IMF Executive Board Concludes 2009 Discussion on Common Policies of Member Countries of the Eastern Caribbean Currency Union

Public Information Notice (PIN) No. 09/62
May 20, 2009

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On May 15, 2009, the Executive Board of the International Monetary Fund (IMF) concluded the 2009 Discussion on Common Policies of Member Countries of the Eastern Caribbean Currency Union (ECCU).1


In the face of a weak and volatile external environment, economic activity in the ECCU has faltered, and the ECCU has entered a recession. Led by construction and tourism, average annual growth reached 4½ percent during 2003–07. However, growth declined to 1.8 percent in 2008, and the region’s real GDP is expected to contract by a further 2½ percent in 2009, reflecting a sharply-slowing global economy, declining tourist arrivals and foreign direct investment (FDI) flows, and increased financial sector stresses. Following a strong acceleration during the first three quarters of 2008 (to reach about 9 percent), inflation eased toward end-2008 amid the retreat of world commodity prices, and is projected to return to its long-run average of 2–3 percent per year in 2009.

Limited progress has been made towards fiscal consolidation. Tax revenues have increased, benefiting from strengthened tax administration and broader tax bases (particularly owing to the introduction of VATs). Capital expenditure peaked in 2006, reflecting Cricket World Cup and tourism-related investment, but has since declined, and current expenditure remained high. As a result, while some fiscal consolidation was achieved during 2007, no major progress was made in 2008. Recession-induced revenue losses and higher debt-servicing costs are projected to raise the region’s overall fiscal deficit to 6.8 percent of GDP in 2009 (4⅔ percent in 2008), with public debt rising to 98 percent of GDP at end-2009 (91 percent at end-2008).

The region’s financial system has not been immune to the global crisis. Growth of monetary aggregates decelerated markedly in 2008, particularly during the last quarter, and the trend of improving bank prudential indicators in recent years has started to reverse. High government exposures, credit risk, and liquidity risk present major threats to ECCU banking system stability. Shocks emanating from the collapse of CL Financial Group, a Caribbean conglomerate headquartered in Trinidad and Tobago, and the Stanford International Bank, an offshore bank based in Antigua and Barbuda, have also increased the stress in the nonbank financial sector (including the offshore financial institutions), with knock-on effects to domestic banks. Against this background, the authorities have accelerated their efforts in strengthening financial sector regulation and supervision, including through the establishment of effective national single regulatory units for nonbanks.

The current account deficit remained elevated at 34 percent of GDP in 2008, as slowing construction-related imports offset falling tourism receipts and higher fuel and food imports. The deficit is projected to contract markedly to about 24 percent of GDP in 2009, with weaker demand for imports (owing to slowing FDI and domestic demand) and favorable movement in the region’s terms of trade (underpinned by falling commodity import prices) more than offsetting the impact of continued lackluster tourism performance and declines in remittances and exports. Gross international reserves are expected to fall in 2009 (by about 1½ percent of GDP), as capital inflows are projected to decline by more than the contracting current account deficit. Despite some recent real appreciation, the Eastern Caribbean dollar’s real effective exchange rate is in line with its equilibrium level, and remains close to its most depreciated level in almost 20 years.

Executive Board Assessment

The Executive Board noted that the tourism-dependent ECCU region has been hit hard by the global downturn, particularly through sharply-declining tourist arrivals, remittances, and foreign direct investment. Directors considered that the ECCU economy will experience a severe contraction of uncertain length and depth and increased financing strains. Against this background, Directors supported the authorities’ focus on policies to manage near-term challenges and downside risks, while continuing to address fundamental fiscal and debt sustainability issues. They also endorsed the authorities’ ongoing efforts in crisis prevention, and encouraged the authorities to further enhance contingency plans for possible crisis scenarios.

Directors commended the ECCU authorities’ prompt and coordinated responses to address threats to the region’s financial stability emanating from the collapse of the Trinidad and Tobago-based CL Financial Group and the Antigua-based offshore Stanford International Bank. Directors also welcomed progress in strengthening regulation and supervision of the financial sector, particularly the passage of harmonized legislation governing nonbank financial institutions. Nonetheless, they recommended reinforced efforts to intensify oversight of banks, particularly through further increasing the frequency and scope of on-site inspections, and to strengthen follow-up and enforcement of remedial measures. Directors stressed that non-bank and offshore financial sectors need to be quickly brought under effective regulation and supervision, through establishing fully functioning national Single Regulatory Units. Given the increasing presence of financial conglomerates in the Caribbean, they welcomed the ongoing efforts by the ECCU authorities to strengthen cross-functional and cross-border consolidated supervision, and to enhance collaboration and information sharing. A number of Directors called for enhancing implementation of Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) frameworks, while a few encouraged the authorities to implement the internationally agreed tax standard developed by the Organisation for Economic Co-operation and Development (OECD).

Directors considered that the currency board arrangement continues to serve the region well by fostering price and financial stability, including in the face of adverse external shocks. They observed the staff’s assessment that, despite some recent appreciation, the real effective exchange rate appears to be in line with fundamentals. Nevertheless, given the deteriorating terms of trade and export performance, Directors welcomed the region’s continued efforts—including through the establishment by end-2009 of the Organization of Eastern Caribbean States Economic Union—to enhance regional integration and external competitiveness.

Directors observed that the region’s very large external current account deficits are narrowing, and continue to be predominantly financed by non-debt creating foreign direct investment. They cautioned that any sudden slowing of capital inflows in a deteriorating external environment could raise pressures on international reserves. Directors supported the authorities’ intentions to monitor closely private sector capital flows and the ECCU’s net asset position, and to enhance statistics in this area. They encouraged the authorities to improve the business climate through regulatory, administrative, and legal reforms.

Given the region’s high public debt levels and currency board arrangement, Directors considered that there is little room for counter-cyclical fiscal policy during the current economic downturn. They stressed that fiscal discipline is key to underpinning external stability and maintaining credibility of the currency board arrangement. Directors encouraged the authorities to minimize the worsening in the fiscal deficit and over the medium term to reduce the public debt-to-GDP ratio. Toward those objectives, they endorsed the authorities’ plans to complete tax reforms in the remaining ECCU jurisdictions, prioritize capital expenditures, contain wage bills, and enhance debt management. Fiscal credibility would be enhanced by establishing a strong and transparent link between national fiscal policies and achievement of the ECCB Monetary Council’s fiscal benchmarks. Directors supported the authorities’ plans to increase expenditure on targeted social safety nets, in order to mitigate the hardship on vulnerable groups during the economic downturn.

Directors commended the progress, led by the ECCB, in improving the region’s statistics and institutional building. They encouraged national and regional authorities to further improve statistical practices and bolster data management, and supported the ongoing efforts to develop an integrated regional statistical system for the ECCU.

Directors agreed that the views they have expressed today will form part of their discussions in the context of the Article IV consultations for individual members of the ECCU that take place until the next Board discussion of the ECCU’s common policies.

Eastern Caribbean Currency Union: Selected Economic and Financial Indicators, 2005–09 1/

        Prel. Proj.


2005 2006 2007 2008 2009
(Annual percentage change)

National income and prices


Real GDP

5.6 6.3 5.2 1.8 -2.4

GDP deflator

3.3 2.7 3.5 5.1 3.4

Consumer prices, average

3.2 4.0 3.3 6.9 3.1
(In percent of GDP)

Public finances


Primary central government balance

-0.5 -1.1 -0.8 -0.7 -2.2

Overall central government balance

-4.4 -5.1 -4.4 -4.7 -6.8

Total revenue and grants

29.9 31.3 30.7 31.0 28.9

Total expenditure and net lending

34.3 36.4 35.1 35.6 35.7

Total public debt (end-of-period)

100.5 98.4 94.5 90.6 97.9
(In percent of GDP, unless otherwise noted)

External sector


Current account balance

-22.4 -29.7 -34.8 -33.9 -24.2

Trade balance

-40.2 -44.6 -47.1 -45.3 -31.8


26.7 24.4 22.8 20.7 17.3

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

8.0 -2.5 4.8 12.9 -8.6

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

18.0 17.0 13.3 4.3 -25.6

Stayover visitors (annual percentage change)

1.3 2.8 -1.8 -1.3 -11.6

Terms of trade (annual percentage change) 2/

-2.8 -9.7 -1.5 -14.0 ...

Real effective exchange rate (annual percentage change) 2/ 3/

-0.9 -0.1 -2.3 1.1 ...

End-year gross foreign reserves of the ECCB


In millions of U.S. dollars

600.8 696.0 764.5 759.0 687.4

In months of imports

3.9 3.8 3.7 3.5 4.3

In percent of broad money

17.9 18.6 18.6 17.9 16.4

External public debt (end-of-period)

53.9 50.9 47.4 46.0 50.1
(Annual percentage change)

Money and credit


Net foreign assets 4/

1.2 2.0 -1.5 -7.0 -2.7

Net domestic assets 4/

7.2 9.6 11.2 9.9 1.6

Broad money

8.4 11.6 9.7 3.0 -1.0

Sources: ECCU country authorities; Eastern Caribbean Central Bank; 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 as sum of individual country data; ratios to GDP are then calculated by dividing this sum by the aggregated GDP.
2/ Excludes Anguilla and Montserrat.
3/ End-of-period (depreciation -), 1990=100.
4/ In relation to broad money at the beginning of the period.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. 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.


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