BASSETERRE, St. Kitts, CMC – The deputy managing director of the International Monetary Fund (IMF), Bo Li Thursday night held talks with members of the Monetary Council of the Eastern Caribbean Central Bank (ECCB) ahead of its 107th meeting here on Friday.
The meeting follows the statement issued by an IMF delegation that concluded a mission to the Eastern Caribbean Currency Union (ECCU) earlier this week.
In its statement, the IMF mission said that the ECCU, comprising Anguilla, Antigua and Barbuda, Dominica, Grenada, Montserrat, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines, had undergone a strong rebound, led by tourism and investment, and supported by policies that helped moderate the impact from successive external shocks.
It said with output having recovered to its pre-pandemic level, economic policies should shift toward addressing structural constraints to sustainable and resilient growth and supporting the continued robustness of the quasi-currency board, which has served the currency union well.
The IMF mission said priorities include:
- Safeguarding macroeconomic stability and fiscal space for growth-enhancing physical and social investments.
- Strengthening balance sheets and oversight in the financial sector.
- Supporting local private sector development and investment.
- Improving the labor market.
Strengthening data collection, quality, and transparency is critical to informing a well-calibrated policy design.
The mission said the ECCU has steadily recovered from successive pandemic and commodity price shocks. Led by a rebound in tourism and investment by public and private sectors, actual gross domestic product (GDP) is estimated to have grown on average by nearly seven percent per year over 2021-23 and has surpassed pre-pandemic levels. Inflation has moderated to around four percent in 2023 from a commodity price-driven peak of 5.5 percent in 2022.
The IMF mission said that the economic recovery, high inflation, and the withdrawal of temporary fiscal measures to ease the social impact of the pandemic and other shocks led to an improvement in budgetary positions.
“Nevertheless, overall public debt remains elevated and generally well above the regional 2035 debt ceiling of 60 percent of GDP. The financial system remains highly liquid and, supported by the since expired loan moratoria, appears to have weathered the recent successive shocks without a significant impact.
“However, it continues to face long-standing asset quality weaknesses and growing vulnerabilities in the non-bank financial sector in the context of uneven regulation and oversight. Wide post-pandemic current account deficits are narrowing, albeit slowly.”
The IMF mission said that the ECCB’s currency backing ratio remains high, supporting confidence in the currency union.
It said capacity constraints increasingly weigh on the region’s outlook.
“GDP growth is projected to moderate toward pre-pandemic averages, as tourism performance nears total capacity and continued restoration of public and private sector balance sheets narrows the space for home-grown investment.
“The region’s growth and fiscal outlooks are heavily dependent on uncertain Citizenship-by-Investment (CBI) inflows, which continue to be subject to international scrutiny.”
The IMF mission said that as small economies depend on imports, tourism, and foreign direct investment, ECCU countries also remain highly susceptible to volatility in commodity prices and an abrupt growth slowdown in major tourism source countries. Climate-related disasters remain a recurrent threat with potentially devastating impacts.
It said protecting fiscal space for sustained growth-enhancing physical and social investments and rebuilding buffers while preserving the fiscal space for infrastructure and social investments remains a regional policy priority.
Amid slowing growth and elevated risks, pursuing a steady reduction in public debt in countries well above the regional ceiling is critical to maintaining macro stability and safeguarding the currency board against future shocks. At the same time, fiscal policy space is needed to finance growth and resilience-promoting budgetary spending.
The IMF mission said to help manage these competing objectives, continued withdrawal of temporary measures that responded to the cost-of-living crisis is advisable, as is the adoption of fuel price pass-through frameworks to protect tax revenue, stabilize demand, and promote green transformation, supported by better coverage and targeting of transfers to the most vulnerable.
“Also, reviving a regional initiative to agree on common benchmarks for streamlined tax exemptions would help avoid a “race-to-the-bottom” tax dynamics and help lift revenue closer to international peers.
“Finally, pooling regional resources and expertise can help reduce impediments and costs to qualify for and access international climate finance,” the IMF mission added.
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