IMF singles out tourism-dependent Caribbean as hardest hit by Middle East war, warns against fuel subsidies

The International Monetary Fund (IMF) has identified tourism-dependent Caribbean economies as the most vulnerable group in the Western Hemisphere to the economic fallout from the Middle East war, with Western Hemisphere Department Director Nigel Chalk warning that high debt, limited fiscal space, and heavy dependence on energy imports leave the subregion facing a sharper shock than any other grouping in Latin America and the Caribbean.

Chalk made the remarks Thursday during the IMF’s press briefing for the April 2026 Regional Economic Outlook for the Western Hemisphere, held during the fund’s Spring Meetings.

“We are very concerned that tourism-dependent Caribbean economies are likely to be the hardest hit,” Chalk said. “Their debt is high, their fiscal space is small, and they’re quite large net energy importers, even despite investments that have been made in these countries in shifting towards renewables.”

According to the fund’s April 2026 Regional Briefing, the tourism-dependent Caribbean subgroup — which includes Antigua and Barbuda, Barbados, Grenada, St. Kitts and Nevis, St. Lucia, Dominica, and St. Vincent and the Grenadines among others — carries a net oil import burden of negative 7.3 percent of GDP, the heaviest energy import exposure of any grouping in the hemisphere.

The group’s 2026 real GDP growth projection has been revised down by 1.1 percentage points compared to the fund’s October 2025 forecast, with growth now expected at just 0.9 percent for the year before partially recovering to 2.5 percent in 2027.

Chalk noted that the conflict has also introduced uncertainty around the tourism sector itself.

“We also don’t know what the potential impact of this war and the shifts in energy prices may have on flights and on tourism, and so that’s another thing we’re keeping an eye on,” he said.

The IMF director stressed that prior to the outbreak of the conflict, the hemisphere had entered 2026 on a solid footing.

“For most countries, growth was close to potential, output gaps were largely closed, and inflation was at target,” Chalk said, noting that the region had also adapted to shifts in US tariff policy more effectively than earlier forecasts had anticipated.

On the question of how Caribbean governments should respond, Chalk urged restraint on energy subsidies.

Several countries in the Caribbean already have mechanisms that smooth energy price increases and prevent immediate full pass-through to consumers, he noted, but he cautioned against making those arrangements permanent.

“What we don’t want is for countries to permanently increase subsidies to energy,” he said. “Those subsidies are untargeted. They benefit the rich more than they benefit the poor.”

Chalk added that the unpredictability of oil markets made broad subsidy commitments particularly dangerous for small island states.

“You can start that process maybe with oil prices at 90, but you don’t know what oil prices will be three months from now,” he said. “So, the size of the subsidies you may be creating over time could be quite large and quite unpredictable.”

Instead, the fund’s position is that fiscal support should be targeted directly at the families, farmers, and businesses most affected by the price shock.

“We do think that fiscal support can be provided, but it should be used judiciously, and it should be focused on the vulnerable families, farmers, and businesses that are most affected by this shock,” Chalk said.

The IMF’s inflation projections for the tourism-dependent Caribbean show end-of-period inflation rising to 3.0 percent in 2026, up from 2.4 percent in 2025.

Across the broader Latin America and Caribbean region, end-of-period inflation for 2026 has been revised upward by 2.4 percentage points relative to the October 2025 forecast, with the region now projected at 6.6 percent.