, it aims to support climate adaptation, mitigation and MSME climate action (IMF, 2024[71]). The IDB, CAF and CDB launched a Caribbean multi‑guarantor debt‑for‑resilience initiative at COP30 in November 2025 to ease debt pressures, while expanding countries’ capacity to invest in climate resilience – an initiative being supported by IDB’s ONE Caribbean regional programme. By co‑ordinating guarantees across RDBs, MDBs and private partners, the initiative aims to streamline and scale debt‑for‑resilience swaps, create fiscal space for priority investments and strengthen the provision of regional public goods (IDB, 2025[72]). RDBs and MDBs can also help NDBs integrate international standards, such as environment, social and governance (ESG) safeguards, strengthen operational efficiency and build capacity through knowledge-sharing platforms like the Special Development Fund (CBD, 2025[73]) and the Regional Public Goods Initiative (IDB, 2025[74]).
Development co‑operation agencies, such as AFD, can also strengthen the work of RDBs and MDBs in the Caribbean. For example, the Caribbean Development Bank (CDB) and AFD have launched a new EUR 4 million Grant Facility to help Caribbean economies implement climate-smart, gender‑responsive and agriculture-focused initiatives. Over five years, it will finance gender research, agricultural investments, biodiversity finance tracking, sectoral studies, capacity building and project co-ordination. The initiative builds on the long‑standing CDB‑AFD partnership and complements a USD 50 million AFD-funded Credit Facility, further advancing climate resilience, reducing inequalities and promoting sustainable development in the region (CBD, 2025[75]).
Global financial institutions can also complement the work of RDBs and MDBs. For instance, through its capacity development initiatives under the G20 International Financial Architecture mandates, the IMF strengthens national institutions in tandem with MDB financing. Regional technical assistance centres, including the Central America, Panama and Dominican Republic Regional Technical Assistance Centre (CAPTAC-DR) and the Caribbean Regional Technical Assistance Centre (CARTAC), provide targeted support. This aims to improve public financial and debt management, and enhance institutional capacity for implementing sustainable development policies (IMF, 2025[76]). By combining MDB financing with IMF technical assistance, Caribbean countries can better mobilise resources, strengthen institutions and implement complex climate and development projects.
RDBs and MDBs can also play a critical role in helping Caribbean countries catalyse private investment in resilient infrastructure, while enhancing technical assistance in this area. Building such infrastructure requires an enabling investment environment, including incentives for private sector participation and the development of technical and institutional capabilities in both the public and private sectors. These challenges are often compounded when infrastructure issues have a regional dimension, requiring cross‑country co‑ordination.
Beyond providing loans to improve the investment climate, RDBs and MDBs offer technical assistance to governments to facilitate public‑private partnerships (Chapter 2) (Mooney, 2025[77]). Enabling private capital for resilient infrastructure financing can involve combining multilateral and national resources under programmatic approaches that benefit multiple countries. Examples include the Resilience and Sustainability Facility in Barbados (2022‑2025) and Jamaica (2023‑2025), where the IMF provides long‑term financing, while countries commit to reform programmes aimed at strengthening resilience to external shocks. MDBs such as the IDB and the World Bank act as implementation partners, offering financial and technical support in areas requiring high levels of sectoral expertise. Traditional approaches can also be repurposed to enable private capital for the region. Enhancing fiscal space through bilateral or multilateral lending, including policy-based loans and guarantees, at regular, blended or grant terms, can improve access to private debt markets. A pioneering example is the first regional, standardised, multi-country debt-for-resilience swap, requested by CARICOM and coordinated by the IDB, CAF, and the CDB, launched at COP30 as the Multi-Guarantor Debt-for-Resilience Joint Initiative (IDB, 2025[78]). By leveraging guarantees from MDBs and private sector actors, the initiative refinances costly sovereign debt to create fiscal space and redirects the savings toward priority resilience measures and regional public goods. The MDBs will jointly develop common principles for guarantee terms and shared taxonomies for resilience investments. The CDB is also advancing other initiatives and programmes to unlock capital for growth and resilience (Box 3.2).
In line with the G20’s call for Multilateral Development Banks (MDB) to evolve their operational models to increase financial capacity and maximise impact, the Caribbean Development Bank (CDB) is strengthening its development finance model to expand the scale and impact of its development resources available to its borrowing members.
Expanding capacity through balance sheet optimisation
CDB launched its Balance Sheet Optimisation (BSO) Programme to strengthen capital efficiency and increase lending headroom, guided by the 2023 G20 Capital Adequacy Framework. In May 2025, CDB implemented an Exposure Exchange Agreement (EEA) with the Central American Bank for Economic Integration (CABEI), the first among non-AAA and regional MDBs to do so. The transaction reduced CDB’s exposure to its most concentrated sovereign borrowers by USD 450 million. This translates to an approximately 20% reduction in Top 5 outstanding exposures, replacing it with exposure to six Latin American countries of equivalent risk. Two additional BSO transactions are planned: a portfolio guarantee from a highly rated shareholder, expected in 2026, and the development of a contingent capital instrument, which will be treated as risk-bearing capital by the rating agencies. These instruments increase the bank’s lending capacity without compromising stability or its AA+ rating.
Strengthening climate and sustainable finance delivery
To mobilise additional resources for climate action and sustainable development, CDB has established a Sustainable Finance Framework to guide the issuance of green, social and sustainability bonds as well as green and social loans, in line with international standards. Under this framework, the bank has successfully issued its first sustainable bond, the proceeds of which will be used to finance eligible green or social projects. The framework enhances CDB’s ability to expand its funding pool, leverage private investment and channel financing toward projects that advance sustainable development across the Caribbean.
In parallel, the bank is scaling up its climate finance operations to increase the flow of resources to climate resilient investments across Borrowing Member Countries (BMCs). In 2024, CDB channelled 33.5% of its own resources to climate finance and established targets to ensure that at least 30% of its Ordinary Capital Resources and 35% of Special Development Fund commitments support climate resilience. Additionally, in 2024, the Green Climate Fund raised the bank’s accreditation limit to USD 250 million per project or programme, five times the previous limit, enabling larger, more transformational operations. Complementing this, CDB’s Climate Change Project Preparation Fund, operationalised in 2025, supports the design of bankable climate action projects, enabling faster delivery of climate resilient outcomes.
Catalysing private investment and trade
CDB’s Trade Finance Guarantee Programme, introduced in 2025, will de-risk local financial institutions by covering part of confirming‑bank risk and expanding access to trade finance for SMEs. It will also crowd in private capital, while building the capacity of local financial institutions to provide trade finance solutions. CDB is further expanding its suite of blended‑finance and risk‑sharing instruments to unlock greater private investment in renewable energy, climate adaptation and infrastructure. This includes developing liquidity support mechanisms and leveraging partnerships to channel concessional and catalytic finance into high‑impact projects. The bank also continues to strengthen the enabling environment to accelerate private capital participation for priority sectors.
CDB is upgrading its toolkit to deliver larger, faster and more impactful financing. By strengthening capital efficiency, mobilising climate resources and catalysing private investment, the bank is better positioned to help the Caribbean meet its growing development needs. CDB is the only indigenous multilateral financial institution with a Caribbean-focused development mandate.
Source: (CBD, 2025[79]).
RDBs and MDBs also provide technical assistance in the form of project preparation mechanisms that can help transform early-stage concepts into viable, bankable projects. Project preparation remains a critical bottleneck in the Caribbean, reflecting persistent capacity and implementation gaps in project selection, the quality and efficiency of preparation, and the systematic integration of environmental and social sustainability considerations (Economist Impact, 2024[80]; Mooney, 2025[77]). Against this backdrop, the IDB ONE Caribbean regional programme, for instance, has established a dedicated Project Preparation and Coordination Mechanism (PPCM) to address core challenges in preparing and structuring viable, bankable projects for Caribbean countries. The PPCM provides technical and financial assistance for project development and is building long-term partnerships with investment and export promotion agencies – at both the national and regional levels – while adopting a flexible, cross-sectoral approach to identify and develop the most promising pipeline of projects (Chapter 2).
Mobilising finance and enabling investment for resilient infrastructure also requires co‑ordinating diverse stakeholders to overcome barriers inherent in such projects. These include high upfront costs, early-stage uncertainty and limited economies of scale. Effective co‑ordination involves governments, private investors, multilateral and bilateral banks, donors and a variety of financial instruments, including grants, loans, guarantees and equity across sectors and countries. A notable example is the Sustainable Energy Facility for the Eastern Caribbean, financed by the IDB through the CDB. This programme combines resources from the IDB, CDB, Clean Technology Fund, Global Environment Facility, Green Climate Fund and the Republic of Italy to support geothermal energy projects in Dominica, Nevis, Saint Vincent and Grenada. The initiative aims to transform the energy mix of six Eastern Caribbean countries – Antigua and Barbuda, Dominica, Grenada, Saint Kitts and Nevis, Saint Lucia, and Saint Vincent and the Grenadines – by emphasising complex geothermal investments, which are considered high-risk compared with more conventional renewable energy sources, such as solar or wind.
Innovative blended finance structures can mitigate risks, attract private capital and ensure the financial viability of such capital-intensive projects. IDB Invest blended investment helped launch Portland III – a multi‑sector private equity fund supporting the growth and regional expansion of mid‑sized Caribbean companies – by providing USD 3 million in concessional finance that enabled the fund to reach a USD 100 million first closing and pursue ambitious climate and gender targets through impact-linked incentives (IDB Invest, 2023[81]). For the Sustainable Energy Facility, the IDB provides loans funded by its ordinary capital, complemented by contingent recovery grants from the Clean Technology Fund, grants from the Global Environment Facility and the Republic of Italy and contingent recovery grants and loans from the Green Climate Fund. CDB channels this blended financing, combined with its own resources, as loans and grants to sub‑projects. Downstream, these funds are combined with public and private equity to support Special Purpose Vehicles (SPVs) responsible for operating specific geothermal projects (Figure 3.15).
Note: CDB=Caribbean Development Bank; CTF=Clean Technology Fund; GCF=Green Climate Fund; GEF=Global Environment Facility; IDB=Inter-American Development Bank.
The range of development-enhancing financial instruments available to Caribbean countries is broad, encompassing innovative tools that channel investment towards priority areas. On the one hand, instruments mobilise resources through debt markets and direct capital towards thematic development goals, including green, social, sustainability, sustainability-linked and blue (GSSSB) bonds, thematic debt conversions and carbon-pricing mechanisms. On the other hand, pre‑arranged financing mechanisms are designed to enhance resilience against natural disasters – a critical area for innovative finance in the Caribbean. This includes regional risk pools, catastrophe (CAT) bonds, contingent disaster loans and grants, and climate-resilient debt clauses (CRDCs).
Several Caribbean countries have pioneered innovative financing tools, often leading in both scale and frequency compared to other SIDS in Africa, the Indian Ocean and the Pacific. In the Dominican Republic, a USD 750 million green bond marked a milestone in the region’s participation in sovereign GSSSB markets. The Caribbean also leads globally in debt‑for‑nature swaps – with major operations in Belize, Barbados and The Bahamas – and in sovereign CAT bonds, led by Jamaica. Moreover, several Caribbean nations have been early adopters of climate-resilient debt clauses, setting an example for other SIDS in integrating sustainability and resilience into their debt frameworks (OECD, 2025[82]).
Deploying these instruments effectively requires careful consideration of context, institutional capacity and policy coherence. Each instrument carries distinct financial and opportunity costs, and more sophisticated tools are not always preferable to simpler alternatives. Their implementation also demands significant financial, human and political resources, which must be prioritised amid competing development objectives. Yet, despite rising demand for such instruments, technical assistance and capacity-building support remain insufficient. This highlights the need for sustained international engagement and stronger domestic institutions. To maximise their impact, these financial instruments should be embedded within broader, well-integrated public policy and fiscal strategies that align with national and regional development objectives.
Thematic bonds are increasingly used in the Caribbean as a sustainable financing tool, helping countries access growing ESG capital markets
Caribbean countries and corporate entities are increasingly using GSSSB bonds. Between 2019 and 2024, the international GSSS bond market in the Caribbean reached a cumulative value of USD 2 billion (Figure 3.16, Panel A). Green bonds lead the way with USD 804 million, followed by blue bonds at USD 385 million, sustainability bonds at USD 364 million and sustainability-linked bonds (SLBs) at USD 300million. Corporate issuers account for 44% of total issuances, sovereigns for 44% and quasi‑sovereigns for 22% (Figure 3.16, Panel B). Large transactions are dominated by sovereign issuers such as the Dominican Republic, Belize, The Bahamas, Barbados, and Trinidad and Tobago. Evidence suggests that thematic bonds help broaden sovereign investor bases by drawing in new categories of investors, notably from European markets (Torres Pelaez et al., 2024[83]). Moreover, sovereign issuers in the region can benefit from a green premium (greenium) when issuing green bonds, resulting in slightly lower borrowing costs than conventional bonds; however, these gains remain limited and depend on credible frameworks, external verification and sustained issuance strategies (see the section below on enhanced regulation and oversight) (Roch, Brichetti and Cavallo, 2025[84]).
Despite their promise, GSSSB bonds face several challenges in the Caribbean that require innovation in the thematic bond space. Greater flexibility in the use of proceeds and performance-based pricing could enhance the attractiveness of SLBs for both issuers and investors. However, these added complexities require stronger institutional capacity and further market development. Moreover, small issuance sizes often lead to high transaction costs and limited secondary market liquidity, making Caribbean bonds less appealing to international investors.
Note: Sustainability label bonds include a USD 364 million debt‑for‑nature conversion by Belize. SLBs include a USD 73 million sustainability-linked bond issued by BB Blue DAC to advance a loan to the Barbados government as part of a debt‑for‑nature swap.
Source: Authors’ elaboration based on OECD/IDB (2024[36]), Caribbean Development Dynamics 2025, https://doi.org/10.1787/a8e79405-en.
Scaling up GSSSB bond issuance requires strengthening the institutional framework. This, in turn, entails building institutional capacity, improving regulatory frameworks, enhancing transparency and finding ways to overcome size-related constraints. Bilateral and multilateral partners play an active role in these efforts by providing technical assistance alongside financial support and promoting cross-country co‑ordination for regional solutions. However, even with a sound institutional strategy for the issuance and management of thematic securities, robust pipelines of bankable projects aligned with national development strategies remain essential to scale up investment. MDBs can also contribute to institutional strengthening by creating facilities to prepare projects (Chapter 2).
Thematic debt conversions have gained prominence in the region
Thematic debt conversions are financial arrangements that reduce a country’s foreign debt in exchange for a commitment to invest in a specific development goal. These deals are typically structured to allow debt buybacks at discounted rates, with the resulting savings redirected towards environmental outcomes. In some cases, the transaction takes the form of a swap, with the same investor exchanging one type of asset for another. In other cases, the country repurchases debt from a specific set of investors and issues new securities that any willing investor can acquire in the capital markets.
Thematic debt conversions have gained prominence in recent years, with Caribbean countries leading many large-scale operations. In Belize, for example, the debt‑for‑nature swap (DFNS) in 2021 linked to marine conservation created an SPV – the Belize Blue Investment Company – to issue blue bonds. This enabled the buyback of USD 553 million in external debt and channelling of around USD 180 million towards conservation funding over 20 years (CFFA, 2022[85]). Similarly, in Barbados, the 2022 DFNS created the Barbados Environmental Sustainability Fund to manage proceeds from a bond refinancing operation facilitated through an SPV structure (The Nature Conservancy, 2023[86]). Barbados has engaged in two highly innovative debt transactions in recent years to advance nature conservation and build climate resilience (Box 3.3). Moreover, in 2024, The Bahamas also launched a USD 300 million debt-for-nature swap with the support of The Nature Conservancy, the IDB, and private partners including Builders Vision, AXA XL, and Standard Chartered. The operation refinanced USD 300 million of external commercial debt and is expected to generate around USD 124 million for marine conservation over 15 years, supported by IDB guarantees and private-sector risk sharing (IDB, 2024[87]).
In September 2022, Barbados conducted a debt‑for‑nature transaction with the support of the Inter‑American Development Bank (IDB) and The Nature Conservancy (TNC) to improve its debt profile and support marine conservation. The country contracted new debt equivalent to USD 147 million (about 3% of GDP), with a 100% guarantee issued by the IDB (AAA‑rated) and TNC (AA‑rated). The proceeds were immediately used to buy back part of the outstanding Eurobonds (6.5% note due in 2029), as well as domestic bonds (8% bonds). The transaction is expected to generate savings of around USD 50 million over 15 years. These savings will flow into a conservation fund to enhance marine protection.
In November 2024, the Government of Barbados conducted another debt‑for‑climate swap with the support of the IDB and the European Investment Bank (EIB). The joint guarantee of USD 300 million was used to contract new domestic debt through a syndicated loan with a fixed interest rate of 3.5%, with the proceeds channelled to repurchase outstanding domestic bonds. The stream of savings, estimated at USD 110 million over ten years, is being used to upgrade the South Coast water and sewage treatment plant. The project is funded by an IDB investment loan, alongside a Green Climate Fund grant and concessional loan.
In exchange for the guarantees, the government has committed to a series of policy reforms. In addition, sustainability-linked performance targets are included in both transactions. In keeping with the agreement, financial penalties will be charged and channelled to the Barbados Environmental Sustainability Fund if the government does not reach certain goals. These mechanisms ensure that commitment towards advancing the reform agenda and enhancing sustainability is demonstrated and maintained.
Special Purpose Vehicle (SPV) structures can enhance thematic debt conversions but introduce additional complexity that often requires external support. SPVs can facilitate private investor participation, improve risk management and provide a transparent governance structure for funds. However, setting up and managing an SPV entails legal, administrative and financial complexities and costs, often requiring external support and technical assistance. In contrast, earlier bilateral swaps, such as the 2008 agreement in Seychelles, did not involve an SPV and instead relied on direct arrangements between the government, creditors and conservation partners (The Commonwealth, 2020[90]). While simpler to execute, these deals tend to be smaller in scale and limited to public creditors.
Scaling up thematic debt conversions is often complex. These transactions require strengthening local institutional capacity, improving regulatory frameworks and enhancing transparency. Consequently, simpler instruments – such as regular policy-support operations with DFIs – may be preferable for some Caribbean governments. The choice of thematic debt conversions typically depends on two factors: the size of the operation and the difference between old and new debt contracts (i.e. the premium between the interest rate on repurchased and newly issued securities). This, in turn, reflects country-specific risk perceptions and market appetite for thematic investments.
Thematic debt conversions also demand high levels of co‑ordination among governments, bilateral creditors and conservation actors – an especially heavy burden for Caribbean administrations with limited staffing. DFIs can play an active role by offering concessional guarantees to enhance investor appeal and facilitating inter‑institutional and regional co‑ordination. MDBs can help reduce issuance costs by pooling projects, creating regional platforms for verification and monitoring, and providing adaptable guidelines and templates. The regional, standardised debt‑for‑resilience multi‑country swap programme announced at the Brazil-Caribbean Summit provides a recent example. In this case, CARICOM Chair and Barbados Prime Minister Mia Mottley requested the IDB lead co‑ordination efforts with other multilateral institutions.
Thematic debt conversions can affect a country’s sovereign credit ratings. While such transactions may be viewed as measures to strengthen fiscal sustainability and demonstrate prudent debt management, they can also be interpreted as a form of debt restructuring. Credit rating agencies have adopted differing approaches in this regard. Moody’s classified the 2021 transaction in Belize, and the 2023 and 2024 deals in Ecuador as distressed exchanges. However, these classifications did not change their sovereign credit ratings. In contrast, Fitch and Standard & Poor's (S&P) did not treat these operations as distressed exchanges or default events.
Carbon credit markets are becoming an increasingly important instrument for Caribbean countries to attract foreign investment
Carbon markets are becoming an increasingly important source of climate finance for the Caribbean. Carbon pricing now covers around 28% of global emissions and in 2024 alone, over USD 100 billion was mobilised through carbon-pricing mechanisms. Demand in compliance carbon markets has also surged. Countries such as Brazil, Colombia, Guyana and Peru have begun accessing climate finance through projects that generate carbon credits in voluntary markets and by linking to international compliance markets, where financing is available on a much larger scale. Other countries, including several in the Caribbean, such as Jamaica, are developing domestic carbon markets as policy tools to help meet their NDCs under the Paris Agreement (IDB, 2024[91]).
Caribbean countries are adopting carbon credit markets to attract foreign investment. Currently, 80 carbon taxes and emissions trading systems (ETSs) operate worldwide – a fivefold increase in the past year (World Bank, 2025[92]). Revenues from carbon credits are three times higher in real terms than a decade ago. This reflects the rapid growth of global carbon markets, although revenues were slightly lower in 2024 compared with 2023. In the Caribbean, Guyana is leading carbon market development. The country has established a voluntary carbon market focused on selling forest-based carbon credits to attract investment (Box 3.4). The Dominican Republic has started designing a pilot ETS to move towards an operational carbon market (UNFCCC, 2025[93]). Grenada and Saint Lucia are building technical readiness through capacity-building initiatives supported by the Global Carbon Market of Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) (OECS, 2022[94]).
Other Caribbean nations are seeking to monetise their ocean resources and conservation efforts through blue carbon credits. Although many Caribbean countries have small land areas, they are large ocean states. Countries within the Organisation of Eastern Caribbean States (OECS) have exclusive economic zones that are 81 times the size of their landmass. Given its critical role in sequestering carbon, the ocean represents an asset and a catalyst for investment (Chapter 2). In 2025, The Bahamas launched the world’s first blue-carbon sovereign securities transaction. Through a partnership with Laconic Infrastructure Partners and public-private entity Carbon Management Ltd., The Bahamas will use digital tools to measure and verify how much carbon is absorbed by seagrasses and then turn these verified carbon removals into tradable Sovereign Carbon Securities that can be sold on global markets (Laconic Global, 2025[95]).
Guyana is a leader in the Caribbean region in carbon credits and voluntary carbon markets, using its forests to generate revenue in exchange for its protection and conservation. The country's forested area, part of the Amazon, spans 18 million hectares (87% of the country), storing 21.8 billion tonnes of carbon dioxide. Companies can buy carbon credits issued to Guyana under the REDD+ Environmental Excellence Standard (TREES) framework to offset their carbon emissions.
The 2020 Low Carbon Development Strategy outlines how much Guyana can earn from the climate services provided by its forests. In keeping with this strategy, the UN-backed Architecture for Reducing Emissions from Deforestation and forest Degradation (REDD+) Transactions (ART) issued Guyana 7.14 million 2021 TREES credits in February 2024. Guyana became the first-ever government to report a corresponding adjustment to the United Nations Framework Convention on Climate Change (UNFCCC) for its associated emission reductions. The credits issued in February 2024 came on top of 33.47 million TREES credits issued by ART to Guyana in December 2022 for its work on actively protecting its forests between 2016 and 2020 (ART, 2025[96]).
Later in 2024, Guyana authorised the use of its carbon credits for compliance under Phase I of the United Nations (UN) Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), allowing airlines participating in CORSIA to offset emissions. Through CORSIA, Guyana has sold carbon credits equivalent to approximately USD 750 million (over 14% of 2020 GDP or 3% of 2024 GDP). These credits are to be paid over 2022‑2032. So far, the government has already received USD 237.5 million (Government of Guyana, 2025).
Of these carbon credit sales, 15% are earmarked for investment in community-led activities to be decided by Indigenous Peoples and local communities in Guyana, recognising their dependence on the forest and its ecosystem services. The remaining 85% of revenue from carbon credits are to be invested in land titling for Indigenous villages, renewable energy, repairing canals and protecting against climate change (ART, 2025[96]). Between 2020 and 2024, carbon credit revenues in Guyana primarily supported climate adaptation and mitigation projects in the country's hinterland, including drainage and solar power farms. In 2025, the government budgeted a further USD 512.5 million from carbon credits to finance drainage and Amerindian village sustainability plans. Over 2022‑2024, Amerindian villages received USD 9.5 million for 800 projects in the areas of agriculture, tourism, transport and education, among others (Government of Guyana, 2025[97]).
For the Caribbean, developing carbon markets offers significant potential to attract investment, but strong regulatory and verification frameworks are essential. Without robust governance, carbon markets risk undermining environmental and financial integrity, leading to issues such as carbon leakage, double counting of emission reductions and unclear ownership of carbon credit rights. These problems can weaken the effectiveness of carbon markets as tools for mobilising climate finance for both mitigation and adaptation. The Global Carbon Market project – funded by Germany’s Ministry for Economic Affairs and Energy in partnership with the OECS – is laying the groundwork for a regional carbon market underpinned by strong regulatory frameworks. Through stakeholder engagement, capacity building and initiatives, such as mangrove-based offsets, the project aims to establish a Caribbean Alliance on Carbon Markets and Climate Finance (BMWE, 2025[98]). It supports governments in developing the necessary institutional and technical capacities to participate effectively in both voluntary carbon markets and emerging mechanisms under the Paris Agreement (BMWE, 2025[98]).
The Caribbean is also increasingly using innovative pre-arranged financing instruments to strengthen financial resilience to natural disasters
Caribbean countries have innovated in the transition from purely reactive approaches to pre‑arranged financing for natural disasters. Instead of allocating resources for disasters after an event occurs, they are moving towards pre‑arranged financing approved in advance of crises and released when pre‑identified triggers are met (Mustapha and Benson, 2024[99]; Plichta and Poole, 2024[100]). The Caribbean is increasingly using pre‑arranged financing instruments to enhance resilience to natural disasters, a key area for innovative financing. These instruments comprise regional risk pools, CAT bonds, contingent loans and grants, and climate-resilient debt clauses. Similar advances in other regions, including in Emerging Asian countries, indicate the benefits of multi-layered disaster risk financing frameworks that combine pre-arranged financing instruments and traditional budgetary tools (OECD, 2025[101]).
Regional risk pools
Regional risk pools are mechanisms through which multiple countries share and diversify the financial risks of disasters, allowing for more efficient and collective management of catastrophic events. They are a proactive instrument that requires regional co‑operation and helps eliminate moral hazard. In the Caribbean, the CCRIF Segregated Portfolio Company (CCRIF SPC, formerly the Caribbean Catastrophe Risk Insurance Facility) is a non-profit insurance entity that provides risk instruments by pooling the risks of participating countries into a single, better-diversified mechanism. Since its inception in 2007, CCRIF SPC has made 81 payouts totalling USD 462 million to member governments across 19 Caribbean countries and four Central American countries1 (CCRIF SPC, 2026[102]). In 2025, CCRIF SPC disbursed a USD 70.8 million payout to the Government of Jamaica, its largest to date, within 14 days of Hurricane Melissa (CCRIF SPC, 2026[102]).Evidence from the Association of Southeast Asian Nations (ASEAN) countries show that regional disaster risk-sharing arrangements can deliver significant diversification and resilience benefits, as carefully selected country groupings with weakly correlated loss profiles can form effective multi-country catastrophe risk-sharing pools (OECD, 2025[101]).
Political ownership is key to the success of regional risk pools; CARICOM played a central role in establishing CCRIF SPC. The main advantages of regional risk pools include designing and validating insurance products for a range of similar countries, joint procurement of coverage and the ability to mobilise donor funding to cover insurance premiums (World Bank, 2017[103]; Cebotari and Youssef, 2020[104]). However, their regulatory frameworks, levels of capitalisation and reliance on reinsurance markets limit the scale of their operations (Mustapha and Benson, 2024[99]).
Regional risk pools such as CCRIF face several challenges that will shape their effectiveness going forward, requiring both stronger institutional capacity and greater value for members. Pools need to continue improving value for money by limiting costs, passing on price benefits and fully leveraging co‑benefits, such as data platforms, modelling tools and knowledge exchange. On institutional capacity, a key priority – particularly for CCRIF – will be helping countries integrate these tools into broader disaster risk management and fiscal planning, including through more accessible risk models and stronger contingency planning (Martinez-Diaz, Sidner and Mcclamrock, 2019[105]).
It is also important for regional risk pools to manage expectations and basis risk as members will expect payouts when disasters strike. Pools need to better manage unmet expectations and basis risk through continual model improvements, transparent rules-based processes and, where appropriate, secondary triggers. Ensuring access and affordability will also require more strategic premium support from donors and MDBs, while recognising the fiscal risks of using loans to pay premiums. Looking ahead, pools need to accelerate product innovation – from new sovereign parametric covers to sector-specific instruments –and deepen collaboration with MDBs to build local capacity on risk layering. They also need to communicate that insurance complements, but cannot replace, the need for large-scale climate finance, ensuring sustained political support for their role in providing rapid post‑disaster liquidity (Martinez-Diaz, Sidner and Mcclamrock, 2019[105]).
Catastrophe bonds
CAT bonds are risk transfer securities that provide payouts when specific disaster parameters are triggered. In 2014, Grenada issued a parametric CAT bond through the World Bank’s Global Facility for Disaster Reduction and Recovery, becoming one of the first Caribbean countries to pilot such instruments. More recently, in 2021, the World Bank issued a CAT bond, providing the Government of Jamaica with financial protection of up to USD 185 million against losses from named storms for three Atlantic tropical cyclone seasons ending in December 2023. After the expiry of this bond, in 2024, it was renewed with USD 150 million in financial protection for four hurricane seasons (World Bank, 2024[106]). In October 2025, the full payout of USD 150 million to Jamaica was triggered after Hurricane Melissa met the pre‑agreed parametric criteria of the World Bank catastrophe bond, based on the storm’s central pressure and path as analysed by AIR Worldwide Corporation. This payout provided immediate financial support to help the country respond to the disaster, fund relief and reconstruction efforts, and strengthen climate-resilient infrastructure (World Bank, 2025[107]).
Despite growing interest, the adoption of CAT bonds remains limited in the Caribbean. Broader uptake is deterred by high issuance costs, limited domestic expertise, challenges in defining parametric triggers that match actual losses and limited information on assets’ exposure, which makes it more difficult to design triggers that minimise basis risks. Investors often require high premiums due to the perceived risk and limited diversification in the region, while small country sizes make individual issuances less economically viable. Countries also struggle with the timing and use of payouts, as well as with integrating CAT bonds into broader disaster risk management and fiscal frameworks (OECD, 2024[108]).
Establishing clear guidelines and protocols for each stakeholder's involvement will help to streamline processes, mitigate risks and enhance market confidence. These bonds transfer natural disaster risks from governments to investors using measurable physical parameters – such as central air pressure thresholds – rather than actual damages to determine payouts. In some cases, this can leave countries without support despite severe impacts. In 2024, for example, Jamaica suffered significant destruction during Hurricane Beryl, but its USD 150 million World Bank-sponsored CAT bond did not pay out. The storm’s central pressure did not fall below the required threshold in any of the 19 pre‑defined grid sections and its most intense core passed 72 km offshore from Kingston. This illustrates the issue of basis risk, where bond payouts do not correspond to actual losses on the ground.
While parametric triggers provide transparency and predictability for investors, they can result in gaps in coverage. In Jamaica, the updated 2024 CAT bond was approximately 60% more expensive than earlier versions due to rising climate risks and investor demands for returns near 15%; this highlights the trade-off between cost and coverage. CAT bonds remain valued for their ability to provide rapid, rules-based disbursement. However, the experience of Jamaica demonstrates the challenges of aligning these instruments with the practical needs of disaster-affected nations, especially under atypical weather events (Bretton Woods Project, 2024[109]).
Contingent loans and grants
Less complex risk-retention instruments, such as contingent loans and grants, have had a much larger acceptance among Caribbean countries. Contingent credit instruments account for nearly 70% of pre‑arranged disaster coverage in low‑ and middle-income countries, with contingent disaster loans and grants provided by MDBs increasing by 126% between 2017 and 2023 (Plichta and Poole, 2024[100]). These instruments consist of loans and grants prepared and approved in advance of an eligible event. They are disbursed following a disaster if a set of pre‑agreed conditions is met. Such instruments have been widely adopted in the Caribbean (Box 3.5). In 2025, USD 300 million was made available to Jamaica through the IDB’s Contingent Credit Facility (CCF) following Hurricane Melissa (IDB, 2025[110]). One key reason for their popularity is that disbursements from MDB-contingent loans and grants – like regional risk pools – are among the quickest and most predictable flows reaching government accounts after a qualifying event (Mustapha and Benson, 2024[99]). These instruments provide contingent liquidity that does not add to the debt stock unless triggered, making them a valuable complement to budgetary buffers and insurance arrangements. Nonetheless, the macro-fiscal framework should incorporate a contingent-liability analysis to assess the impact of triggered flows on debt levels.
The Contingent Credit Facility for Natural Disaster and Public Health Emergencies (CCF) is an ex-ante risk-financing instrument to help borrowing Member countries strengthen effective financial management of natural disaster and public health risks.
The CCF aims to provide Members with immediate liquidity following a natural disaster or public health event of severe or catastrophic proportions. To that end, fast eligibility and simple verification stages enable governments to count on fresh resources for timely humanitarian relief and restoration of basic services after a severe or catastrophic event. Studies from around the world that compare the speed of post‑disaster response find that affected communities that benefit from immediate aid and resources have improved human development outcomes – other things being equal – to communities that faced delayed or protracted responses.
CCF loans can include two modalities of coverage. The first one provides parametric coverage for natural disasters for up to USD 300 million or 2% of GDP, whichever is less. The second one provides non-parametric coverage for natural disasters and public health risks for up to USD 100 million or 1% of GDP, whichever is less.
Proceeds from CCF loans are used exclusively to cover extraordinary government expenditures incurred in the 180-270 calendar days following the onset of an eligible event.
The current CCF portfolio in the Caribbean includes coverage for The Bahamas (hurricanes), Barbados (hurricanes, excess rainfall), Belize (hurricanes, excess rainfall), the Dominican Republic (earthquakes, hurricanes, excess rainfall), Jamaica (earthquakes, hurricanes) and Suriname (floods).
Source: (IDB, 2025[111]).
Climate-resilient debt clauses
Sovereign debt contracts increasingly include climate-resilient debt clauses (CRDCs) to enhance fiscal flexibility following extreme events, but their impact on borrowing costs and the perception of investors remains unclear. CRDCs are increasingly included in sovereign debt contracts to enhance fiscal flexibility following extreme events. These clauses typically allow governments to defer debt service for a limited period after a natural disaster, freeing resources for emergency response and recovery. Barbados was among the first in the region to adopt such clauses in its 2018-2019 debt restructuring agreements. Grenada, and Saint Vincent and the Grenadines also used debt service pause clauses after Hurricane Beryl as part of broader disaster risk-financing strategies that included pre‑arranged instruments. In 2024, in a world first, Grenada was able to pause debt repayment due to a hurricane debt suspension clause after Hurricane Beryl, saving the country USD 28 million. While the clauses delivered swift liquidity relief, limited uptake by private creditors and Grenada’s ongoing absence from capital markets raised questions about their impact on borrowing costs and investor perception (Mustapha, 2025[112]).
Barbados pioneers the integration of CRDCs into sovereign bond issuances. In 2024, Barbados enacted the Debt (Natural Disaster and Pandemic Deferment of Payment) (Miscellaneous Provisions) Bill. This allowed deferral of principal and interest payments for two years in the event of a qualifying natural disaster or pandemic under the CCRIF. Reflecting the aim of Bridgetown 1.0 to embed automatic shock-response mechanisms in the global financial architecture, Barbados issued a USD 500 million Eurobond in June 2025 that included both CRDCs and pandemic clauses. This marked the first use of such clauses in a primary market transaction, offering a replicable model for other climate-vulnerable countries to manage external shocks without losing market access (Fitch Ratings, 2025[113]).
Unlike standard sovereign debt clauses, CRDCs are not yet common in international debt markets and require careful negotiation with creditors. Many bondholders are reluctant to accept such terms without additional risk premiums and some multilateral lenders have yet to fully embrace their inclusion. There is also uncertainty around what constitutes a qualifying event and how it may affect sovereign credit ratings and investor perceptions. Without strong legal language and objective disaster triggers, these clauses may not provide the timely fiscal relief that governments in the region expect. Furthermore, the clause must be ready to be activated – but not exercised – until the event occurs to avoid being treated as a form of debt restructuring.
MDBs have become major drivers in the expansion of CRDCs in the region, actively promoting the instrument across their lending portfolios and within the broader financial system. The IDB pioneered the use of these clauses in 2021, initially through a pilot phase focused on Caribbean countries – marking a significant step forward in the region’s toolkit for managing natural disaster risks. Interest has grown rapidly since then: as of July 2025, seven countries – including Barbados, Belize, Ecuador, El Salvador, Panama and The Bahamas – have incorporated these clauses into their loan contracts with the IDB, amounting to a total of approximately USD 3 855 million. Formally known as the Principal Payment Option (PPO), the IDB’s resilient debt clause allows countries to defer principal payments for two years following an eligible natural disaster and to repay the deferred amounts in later instalments. This deferral is neutral with respect to the loan’s weighted average life and does not extend its original maturity; interest payments must continue to be made. By providing temporary liquidity at a critical moment, the PPO offers countries essential financial relief to address urgent post‑disaster needs. Only IDB Member countries with access to the Contingent Credit Facility (CCF) are eligible to contract the PPO (Inter American Development Bank, 2024[114]).
CRDCs remain relatively new and have been triggered only a few times. Grenada, and Saint Vincent and the Grenadines used them to defer debt payments to bondholders and the World Bank, respectively, after Hurricane Beryl. These arrangements were complemented by other pre‑arranged financing instruments, some of which provided substantial payouts following the hurricane (Mustapha, 2025[112]). Given the limited number of instances, empirical evidence on their effectiveness remains scarce and comprehensive impact assessments are still needed.
To maximise the impact of pre-arranged disaster finance instruments, coherent frameworks are needed to guide their use
Coherent frameworks are needed to guide the selection and use of pre‑arranged disaster finance instruments to ensure they complement each other as much as possible. Yet, countries often fall short in fully integrating their national disaster risk finance strategies into broader fiscal policy frameworks. Effective risk financing must align with external debt management strategies to ensure fiscal sustainability and consistency with overall financial planning, while investments in resilience require mainstreaming within public investment systems and budget programming to support proper prioritisation and efficient resource use. The OECD’s framework for strengthening financial management of climate-related risks emphasises the importance of reporting climate-related risks and their fiscal implications, mitigating financial losses through risk reduction, adaptation, insurance, and clear compensation arrangements, and preparing integrated financial strategies that combine budgetary tools, debt financing, and risk transfer instruments (OECD, 2022[115]). A comprehensive risk-layering approach should also be embedded within wider disaster risk management efforts that include preparedness, prevention, risk reduction and rapid post‑disaster response. Within this framework, instruments such as contingent credit lines and CAT bonds should be combined strategically, recognising that no single tool can efficiently cover all types and layers of risk.
Different risk retention and risk transfer instruments need to be sequenced according to the probability and expected impact of potential events. A national disaster risk finance strategy typically orders instruments by their suitability: reserve funds for medium‑ to high-probability events with low impact at the base; risk retention instruments for medium‑ to high-frequency events with moderate impact in the middle; and risk transfer instruments for low-probability, high-impact events at the top (Figure 3.17) (Mustapha and Benson, 2024[99]). This structured approach can help ensure that adequate resources are available when needed, while integrating disaster risk considerations across fiscal and social protection systems. Ultimately, risk layering should complement broader strategies that strengthen preparedness, reduce vulnerabilities and build fiscal and financial resilience to shocks, ensuring that disaster responsiveness is systematically embedded in national policies. Moreover, MDBs can support data systems, risk-transfer mechanisms, and pre-arranged financing instruments that align incentives, reduce moral hazard, and help countries manage public and private disaster risks more effectively (Durante et al., 2010[116]).
Source: Based on material provided by the IDB disaster risk finance team and Mustapha and Benson (2024[99]), Demystifying Pre‑arranged Financing for Governments: A Stocktake of Financial Instruments from International Financial Institutions, https://www.disasterprotection.org/publications-centre/demystifying-pre-arranged-financing-for-governments.
Coherent frameworks combining multiple instruments should consider country-specific needs, commercial and market factors, and broader aspects of fiscal, economic and political context. For example, Jamaica’s National Natural Disaster Risk Financing Policy, unveiled in 2022, addresses climate risks using a layered approach (Figure 3.18). Low-severity, high-frequency events are managed through budgetary reallocations. Higher-frequency events with low or high expected severity are addressed using a combination of risk retention resources. These include special government funds – the National Disasters Reserve Fund, the Contingencies Fund and the National Disaster Fund – and pre‑arranged financing, such as the Credit Facility for Natural Disasters (IDB) and the Catastrophe Deferred Drawdown Option (World Bank). Low-frequency, high-impact events are covered through risk transfer instruments, including insurance from the CCRIF and CAT bonds.
Source: Clarke (2024[117]), Building robust disaster risk financing framework, https://jamaica-gleaner.com/article/commentary/20240728/nigel-clarke-building-robust-disaster-risk-financing-framework.
At the same time, risk management strategies should be integrated into a broader risk-hedging approach that accounts for the country’s full spectrum of risks. Social bonds and other thematic investment instruments should be aligned with a macro-fiscal framework that balances development objectives with macroeconomic stability. This should ensure consistency between disaster risk management strategies, social protection systems and overall risk-hedging efforts. Instrument selection should also consider interactions between public policy objectives and frameworks as, in some cases, traditional instruments may be more appropriate than innovative or cutting-edge options.
There is significant scope to improve the design, implementation and scaling of disaster financing instruments. In disaster coverage, a promising area for innovation is early action – deploying financing once an event becomes highly likely but has not yet occurred. Pre‑arranged financing for such early action requires a higher level of operational readiness. Thus, collaboration between Caribbean governments and international organisations will be key to assessing its relevance, feasibility and cost effectiveness.
Enhanced regulation and oversight play pivotal roles in ensuring the efficacy of sustainable finance instruments while mitigating associated risks
Establishing robust, sustainable finance frameworks is essential for enhancing transparency and attractiveness in regional markets while mitigating risks. Given the vulnerability of many Caribbean countries to climate change, transparent, sustainable frameworks are crucial to ensure investment and promote innovation across various fronts (UNDP, 2023[118]). This requires developing and refining various mechanisms, including taxonomies, standards, guidelines, policies, international co‑operation initiatives and regulations. These mechanisms may be created by the public sector, the private sector or through collaboration between both. For sustainable finance instruments such as green, social and sustainability (GSS) bonds, issuers at both national and international levels have developed frameworks to enhance transparency. These frameworks aim to ensure credible verification of the use of proceeds and their environmental and social impacts, which remain a key challenge for GSS bond issuance. For example, the IDB has developed a Sustainable Debt Framework aligned with the International Capital Market Association (ICMA) green, social and sustainability bond principles. Under this framework, the IDB issues GSS bonds to finance or refinance eligible projects and programmes across Latin America and the Caribbean, with annual allocation and impact reports required to meet transparency and disclosure standards (Inter American Development Bank, 2024[119]).
Sustainable finance frameworks often follow three key objectives: integrating economic, social and governance principles into financial sector operations; climate risk management and sustainability financing. The diverse components of these frameworks make a unified definition challenging, requiring enhanced co‑ordination. Greater efforts in the Caribbean region are needed to foster more consolidated sustainable finance frameworks, ensuring comparability, certainty, credibility, integrity and transparency in the market.
While the Dominican Republic remains the only Caribbean country with a green taxonomy, other nations in the region are advancing in the design of sustainable finance frameworks (Figure 3.19). Efforts focus on green protocols, surveys and climate risk guidelines involving diverse stakeholders.
In 2018, the Stock Exchange of the Dominican Republic took a pioneering step by establishing the Green Finance Segment, followed by the issuance of the Green Bond Guide in 2019. In June 2024, it published the first green taxonomy in the Caribbean and the Framework for Green, Social and Sustainable Bonds through the Ministry of Finance. These aimed to help investors, companies and other market participants more easily identify strategic investment opportunities that align with the country’s environmental objectives, such as those outlined in the Paris Agreement.
In 2022, Jamaica published a report on climate-related financial risks and conducted surveys to enhance its sustainable finance framework. By 2024, the country had developed a framework for green bond issuance with support from the IMF Resilience and Sustainability Facility programme and technical assistance from the Inter-American Development Bank (IDB) (IMF, 2024[120]). That same year, the Jamaica Stock Exchange developed the Green Bond Plus, a platform for trading and issuing green, social, sustainability and SLBs (UNDP, 2025[121]).
In 2024, Eastern Caribbean states launched a three-year pilot programme to green the Eastern Caribbean Currency Union financial system. Participating states comprised Anguilla, Antigua and Barbuda, Dominica, Grenada, Montserrat, Saint Lucia, Saint Vincent and the Grenadines, and Saint Kitts and Nevis. That same year, the Eastern Caribbean Central Bank also developed regional frameworks for climate stress testing and green finance, including a Regional Renewable Energy Infrastructure Investment Facility.
In 2025, the English-speaking Caribbean entered the development phase of a regional green finance taxonomy, following an operational agreement between the CARICOM Committee of Central Bank Governors and the International Finance Corporation (IFC, 2025[122]).
Note: *Eastern Caribbean States comprise Anguilla, Antigua and Barbuda, Dominica, Grenada, Montserrat, Saint Lucia, Saint Vincent and the Grenadines, and Saint Kitts and Nevis. DOM=Dominican Republic; JAM=Jamaica; IMF SRF=International Monetary Fund's Resilience and Sustainability Facility.
Source: Authors’ elaboration based on SBFN (2024[123]), Country Profiles, https://data.sbfnetwork.org/country-profiles.
Financing the Caribbean’s development agenda requires a multi-pronged approach that combines domestic resource mobilisation, private sector engagement, and innovative financial instruments. Enhancing tax systems and fiscal frameworks can increase public revenues, while regional integration, remittance channels, and targeted ODA can mobilise additional private capital. NDBs in co‑ordination with MDBs and co-operation development agencies are central to expanding financing for SMEs, green infrastructure, and climate-resilient projects through blended finance and technical support. At the same time, expanding GSSSB bonds, thematic debt conversions, carbon markets, and pre-arranged financing instruments can mobilise resources for environmental, social, and resilience goals, with robust frameworks and oversight ensuring efficiency and fiscal sustainability (Box 3.6).
Reinforcing domestic resource mobilisation
Rethink the structure of tax systems to move towards a larger relative contribution of direct taxes, including by stronger personal income tax collection and the rationalisation of corporate income tax incentives. The latter should prioritise expenditure-based incentives over income-based, and enhance their governance, targeting, and evaluation.
Strengthen international tax cooperation by fully implementing standards on transparency, exchange of information, and beneficial ownership to combat tax evasion and base erosion.
Improve tax morale and public trust by strengthening transparency, accountability, and communication on public spending, while improving tax education.
Ensure rigorous oversight and due diligence of Citizenship by Investment (CBI) programmes, while closely monitoring and limiting over-reliance on these revenues to mitigate fiscal volatility.
Strengthening fiscal frameworks to cope with high debt levels
Continue to enhance fiscal frameworks through the use of fiscal rules and independent councils to stabilise debt and safeguard public investment, while integrating disaster and climate risks into fiscal planning to preserve fiscal space and resilience.
Unlocking private capital as a fundamental source of development finance
Promote regional financial integration to expand investment opportunities, increase market efficiency, enhance liquidity and reduce transaction costs and risks.
Further develop remittance-based financing mechanisms to fund productive investments.
Strengthen frameworks to guide ODA and transition finance toward climate action, inequality reduction, and regional development priorities.
Strengthening the role of development finance institutions
Continue developing NDBs’ capacity to expand financing for SMEs, green infrastructure, and climate-resilient projects.
Leverage MDBs to provide blended finance, technical support, and project pipelines for sustainable development, with specific support for sound project preparation.
Co-ordinate NDBs, MDBs, and development co-operation agencies to target investments that strengthen regional resilience and development outcomes.
Expand and improve the use of innovative debt financing mechanisms
Scale up thematic bonds by enhancing institutional frameworks and project pipelines to boost market attractiveness and transparency.
Ensure strong governance and transparency in thematic debt conversions, leveraging MDB support to boost capacity and investor participation.
Continue developing carbon credit markets and blue carbon initiatives to monetise natural assets and fund climate adaptation and community projects.
Continue expanding pre-arranged disaster finance instruments – regional risk pools, CAT bonds, contingent loans, and climate-resilient debt clauses – to ensure timely liquidity after shocks.
Implement multi-layered disaster risk financing frameworks that sequence pre-arranged financing instruments by risk and integrate them into debt management and public investment planning to ensure fiscal sustainability and efficient resilience funding.
Leverage MDBs and international partners to provide technical assistance, project preparation, and capacity building for complex sustainable finance instruments.
Further strengthen sustainable finance frameworks to improve regulation, oversight, and risk management of sustainable finance instruments.
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← 1. The Facility includes 19 Caribbean members – Anguilla, Antigua and Barbuda, Barbados, Belize, Bermuda, the British Virgin Islands, the Cayman Islands, Dominica, Grenada, Haiti, Jamaica, Montserrat, St. Kitts and Nevis, St. Lucia, Sint Maarten, St. Vincent and the Grenadines, The Bahamas, Trinidad and Tobago, and the Turks and Caicos Islands – as well as four Central American countries: Guatemala, Honduras, Nicaragua, and Panama.