WASHINGTON, CMC -The executive board of the International Monetary Fund (IMF) says the Eastern Caribbean Currency Union (ECCU) member countries have rebounded strongly from successive adverse shocks.
The ECCU groups together the islands of Anguilla, Antigua and Barbuda, Dominica, Grenada, Montserrat, St. Kitts-Nevis, St. Lucia, and St. Vincent and the Grenadines
The IMF has said that the ECCU has provided a strong anchor for macroeconomic stability. In 2024, strong tourism performance and continued infrastructure investments supported robust growth of 3.9 percent, and inflation moderated to below two percent, in tune with global trends.
In a statement following its Article IV consultation with member countries on common policies, the IMF executive board said that strong tourism performance and continued infrastructure investments have supported robust post-pandemic growth, while inflation has moderated in tune with global trends.
It said this has facilitated a moderate reduction in the currency union’s fiscal and external imbalances, although several members’ public debt levels and current account deficits remain high.
“The ECCU’s external position is assessed as weaker than implied by fundamentals and desirable policies, but the current account deficits remain fully financed, and the stability of the ECCB’s reserves underpin a strong currency backing ratio,” the IMF directors said, adding that the financial system has remained stable, albeit exhibiting continued asset quality and credit condition weaknesses.
They said growth momentum is nonetheless projected to wane, and risks to the outlook remain mainly on the downside.
“Increasing constraints to tourism capacity and completion of significant infrastructure projects are set to slow growth to around 2.5 percent over the medium term. This modest growth potential reflects weak productivity and local investment, headwinds from aging populations, a shrinking labor force, and constrained fiscal space for public investment in most union members.
“Downside risks to the outlook are significant amid a highly uncertain external environment, where increased trade and geopolitical tensions could give rise to renewed inflationary pressures and disruptions to tourism and FDI inflows.”
The IMF directors said high public debt, persistent current account deficits, and weaknesses in the local financial system amplify vulnerability to recurrent natural disaster (ND) shocks alongside the uncertain outlook for future Citizenship-by-Investment (CBI) inflows.
They said achieving more robust, resilient, and inclusive long-term growth would support the currency union’s fiscal and external sustainability and raise living standards.
“To support this objective, common regional policies should be anchored in building economic, fiscal, and financial resilience and addressing supply bottlenecks that underpin the recent decades’ downward trend in the region’s growth potential.”
The IMF directors said alleviating the region’s structural growth impediments is a key policy priority that requires a coordinated multipronged approach.
They said addressing frictions to employment and skills development requires a renewed effort to attune human capital to economic needs and development priorities through vocational training and modernized education systems, complemented by active labor market policies and improved access to child and elderly care.
“Common policies can also enhance the scale, resilience, and efficiency of the region’s capital stock by helping to accelerate energy transition to local renewables, optimize the CBI funding model, and increase ND preparedness.
“Substantial productivity gains may also be achieved through cooperative efforts to address bottlenecks to innovation and allocative efficiency, including by digitalizing key services, streamlining licensing and administrative processes, and strengthening financial intermediation.”
The IMF directors said fiscal policies should remain closely focused on rebuilding buffers, reducing public debt consistent with the regional debt anchor, and improving resilience to shocks.
“Region-wide adoption of strong medium-term fiscal frameworks (MTFFs) embedded with well-designed fiscal rules and credible policy plans would support sustainability objectives and create policy space for growth-enhancing social and resilience investment.
“Comprehensive fiscal resilience strategies, including adequate disaster-financing frameworks, can help alleviate periodic ND disruptions to debt sustainability and support the region’s growth resilience.”
The IMF directors said strengthening fiscal management of uncertain CBI revenues can alleviate risks and facilitate budgetary planning. These efforts can be supported by more institutionalized regional oversight and continued strengthening of national budgetary institutions.
Enhancing financial system resilience and reducing persistent credit frictions can support a more conducive environment for growth-supporting local investment.
Regional policy priorities include reducing vulnerabilities from legacy bank balance sheet weaknesses, mitigating risks from rapid credit union expansion, building readiness to manage risks from high dependency on global reinsurance, and strengthening national AML/CFT frameworks.
The IMF said common minimum NBFI regulatory standards under the planned Eastern Caribbean Financial Stability Board (ECFSB) would be an essential step toward their more unified oversight. However, a more centralized supervisory structure would better facilitate the management of regional stability risks.
“Coordinated efforts to reduce institutional frictions in local credit markets and support small ECCU businesses’ bankability can help address structural challenges in financial intermediation, revive local credit and investment, and foster the development of a more vibrant private sector.”
The directors said strengthening economic data could significantly improve regional policy design and risk management.
“Priorities include addressing shortcomings in coverage, quality, and timeliness of key national and external accounts and reducing significant blind spots in areas such as the regional labor markets and CBI flows,” the IMF directors said, noting that greater leveraging of synergies in regional data compilation and processing could help address persistent resource and capacity gaps.
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