How demographic shifts could drive lower sovereign credit ratings

After reading Moody’s recent report on the Caribbean and Central America “Human capital advances will be key to reducing aging and emigration pressures” which highlights just how intertwined several social and demographic factors are with fiscal and external numbers, it becomes clear that public policy in the Caribbean has generally been more dangerously short-sighted and myopic than even I ever suspected, and leaves one’s head spinning with questions.

First, according to Moody’s report, the Caribbean has the highest per-capita net outward migration rate in the world. This should come as no surprise, given that this region is the most negatively affected by climate change, and the one with the highest homicide rate in the world — not exactly the most attractive conditions.

And while relatively more people want to leave the Caribbean than anywhere else in the world, our most important industry is premised upon trying to attract visitors to our shores!

The arithmetic escapes me, and Moody’s report shows clearly that unless we address WHY people are leaving, that trend will persist, and economies and therefore sovereign credit ratings will continue to come under pressure, driving several interconnected negative socioeconomic and therefore demographic implications, with a vicious cyclical spiral towards persistent poverty — evidence of which is already emerging.

The Caribbean has the highest emigration rate and dependency ratio in the world

Moody’s reported that the Caribbean has the highest median age and the highest old-age dependency ratio in the world, we are aging faster than the world average, AND our working-age population will peak in 2025. In just 6 years!

Certainly, this demonstrates the clear and present danger we face as a region, that not only will we decline in numbers, output, productivity, and competitiveness therefore (absent unlikely automation), but we will grow increasingly dependent on remittances and on the state, just as the productive workforce and the tax base shrinks.

Moody’s identified higher remittance inflows as a potential positive implication of our emigration; but, without sustainable fiscal revenue from a shrinking tax base, will the state be forced to tax these remittances? And will the state be constantly right-sized to serve a shrinking population and economy?

Is there a way we can we avoid this dystopian outcome?

It is no accident that Moody’s highest rating is assigned to the Cayman Islands, which has successfully executed an immigration strategy linked to its skills gap and its private sector-led growth and diversification strategy, alongside unsurpassed socioeconomic stability, based on fiscal prudence and a currency board arrangement. Their national strategies around the development of tourism, crime prevention, and hurricane preparedness, are testament to their ability to consistently get it right. The positive links between income levels, education, innovation and investment (and the virtuous cycle of these factors) as highlighted in Moody’s report, is real and alive in the Cayman Islands.

My full interview below with Moody’s Assistant Vice President/Analyst David Rogovic takes a deeper look at Moody’s findings.