The International Monetary Fund (IMF) says notwithstanding the improved economic growth performance and public debt reduction in the Eastern Caribbean Currency Union (ECCU) the growth is expected to be “moderate going forward”.
The ECCU groups the islands of Antigua and Barbuda, Dominica, Grenada, St Lucia, St Vincent and the Grenadines, St Kitts-Nevis, Montserrat and Anguilla.
In January, an IMF delegation concluded the 2019 discussion on the common policies of the ECCU and warned that growth would be affected as the cyclical momentum normalises and Citizenship by Investment (CBI) inflows ease.
“These trends would also contribute to wider fiscal deficits, ending the downward drift in public debt dynamics. Meeting the regional 60 per cent of gross domestic product (GDP) debt benchmark by 2030 will be challenging for most ECCU countries. The outlook is clouded by downside risks, including a possible intensification of natural disasters and financial sector weaknesses. Larger well-managed CBI flows may be a source of an upside risk,” the IMF delegation said then.
In its assessment of the ECCU, the IMF Executive Board noted that while welcoming the ECCU’s improved growth performance and public debt reduction in recent years, growth is expected to moderate going forward.
“In this context, achieving debt sustainability while building resilience to natural disasters would remain challenging for most ECCU countries,” the IMF said, noting that to help ensure strong and resilient growth and anchor sustainability in the region, the directors called for further fiscal consolidation, expedited structural reforms, and a speedy resolution of financial sector vulnerabilities.
“They underscored the importance of regional integration in complementing national policies to achieve those objectives,” the statement said, adding that the directors welcomed ongoing efforts in some ECCU countries to advance their fiscal responsibility frameworks and underpin the commitment to meet the 2030 regional debt target.
“They emphasised the importance of countercyclical policies to create space for building resilience to natural disasters, which would be supported by comprehensive Disaster Resilience Strategies that are currently being piloted in Dominica and Grenada.”
The directors underscored the importance of fiscal integration and suggested enhanced cooperation in the design of tax incentives and the CBI, noting that such efforts would not only improve governance and limit a “race to the bottom”, but they could also create additional fiscal space.
They added that, over the longer term, a regional stabilisation fund—underpinned by a strong governance framework—could also be considered.
The IMF directors commended the St Kitts-based Eastern Caribbean Central bank (ECCB) for advancing essential regional financial sector reforms and called for accelerating the progress to address financial system vulnerabilities within a well-sequenced plan.
“Immediate efforts should focus on repairing bank balance sheets and operationalising the new standard for impaired assets, modernising insolvency frameworks and reviewing governance frameworks for the ECCB and deposit-taking institutions.
“Equally important is expediting the efforts to strengthen the supervision of non-banks, given their growing systemic importance. Directors also urged the national authorities to expeditiously pass critical legislation, particularly for strengthening AML/CFT measures, which are particularly relevant given sustained pressures on correspondent banking relations.”
The directors also noted that once the critical near-term priorities are addressed along with credible fiscal backstopping, steps toward a fuller banking union could take place in the long term. Such steps should include a robust deposit insurance scheme and a regional resolution and crisis management framework. — CMC