Caribbean Social Protection Reponses to Surging Inflation

In 2022, the Caribbean experienced an extraordinary inflation surge not seen in over a decade, hitting Caribbean households just as they were recovering from the economic repercussions of the COVID-19 pandemic and slowing recovery of living standards. Faced with soaring inflation, Caribbean policymakers seeking to mitigate the negative impacts on the population, especially on poor households, responded predominantly through subsidies, tax measures, and social assistance interventions. Subsidies, the single most used policy measure in the Caribbean, are relatively easy and swift to implement; however, this intervention is costly, regressive, and detrimental to the environment. Alternative policy response measures, such as targeted subsidies and cash transfers, can significantly reduce the fiscal cost, improve equity, and be environmentally friendly. Distributional outcomes also improve significantly when consumption-based universal subsidies are switched out for either universal or targeted flat benefit cash transfers. To strengthen the adaptive capacity of social protection (SP) systems in the Caribbean, especially to deliver successful cash transfer interventions, improvements to SP programs and delivery systems are required. Finally, to strengthen the adaptive capacity of SP systems in the Caribbean, further progress on the adaptive SP building blocks is necessary.