The Caribbean region’s economies are grappling with “acute vulnerability” due to a significant over-reliance on tourism and a lack of export diversification, according to a stark warning from Ian Durant, Vice President of Corporate Services at the Caribbean Development Bank (CDB).
Speaking at the 2nd Wider Caribbean Regional Risk Conference, Durant highlighted that tourism constitutes more than half of the foreign exchange earnings in five CDB member countries and over 30% in seven others. This heavy dependence on a single, highly elastic sector leaves the region exceptionally susceptible to global economic shocks.
“Our countries are small, open economies with no reserve currencies. The limited diversity in our export mix results in acute vulnerability,” Durant stated. He explained that tourism’s elastic nature means demand plummets disproportionately during global economic downturns, triggering cascading negative effects throughout economies that lack diversified revenue streams.
This situation is exacerbated by the inherent structural characteristics of small island developing states (SIDS), which often struggle with a lack of economies of scale, limited output, and difficulties in shifting resources between sectors, hindering diversification efforts.
Amplifying Global Shocks
The vulnerability of Caribbean nations is further intensified by their status as small, open economies inherently exposed to external turbulence. Historical precedents, such as the global financial crisis of 2008-2009, demonstrated the severe impact of external shocks, leading to prolonged economic slumps, high unemployment, and widening fiscal and external deficits across the region. Beyond economic downturns, the Caribbean also faces significant risks from evolving global trade policies, tariffs, volatile stock markets, and increasingly, the escalating impacts of climate change and natural disasters.
Research from the CDB consistently identifies dependence on a few major export products and trading partners as a critical vulnerability. While service exports like tourism can sometimes appear more stable than goods exports, the overall lack of a broad export base remains a fundamental challenge.
Pathways to Resilience: Diversification and Competitiveness
Durant emphasized that the critical policy imperative for the Caribbean is to mitigate these risks through improved regional competitiveness, which in turn fosters export diversification. Competitiveness, he defined, is the ability of countries to deliver products to export markets at competitive prices, meet required quality standards, and ensure reliable delivery – all factors that necessitate robust infrastructure and institutional frameworks.
Efforts are underway to address this. The CARICOM “25 by 2025 plus 5” initiative, now extended to 2030, aims to reduce food imports by 25%, serving as a practical example of strengthening resilience and promoting agricultural diversification. This initiative targets high-value imports such as coffee, cocoa, spices, and palm oil, alongside developing sectors like poultry, corn, and fish.
Beyond agriculture, there is a growing call to invest in other sectors, including locally rooted industries, creative economies, the marine bioeconomy, and new forms of sustainable production and green technologies. The Caribbean Single Market and Economy (CSME) is also seen as a vital platform for enhancing regional integration and expanding trade opportunities.
Challenges and the Way Forward
Despite these initiatives, the path to diversification is fraught with challenges. High debt levels across many member countries continue to constrain fiscal space, limiting the capacity for essential development spending. Furthermore, outdated port infrastructure, limited shipping connectivity, and high logistics costs hinder the full potential of regional integration and business expansion.
Durant stressed the need for intentional action to improve the business ecosystem, providing facilitative legislative frameworks, supporting institutions, and adequate infrastructure to help entrepreneurs thrive. The CDB itself is committed to supporting these efforts through innovative financing, technical assistance, and policy dialogue aimed at building resilience and achieving long-term prosperity across the Caribbean business landscape.
The region must abandon fragmented responses and adopt integrated, cross-sectoral strategies to confront its complex web of risks. By prioritizing export diversification, enhancing competitiveness, and fostering regional cooperation, the Caribbean can build more robust and resilient economies capable of withstanding future global shocks and securing sustainable development for its people.