IMF Executive Board Concludes 2014 Discussion on Common Policies of Member Countries of the Eastern Caribbean Currency Union

Press Release No. 14/291
June 19, 2014

On June 6, 2014, the Executive Board of the International Monetary Fund (IMF) concluded the 2014 discussion on the common policies of member countries of the Eastern Caribbean Currency Union (ECCU).1

The ECCU’s economy continues to face significant headwinds. The 3-year recession ended in 2012, but the recovery has been listless. This year, the economy is expected to grow by 1.3 percent, up from 0.5 percent in 2013, but well below the pre-crisis average of 3.8 percent. Limited fiscal space and excessive public debt, financial sector stress, and weak external competiveness continue to hold back economic recovery. Inflation is expected to remain subdued at 1.7 percent. Risks to this outlook are high, stemming in particular from stress in the region’s financial sector and member countries’ fiscal pressures.

Executive Board Assessment

Executive Directors noted that economic recovery in the ECCU continues to be slow and faces significant challenges, while the policy space is limited. Directors underlined the urgency of addressing vulnerabilities associated with unsustainable public debt, financial sector stress, and weak external competitiveness. They agreed that the region’s growth and resilience would benefit from deeper regional cooperation, particularly in the areas of tax policies, fiscal frameworks, infrastructure, and financial sector strategies, taking advantage of technical assistance from international institutions and other development partners.

Directors emphasized the need for ambitious, credible medium term fiscal consolidation to put public debt on a sustainable path and create the fiscal space for counter cyclical policies in the context of the quasi currency board arrangement. A strong fiscal framework at the regional level, supported by effective monitoring and enforcing mechanisms, would help underpin these consolidation efforts and promote durable fiscal discipline.

Directors recommended a two pronged approach to reducing fiscal imbalances. On the expenditure side, they saw scope to reduce the wage bill and budget transfers to state owned enterprises, while better prioritizing public investment and consolidating government functions through broader regional collaboration. On the revenue side, a coordinated regional strategy is needed to streamline tax incentives, reduce intra regional tax competition, and enhance transparency in tax systems. Directors underscored the need for prudent management of citizenship by investment programs, backed by strong due diligence and a transparent operational framework.

Directors agreed that a comprehensive regional strategy is vital to strengthen financial stability and avoid contingent fiscal risks. They welcomed the authorities’ plan to conduct banking sector diagnostics, including asset quality reviews. Directors urged swift implementation of bank restructuring and resolution strategies, seeking private sector solutions where feasible to minimize fiscal costs while continuing to preserve public confidence in the banking system. They also encouraged further efforts to strengthen the supervision of financial institutions and to enhance the legal and regulatory framework in line with international best practices.

Directors stressed the need for continued structural reforms aimed at improving productivity, cost efficiency, and the investment climate in order to boost potential growth. They noted that restoring price competitiveness under the exchange rate peg requires internal devaluation—through restraint in real wage growth, reforms to reduce transportation and energy costs, and labor market reforms more broadly. Strengthened collaboration among the governments would help ease the region’s capacity constraints and improve economies of scale. Directors looked forward to further progress in implementing the recommendations of the Caribbean Growth Forum, with a view to promoting economic diversification and private sector development.

ECCU: Selected Economic and Financial Indicators, 2010–15 1/




  Prel. Proj.


2010 2011 2012 2013 2014 2015


(Annual percentage change)

National income and prices







Real GDP

-3.3 -0.1 0.2 0.5 1.3 1.9

GDP deflator

2.3 2.1 2.7 1.3 1.5 2.1

Consumer prices, average

2.5 3.6 2.9 0.9 1.2 1.8

Monetary sector







Liabilities to the private sector (M2)

2.3 2.8 4.0 4.7 2.7 4.0

Net foreign assets

13.4 -4.4 29.3 31.2 8.5 0.1

Of which







Central bank

15.8 8.8 11.5 3.9 3.9 -0.7

Commercial banks (net)

-33.7 -90.0 43.2 188.0 52.8 5.3

Net domestic assets

0.2 4.4 -0.8 -1.8 0.8 5.4

Of which, Private sector credit

2.2 1.4 1.3 -2.3 2.2 4.0


(In percent of GDP)

Public sector







Primary central government balance

-0.7 -0.8 -0.6 -0.2 -3.2 -0.2

Overall central government balance

-3.7 -3.6 -3.7 -3.2 -6.4 -3.6

Total revenue and grants

27.4 27.0 25.8 27.1 27.3 26.7

Total expenditure and net lending

31.1 30.7 29.5 30.3 33.7 30.3

Foreign financing

3.4 1.6 2.4 2.2 1.9 0.4

Domestic financing including arrears

0.7 1.9 0.7 0.5 3.5 1.2

Central government current account balance

-0.5 -0.3 -0.5 0.1 -2.8 -0.6

Total public debt (end-of-period)

85.4 87.0 86.2 86.7 89.1 89.1


(Annual percentage change)

External sector







Exports, f.o.b.

8.8 -5.7 6.8 1.3 2.3 4.1

Imports, f.o.b.

4.5 0.4 0.1 0.2 1.5 3.4


(In percent of GDP)

External current account balance

-20.2 -18.1 -17.6 -16.7 -16.3 -16.1

Trade balance

-33.1 -32.9 -31.6 -31.1 -30.6 -30.4

Services, incomes and transfers

12.9 14.9 14.0 14.3 14.3 14.3

Of which , Travel

17.5 18.3 17.9 18.2 18.3 18.4

Capital and financial accounts 2/

21.4 18.1 18.6 16.9 17.3 16.7

Of which, Foreign direct investment

10.0 8.1 9.2 11.8 10.4 10.4

External public debt (end-of period)

43.5 44.3 42.8 45.0 45.9 45.1

External debt service, in percent of goods and nonfactor services

9.9 8.8 7.4 8.1 10.3 12.0

Of which, Interest

3.0 2.9 3.3 2.8 3.3 3.4

End-year gross foreign reserves of the ECCB







In millions of U.S. dollars

926.1 1007.6 1124.7 1168.6 1213.6 1205.2

In months of current year imports of goods and services

3.6 3.9 4.4 4.5 4.6 4.4

Sources: Country authorities; and IMF staff estimates and projections.

1/ Data as of March 1, 2014. 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/ Includes errors and omissions.

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. 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 summing up can be found here:


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