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IMF Executive Board Concludes 2019 Discussion on Common Policies of Member Countries of the Eastern Caribbean Currency Union

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Via IMF (Den Internationale Valutafond)

IMF Executive Board Concludes 2019 Discussion on Common Policies of Member Countries of the Eastern Caribbean Currency Union







March 5, 2020















On January 31, 2020 the Executive Board of the International Monetary Fund
(IMF) concluded the 2019 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 saw a respite from major hurricanes, which facilitated growth
acceleration to 3¾ percent. The fiscal position weakened, despite continued
strength in Citizenship-by-Investment (CBI) inflows, but with headline
deficits remaining moderate the public debt ratio has continued to decline.
However, underlying fiscal deficits remain high. External imbalances are
sizable and significant financial sector vulnerabilities affect both banks
and non-banks. Growth is projected to
gradually moderate as the cyclical momentum normalizes and CBI inflows
ease. These trends would also contribute to wider fiscal deficits, ending
the downward drift in public debt dynamics. Meeting the regional 60 percent
of 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.


Executive Board Assessment

[2]

While welcoming the ECCU’s improved growth performance and public debt
reduction in recent years, Executive Directors noted that 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. To help ensure strong and resilient
growth and anchor sustainability in the region, 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.

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 emphasized 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.

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Directors underscored the importance of fiscal integration and suggested
enhanced cooperation in the design of tax incentives and the
Citizenship-by-Investment programs. 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
stabilization fund—underpinned by a strong governance framework—could also
be considered.

Directors commended the 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 operationalizing
the new standard for impaired assets, modernizing 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.

Directors 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.

Directors highlighted the scope for the ECCB, national authorities, and
financial institutions to further modernize the payment system to
strengthen the monetary union. They pointed to the ongoing review of the
legal framework for the payment system as being critical to facilitate
emerging Fintech and nonbank e-payment services to operate and innovate.

While welcoming the authorities’ pursuit for more financial innovation,
Directors recommended that the ECCB’s digital currency pilot project should
proceed with caution. In particular, they advised that the authorities
fully implement safeguard measures to contain various risks, including
those related to financial intermediation, financial integrity, and
cybersecurity. After the pilot, a cost and benefit analysis of the digital
currency would be useful coupled with consideration of other alternatives
focusing on upgrading the payment systems.

Directors encouraged the authorities’ continued pursuance of structural
reforms to boost private sector-led growth and ensure external
sustainability.

Directors agreed that the views they expressed today will form part of the
Article IV consultation discussions with individual ECCU members. It is
expected that the next Common policies consultation with the ECCU will be
held on the standard 12-month cycle.

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ECCU: Selected Economic and Financial Indicators,
2017–25 1/

Projections

2017

2018

2019

2020

2021

2022

2023

2024

2025

(Annual percentage change)

Output and prices

Real GDP

0.7

3.7

3.7

3.4

3.0

2.6

2.4

2.3

2.2

GDP deflator

1.7

1.6

1.6

2.1

2.0

1.9

1.9

1.9

2.0

Consumer prices, average

1.1

1.4

1.4

1.9

1.9

2.0

2.0

2.0

2.0

Monetary sector

Net foreign assets

15.6

2.2

6.5

6.3

4.7

3.4

3.9

3.8

3.8

Central bank

3.3

-1.1

3.1

8.8

4.9

3.7

4.7

4.1

4.5

Commercial banks (net)

35.2

6.2

10.2

3.6

4.4

3.1

3.0

3.6

3.0

Net domestic assets

-7.3

3.7

5.3

4.6

5.4

5.9

4.9

4.6

4.6

Of which: private sector credit

-0.1

0.0

2.9

2.6

2.6

2.8

2.7

2.9

9.7

Broad money (M2)

3.4

2.9

5.9

5.5

5.0

4.6

4.4

4.2

4.2

Public finances

(In percent of GDP; unless otherwise
indicated)

Central government

Total revenue and grants

27.8

27.9

26.6

24.9

24.3

23.9

23.8

23.8

23.7

Total expenditure and net lending

28.4

29.1

27.7

27.0

26.2

26.0

26.3

26.7

26.5

Overall balance

-0.6

-1.2

-1.0

-2.0

-1.8

-2.1

-2.4

-2.9

-2.8

Excl. Citizenship by Investment
Programs

-4.1

-5.1

-4.5

-4.0

-3.5

-3.3

-3.5

-3.8

-3.7

Primary balance

1.9

1.1

1.2

0.2

0.4

0.0

-0.3

-0.7

-0.6

Total public sector debt 2/

72.4

70.5

69.2

68.9

68.4

68.0

67.6

67.7

67.8

Expected fiscal cost of natural
disasters

0.8

0.8

0.8

0.8

0.8

0.7

External sector

Current account balance

-7.3

-8.4

-7.6

-8.6

-7.9

-6.8

-6.6

-6.3

-6.2

Trade balance

-29.9

-33.6

-33.1

-32.8

-32.3

-31.7

-32.1

-33.4

-33.0

Exports, f.o.b. (annual percentage
change)

-0.7

1.7

3.8

5.8

5.7

5.8

5.0

5.4

4.9

Imports, f.o.b. (annual percentage
change)

3.3

16.5

3.8

4.7

3.6

3.0

5.8

8.1

3.0

Services, incomes and transfers

22.5

25.2

25.5

24.2

24.4

24.9

25.5

27.2

26.8

Of which
: travel

38.4

39.9

40.6

40.9

41.9

42.2

43.1

45.5

46.7

External public debt

37.9

36.6

36.0

36.5

36.5

36.4

35.8

35.4

35.8

External debt service (percent of goods
and nonfactor services)

9.9

8.9

9.6

9.3

8.0

8.9

8.9

7.9

9.7

International reserves

In millions of U.S. dollars

1,750

1,747

1,802

1,959

2,056

2,132

2,232

2,323

2,428

In months of current year imports of
goods and services

5.3

4.7

4.7

4.8

4.9

4.9

4.9

4.8

4.8

In percent of broad money

29.0

28.1

27.4

28.2

28.2

27.9

28.0

28.0

28.1

REER (average annual percentage change)

Trade-weighted

-0.7

-2.0

Competitor-weighted

0.3

0.8

Customer-weighted

0.4

-1.9

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 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.


IMF Communications Department
MEDIA RELATIONS

PRESS OFFICER: Randa Elnagar

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

@IMFSpokesperson








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