To get through the Covid-19 pandemic, the government should consider providing cash grants under a system modelled on the Financial Assistance Programme rolled out after Hurricane Irma, according to a recent report by the United Nations Development Programme.
The 28-page “Covid-19 Human and Economic Assessment of Impact” speculated that the Virgin Islands’ “social protection programmes are not readily able to rapidly scale up for the distribution of cash transfers in the wake of the Covid-19 crisis,” but suggested that the FAP template be used instead.
With the help of the British Red Cross and the BVI Red Cross, the original programme was launched in the wake of the 2017 hurricanes, providing three rounds of cash grants between $800 and $1,200 each to residents.
Officials originally anticipated that 24 households would benefit from the programme, the report stated, but it ended up reaching 1,706 households and 3,274 individuals.
“Given the possibility that tourism activity might not return until late 2020 or even later, it is recommended that the length of the programme be dependent on the status of the domestic economy,” the report stated. “With unemployment expected to peak around 18 to 19 percent in our central scenarios, this would require outlays of around $3 million per month.”
Scenarios
The report was based on research conducted by Dr. Simon Naitram, assistant lecturer at the University of the West Indies and president of the Barbados Economic Society.
Jointly supported by the UNDP, UNICEF, and UN Women of the Eastern Caribbean, such reports are also being conducted in Anguilla, Antigua and Barbuda, Barbados, Dominica, Grenada, St. Lucia and St. Vincent and the Grenadines.
The VI research reviewed the current conditions in the territory and applied different scenarios in order to project likely outcomes.
The worst-case scenario considered was a six-month shutdown of the domestic economy with tourism not reopening until the end of 2021. The researchers predicted this scenario would lead to a 23 percent decline in economic activity this year with an eight percent recovery next year, and unemployment levels reaching up to 27 percent in 2022.
The best-case scenario considered was a shutdown of the domestic economy for six weeks with the tourism sector reopening immediately afterwards. Even in this scenario, the gross domestic product would have been expected to decline by eight percent this year and recover by seven percent in 2021, the report stated.
“The more likely scenarios are that tourism activity reopens in August or November 2020,” the report added. “These involve significant closures in the tourism sector. If tourism reopens in August, we predict that around five percent of tourism jobs are permanently destroyed, while a November reopening predicts that around eight percent of tourism jobs are permanently destroyed.”
The researchers predicted the August scenario would lead to an 11 percent decline in GDP and 12 percent unemployment this year, the November scenario to a 13 percent decline in GDP and 17 percent unemployment.
“We consider a final scenario: one where the Virgin Islands economy reopens in May but operates without tourism until the end of the forecast period,” the report added. “The impact of closing the tourism sector is large, even while the domestic economy remains open.”
This scenario likely would lead to a decline in the GDP by 17 percent this year and an unemployment rate reaching 22 percent, the researchers found.
Women and migrants
Covid-19-related economic issues, the report noted, are likely to have “a disproportionate impact on female workers and migrants.”
According to the report, about 56 percent of workers in the accommodation and food sectors are women; a third of women are single mothers; and female essential workers who continue to work may struggle to cope with any childcare duties.
Additionally, 63 percent of workers who are poor or vulnerable are women, the report explained, adding, “Women are the most likely to be at risk from the deep decline in tourism activity.”
In part to assist such vulnerable groups, the report suggested extending the period for work-permit holders to find new jobs and implementing a voluntary “home return programme” which would incentivise work-permit holders to return to their countries of origin with an option to come back to the territory in a specific timeframe.
The report stated that 75 percent of migrants are on work permits, and that work-permit holders represent half of the total labour force.
In addition to allowing work-permit holders to search for new jobs until the reopening of the tourism industry, the report suggested that the territory allow rapid work-permit transfers, thereby limiting poverty in the “short run.”
“Given the higher incidence of Caribbean migrant child poverty, this is an important short-term economic response to protect vulnerable children,” the report stated.
The report also noted that the VI economy is mainly driven by tourism and financial services, and if the direct and indirect contributions of tourism are considered, the sector supports two-thirds of employment and nearly 60 percent of overall revenue.
Unemployment aid
Besides cash grants, the UNDP report also suggested that a permanent unemployment relief fund be established.
On May 28, Premier Andrew Fahie announced the creation of a $10 million Unemployment Relief Fund backed by a larger $40 million Social Security Board grant as part of the phase two of an economic stimulus plan.
Of at least 6,000 people who have applied for unemployment assistance, 94 had received a total of $176,107 as of June 19, according to the latest statistics provided by Natural Resources, Labour and Immigration Minister Vincent Wheatley. He acknowledged that there were bumps in the system, but assured residents that government was smoothing out the process.
It’s unclear, however, if the programme established by government will remain standing after the pandemic.
One of the difficulties the government faces, the UNDP report said, is the constraint of its fiscal rules. Money in the reserve and contingency funds totalled $87.8 million at the end of 2019, but must be kept above 25 percent of recurrent expenditure under the 2012 Protocols for Effective Financial Management.
“These funds are available to use, but the government will likely need to break its established debt limits to use these funds to provide a significant economic response to the crisis,” the report stated.
Mr. Fahie said at the end of May that the government had sought $40 million from the SSB in order to keep from dipping into reserve funds.
The report also stated that the government “has a very low debt-to-GDP ratio, making it an attractive borrower.”
The government is limited to a debt level equivalent to 80 percent of its recurrent revenues, the report added.
“Using 2019 estimates this would imply a net debt limit of $250 million,” it stated. “With net debt estimated to be $23.7 million, this gives the government significant fiscal space.”
A limiting factor is the territory’s lack of an international credit rating, the report added.
Read the full report here:
Human and Economic Impact AssessmenT (HEAT) Report – BVI (1)