Ambitious Reforms Needed for Growth to Return in the CaribbeanPress Release No. 12/303
September 5, 2012
A high level Forum to discuss the challenges of low growth and high debt facing the Caribbean was jointly organized by the International Monetary Fund (IMF) and the Caribbean Development Bank (CDB) on September 4-5 in Port of Spain, Trinidad and Tobago. The meeting was co-hosted by the Government of Trinidad and Tobago.
The Forum provided a unique platform to further the ongoing dialogue with the region’s policymakers, listen to their views on the challenges they face and share experiences. Participants in the conference included Prime Ministers, Ministers, Central Bank Governors, and other high-ranking officials from the ECCU member countries–Antigua and Barbuda, Anguilla and Montserrat, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines—The Bahamas, Barbados, Belize, British Overseas Territories, Guyana, Haiti, Jamaica, Suriname, and Trinidad and Tobago. Governor Ilmars Rimsevics from the Bank of Latvia, Professor Victor Bulmer-Thomas, Irish Department of Finance Secretary General John Moran, and representatives from other Regional and International Institutions also participated in the meeting.
At the conclusion of the Forum, the IMF and the CDB released the following statement:
- The Caribbean region has important strengths on which it can build. Political stability, strong investor protections, and observance of the rule of law have made it an attractive destination for investment.
- The authorities are working to strengthen their economies, as the region is gradually recovering after a deep recession. Commodity-exporters are benefitting from still-favorable global conditions, but tourism- and services-dependent economies remain adversely affected by the tepid recovery in advanced economies.
- Low potential growth remains a key challenge for the region. Decisive reforms to boost competitiveness and private sector investment are of the essence. In particular, policymakers are encouraged to continue focusing on lowering relative (domestic vs foreign) costs of goods and services to foster exports and reduce external current account deficits. Reforms to address structural impediments will also help in that regard. Although the implementation of such reforms is challenging in the short term, in the long run they could bring undoubted benefits for the economies of the Caribbean and help create jobs.
- Countries with high debt ratios would benefit from pursuing fiscal adjustment steadfastly. Fiscal adjustment in the context of weak growth can be difficult to sustain, yet the cost of pursuing unbalanced policies can be more disruptive economically and socially than gradual and credible adjustments. In many countries, fiscal consolidation has been initiated and a further deepening may be warranted. Such consolidation could be enhanced by: improving the medium-term frameworks for fiscal policy; lowering current spending to make room for capital expenditure; reducing the level of tax waivers and concessions; and enhancing debt management.
- Protecting the poor and vulnerable groups should be central to reforms. Building on the social cohesion that prevails in the Caribbean, fiscal consolidation and structural reforms should also focus on improving social safety nets by making them more efficient and equitable to better target protection to the poor and vulnerable groups.
- There has been a general increase in financial interconnectedness in the region, which presents large benefits but also carries risks. Greater interconnectedness has translated into a substantial presence of international banks and higher flow of foreign funds into the region. To help minimize systemic and contagion risks, it would be advisable to: deepen cooperation among supervisory authorities; harmonize regulations; meet international best practices; and strengthen the crisis resolution and deposit insurance frameworks.
- The challenge to achieve sustainable growth in the region calls for a broad-based collective and collaborative approach. Multilateral financial institutions as well as donor partners will need to work closely and coordinate their assistance to maximize the benefits to the region. This could perhaps include credit enhancement for transformational growth prospects.
- We had a fruitful exchange of views at the Forum, some of which provided important food for thought, and participants recognized the desirability of a deeper and ongoing regional policy dialogue. This could take place through future conferences leveraging the analytical and technical resources of international institutions such as the IMF and the CDB. Such conferences could focus on specific priority policy issues, taking into account the vulnerabilities and needs of small states. The IMF and the CDB for their part reiterated their commitment to continue listening to the concerns expressed by the region with a view to enhancing their support.
The IMF and the CDB would like to thank the authorities in Trinidad and Tobago for their gracious hospitality and excellent collaboration.