IMF Executive Board Concludes 2021 Discussion on Common Policies of member Countries of Eastern Caribbean Currency Union

Washington, DC: On April 26, 2021, the Executive Board of the International Monetary Fund (IMF) concluded the 2021 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 fallout from the COVID-19 crisis is hitting ECCU economies hard. Tourism receipts (accounting for nearly 40 percent of GDP) have dried up, as tourist arrivals have come to a grinding halt. The authorities successfully contained the spread of the virus at the onset of the pandemic by largely closing the borders, but a reopening of the economies since the summer has led to a surge in COVID cases. The ECCU economy is projected to contract by 16 percent in 2020 and by a further near ½ percent in 2021. Fiscal positions have deteriorated sharply, and public debt is projected to reach 90 percent of GDP in 2021 and remain at an elevated level for years to come. Headline indicators suggest the financial system is relatively sound with ample liquidity buffers, but nonperforming loans are expected to rise significantly. The outlook is clouded by exceptionally high risks, including from the uncertainty concerning the evolution of the pandemic.

Executive Board Assessment [2]

Executive Directors noted that the COVID-19 pandemic has had a significant impact on the Eastern Caribbean currency Union (ECCU) economies and commended the authorities for their swift policy response to mitigate its socio-economic toll. Directors also noted that emergency financing from the Fund and other IFIs has helped some economies in the region cope with the fallout from the pandemic. They agreed that the near-term policy priority is to protect lives and livelihoods, including through continued support to the vulnerable and efforts to maximize COVID-19 vaccination. Noting that the region’s growth outlook is subject to considerable risks, Directors recognized that careful balancing, as well as continued engagement with international institutions, including the Fund, is important to ensure sustainable inclusive growth, while safeguarding macro-fiscal sustainability.

Directors took note of the postponement of the regional debt target date by five years and emphasized that this should be complemented by further enhancing regional and national fiscal frameworks to ensure that the target continues to serve as an important fiscal anchor for the region. In this regard, they welcomed the progress made by several countries on adopting rules-based fiscal frameworks. Efforts are needed at both regional and national levels to further strengthen fiscal policies and institutions to safeguard the credibility of the revised debt anchor.

Directors noted that measures by the regional and national authorities have effectively helped soften the immediate financial stability impact of the pandemic. Going forward, near-term supervisory flexibility should be balanced with measures to support financial institutions’ capacity to weather the crisis, including limiting moratoria extensions within the time frame announced by the ECCB, ensuring loan restructurings follow realistically achievable repayment terms, and encouraging capital conservation until the full impact of the pandemic is clear. To ensure system-wide risks can be effectively contained, Directors encouraged the authorities to expeditiously formalize readily implementable crisis management plans at regional and national levels, clearly identifying the necessary coordination, enforcement, and legal requirements.

To ensure the financial system’s longer-term ability to provide credit and support the regional economy, Directors encouraged the authorities to start considering credible and sustainably funded strategies to support reduction of non-performing loans, which are expected to increase from their already elevated pre-pandemic levels. They also agreed that the ECCU’s broader financial sector reform momentum should be maintained, while ensuring implementation timelines avoid unduly burdening supervised institutions in the post-pandemic environment. Directors stressed the importance of addressing gaps in the supervision of non-banks, improving AML/CFT framework, and further mitigating CBR risk.

Directors supported ECCB’s prudent practice to keep the backing ratio at a robust level, which is critical to safeguard the quasi-currency board arrangement. The heightened external risks call for enhanced monitoring of foreign exchange movements and preparation of policy responses to downside risks.

Directors also encouraged the authorities’ continued pursuance of structural reforms to make the ECCU economies more competitive and resilient, including through digital transformation. They called for continued efforts to build resilience to climate-related shocks.

Directors agreed that the views they expressed today will form part of the Article IV consultation discussions with individual ECCU members.

ECCU: Selected Economic and Financial Indicators, 2017-21 1/

Est.

Proj.

2017

2018

2019

2020

2021

(Annual percentage change)

Output and prices

Real GDP

1.2

3.8

2.6

-16.0

-0.2

GDP deflator

1.4

0.7

1.7

-0.6

1.4

Consumer prices, average

1.1

1.2

0.7

-0.6

1.6

Monetary sector 2/

Net foreign assets

14.6

5.8

5.1

Central bank

3.3

-1.1

-2.8

Commercial banks (net)

34.1

15.1

14.1

Net domestic assets

-6.0

-0.2

0.5

Of which: private sector credit

-0.1

0.0

0.5

Broad money (M2)

3.4

2.9

2.9

Public finances

(In percent of GDP; unless otherwise specified)

Central government

Total revenue and grants

26.8

27.8

27.0

26.7

27.2

Total expenditure and net lending

27.7

29.5

29.0

32.0

32.2

Overall balance

-0.9

-1.7

-2.0

-5.3

-5.0

Excl. Citizenship by Investment Programs

-3.6

-4.0

-3.6

-6.6

-5.8

Primary balance

1.6

0.6

0.4

-2.8

-2.4

Total public sector debt

72.1

69.6

67.1

83.9

88.8

External sector

Current account balance

-7.5

-11.9

-6.5

-15.3

-21.6

Trade balance

-29.7

-34.3

-32.3

-25.0

-24.9

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

-5.7

-14.6

2.5

-24.3

12.2

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

3.2

17.4

-1.4

-34.6

1.6

Services, incomes and transfers

22.3

22.4

25.8

9.7

3.3

Of which : travel

37.4

36.9

39.7

15.4

8.4

External public debt

37.0

35.9

34.5

45.5

51.0

External debt service (percent of goods and

nonfactor services)

9.7

9.4

9.9

28.1

28.7

International reserves

In millions of U.S. dollars

1,750

1,747

1,698

1,747

1,717

In months of current year imports of goods

and services

5.3

4.7

4.5

7.5

7.6

In percent of broad money

29.0

28.1

26.5

28.6

27.8

REER (average annual percentage change)

Trade-weighted

-0.6

-1.9

1.2

-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/ Data for 2020 and 2021 are not reported: due to the methodological changes, annual growth numbers are not available.


[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: https://www.IMF.org/external/np/sec/misc/qualifiers.htm .

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