WASHINGTON, Oct 18 – The International Monetary Fund (IMF) on Wednesday warned that debt remains at very high levels within the Eastern Caribbean Currency Union (ECCU) despite recent restructuring agreements.
In a report following a staff mission to
"Restructuring agreements reached with creditors by
It said that the forecast is for a soft landing of the ECCU economy in 2007, but risks are tilted to the downside.
“While private construction is showing continuing strength, growth is decelerating in the region, reflecting disappointing tourism arrivals, hurricane-damaged agricultural production, and ongoing problems with tourist airlift. Difficulties in
The IMF said that sustaining rapid growth through reforms to improve the investment climate, including greater labor market flexibility, financial market development, and continuing regional integration will be key to maintaining and further improving living standards in the region.
The team, headed by Paul Cashin, will be visiting the six IMF-member countries of the ECCU - Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines—and key regional institutions, including the Caribbean Development Bank (CDB), the Eastern Caribbean Central Bank (ECCB), and the Organization of Eastern Caribbean States (OECS).
The IMF said that more economic reforms are needed within the ECCU to achieve fiscal targets.
“Strengthening the currency union will require establishing and meeting annual fiscal targets that can credibly achieve the ECCB's public debt to GDP target of 60 percent by 2020.
Although important reforms to place fiscal balances on a firmer footing are underway in many countries—including through the introduction of value added taxes—improved fiscal positions will require an overhaul of government expenditures, focused on enhancing efficiency of capital spending and civil service reform,” the report stated.
The IMF said that economic activity in the ECCU region was buoyant in 2006, with real GDP growth reaching over 6 percent, the highest in more than 15 years.
Activity was driven by construction spending for the 2007 Cricket World Cup (CWC), and a significant expansion in tourism capacity. While inflationary pressures have emerged due to the strong economic activity and higher world oil prices, inflation has remained in the low single digits, anchored by the regional monetary arrangement at the ECCB. Despite higher revenues, fiscal positions deteriorated in 2006 largely due to CWC-related capital spending, and the regional debt ratio remained above 105 percent of GDP.
It noted that financial sector reforms are proceeding—ECCU member governments have passed the uniform Banking Act and the ECCB has implemented several new prudential guidelines.
However, recent rapid expansion in private sector credit could end up in higher non-performing loans if tourism growth does not keep up with expectations or real estate prices decline.
“There is a need to strengthen the enforcement of the revised regulatory framework for banks, as well as supervision of the nonbank financial sector,” the IMF stated.
"It is in this context that the mission is discussing policy options with national and regional authorities. Macroeconomic outcomes in
The IMF team met with Prime Minister Baldwin Spencer, Finance Minister Dr. Erol Cort and other government officials during their visit last week.
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