IMF Executive Board Concludes 2018 Discussion on Common Policies of Member Countries of the Eastern Caribbean Currency Union

February 22, 2019

On January 28, 2019 the Executive Board of the International Monetary Fund (IMF) concluded the 2018 discussion on the common policies of the Eastern Caribbean Currency Union (ECCU) in the context of the Article IV consultations with member countries. [1]

The region is gradually recovering following the catastrophic impact of Hurricanes Irma and Maria in 2017. Tourist inflows are slowly picking up in hurricane-struck countries and have remained strong elsewhere. Conditions remain favorable to growth, but risks are increasing. The fiscal position has deteriorated, reflecting lower inflows from citizenship-by-investment programs and larger reconstruction and current spending, and the ECCU debt target of 60 percent of GDP by 2030 remains elusive for most countries. Despite important progress on financial sector reform, persistent weaknesses and emerging risks weigh on growth prospects and may give rise to fiscal liabilities. External imbalances remain large, highlighting lack of competitiveness and the impact of natural disasters.

Executive Board Assessment [2]

Executive Directors welcomed the favorable short‑term outlook supported by benign external conditions and the recovery from natural disasters. They noted, however, significant risks from the ECCU’s exposure to global developments, natural disasters that are increasing in frequency and intensity, a further decline of correspondent banking relationships, and lingering problems in the financial sector. Directors encouraged policy actions to address fiscal and external vulnerabilities, build ex-ante resilience to natural disasters, resolve weaknesses in the financial sector, and improve competitiveness and sustainable growth.

Directors noted that, despite an overall decline in public debt, the 2030 regional benchmark of 60 percent of GDP remains elusive for most countries. This underscores the need for sustained fiscal consolidation and further enhancing revenue mobilization. Directors recommended the adoption of robust fiscal responsibility frameworks anchored by the debt objective and supported by appropriately‑tailored operational medium‑term fiscal balance targets and escape clauses to allow flexibility. Such frameworks would help secure fiscal sustainability, reduce pro‑cyclical policy bias, break the vicious cycle between high debt and low growth, and build much‑needed fiscal space for high‑priority spending, including to bolster resilience to natural disasters. In this context, Directors took positive note that most ECCU countries have prepared medium‑term fiscal frameworks and are weighing the merits of adopting fiscal responsibility legislation.

Directors concurred that building ex-ante resilience to climate change and natural disasters is a key priority. They agreed that shifting the focus from post‑disaster recovery to ex-ante preparedness can yield substantial benefits in the long term. Investment in resilient infrastructure would reduce damages and losses from disasters, promote private investment, and reduce outward migration. Similarly, building financial resilience, notably through insurance, would ensure liquidity for relief and reconstruction, while protecting public finances from the impact of disasters. While these policies will impose upfront costs, Directors noted that coherent and credible resilience‑building strategies, buttressed by efforts to consolidate the fiscal position and enhance public investment management, will help catalyze the necessary concessional financing from the international community, including climate funds.

Directors welcomed progress on the regional financial sector agenda but noted that persistent weaknesses and emerging risks require further timely action. They highlighted the need to reduce bank nonperforming loans, including by fully operationalizing the Eastern Caribbean Asset Management Company, enhancing the foreclosure and insolvency frameworks, and ensuring enforcement of prudential standards. Directors also underscored the need to reduce risks of further withdrawals of correspondent banking relationships, de‑risking of downstream financial institutions by banks, and exit of foreign banks. They stressed that ensuring compliance with AML/CFT standards will be crucial in this regard. Directors also called for expeditiously finalizing harmonized legislation for the non‑bank financial sector including credit unions, and an effective consolidation of regional financial sector oversight. Continuing to strengthen the governance of Citizenship‑By‑Investment programs will also be important.

In addition to fiscal consolidation, Directors underlined the importance of structural reforms to improve the competitiveness of the ECCU in the context of the quasi‑currency board. They underscored the need to reduce the high costs of doing business, and the costs of energy, transportation, and tariffs; improve public sector efficiency; and address high structural unemployment. Further regional integration would help capture economies of scale and reduce costs.

Directors agreed that the views they expressed today will form part of their discussions in the context of the Article IV consultations with individual ECCU members that ll take place until the next Board discussion of ECCU common policies.

ECCU: Selected Economic and Financial Indicators, 2014–24 1/

Social and Demographic Indicators (ECCU-6 only)
Population (2017)			Health (per 1,000 people)
Total (thousands)		627.9	Physicians (latest weighted avg.							0.7
Annual rate of growth, 2000−2017 (percent)		2.1	Hospital beds (2011 weighted avg.							2.7
			Life expectancy at birth (years)							74.1
Population characteristics			GDP (2017)
Crude birth rate (per thousand, latest weighted avg.)		16.3	In nominal US$ millions							6,754
Crude death rate (per thousand, latest weighted avg.)		7.5	Per capita							10,756
Arable land (percent of land area, 2011 weighted avg.)		9.3	Area (sq. km, 2013)							2,790

				Prel.				Proj.
	2014	2015	2016	2017	2018	2019	2020	2021	2022	2023	2024
	(Annual percentage change)
National income and prices
Real GDP	3.6	2.1	3.4	1.4	2.2	3.9	3.1	2.5	2.3	2.2	2.1
GDP deflator	1.9	3.3	1.0	1.3	1.8	2.0	1.8	1.8	1.9	1.9	2.0
Potential GDP growth (HP filter)	1.8	2.0	2.1	2.3	…	…	…	…	…	…	…
Consumer prices, average	1.1	-0.8	-0.8	1.1	1.8	1.9	1.7	1.8	1.9	1.9	1.8
Monetary sector
Liabilities to the private sector (M2)	8.2	4.1	0.8	4.6	4.0	5.0	4.5	4.4	4.2	4.1	4.2
Net foreign assets	42.5	31.7	13.3	15.6	5.8	4.0	1.8	4.4	6.8	7.0	7.5
Of which: Central bank	20.8	10.6	8.4	3.3	6.1	5.5	0.9	1.3	4.1	6.1	5.4
Of which: Commercial banks (net)	248.9	101.3	22.2	35.2	5.4	2.2	3.0	8.2	10.0	8.0	9.8
Net domestic assets	-3.3	-9.5	-8.1	-5.0	2.0	6.2	7.5	4.3	1.5	0.9	0.3
Of which: Private sector credit	-4.6	-4.3	-6.5	-0.1	0.6	1.3	1.2	1.6	1.8	1.9	2.0
	(In percent of GDP)
Public sector
Primary central government balance (incl. natural disasters)	1.4	3.1	4.3	2.5	2.4	-1.3	-0.9	-0.8	-0.8	-1.0	-1.1
excl. Citizenship by Investment Prog.	-1.2	-0.9	0.1	-0.7	-0.9	-2.7	-2.1	-1.7	-1.6	-1.6	-1.6
Overall central government balance (incl. natural disasters)	-1.4	0.5	1.8	0.1	-0.2	-3.5	-3.2	-3.2	-3.3	-3.6	-3.8
excl. Citizenship by Investment Prog.	-3.9	-3.5	-2.4	-3.1	-3.5	-5.0	-4.4	-4.1	-4.0	-4.2	-4.3
Total revenue and grants	26.7	28.4	29.3	28.1	28.0	25.9	24.9	24.5	24.3	23.9	23.8
Total expenditure and net lending	28.0	27.9	27.5	28.1	28.2	28.5	27.2	26.8	26.6	26.6	26.6
Foreign financing	1.1	-0.6	0.1	0.8	0.9	1.2	1.0	0.3	0.0	-0.1	-0.1
Domestic financing including arrears	0.1	0.3	1.0	1.4	2.5	1.9	2.0	2.3	2.5	3.0	3.0
Central government current account balance	0.8	2.0	3.3	2.0	1.5	-0.2	-0.1	-0.2	-0.3	-0.3	-0.3
Total public debt (end-of-period) 2/	80.9	76.2	73.8	72.1	71.1	70.3	69.5	69.7	70.3	70.8	71.1
	(Annual percentage change)
External sector
Exports, f.o.b.	n.a.	-12.1	-14.4	-8.1	4.3	5.6	5.3	4.5	5.7	5.0	5.3
Imports, f.o.b.	n.a.	-5.1	3.9	4.2	11.6	3.5	3.6	3.0	2.5	3.2	3.2
	(In percent of GDP)
External current account balance	-5.4	-4.3	-7.7	-8.0	-8.7	-8.8	-9.3	-8.6	-7.7	-7.1	-6.7
Trade balance	-31.1	-28.4	-29.1	-30.0	-32.5	-31.6	-31.2	-30.7	-30.1	-29.8	-29.4
Services, incomes and transfers	25.7	24.1	21.4	22.0	23.7	22.8	21.9	22.1	22.4	22.7	22.7
Of which: Travel	40.2	38.9	37.3	37.3	37.9	38.3	38.5	38.5	38.6	38.7	38.7
Capital minus financial accounts	6.2	2.8	9.7	8.0	8.7	8.8	9.3	8.6	7.7	7.1	6.7
Of which: Foreign direct investment	-9.0	-8.6	-8.8	-7.1	-7.8	-8.0	-7.9	-7.8	-7.6	-7.5	-7.5
External public debt (end-of period)	44.0	41.0	40.0	38.5	38.0	37.1	36.3	35.9	35.2	34.6	33.7
External debt service, percent of goods and nonfactor services	6.3	3.5	5.1	5.9	5.5	5.1	6.0	4.3	4.3	4.2	4.1
Of which: Interest	1.9	1.9	1.9	1.9	2.0	2.1	2.1	2.1	2.1	2.1	2.1
Saving-Investment Balance	-5.4	-4.3	-7.7	-8.0	-8.7	-8.8	-9.3	-8.6	-7.7	-7.1	-6.7
Saving	8.7	9.3	6.0	4.1	4.2	4.6	3.0	3.2	3.9	4.4	4.8
Investment	14.1	13.5	13.7	12.1	12.9	13.5	12.3	11.9	11.6	11.5	11.5
Reserves
In millions of U.S. dollars	1,411	1,560	1,690	1,745	1,852	1,953	1,970	1,996	2,077	2,204	2,323
In months of current year imports of goods and services	4.7	5.3	5.4	5.4	5.4	5.3	5.2	5.1	5.1	5.3	5.4
In percent of broad money	25.3	26.9	28.9	28.5	29.1	29.2	28.2	27.4	27.4	27.9	28.2
REER (average annual percentage change)
Trade-weighted	0.0	6.5	-2.3	-4.2	…	…	…	…	…	…	…
Competitor-weighted	1.8	0.4	0.3	-0.2	…	…	…	…	…	…	…
Customer-weighted	-0.8	3.1	2.0	-0.3	…	…	…	…	…	…	…
Memo items:
Imputed cost of natural disasters (percent of GDP)	…	…	…	…	…	0.9	0.9	0.9	0.9	0.9	0.9
Sources: Country authorities; and Fund staff estimates and projections.
1/ Includes all eight ECCU members unless otherwise noted. ECCU price aggregates are calculated as weighted averages of individual country data. Other ECCU aggregates
are calculated by adding individual country data.
2/ Debt relief has been accorded to: (i) Grenada under the ECF-supported program in 2017; and (ii) St. Vincent and the Grenadines in 2017 and Antigua and Barbuda in
2018 under the Petrocaribe arrangement.

[1] Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of these bilateral Article IV consultation discussion, staff hold separate annual discussions with the regional institutions responsible for common policies in four currency unions – the Euro Area, the Eastern Caribbean Currency Union, the Central African Economic and Monetary Union, and the West African Economic and Monetary Union. For each of the currency unions, staff teams visit the regional institutions responsible for common policies in the currency union, collects economic and financial information, and discusses with officials the currency union’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis of discussion by the Executive Board. Both staff’s discussions with the regional institutions and the Board discussion of the annual staff report will be considered an integral part of the Article IV consultation with each member.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.

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MEDIA RELATIONS

PRESS OFFICER: Randa Elnagar

Phone: +1 202 623-7100Email: MEDIA@IMF.org

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IMF Executive Board Concludes 2018 Discussion on Common Policies of Member Countries of the Eastern Caribbean Currency Union

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