## 1. External Sector Developments

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### Context and overarching vulnerabilities
- Currency union facilitated quadrupling of the region’s output since inception, but income convergence has stalled.
- Pre-pandemic decade saw substantially weakened average growth, limiting convergence with advanced economies.
- Long-standing vulnerabilities:
  - High natural disaster (ND) susceptibility.
  - Import dependence (particularly on energy).
  - High public debt limiting policy space.
  - Reliance by a few members on uncertain CBI revenue.
  - External-sector imbalances from exposure to tourism and FDI shocks.
  - Persistent banking-sector asset-quality weaknesses.
  - Rapid population ageing.

### Recent developments and key indicators
- Growth and investment
  - Growth in 2024: 3.9 percent.
  - Total tourist arrivals surpassed pre-pandemic levels in most ECCU countries.
  - Major infrastructure projects (airports, seaports, renewable energy) boosted construction and are expected to improve connectivity and resilience.
  - July 2024 Hurricane Beryl caused significant physical damages in Grenada and St. Vincent and the Grenadines, but growth impact was moderated by limited effects on key economic centers and prompt recovery efforts.
- Inflation
  - Headline inflation eased from more than 9 percent (post-pandemic peak) to less than 2 percent as of June 2024.
- Citizenship by Investment (CBI) revenues
  - Total CBI revenues decline: 1½ percentage points of ECCU regional GDP in 2024 (compared to 2023).
  - Five ECCU countries offering CBI implemented common minimum pricing in mid-2024, strengthened investor screening, and are establishing a regional CBI regulator.
  - St. Kitts and Nevis experienced a recent CBI revenue decline.
- Fiscal outcomes and public debt
  - Fiscal deficit (ECCU overall, 2024): 1½ percent of GDP.
  - Public debt (estimate for 2024): about 71¼ percent of GDP.
  - Overall underlying deficit net of CBI revenues: narrowed from about 8 percent of GDP in 2023 to an estimated 7¼ percent of GDP in 2024; excluding Hurricane Beryl responses, about 6 percent of GDP in 2024.
  - Hurricane Beryl discretionary fiscal packages (2024): 4.6 and 5.7 percent of GDP; income support components 0.5 and 1.3 percent of GDP.
- External and financial sector
  - Current account deficit (ECCU, 2024): about 10½ of GDP.
  - Large deficit fully financed by CBI and other FDI inflows; ECCB’s nominal reserves modestly increased.
  - Bank NPLs continued gradual decline but remain high in several members; provisioning has slowly improved.
  - Implementation of more risk-sensitive Basel II/III capital requirements increased RWAs and modestly eroded headline capital adequacy.
  - Much of system liquidity is invested overseas despite uptick in household, construction, and real estate lending.
  - Staff assessment: ECCU overall external position weaker than implied by fundamentals and desirable policies (Annex II).

### Selected exact datapoints (preserved)
- Growth in 2024: 3.9 percent
- Headline inflation: more than 9 percent (post-pandemic peak) to less than 2 percent as of June 2024
- Fiscal deficit (ECCU overall, 2024): 1½ percent of GDP
- Public debt (estimate for 2024): about 71¼ percent of GDP
- Overall underlying deficit net of CBI revenues: narrowed from about 8 percent of GDP in 2023 to an estimated 7¼ percent of GDP in 2024; excluding Hurricane Beryl responses, about 6 percent of GDP in 2024
- Total CBI revenues decline: 1½ percentage points of ECCU regional GDP in 2024 (compared to 2023)
- Hurricane Beryl discretionary fiscal packages (2024): 4.6 and 5.7 percent of GDP; income support components 0.5 and 1.3 percent of GDP
- Current account deficit (ECCU, 2024): about 10½ of GDP
- Potential growth decline (1980s to pre-pandemic): from 5.5 percent to 1.5 percent
- Average growth in 2020–24: 1¾ percent
- Male-female participation gap: 11¼ percentage points (average); eliminating it could translate into a roughly 10 percent gain in ECCU GDP (IMF’s Output Gains Toolkit estimate)
- Energy efficiency potential example: could potentially reduce electricity demand by 18 percent

### Authorities’ views
- Broad agreement with staff on moderating growth outlook and key constraints: weak productivity, low local investment, elevated public debt, ageing population, and labor market challenges.
- Agreed downside risks: NDs, uncertain CBI revenues, external uncertainties from import dependence, tourism, and FDI reliance.
- Welcomed ECCB’s “big push” initiative to sensitize membership to growth impediments and support a regional reform roadmap.

### Staff appraisal — outlook and risks
- Medium-term growth projected to revert to about 2½ percent after completion of large infrastructure projects.
- ECCU inflation projected to moderate in line with trading partners.
- Aggregate public debt-to-GDP projected to decline over the medium term toward the regional debt ceiling, provided fiscal consolidation continues; some countries may remain above the ceiling by 2035.
- Downside risks: global trade tensions, geoeconomic fragmentation, regional conflicts, commodity price volatility, tighter global financial conditions, NDs, fiscal under-performance (including uncertain CBI revenues), rising NBFI risks, and legacy banking asset-quality risks.

### Financial soundness and external financing (selected series)
- ECCU aggregate real GDP: 2020 -17.6; 2021 6.5; 2022 11.6; 2023 3.7; 2024 3.9; 2025 3.5; 2026 2.7
- Consumer prices, average: 2020 -0.6; 2021 1.7; 2022 5.6; 2023 4.0; 2024 2.3; 2025 1.9; 2026 2.0
- Overall balance (percent of GDP): 2020 -6.8; 2021 -2.9; 2022 -2.7; 2023 -1.3; 2024 -1.4; 2025 -4.5; 2026 -0.5
- Total public sector debt: 2020 89.2; 2021 84.5; 2022 76.2; 2023 73.9; 2024 71.2; 2025 70.8; 2026 69.9
- Current account balance (percent of GDP): 2020 -19.1; 2021 -18.5; 2022 -12.3; 2023 -10.3; 2024 -10.4; 2025 -9.9; 2026 -8.3
- International reserves (US$ million): 2020 1,747; 2021 1,952; 2022 1,869; 2023 1,972; 2024 2,202; 2025 2,332; 2026 2,435
- Financial soundness indicators (2019–24): Regulatory CAR (indigenous banks) 2019 21.3; 2024 15.5. NPLs/total loans 2019 10.1; 2024 9.6. Total provisions to NPLs 2019 43.0; 2024 42.9.

### Country and sector highlights (selected)
- Anguilla (2024): Real GDP increase in 2024: 5.2 percent; Fiscal surplus estimated at 8.8 percent of GDP; Public debt estimated at 26.8 percent of GDP.
- Montserrat (2024): Real GDP growth estimated at around 4.8 percent; Public debt estimated at 3.3 percent of GDP; NPLs to total gross loans ratio 5.6 percent as of September 2024.
- Travel (percent of GDP) ECCU: 2020 17.1; 2021 20.5; 2022 34.6; 2023 39.8; 2024 42.2.

### Data adequacy and surveillance constraints
- Overall questionnaire median rating: C.
- Core gaps hampering surveillance:
  - National accounts and external sector statistics often annual only, with delays and sizeable revisions.
  - GDP expenditure data not available in many members.
  - Gaps in timeliness, recording, and coverage of national fiscal accounts and CBI revenue reporting.
  - NBFI data suffer from reporting delays and limited coverage.
- Staff recommended remedies:
  - Greater leveraging of synergies in regional data collection and processing.
  - Continued Fund/CARTAC technical assistance.
  - Develop expenditure-based GDP, maintain up-to-date CPI weights, expand the perimeter of debt statistics to general government, and implement regular union-wide labor force surveys.

### Policies to foster resilient and inclusive growth (priorities)
- Address supply-side bottlenecks to raise potential growth:
  - Labor market and human capital: expand vocational training; modernize education; active labor market policies; enhance access to child and elderly care to ease gender gaps (male-female participation gap: 11¼ percentage points).
  - Innovation and allocative efficiency: reduce regulatory frictions, streamline business licensing, promote digitalization; firm-level TFP improvements ranging from 34 to 65 percent across members.
  - Energy transition: diversify into lower-cost renewables; potential electricity demand reduction example: 18 percent; regional measures include RREIIF, pooled procurement, regulatory modernization.
  - CBI optimization: regionally coordinate financial integrity, public tracking of CBI inflows and uses, ex-post assessments of investment outcomes.
  - Disaster preparedness: update ND risk assessments; strengthen building codes and compliance; Monetary Council peer review to coordinate disaster planning.
- Build robust medium-term fiscal frameworks (MTFFs) and resilience strategies:
  - Adopt strong national MTFFs with enforceable fiscal rules; combine debt and operational targets; link fiscal operations with long-term objectives.
  - Mobilize tax revenue: broaden tax base, remove sizable exemptions, strengthen tax administration, leverage minimum global taxation opportunities.
  - Improve spending composition and quality: contain unproductive current expenditure; enhance social assistance and capital spending efficiency; digitalize services.
  - Implement disaster risk financing strategy (DRFS) and integrate resilience investment pipeline into MTFFs.
  - Manage CBI revenues prudently: avoid budget overreliance; pace budget use; allocate portions to contingency funds; apply clear investment guidelines and oversight.
- Strengthen financial system resilience and support private investment:
  - Complete bank balance-sheet remediation; monitor remedial actions to meet ECCB provisioning standards.
  - Transition to loss-bearing provisions and support disposal of impaired assets (streamline foreclosure, strengthen ECAMC).
  - Address rising NBFI vulnerabilities: strengthen credit union oversight, adopt common minimum NBFI regulatory standards under ECFSB (targeted operationalization by late 2026), centralize fragmented NBFI supervisory space.
  - Support private credit growth: coordinate regional/national initiatives (Credit Bureau rollout, EC Partial Credit Guarantee Corporation), deepen regional capital market, enhance business outreach, and improve borrowers’ bankability.

### Financial intermediation and credit growth diagnosis
- Long subdued business credit growth: average real annual growth of business lending since 2000: ½ a percent.
- Staff estimate: each percentage point increase in bank NPL ratios slows real credit growth by approximately ¼ percentage point.
- Regression evidence (30 ECCU banks, 2010Q3–2024Q2): NPL Ratio (-1) coefficients in specifications range from -0.312*** to -0.220** (standard errors provided), implying a negative and significant effect on credit growth.
- Policy roadmap to support credit growth:
  - Ensure financial system soundness and complete balance-sheet repair.
  - Reduce institutional frictions: modernize insolvency, develop collateral infrastructure (credit bureau, movable asset registry), support ECPCGC, develop real estate cadaster.
  - Review the MSR (minimum savings deposit rate) and encourage regional capital market development.
  - Coordinate regional initiatives to improve private-sector bankability and formalization.

### Implementation of past Fund advice and capacity development
- Mixed progress across past recommendations; ongoing actions include:
  - National Fiscal Responsibility Frameworks in a few members; Grenada included a disaster clause.
  - Reforms to social assistance underway in some countries.
  - June 2024 minimum pricing for CBI and Interim Regulatory Commission work on regional CBI regulator.
  - ECFSB and OFCI consultations commenced in February 2025 with target operational date Q4 2026.
  - Credit Reporting Bill enacted in all 8 ECCU members by mid-2024; Credit Bureau rollout ongoing.
  - 60 percent of licensed financial institutions compliant with minimum provisioning level of 60 percent of NPLs as of Q3 2024.
- CARTAC and technical assistance highlights (December 2019–May 2025):
  - National accounts rebasing and supply-use work (Dominica, Grenada, Montserrat); development of GDP-E methodologies; backcasted BPM6 balance of payments to 2000.
  - Price statistics and PPI/CPI improvements in select countries.
  - Dissemination of enhanced annual BOP and IIP; target production of quarterly BOP/IIP by December 2025.
  - Capacity building in Nowcasting, public debt dynamics tools, debt management, and regional government securities market development.

*Source: IMF staff report, “Eastern Caribbean Currency Union” (chapter on External Sector Developments).*

### 1. External Sector Developments _________________________________________________________________ 25

### 1. External Sector Developments

### Context
- The currency union has facilitated the quadrupling of the region’s output since its inception, but income convergence has stalled.
- Average growth weakened substantially in the decade preceding the pandemic, limiting income convergence with advanced economies.
- Long-standing vulnerabilities include high natural disaster (ND) susceptibility, import dependence (particularly on energy), high public debt that limits policy space, reliance by a few members on uncertain CBI revenue, external sector imbalances driven by exposure to tourism and FDI shocks, persistent banking-sector asset quality weaknesses, and rapid population ageing.

### Recent developments
- Growth and investment
  - Robust growth in 2024 is estimated at 3.9 percent, supported by a strong tourism season and continued infrastructure investments.
  - Total tourist arrivals have surpassed pre-pandemic levels in most ECCU countries, aided by expanded capacity from new resort developments.
  - Major ongoing infrastructure projects—airports, seaports, and renewable energy facilities—have boosted construction activity and are expected to improve connectivity and resilience.
  - Despite significant physical damages in Grenada and St. Vincent and the Grenadines, the growth impact of July 2024 Hurricane Beryl was substantially moderated by limited effects on key economic centers and prompt recovery efforts.
- Inflation
  - Headline inflation eased from a post-pandemic peak of more than 9 percent to less than 2 percent as of June 2024.
  - ECCU inflation has tracked global food and oil prices, with country variations reflecting local fuel pricing mechanisms and timing of removal of temporary support measures.
- CBI revenues
  - CBI revenues have stayed high but showed signs of slowing amid heightened international scrutiny and regulatory tightening.
  - The five ECCU countries offering a CBI program implemented common minimum pricing in mid-2024, strengthened investor screening, and are establishing a regional CBI regulator.
  - Total CBI revenues as percent of ECCU regional GDP are estimated to have declined by 1½ percentage points in 2024, compared to 2023.
  - St. Kitts and Nevis experienced a recent CBI revenue decline, underscoring program vulnerability to abrupt changes in investor demand.
- Fiscal outcomes and public debt
  - The ECCU’s overall 2024 fiscal deficit was broadly unchanged relative to 2023 at 1½ percent of GDP.
  - Supported by buoyant growth, public debt is estimated to have declined further to about 71¼ percent of GDP in 2024, but remains high relative to peers and the 60 percent of GDP regional debt ceiling committed to by 2035.
  - The overall underlying deficit net of CBI revenues for the region narrowed from about 8 percent of GDP in 2023 to an estimated 7¼ percent of GDP in 2024; excluding the budgetary impact of fiscal responses to Hurricane Beryl, it would have improved further to about 6 percent of GDP in 2024.
  - The discretionary fiscal packages in response to Hurricane Beryl in 2024 are estimated at 4.6 and 5.7 percent of GDP (of which, 0.5 and 1.3 percent of GDP are income support to the vulnerable) for Grenada and VCT, respectively.
- Financial sector and reserves
  - Bank nonperforming loans (NPLs) continued a gradual downward trend but remain high in several members; provisioning against NPLs has slowly improved.
  - The ECCB granted a few banks time-bound extensions to meet the now-fully-phased-in regional standard.
  - Implementation of more risk-sensitive Basel II/III capital requirements modestly eroded headline capital adequacy through increased risk-weighted assets.
  - Much of the system’s ample liquidity continues to be invested overseas despite an uptick in household, construction, and real estate lending and rapid credit-union lending growth.
  - The ECCB’s reserve position has remained stable and the currency backing ratio strong, despite wide current account deficits.
  - The ECCU 2024 current account deficit is estimated at about 10½ of GDP and stayed broadly unchanged relative to 2023; the large deficit has been fully financed by CBI and other FDI inflows, and the ECCB’s nominal reserves have modestly increased.
  - Staff’s 2024 assessment finds the ECCU’s overall external position weaker than the level implied by fundamentals and desirable policies (Annex II).

### Authorities’ views
- Authorities broadly agreed with staff’s outlook of moderating growth and concurred that weak productivity growth, low local investment, elevated public debt, ageing population, and labor market challenges weigh on the region’s medium-term outlook.
- Authorities agreed on downside risks from NDs, uncertain CBI revenues, and external uncertainties due to high dependence on food and fuel imports, tourism, and FDI inflows.
- Authorities highlighted the region’s potential for higher growth with decisive reforms and welcomed the ECCB’s “big push” initiative to sensitize membership to growth impediments and support a regional reform roadmap.

### Key vulnerabilities and indicators (selected from text)
- Natural disaster total damages, public debt, current account deficits, CBI revenue share, and banking sector NPL ratios are highlighted as core vulnerabilities across ECCU members.
- Energy dependence is high with fossil fuel imports dominant; electricity prices are high compared to other regions; energy consumption has increased markedly over past decades.

### Data points of note (preserved exactly as in source)
- Growth in 2024: 3.9 percent
- Headline inflation: more than 9 percent (post-pandemic peak) to less than 2 percent as of June 2024
- Fiscal deficit (ECCU overall, 2024): 1½ percent of GDP
- Public debt (estimate for 2024): about 71¼ percent of GDP
- Overall underlying deficit net of CBI revenues: narrowed from about 8 percent of GDP in 2023 to an estimated 7¼ percent of GDP in 2024; excluding Hurricane Beryl responses, about 6 percent of GDP in 2024
- Total CBI revenues decline: 1½ percentage points of ECCU regional GDP in 2024 (compared to 2023)
- Hurricane Beryl discretionary fiscal packages (2024): 4.6 and 5.7 percent of GDP; income support components 0.5 and 1.3 percent of GDP
- Current account deficit (ECCU, 2024): about 10½ of GDP
- Potential growth decline (1980s to pre-pandemic): from 5.5 percent to 1.5 percent
- Average growth in 2020–24: 1¾ percent (noted as modest strengthening)
- Male-female participation gap: 11¼ percentage points (average); eliminating it could translate into a roughly 10 percent gain in ECCU GDP (IMF’s Output Gains Toolkit estimate)
- Energy efficiency potential example: could potentially reduce electricity demand by 18 percent

### Financial and external assessment
- Staff assessment: ECCU overall external position weaker than implied by fundamentals and desirable policies (Annex II).
- Large financing of current account deficits has come from CBI and other FDI inflows; reserves modestly increased.
- Risk-weighted assets rose after Basel II/III implementation (hybrid framework introducing capital requirements for market and operational risk).

### Challenging outlook and risks
- Medium-term growth projected to revert to average pre-pandemic rates of about 2½ percent after completion of large infrastructure projects, constrained by subdued productivity, a shrinking labor force, and constrained fiscal space.
- ECCU inflation projected to moderate in line with trading partners.
- Aggregate public debt-to-GDP ratio projected to decline over the medium term toward the regional debt ceiling, provided fiscal consolidation continues; some countries may remain above the ceiling by 2035.
- Downside risks: global trade tensions, geoeconomic fragmentation, regional conflicts, commodity price volatility, tighter global financial conditions or systemic instability, NDs, fiscal under-performance (including uncertain CBI revenues), rising risks in the non-bank financial sector, and legacy banking asset-quality risks.

### Policies to foster resilient and inclusive growth (overview)
- Policy aim: build economic, fiscal and financial resilience and address supply bottlenecks to raise growth potential.
- Priorities:
  - Address structural frictions in resource allocation, employment, and skills development; strengthen capital stock resilience; harness opportunities in emerging sectors to boost productivity.
  - Build robust medium-term fiscal frameworks (MTFFs) and resilience strategies to reinforce the regional debt target and ensure space for growth-enhancing investment.
  - Address banks’ legacy balance-sheet weaknesses, mitigate non-bank financial sector risks, and improve credit conditions and small enterprises’ bankability to support private investment.

### A. Addressing supply-side bottlenecks to enhance growth
- Growth accounting and drivers
  - Updated growth accounting suggests potential growth declined from 5.5 percent in the 1980s to 1.5 percent pre-pandemic.
  - Decline driven primarily by lower total factor productivity (TFP) and human capital (each comprising nearly two-fifths of the total decline), followed by physical capital.
  - Supply-side bottlenecks include labor market frictions, limited investment due to financial intermediation weaknesses, barriers to innovation and rigidities in the business environment, and recurring NDs impairing infrastructure and human capital formation.
- Labor market and human capital reforms
  - An ECCU-wide firm-level survey identifies shortage of skilled labor—quality, skills, and number of professions trained at local institutions—as a top barrier to firm scaling.
  - Labor protection laws, regulations, and emigration are additional impediments.
  - Recommended measures: expand vocational training, modernize education systems to align with economic needs, deploy active labor market policies, and enhance access to (and leave for) child and elderly care to ease gender gaps.
  - Eliminating the male-female participation gap (11¼ percentage points on average) could yield a roughly 10 percent gain in ECCU GDP.
- Energy transition and CBI optimization
  - Harness opportunities of energy transition (Selected Issues “Powering the Future: Energy Transition Strategies for the ECCU”).
    - Diversifying into lower-cost renewable energy would reduce reliance on oil imports and enhance external sustainability, competitiveness, risk resilience, and long-term growth.
    - Transition challenges: high upfront costs and limited fiscal space; regulatory hurdles for private investment; small-market constraints limiting economies of scale.
    - Potential regional coordination measures: Resilient Renewable Energy Infrastructure Investment Facility (RREIIF) and pooled procurement, regulatory modernization and standardization; some energy-efficiency policies could further reduce electricity demand by 18 percent.
  - Safeguard and optimize the CBI funding model (Selected Issues “ECCU CBI Programs: Regional Significance and Risks”).
    - CBI inflows have become a prominent financing source for strategic development and public infrastructure; staff estimates total scale of CBI inflows far exceed their contribution to government revenue.
    - Need for regionally coordinated strengthening of financial integrity and addressing third-party security concerns.
    - Planned regional regulator offers an opportunity to improve institutional reporting and accountability, including public tracking of all CBI inflows and their uses and ex-post assessments of investment outcomes to ensure alignment of economic benefits with program risks.
- Disaster preparedness
  - Strengthen disaster preparedness of capital stock through regionally coordinated efforts: update country-specific ND risk assessments, upgrade regulations, and strengthen compliance in land use planning and building codes.
  - The Monetary Council’s peer review process could help coordinate disaster management planning across members given varying preparedness status; severe NDs can endanger fiscal sustainability with implications for the quasi-currency board.

*Source: IMF staff report, “Eastern Caribbean Currency Union” (chapter on External Sector Developments).*

### 16. Addressing bottlenecks to innovation and allocative efficiency can yield substantial

### 16. Addressing bottlenecks to innovation and allocative efficiency can yield substantial productivity gains

### Firm-level constraints and projected productivity gains
- Firm-level analysis across the region finds financing, regulatory, and input constraints lead to significant TFP losses, mainly reflecting:
  - high financing costs,
  - cumbersome tax administration,
  - inefficient business licensing processes.
- Potential TFP improvements from alleviating these bottlenecks and improving resource allocation:
  - TFP improvements ranging from 34 to 65 percent for member countries.
- Macroeconomic implication:
  - Closing these productivity gaps would potentially close the standard of living gaps with the U.S. by 9 to 27 percentage points.
- Policy priorities implied by these findings:
  - Improve financial intermediation (see Section C),
  - Promote digitalization—particularly in education and government services,
  - Streamline regulatory processes.

### Authorities’ views on growth drivers and reform priorities
- Authorities concurred with staff’s finding of a trend decline in potential growth and broadly agreed on root causes:
  - Persistent skills mismatches,
  - Underinvestment in resilient capital stock,
  - Administrative inefficiencies.
- Strategic priorities identified by authorities:
  - Maintain tourism as a central driver while:
    - Accelerating the energy transition to local renewable sources,
    - Reinvigorating the agricultural sector,
    - Diversifying tourism into high-value niche markets to generate greater added value and year-round revenue.
  - Attracting large-scale FDI requires:
    - Strengthened institutions,
    - Credible fiscal policies,
    - Resilient infrastructure,
    - Regional integration.
- Support for a multipronged pro-growth reform agenda with regional coordination:
  - Revamp education and vocational training:
    - Modernize curriculums,
    - Better align regional vocational certification with labor market core skills demand.
  - Improve business environment through digitalization, streamlined bureaucracy, and modernized legal frameworks.
  - Use ECCB’s RREIIF to overcome regulatory and financing barriers for the energy transition.
  - Note practical challenges to regional harmonization (e.g., standardized regulatory frameworks and updated building codes) due to differences in utility ownership and limited enforcement.

### Building robust fiscal frameworks and resilience strategies
- Context and risks:
  - Region’s high vulnerability to recurring natural disasters (NDs) and periodic procyclical fiscal policies drive fiscal challenges.
  - Major NDs typically cause significant deterioration in fiscal positions despite offsetting international support, contributing to high public debt and constrained fiscal space.
- Policy measures to support debt reduction and shock-resilience:
  - Region-wide adoption of strong national MTFFs with well-designed fiscal rules and specific fiscal policy and reform plans:
    - Combine debt and operational targets,
    - Strong enforceability frameworks backed by adequate capacity and institutions,
    - Link fiscal operations with long-term objectives,
    - Actively assess and manage fiscal risks and develop detailed contingency plans with funding and adjustment options.
  - Mobilize tax revenue given low tax revenue levels:
    - Broaden tax base by removing sizable tax exemptions,
    - Strengthen tax administration,
    - Implement minimum global taxation opportunities for coordinated streamlining of tax incentives.
  - Improve spending quality and composition:
    - Contain unproductive current expenditure,
    - Enhance social assistance and capital spending efficiency,
    - Digitalize government services.
  - Adopt a comprehensive ex-ante resilience strategy:
    - Invest in structural (infrastructure) and financial (insurance) resilience before disasters,
    - Integrate resilience investment budget tagging and a pipeline of projects into MTFFs to anchor multi-year ND resilient investment plans and unlock grant/concessional financing,
    - Implement a disaster risk financing strategy (DRFS) with a multi-layered insurance framework to ensure liquidity for relief and reconstruction.
  - Strengthen management and budget use of Citizenship by Investment (CBI) revenues:
    - Avoid budget overreliance on CBI revenues given heightened international scrutiny and volatility,
    - Implement frameworks for pacing budget use of CBI revenues and allocate a portion to contingency funds against shocks,
    - Subject CBI savings management to well-defined investment guidelines, oversight, and regular reporting.
- Regional oversight and governance:
  - Strong governance framework for independent macroeconomic and budgetary projections and transparent assessments of national fiscal plans, fiscal rules implementation, and fiscal sustainability is beneficial.
  - Consider operationalizing regular ECCB Monetary Council peer reviews of member fiscal strategies and progress toward the regional debt target.
- Authorities’ perspective on fiscal frameworks:
  - Reaffirmed commitment to the regional debt target,
  - Noted challenges in reaching the debt target while meeting other public policy goals and managing ND risk,
  - Emphasized high cost of ex-ante resilience strategies and called for more concessional international financial support,
  - Some members plan reforms to strengthen management and budget use of CBI revenues,
  - Establishing a regional fiscal oversight body seen as difficult due to required national legislative approvals.

### Strengthening financial system resilience and supporting private investment
- System overview and vulnerabilities:
  - Financial system remains largely bank-dominated with high system liquidity supported by local deposit growth.
  - Interlinkages to global financial system are limited but growing overseas investments raise potential security market risks.
  - Bank profitability has improved, but legacy balance sheet weaknesses and thin capital buffers in some banks persist.
  - Rising risks in the non-bank financial system (NBFI) are an area of potential vulnerability.
- Bank-sector remediation priorities:
  - Monitor time-bound remedial actions to ensure timely full compliance with the ECCB’s provisioning standard.
  - Transition from reserve-based regulatory loan loss allowances to loss-bearing provisions for appropriate recording and treatment of banks’ capital positions.
  - Support disposal of impaired assets by:
    - Streamlining costly foreclosure and collateral sale processes,
    - Strengthening capacity of the Eastern Caribbean Asset Management Company (ECAMC).
  - Monitor risks from rising overseas investments (mostly fixed income securities) and some banks’ elevated local sovereign exposure.
- Non-bank financial system and insurance risks:
  - Containment of rising NBFI vulnerabilities requires stepped-up regional coordination.
  - Near-term priority for credit unions:
    - Strengthen asset quality monitoring (including restructured loans and forbearance measures) and provisioning standards,
    - Ensure sufficient local supervisory resourcing and institutional capacity for interventions.
  - Use common minimum NBFI regulatory standards under the Eastern Caribbean Financial Stability Board (ECFSB, targeted to be operationalized by late 2026) to establish a more level regulatory playing field between credit unions and banks.
  - Centralize fragmented NBFI supervisory space to improve region-wide financial stability monitoring.
  - Property insurance market risks:
    - High dependence on external reinsurance exposes the ECCU to reassessments of global ND liability risks and rising costs,
    - Strengthen monitoring of reinsurance coverage through targeted data collection,
    - Centralized supervisory structure would help given prevalence of regional insurance companies,
    - Encourage private resilience investment to help contain local market pressures.
- Supporting private credit growth and investment:
  - Bank credit-to-GDP gaps have been negative for over a decade, with high system liquidity invested overseas and local credit risk increasingly assumed by the credit union sector with weaker loss-absorption capacity.
  - Business lending growth has been particularly anemic:
    - Average real annual growth of ½ a percent since 2000.
  - Factors impeding credit and investment include:
    - Bank balance sheet weaknesses,
    - Institutional credit market frictions (raising cost of loan impairments, cost of credit and collateral requirements),
    - Structural barriers to potential borrowers’ bankability.
  - Regional and national initiatives to address constraints include:
    - Ongoing rollout of the Credit Bureau,
    - Demand-tailored products under the Eastern Caribbean Partial Credit Guarantee Corporation,
    - National credit-promotion initiatives (including national development banks) that require close monitoring of risk-bearing capacity.
  - Recommended coordinated approach:
    - Closer coordination of regional and national initiatives,
    - Strengthen financial system resilience,
    - More active business outreach programs,
    - Broader structural reforms to support private sector development to foster a more conducive lending environment and create lending opportunities.
  - Additional note:
    - Deepening the nascent regional capital market, including IMF TA-supported efforts to enhance investor participation and liquidity in the regional government securities market, can further support private investment.

*From: Eastern Caribbean Currency Union — IMF staff report excerpt.*

### 27. Strengthening AML/CFT frameworks remains crucial amidst the scrutiny of CBI

### 27. Strengthening AML/CFT frameworks remains crucial amidst the scrutiny of CBI

### AML/CFT and correspondent banking risks
- Priorities for national authorities:
  - Address the Caribbean Financial Action Task Force (CFATF) Mutual Evaluation recommendations.
  - Complete the long-pending designation of the ECCB as the AML/CFT supervisor for banks in the remaining jurisdictions of St. Kitts and Nevis and Anguilla.
- Centralization of AML/CFT regulatory standards under the ECFSB is expected to help further address perceptions of regional risk.
- The ECCB has taken steps to address most of the 2021 assessment’s recommendations; the pending recommendation concerns further strengthening the ECCB’s operational autonomy and aligning its Agreement Act with leading practices.
- The next full safeguards assessment is due later in 2025.

### Authorities’ assessment of financial sector risks
- General observations:
  - Banking system progress in provisioning adequacy; remedial action plans are in place for the few remaining banks to reach full compliance with the ECCB’s provisioning standard.
  - The Basel II/III framework rollout is strengthening risk-sensitivity of bank capital requirements.
- Risks and concerns:
  - Increasing recognition of potential risks from rapid credit union expansion; broad support for development of common regulatory standards under the ECFSB, but no consensus for a more centralized supervisory structure at this time.
  - Varied perceptions of reinsurance risks by jurisdiction; shared concern over the recent rise in local premiums and openness to consider more systematic monitoring.
  - Noted progress in reducing regional credit constraints, particularly with the rollout of the regional credit bureau.
  - Several national initiatives to support small business development; potential room for greater regional coordination.

### Data issues and regional surveillance constraints
- Shortcomings that hamper surveillance:
  - National and external accounts data largely rely on national member inputs, often constrained by capacity and resource limitations at national central statistics offices (CSOs).
  - Data in these areas are limited to annual frequency and subject to release delays, increasing reliance on scant high frequency indicators.
  - External statistics subject to sizeable periodic revisions and potential omissions, including due to lack of transparency over CBI investment flows.
  - Weaknesses in timeliness, recording, and coverage of national fiscal accounts hamper consistent cross-country analysis.
  - NBFI data suffer in many instances from reporting delays and limited coverage; centrally supervised banking system provides a basis for well-informed core financial system surveillance.
- Potential remedies:
  - Greater leveraging of synergies in regional data collection and processing to address persistent resource and capacity gaps.
  - Continued Fund/CARTAC technical assistance has been valuable, but progress is often impeded by persistent staffing shortages and high turnover.
  - A more regionalized approach to data compilation and dissemination with centralization of some functions would limit processing overlaps and better leverage limited national staffing resources.
- Authorities’ views on data:
  - Broad agreement on the need to strengthen adequacy of economic data, with resource and capacity constraints being a challenge.
  - Technical assistance, including from CARTAC, is seen as highly valuable, but staffing challenges including retention persist.
  - Varying degrees of openness to a more regional approach to data compilation; some see the root challenge as local data collection that may be better supported by common standards and leveraging regional expertise.
  - A more centralized structure to data compilation would need to consider regional capacity limitations.

### Staff appraisal: outlook, risks, and policy priorities
- Economic rebound and current conditions:
  - ECCU achieved a strong rebound from successive adverse shocks driven by strong tourism performance and continued infrastructure investments.
  - Inflation has moderated in tune with global trends.
  - Moderate reduction in the currency union’s fiscal and external imbalances, although public debt levels and current account deficits remain high in several members.
  - External position assessed as weaker than implied by fundamentals and desirable policies, but current account deficits remain fully financed and stability of the ECCB’s reserves underpin a strong currency backing ratio.
  - Financial system remained stable, albeit with continued asset quality and credit condition weaknesses.
- Growth projection and risks:
  - Growth momentum projected to wane; set to slow to around 2½ percent over the medium term.
  - Modest growth potential reflects weak productivity and local investment, ageing populations, a shrinking labor force, and constrained fiscal space for public investment in most union members.
  - Downside risks significant amid a highly uncertain external environment—trade and geopolitical tensions could cause renewed inflationary pressures and disruptions to tourism and FDI inflows.
  - High public debt, persistent current account deficits, and weaknesses in the local financial system amplify vulnerability to recurrent ND shocks and uncertain outlook for future CBI inflows.
- Policy priorities to support resilient, inclusive growth:
  - Alleviate structural growth impediments through a coordinated multipronged approach:
    - Attune human capital to economic needs via vocational training and modernized education systems, complemented by active labor market policies and improved access to child and elderly care.
    - Accelerate energy transition to local renewables, optimize the CBI funding model, and increase ND preparedness.
    - Address bottlenecks to innovation and allocative efficiency through digitalizing key services, streamlining licensing and administrative processes, and strengthening financial intermediation.
  - Fiscal policy priorities:
    - Rebuild buffers, reduce public debt consistent with the regional debt anchor, and improve resilience to shocks.
    - Region-wide adoption of strong MTFFs embedded with well-designed fiscal rules and credible policy plans.
    - Comprehensive fiscal resilience strategies, including adequate disaster-financing frameworks.
    - Strengthen fiscal management of uncertain CBI revenues and pursue more institutionalized regional oversight and continued strengthening of national fiscal institutions.
  - Financial system and NBFI priorities:
    - Reduce vulnerabilities from legacy bank balance sheet weaknesses.
    - Mitigate risks from rapid credit union expansion and build readiness to manage risks from high dependency on global reinsurance.
    - Strengthen national AML/CFT frameworks.
    - Establish common minimum NBFI regulatory standards under the planned ECFSB; note that a more centralized supervisory structure would better facilitate management of regional stability risks.
    - Coordinate efforts to reduce institutional frictions in local credit markets and support small ECCU businesses’ bankability to revive local credit and investment.
  - Data priorities:
    - Strengthen coverage, quality, and timeliness of key national and external accounts and reduce blind spots in regional labor markets and CBI flows.
    - Greater leveraging of synergies in regional data compilation and processing to address persistent resource and capacity gaps.

*Source: 27. Strengthening AML/CFT frameworks remains crucial amidst the scrutiny of CBI (PDF chapter).*

### 40. The discussion with the ECCU authorities will be held on the 12-month cycle in

### 1eccea2025001-print-pdf - 40. The discussion with the ECCU authorities will be held on the 12-month cycle in

### External sector developments
- Tourist arrivals recovery has driven a rebound in tourism exports from very low levels in 2020.
- Current account deficit is gradually narrowing and remains financed largely by FDI and capital transfers.
- Real exchange rate has remained broadly stable.
- International reserve backing ratio has recovered following a decline in 2021-22.

### Monetary developments
- Bank deposits have continued to grow, which has predominantly increased foreign investments.
- Banks’ aggregate net sovereign claims have declined, in part reflecting savings of CBI revenue.
- Bank excess reserves have remained stable.
- The ECCB’s pandemic-period sovereign exposures have been paid off, normalizing the ECCB’s balance sheet composition.

### Financial sector developments — credit risk
- System-wide NPL ratio has gradually declined but remains high and above the ECCB’s 5 percent target ceiling in several members.
- Loan-loss provisions coverage has improved, yet some banks continue to rely heavily on non-loss-bearing regulatory reserves.
- Headline capital adequacy remains stable above regulatory minima, even as new Basel II/III capital requirements raised RWAs and eroded capital adequacy in several members.

### Financial sector developments — business developments
- Sector profitability has recovered from the earlier temporary erosion due to losses on overseas investments.
- Average lending rates have been declining.
- System liquidity has increased, feeding mostly investments predominantly in overseas securities.
- Private sector lending has recently picked up, although mostly in households, construction and real estate activities.

### Selected economic and financial indicators (ECCU aggregate, 2020–26)
- Real GDP: 2020 -17.6; 2021 6.5; 2022 11.6; 2023 3.7; 2024 3.9; 2025 3.5; 2026 2.7
- GDP deflator: 2020 -2.2; 2021 4.4; 2022 4.2; 2023 3.3; 2024 2.7; 2025 1.7; 2026 2.1
- Consumer prices, average: 2020 -0.6; 2021 1.7; 2022 5.6; 2023 4.0; 2024 2.3; 2025 1.9; 2026 2.0
- Net foreign assets: 2020 6.1; 2021 16.5; 2022 -0.7; 2023 11.5; 2024 4.7; 2025 2.4; 2026 3.3
  - Central bank: 2020 3.6; 2021 11.6; 2022 -4.8; 2023 5.4; 2024 12.3; 2025 5.9; 2026 4.4
  - Commercial banks (net): 2020 8.5; 2021 21.1; 2022 2.8; 2023 16.3; 2024 -0.7; 2025 -0.5; 2026 2.4
- Net domestic assets: 2020 -16.5; 2021 1.2; 2022 13.0; 2023 -5.8; 2024 7.9; 2025 9.8; 2026 7.2
  - Private sector credit: 2020 -0.9; 2021 1.5; 2022 1.6; 2023 3.6; 2024 4.7; 2025 3.7; 2026 3.9
- Broad money (M2): 2020 -4.7; 2021 10.1; 2022 4.6; 2023 4.3; 2024 6.0; 2025 5.3; 2026 4.9
- Central government: Total revenue and grants: 2020 29.0; 2021 30.5; 2022 29.7; 2023 30.0; 2024 30.8; 2025 28.3; 2026 27.3
- Central government: Total expenditure and net lending: 2020 35.8; 2021 33.4; 2022 32.5; 2023 31.2; 2024 32.2; 2025 32.8; 2026 27.8
- Overall balance (percent of GDP): 2020 -6.8; 2021 -2.9; 2022 -2.7; 2023 -1.3; 2024 -1.4; 2025 -4.5; 2026 -0.5
  - Of which: expected fiscal cost of natural disasters: 2020 0.5; 2021 0.4; 2022 0.5; 2023 0.7; 2024 0.7; 2025 0.7; 2026 0.7
- Excluding Citizenship-by-Investment Programs: 2020 -11.5; 2021 -8.7; 2022 -9.3; 2023 -8.0; 2024 -7.3; 2025 -8.4; 2026 -3.6
- Primary balance: 2020 -4.3; 2021 -0.6; 2022 -0.5; 2023 0.9; 2024 1.1; 2025 -1.8; 2026 1.7
- Total public sector debt: 2020 89.2; 2021 84.5; 2022 76.2; 2023 73.9; 2024 71.2; 2025 70.8; 2026 69.9
- Current account balance (percent of GDP): 2020 -19.1; 2021 -18.5; 2022 -12.3; 2023 -10.3; 2024 -10.4; 2025 -9.9; 2026 -8.3
- Trade balance (percent of GDP): 2020 -29.5; 2021 -30.1; 2022 -33.3; 2023 -32.0; 2024 -34.3; 2025 -34.1; 2026 -32.8
- Travel (percent of GDP): 2020 17.1; 2021 20.5; 2022 34.6; 2023 39.8; 2024 42.2; 2025 42.2; 2026 42.5
- International reserves (US$ million): 2020 1,747; 2021 1,952; 2022 1,869; 2023 1,972; 2024 2,202; 2025 2,332; 2026 2,435
  - In months of prospective year imports of goods and services: 2020 5.7; 2021 4.8; 2022 4.0; 2023 4.0; 2024 4.2; 2025 4.4; 2026 4.4
  - In percent of broad money: 2020 28.1; 2021 28.5; 2022 26.1; 2023 26.4; 2024 27.8; 2025 28.0; 2026 27.9

### Selected country-level projections and indicators (highlights)
- ECCU aggregate real GDP projections: 2024 3.9; 2025 3.5; 2026 2.7; 2027 2.5; 2028 2.4; 2029 2.3; 2030 2.3
- Country-specific real GDP (selected): Anguilla 2020 -29.9; 2021 12.8; 2022 20.0; Antigua and Barbuda 2020 -18.9; 2021 8.2; 2022 9.1; Dominica 2020 -16.6; 2021 6.9; 2022 5.6; Grenada 2020 -13.8; 2021 4.7; 2022 7.3
- Current account (percent GDP) ECCU: 2026 -8.3; 2027 -7.1; 2028 -6.6; 2029 -6.5; 2030 -6.2
- Public sector debt (percent GDP) ECCU: 2020 89.2; 2021 84.5; 2022 76.2; 2023 73.9; 2024 71.2; 2025 70.8; 2026 69.9
- Selected country debt examples: Dominica 2026 97.8; Antigua and Barbuda 2026 63.4; St. Lucia 2026 73.6

### Central government fiscal indicators by country (selected)
- ECCU total revenues and grants (percent GDP): 2020 29.0; 2021 30.5; 2022 29.7; 2023 30.0; 2024 30.8; 2025 28.3; 2026 27.3
- ECCU current expenditure (percent GDP): 2020 27.9; 2021 26.1; 2022 24.2; 2023 23.5; 2024 24.5; 2025 24.9; 2026 22.6
- ECCU capital expenditure (percent GDP): 2020 7.8; 2021 7.3; 2022 8.3; 2023 7.7; 2024 7.7; 2025 7.8; 2026 5.2
- ECCU primary balance (percent GDP): 2020 -4.3; 2021 -0.6; 2022 -0.5; 2023 0.9; 2024 1.1; 2025 -1.8; 2026 1.7

### Public sector debt composition and interest rates
- Total public sector debt (percent GDP) ECCU: see above (2020–2026).
- External debt (percent GDP) ECCU: 2020 47.9; 2021 47.6; 2022 42.6; 2023 42.7; 2024 42.1; 2025 43.7; 2026 44.8
- Domestic debt (percent GDP) ECCU: 2020 41.3; 2021 37.0; 2022 33.6; 2023 31.2; 2024 29.1; 2025 27.1; 2026 25.1
- Implied interest rates on central government external debt (selected): Anguilla 2020 4.6; 2021 3.3; Antigua and Barbuda 2020 2.7; Dominica 2020 1.4; St. Lucia 2020 3.5
- Implied interest rates on central government domestic debt (selected): Anguilla 2020 3.2; Antigua and Barbuda 2020 3.0; Dominica 2020 3.7; St. Lucia 2020 4.9; St. Vincent and the Grenadines 2020 5.9

### Balance of payments and financial flows (ECCU aggregate)
- Current Account (US$ million): 2020 -1,249; 2021 -1,347; 2022 -1,042; 2023 -930; 2024 -1,001; 2025 -1,003; 2026 -883
- Trade balance (US$ million): 2020 -1,927; 2021 -2,189; 2022 -2,811; 2023 -2,900; 2024 -3,308; 2025 -3,467; 2026 -3,493
- Exports (US$ million): 2020 192; 2021 253; 2022 355; 2023 433; 2024 391; 2025 446; 2026 497
- Imports (US$ million): 2020 2,120; 2021 2,442; 2022 3,167; 2023 3,333; 2024 3,700; 2025 3,914; 2026 3,989
- Services (US$ million): 2020 783; 2021 1,095; 2022 2,154; 2023 2,361; 2024 2,749; 2025 2,922; 2026 3,086
  - Travel receipts (US$ million): 2020 1,117; 2021 1,488; 2022 2,926; 2023 3,608; 2024 4,072; 2025 4,292; 2026 4,534
- Financial Account (US$ million): 2020 -698; 2021 -805; 2022 -699; 2023 -418; 2024 -506; 2025 -644; 2026 -590
  - Direct investment (US$ million): 2020 -555; 2021 -922; 2022 -705; 2023 -932; 2024 -862; 2025 -796; 2026 -771
  - Portfolio investment (US$ million): 2020 192; 2021 347; 2022 485; 2023 255; 2024 388; 2025 120; 2026 128
- Gross reserves of the ECCB (in US$ million): 2020 1,747; 2021 1,952; 2022 1,869; 2023 1,972; 2024 2,202; 2025 2,332; 2026 2,435
- Current Account (percent of GDP): see previous ECCU series (-19.1 in 2020 through -8.3 in 2026)

### Vulnerability indicators (2019–24)
- Current account balance (percent of GDP): 2019 -8.4; 2020 -19.1; 2021 -18.5; 2022 -12.3; 2023 -10.3; 2024 -10.4
- FDI inflows (percent of GDP): 2019 9.4; 2020 7.7; 2021 11.6; 2022 8.5; 2023 10.1; 2024 9.0
- Travel receipts (percent of GDP): 2019 38.7; 2020 17.1; 2021 20.5; 2022 34.6; 2023 39.8; 2024 42.2
- Total gross external public debt (percent of GDP): 2019 34.5; 2020 48.7; 2021 48.5; 2022 42.9; 2023 42.9; 2024 42.3
- Gross international reserves (US$ million): 2019 1,698; 2020 1,747; 2021 1,952; 2022 1,869; 2023 1,972; 2024 2,202
- ECCB reserve cover (percent): 2019 99.1; 2020 96.0; 2021 95.8; 2022 90.5; 2023 95.0; 2024 98.1

### Financial soundness indicators — banking sector (2019–24)
- Regulatory capital to risk-weighted assets (CAR, indigenous banks): 2019 21.3; 2020 20.9; 2021 19.9; 2022 16.7; 2023 16.8; 2024 15.5
- NPLs/total loans: 2019 10.1; 2020 11.6; 2021 12.1; 2022 12.3; 2023 11.2; 2024 9.6
- Total provisions to nonperforming loans: 2019 43.0; 2020 50.9; 2021 48.4; 2022 45.9; 2023 40.9; 2024 42.9
- Return on average assets (ROA): 2019 1.4; 2020 1.0; 2021 0.9; 2022 -0.2; 2023 1.3; 2024 0.5
- Liquid assets to total assets: 2019 40.4; 2020 38.4; 2021 38.2; 2022 38.6; 2023 39.3; 2024 39.9
- Loans to deposits: 2019 64.2; 2020 67.5; 2021 63.5; 2022 62.6; 2023 61.4; 2024 62.0
- Foreign-currency-denominated liabilities to total liabilities: 2019 21.1; 2020 19.8; 2021 17.5; 2022 18.1; 2023 17.7; 2024 19.6

### Financial soundness indicators by country (selected)
- Regulatory capital to risk-weighted assets (CAR) 2024: Anguilla 16.3; Antigua and Barbuda 18.7; Dominica 15.0; Grenada 14.5; Montserrat 12.0; St. Kitts and Nevis 12.9; St. Lucia 15.9; St. Vincent and the Grenadines 19.1
- Nonperforming loans to total gross loans 2024: Anguilla 12.8; Antigua and Barbuda 5.3; Dominica 11.8; Grenada 2.9; Montserrat 5.8; St. Kitts and Nevis 18.1; St. Lucia 11.9; St. Vincent and the Grenadines 7.0
- Total provisions to nonperforming loans 2024: Anguilla 30.4; Antigua and Barbuda 98.9; Dominica 56.5; Grenada 70.0; Montserrat 106.9; St. Kitts and Nevis 14.8; St. Lucia 43.5; St. Vincent and the Grenadines 51.3
- Return on average assets (ROA) 2024 by country: Anguilla 2.1; Antigua and Barbuda 0.5; Dominica 0.4; Grenada 0.4; Montserrat 0.4; St. Kitts and Nevis 0.3; St. Lucia 0.5; St. Vincent and the Grenadines 0.4
- Liquid assets to total assets 2024 by country: Anguilla 53.5; Antigua and Barbuda 44.2; Dominica 48.2; Grenada 52.3; Montserrat 80.3; St. Kitts and Nevis 46.4; St. Lucia 51.4; St. Vincent and the Grenadines 46.2

*EASTERN CARIBBEAN CURRENCY UNION — INTERNATIONAL MONETARY FUND*

### Annex I. Implementation of Past Fund Advice

### Annex I. Implementation of Past Fund Advice

### Protecting Fiscal Space for Social Spending and Public Investment within Public Debt Sustainability Bounds
- Recommendation 1: Adopt common regional standards for country-specific fiscal rules.
  - Authorities’ actions: Limited progress. A few member countries have established National Fiscal Responsibility Frameworks; a comprehensive legislative and effective operational framework is still lacking in most member countries. Grenada included a disaster clause in their fiscal framework, which could be extended to other member countries.
- Recommendation 2: Improve the targeting of social assistance.
  - Authorities’ actions: Ongoing in some countries. Reforms to improve the efficiency of the social assistance system are ongoing in St. Kitts and Nevis and St. Vincent and the Grenadines.
- Recommendation 3: Streamline tax exemptions with common benchmarks.
  - Authorities’ actions: Limited and mixed progress. Antigua and Barbuda (ATG) authorities have capped discretionary tax exemptions and increased sales tax rates (from 15 (standard rate) and 14 (reduced rate for tourism) to 17 percent) as well as high-end properties rates. ATG and St. Lucia increased/introduced excise tax on tobacco, alcohol, or cannabis products. Tax expenditures increased for St. Kitts and Nevis.
- Recommendation 4: Adopt fuel price pass-through frameworks to protect tax revenue and stabilize demand.
  - Authorities’ actions: Limited progress.
- Recommendation 5: Pass comprehensive reforms to improve the sustainability, fairness, and efficiency of pension systems.
  - Authorities’ actions: Progress in some countries. Grenada and St. Vincent and the Grenadines have launched reform measures to improve the financial sustainability of their NIS. Pension reforms are under consideration for St. Kitts and Nevis.
- Recommendation 6: Adopt common CBI program standards.
  - Authorities’ actions: Ongoing. Member countries are implementing stricter due diligence. The implementation of minimum pricing in June 2024 has reduced race-to-the-bottom competition. The Interim Regulatory Commission has been formed to ensure ECCU countries with CBI programs remain on track with commitments and has commenced work on legislation for establishing a regional regulator for CBI programs.
- Recommendation 7: Develop regional capacity to increase access to climate finance.
  - Authorities’ actions: Ongoing. ECCB established a Resilient Renewable Energy Infrastructure Investment Facility (RREIIF) with support by the World Bank, which has potential to improve access to and availability of finance for the green energy transition.

### Strengthening Financial System Balance Sheets and Maintaining Regulation Reform Momentum
- Recommendation 8: Enforce prudent provisioning requirements to reduce elevated NPLs.
  - Authorities’ actions: Ongoing. 60 percent of licensed financial institutions were compliant with the minimum provisioning level of 60 percent of NPLs as of Q3 2024. Efforts continue to monitor compliance with the 100 percent provisioning for the loss category (loans with one year or more in arrears). Extensions are being granted on a case-by-case basis.
- Recommendation 9: Step up credit union oversight to match growing systemic risks.
  - Authorities’ actions: Ongoing. ECCB is taking steps to introduce the Eastern Caribbean Financial Standards Board (ECFSB) to regulate non-bank financial institutions, including credit unions. Some national supervisors are moving toward adopting tighter provisioning standards for credit unions.
- Recommendation 10: Strengthen monitoring of climate risks emanating through the general insurance sector.
  - Authorities’ actions: Ongoing. The ECCB introduced prudential standards on climate related and environmental risks. The forthcoming ECFSB will regulate insurance.
- Recommendation 11: Establish a regional standards setting body with end goal being a more centralized ECCU-wide oversight framework.
  - Authorities’ actions: Ongoing. ECCB is taking steps to introduce the ECFSB to regulate non-bank financial institutions, including credit unions. Consultation with member countries to establish the Office of Financial Conduct and Inclusion (OFCI) and the ECFSB commenced in February 2025 and will run through to June. The target operational date is Q4 2026.
- Recommendation 12: Coordinate financial sector reform to support private investment, credit, and local enterprise development.
  - Authorities’ actions: Ongoing. The Credit Reporting Bill was enacted in all 8 ECCU members by mid-2024. The Credit Bureau rollout: Antigua and Barbuda launched in September 2024 and remaining countries expected in 2025. The EC Asset Management Corporation achieved first sales in 2024. The EC Partial Credit Guarantee Corporation has been established to provide guarantees at financial institutions, including access to financing, mentorship and advisory services.
- Recommendation 13: Strengthen supervisory resources.
  - Authorities’ actions: Ongoing. The establishment of OFCI and ECFSB is under consultation.
- Recommendation 14: Continued strengthening of AML/CFT framework amidst the scrutiny of CBI programs.
  - Authorities’ actions: Ongoing. Antigua and Barbuda issued an update to AML/CFT guidelines in May 2024. The forthcoming ECFSB will cover AML/CFT.

### Addressing Constraints to Employment
- Recommendation 15: Review and recalibrate employment protection frameworks.
  - Authorities’ actions: Limited progress.
- Recommendation 16: Recalibrate minimum-to-average wage ratio.
  - Authorities’ actions: Limited progress. Most ECCU member countries use minimum wages as a way of adjusting wages, rather than allowing market forces to determine wage rates. Some member countries are updating their minimum wage legislation in response to inflationary pressures brought on by the pandemic and exacerbated by geo-political developments.
- Recommendation 17: Close gender and youth gaps.
  - Authorities’ actions: Ongoing. Some countries implemented social safety net programs including national skills and employment programs. Work is ongoing in reforming school curricula to focus more on emerging skills and offer training programs in emerging technologies.

### Statistical Issues
- Recommendation 18: Concerted region-wide efforts to strengthen data collection, processing, and transparency.
  - Authorities’ actions: Ongoing.

*Source: Annex I. Implementation of Past Fund Advice*

### Annex IV . Data Issues

### Annex IV . Data Issues

### Data Adequacy Assessment for Surveillance
- Overall questionnaire median rating: C.
- Sector median ratings (heatmap): National Accounts: C; Prices: C; Government Finance Statistics: B; External Sector Statistics: C; Monetary and Financial Statistics: B; Inter-sectoral Consistency: B.
- Overall interpretation of ratings:
  - A: The data provided to the Fund is adequate for surveillance.
  - B: The data provided to the Fund has some shortcomings but is broadly adequate for surveillance.
  - C: The data provided to the Fund has some shortcomings that somewhat hamper surveillance.
  - D: The data provided to the Fund has serious shortcomings that significantly hamper surveillance.

### Detailed Questionnaire Results — Data Quality Characteristics
- Coverage: National Accounts: B; Prices: C; Government Finance Statistics: B; External Sector Statistics: B; Monetary and Financial Statistics: C.
- Granularity:
  - Government Finance Statistics: top cell (reported government operations data): C; bottom cell (public debt statistics): B.
  - Monetary and Financial Statistics: top cell (Monetary and Financial Statistics data): D; bottom cell (Financial Soundness indicators): A.
  - Other sector granularity cells: mixed (some blank where questionnaire not applicable).
- Consistency: National Accounts: B; Prices: C; Government Finance Statistics: B (where applicable).
- Frequency and Timeliness: National Accounts: C; Prices: B; Government Finance Statistics: C; External Sector Statistics: C; Monetary and Financial Statistics: B.

### Rationale for Staff Assessment — Key Findings
- General: Data have some shortcomings that somewhat hamper regional surveillance. Core gaps concern national accounts, prices, and external sector statistics.
- National Accounts and Prices:
  - GDP output data generally available only at annual frequency (quarterly in one member).
  - Releases take place with substantial delay and historical data can be subject to material revisions.
  - GDP expenditure data is not available.
  - Staff rely on high-frequency indicators (notably monthly tourism arrivals) and supplementary information (e.g., construction projects) for activity assessment and GDP projections.
  - Monthly CPI data are available for most members with a modest lag, but ECCU-wide CPI reflects quarterly frequency and more lagged releases by overseas territories.
  - Several members struggle to maintain up-to-date CPI baskets and weights.
  - Impact on regional surveillance is mitigated by the absence of independent monetary policy and heavy import dependence (inflation typically closely follows global prices).
- Government Finance Statistics:
  - Nationally collected Central Government fiscal accounts are generally adequate for surveillance and largely available at monthly frequency, though with periodic delays and revisions.
  - Challenges in expenditure classifications and gaps in granularity and timeliness of CBI revenue reporting can somewhat hamper union-wide fiscal surveillance.
  - Information on general government finances is patchy with limited systematic monitoring.
  - Only one member reports general government debt under a broad perimeter that includes non-guaranteed SOE debt and contingent liabilities from PPPs.
  - Granularity of reported public debt information varies by country, with shortcomings in a few members that hamper surveillance.
- External Sector Statistics:
  - Data are available only on an annual basis with a one-year delay (interim estimates based on administrative information often subject to substantial revisions).
  - Errors and omissions are periodically sizeable.
  - Lack of transparency over CBI flows in several members gives rise to potential inaccuracies, particularly in reporting contribution to FDI under the financial account, which significantly hampers assessment of external sustainability risks.
  - Other challenges: gaps in representativeness in tourism surveys and inconsistent recording of imports.
- Monetary and Financial Statistics:
  - MFS and FSI data are broadly adequate for surveillance.
  - Non-banking system—particularly the growing credit union sector—is not captured in monetary aggregates.

### Changes since the Last Article IV Consultation
- BPM6-based balance of payments statistics have been extended back to 2000 with CARTAC support, but revisions to historical data resulted in re-emergence of sizeable net errors and omissions.
- At the national level, some countries have made progress addressing gaps in national accounts, prices, and labor force surveys.
- Data gaps identified in the 2024 ECCU regional consultation in areas such as the labor market, private sector balance sheets, and property markets remain to be addressed.

### Corrective Actions and Capacity Development Priorities
- Core regional priorities:
  - Address gaps in frequency, timeliness, and data quality of national accounts and external sector statistics with ongoing CARTAC technical assistance support.
  - Enhance region-wide transparency of CBI flows (may be facilitated by planned new CBI regulator).
  - Develop expenditure-based GDP.
  - Maintain more up-to-date CPI weights.
  - Expand the perimeter of debt statistics to general government.
  - Implement regular union-wide labor force surveys for comprehensive labor market monitoring.
  - Establishment of the ECFSB to support more consistent regional non-bank data collection and expand MFS coverage.
- Staffing and organizational recommendations:
  - Authorities are encouraged to address persistent staffing shortages and turnover at national statistics offices that limit absorption capacity for technical assistance.
  - Consider further regional centralization of data compilation and dissemination to better leverage scarce staffing resources across national and regional entities.

### Use of Alternative Data and Other Data Gaps
- Use of alternative data: Staff does not use data or estimates different from official statistics; other sources of economic data in ECCU are scarce.
- Other identified data gaps:
  - Only a few members conduct regular Labor Force Surveys; census information is often outdated, challenging region-wide labor market assessment.
  - Limited information on capital stock, hampering assessment of resilience to natural disasters.
  - Lack of databases on housing market valuations and household/firm balance sheets impedes monitoring of private sector financial conditions.
  - Enhanced supervisory data on reinsurance would strengthen assessment of emerging risks in that sector.

### Data Standards Initiatives
- The six IMF members of the currency union participate in the Enhanced General Data Dissemination System (e-GDDS) but are yet to disseminate the data recommended under the e-GDDS.

### Selected Country-Level Data and Indicators (from subsequent Annexes included in the source)
- Anguilla:
  - Population: around 16,000.
  - Visitors, Jan–Oct 2024: 166,374 (about 22 percent above same months in 2019).
  - Real GDP increase in 2024: 5.2 percent.
  - Internet domain (.ai) sales estimated to have jumped a further 22 percent to reach EC$106 million in 2024, contributing to nearly a quarter of total revenue.
  - Tax revenues estimated to have expanded by 9 percent to EC$300 million in 2024.
  - Fiscal surplus estimated at 8.8 percent of GDP in 2024.
  - Public debt estimated at 26.8 percent of GDP in 2024 (down from 31.5 percent of GDP in 2023).
  - Current account: deficit of 48 percent of GDP in 2021; surplus of 30 percent of GDP in 2023; estimated 21 percent surplus in 2024.
  - Financial sector: capital adequacy ratio around 16 percent (regulatory benchmark 8 percent); NPLs to total gross loans ratio 13 percent in September 2024 (17 percent in September 2023); provisions to NPLs below ECCB minimum of 60 percent.
- Montserrat:
  - Population: around four thousand (plus large diaspora).
  - Real GDP growth estimated at around 4.8 percent in 2024 (3.8 percent in 2023).
  - Port/yachting target: 25 percent increase in arrivals next year from around 400 annual yacht calls currently.
  - Fiscal: grant revenues as large as two thirds of total revenues; fiscal balance estimated to have remained in surplus in 2024.
  - Public debt estimated at 3.3 percent of GDP in 2024.
  - Financial sector: NPLs to total gross loans ratio 5.6 percent as of September 2024; provisions 107 percent of NPLs by September 2024 (ECCB mandated minimum 60 percent).
- ECCU regional growth forecasts:
  - IMF WEO PPP-weighted forecasted real GDP growth decreased from 4½ percent in the 2012 forecast to about 2 percent in the 2024 forecast.

*Source: Annex IV . Data Issues, as presented in the provided IMF chapter PDF.*

### 4. The second approach

### 4. The second approach

### Methodology for estimating potential output
- Potential output growth is estimated using a standard growth accounting method that decomposes growth into contributions from TFP, physical capital, human capital, and labor.
- The approach complements forecasting by providing a detailed analysis of drivers of growth.
- For the ECCU, natural disasters (NDs) are explicitly considered:
  - The physical capital stock from Penn World Tables (PWT 10.1) is adjusted to exclude post-disaster reconstruction investments that are unrelated to underlying growth potential.
- Labor is measured as the human capital augmented population:
  - Human capital is estimated using average schooling years following the literature (Guerson et al. 2017; Bils and Klenow 2000; Sosa et al. 2013).
  - Average schooling years are estimated using skill-specific emigration rates from the IAB database, and secondary enrollment rates from World Bank WDI.

### Key empirical findings on potential growth
- Estimated decline in potential growth:
  - Potential growth declined from around 5.5 percent in the 1980s to around 1.5 percent in the decade before the pandemic.
- Decomposition of the decline:
  - Lower contributions from TFP and human capital growth: each accounting for nearly two-fifths of the total drop in growth.
  - Drop in physical capital: contributing a quarter of the decline.
  - Population growth: the single component that did not decline in its contribution.

### Firm-level evidence on TFP and human capital
- Data source and coverage:
  - Innovation, Firm Performance, and Gender (IFPG) survey covering 1,979 firms across 13 Caribbean countries.
  - For the ECCU-6, the sample includes 826 firms (12 percent of the firm population), spanning manufacturing and services.
- Firm-level TFP and misallocation:
  - Using the Hsieh and Klenow (2009) framework, dispersion in marginal revenue products of capital and labor is measured to quantify misallocation.
  - Potential aggregate TFP increases from efficient reallocation in 2019 would range from 34 percent in Grenada to 65 percent in St. Lucia.
  - These TFP gains could reduce the GDP per capita gap with the United States (advanced economies) by 9 to 27 (10-30) percentage points under stated assumptions.

### Obstacles identified by firms and credit conditions
- Top reported obstacles (percent of firms reporting ‘Very severe’):
  - Access to finance: 37 percent.
  - Inadequately educated workforce: 27 percent.
  - Customs and trade regulations: 27 percent.
- Use and cost of credit:
  - Short-term financing is the most common; equity financing is the least used.
  - Average interest rates for ECCU-6 firms:
    - Line of credit: 10 percent.
    - Overdraft facility: 11 percent.
    - Credit card: 20 percent.
    - Medium/long-term loans: 13 percent.
  - Comparison benchmark: global median interest rate was 4 percent for small-and medium-sized enterprises in 2018 (OECD, 2020).
- Regression evidence on obstacles and firm TFP:
  - Removing obstacles related to cost of finance and tax administration could improve firm-level TFP by over 10 percentage points.
  - Removing obstacles related to business licensing and permits and an inadequately educated workforce could improve firm-level TFP by over 5 percentage points.
  - Among small firms and young firms (less than 20 employees and 20 years old), removal of access to finance constraints could improve firm-level TFP by between 8 to 12 percentage points.

### Skills shortages and human capital constraints
- Firms attribute labor skills shortages primarily to the quality and range of professions trained locally, affecting technical professions (e.g., engineers) and traditional vocations (e.g., plumbers, electricians, carpenters).
- Less important factors cited by firms include labor regulations, emigration, and inter-sectoral movement.
- Policy implication: investment in local educational institutions and vocational training to better match firm demand is needed as a medium- and long-term priority.

### Policy recommendations to raise potential growth
- Prioritize reforms to address low productivity growth and insufficient human capital:
  - Foster resource reallocation to reduce misallocation and raise aggregate TFP.
  - Address firm-identified obstacles: access to finance, workforce education, and regulatory burdens.
- Target prioritization:
  - Implement low-hanging fruit reforms specific to country circumstances (e.g., remove regulatory burdens alongside digitalization).
  - Treat education and human capital improvements as medium- to long-term objectives.
- Regulatory simplification:
  - Simplify business registration and tax administration, especially for SMEs and startups.
  - Enhance digital access for taxpayers to reduce administrative burdens and improve compliance (examples cited include Dominica’s digitalization initiative).
- Financial sector measures:
  - Strengthen financial sector oversight and reduce non-performing loans (NPLs) to improve credit availability and lower financing costs for SMEs.
  - Consider a centralized credit registry to enhance information sharing, improve risk management, and lower financial costs.
  - Example: Jamaica’s planned central digital depository for KYC information to strengthen banking efficiency and competition.

### Recent regional initiatives with potential to help
- Education, training, and digitalization initiatives cited:
  - Jamaica: national STEAM initiative to develop STEAM competencies for secondary students.
  - Barbados: Economic Recovery and Transformation 2022 plan—advancing digitalization, investing in skills training and education.
  - St. Vincent and the Grenadines: education reform focusing on curriculum modernization and expansion of post-secondary technical and vocational education.
  - Antigua and Barbuda: planned expansion of the University of the West Indies Five Islands Campus.
  - Grenada: digital tools connecting employers with potential employees, which could be scaled up.

### Annex VII highlights — Bank credit growth diagnosis and policy solutions
- Central finding:
  - Subdued private sector credit growth has been a key constraint to local investment and growth potential; long subdued bank credit growth has been a drag on local investment.
- Three key pillars of the policy road map:
  - (i) ensuring financial system soundness;
  - (ii) reducing institutional credit market frictions;
  - (iii) strengthening private sector bankability.
- Context and stylized facts:
  - Bank credit is the core funding source for private investment in the ECCU; larger tourism projects often rely on international companies and FDI.
  - ECCU credit union sector has grown but remains household-based and modest relative to banking system.
  - Since 2000, credit to non-financial businesses (NFCs) has grown at an annual average rate of about ½ percent in real terms.
- Diagnosis of supply-side constraints:
  - Bank balance sheet weaknesses and long-elevated NPLs weigh on capital and capacity to lend despite stricter provisioning requirements.
  - Staff estimate: each percentage point increase in bank NPL ratios slows real credit growth by approximately ¼ percentage point.
- Empirical Box on NPLs and credit growth:
  - Dynamic panel regression on 30 ECCU banks (2010Q3–2024Q2) estimates a percentage point increase in lagged NPL ratio decreases real credit growth by 0.26-0.32 percentage points across specifications.
  - Alternative specifications produce impacts ranging from 0.21 to 0.29 percentage points; smaller banks face a more adverse effect.

*Source: Chapter 4, “The second approach,” IMF staff calculations and analyses as presented in the provided content unit.*

### Box 1. Estimated Impact of Bank NPLs on Credit Growth (Concluded)

### Box 1. Estimated Impact of Bank NPLs on Credit Growth (Concluded)

### Regression results and key statistics
- Regression coefficients (lagged explanatory variables):
  - NPL Ratio (-1): -0.312***; -0.322***; -0.257***; -0.264***; -0.220**
    - Standard errors (parentheses): (0.097); (0.100); (0.089); (0.092); (0.096)
  - Capital Ratio (-1): -0.122*; -0.111*; -0.105*; -0.108*; -0.116*
    - Standard errors: (0.061); (0.060); (0.058); (0.057); (0.062)
  - Size (-1): 1.646; 1.527; 1.050; 1.083; -0.928
    - Standard errors: (1.544); (1.575); (1.431); (1.405); (2.576)
  - NIM (-1): -0.270; -0.185; -0.114; -0.029
    - Standard errors: (0.436); (0.415); (0.402); (0.371)
  - Deposit Growth (-1): 0.180**; 0.188**; 0.174**
    - Standard errors: (0.069); (0.069); (0.072)
  - PCR (-1): -0.008; -0.008
    - Standard errors: (0.010); (0.010)
  - NPL Ratio (-1) x Small: -0.482
    - Standard error: (0.434)
- Model fit and sample:
  - Observations: 708; 705; 673; 669; 669
  - R-squared: 0.469; 0.469; 0.494; 0.500; 0.521
  - Country-Time fixed effects: YES for all specifications
  - Number of banks: 29; 29; 29; 29; 29
- Notes:
  - Standard errors are clustered at the bank-country level and provided in parentheses.
  - Significance levels: 10 percent indicated by *, 5 percent indicated by **, 1 percent indicated by ***.
  - Small banks are defined as those with total assets less than the 25th percentile.
  - Sources: ECCB and IMF staff estimates.

### Supply-side frictions and banking-sector developments
- Frictions in credit market infrastructure:
  - Absence of credit registries limits banks’ risk-tolerance, impairs non-collateralized lending, and adds to operational costs from lengthy manual credit assessments.
  - Ongoing implementation of the regional credit bureau will over time alleviate these frictions as the registry and client track are built up.
  - Inefficient and costly NPL resolution and disposal processes raise credit qualification requirements and costs, including:
    - Outdated insolvency frameworks hampering efficient out-of-court settlements.
    - Costly rigidities in foreclosure and collateral sale processes in some ECCU members.
  - Persistent funding constraints of the Eastern Caribbean Asset Management Company (ECAMC) hamper NPL sales and value recovery in absence of an effective market for NPL sales, reflecting in part valuation uncertainties from limited liquidity in the ECCU property markets and absence of market-based pricing benchmarks.
  - To mitigate collateral valuation uncertainties, the ECCB has issued standards to strengthen and harmonize real estate appraisals.
- Evolving bank business models:
  - ECCU banks are increasingly diversifying asset composition to overseas (non-CARICOM) securities, representing nearly half of aggregate asset growth since 2020.
  - Drivers include persistently high system liquidity, local lending constraints, and more attractive foreign risk-return opportunities following normalization of global interest rates.

### Demand-side factors constraining credit growth
- Collateral constraints:
  - Data limitations hamper quantification, but collateral constraints are long-identified as an important credit access constraint.
  - Uptake of partial credit guarantees by the Eastern Caribbean Partial Credit Guarantee Corporation (ECPCGC) has been limited but growing with more demand-tailored products.
    - Since its launch in late-2020, the ECPCGC had approved 147 guarantees for loan value of EC$18 million.
  - ECCB is working with IFC on legal groundwork to establish a regional collateral registry; St. Lucia is implementing a national pilot collateral registry for moveable assets.
  - The regional credit registry can, upon maturing, support non-collateralized lending.
- Affordability constraints:
  - A downward trend in ECCU average lending rates suggests a competitive lending market, but a wedge on banks’ cost-of-funding from the ECCB’s 2 percent minimum savings deposit rate (MSR) contributes to overall credit costs.
  - The MSR was last reduced in 2025 from 3 to 2 percent, which had muted impact on credit growth and only partial pass-through to lending rates, potentially reflecting limited new lending and banks’ balance sheet repair needs. Bank fees on savings accounts also reduce the effective MSR.
  - ECCB reports average lending rates only for the aggregate credit portfolio; ranges at end-2024: residential mortgage rates 2-14 percent and commercial mortgage rates 4.15-16.50 percent.
  - ECCU firm surveys point to internationally high average medium/long-term loan rates of 13 percent (see Annex VI in source).
- Non-collateral loan requirements:
  - Capacity limitations of small and micro enterprises—predominant share of ECCU companies—affect record keeping and increase non-collateral requirements; informality and tightening bank origin-of-funds requirements exacerbate this.
- Competing non-bank alternatives:
  - Rapid expansion of credit union lending driven by less stringent requirements and higher risk tolerance embedded in membership-based lending.
  - In some ECCU members, non-deposit public institutions, including national development banks, have engaged in material local lending.
- Structural impediments to business development:
  - Limited economies of scale, import-dependency, and high transport costs constrain economic diversification, cost-efficiency, and market size, raising expected risk-adjusted returns required by lenders.
  - Sectors like agriculture may be credit-starved due to vulnerability to natural disasters.
  - Limits to ECCU banks’ balance sheet depth constrain participation in large-scale tourism projects; cross-island lending among local banks is modest.

### Policy roadmap to support future credit growth
- Overarching assessment:
  - Need for a multi-pillared approach to address structural challenges in ECCU financial intermediation.
  - Bank balance sheet weaknesses contribute negatively to credit growth, but growth in overseas exposures suggests continued capacity to invest.
  - Declining average lending rates and recent uptick in household and real estate lending signal local credit appetite where opportunities emerge.
- Roadmap components and recommendations:
  - Ensuring financial system soundness:
    - Complete banks’ ongoing balance sheet repair.
    - Level the regulatory and supervisory playing field with the credit union sector (see staff appraisal).
  - Reducing institutional credit market frictions (national reforms harmonized at regional level):
    - Efficient frameworks to reduce costs of NPL resolution, including modernized insolvency regimes and effective options for disposing distressed assets.
    - Stronger collateral infrastructure:
      - Ensure broad-based participation in the credit bureau.
      - Develop a centralized movable asset registry.
      - Provide more coordinated support for the ECPCGC.
      - Develop a real estate cadaster and review potential tax and other policy constraints to property market liquidity to reduce collateral valuation uncertainties.
    - Limit potential credit price distortions:
      - Review the MSR alongside efforts to encourage regional capital market development.
      - Provide more granular dissemination of regional lending rates to improve customer awareness and facilitate efficient market price discovery.
  - Closer regional policy coordination to support private sector bankability:
    - Conduct a regional stocktaking of existing national and commercial bank-led initiatives to leverage synergies with regional initiatives and facilitate development of best practices.
    - Ensure competing direct lending programs under national development banks closely consider their risk-bearing capacity.
    - Implement more concerted active outreach programs to foster product awareness and business formalization.
  - Address supply-side bottlenecks:
    - Reforms to alleviate bottlenecks in labor and energy markets to support regional private sector development and creation of credit opportunities (Annex VI in source).
- Institutional developments to support coordination:
  - Establishment of a new regional Office of Financial Conduct and Inclusion (OFCI) planned in late 2025, with a mandate over union-wide financial literacy and inclusion, could support regional coordination of initiatives.
  - ECPCGC recent initiatives include a 2024 launch of a micro-enterprise tailored guarantee option that builds in the hiring of accounting services as part of the loan structure.

*Source: Eastern Caribbean Currency Union — Staff Report supplementary material (Box 1 concluded).*

### 11. Customs administration focused on strengthening managerial skills and risk

### 11. Customs administration focused on strengthening managerial skills and risk management to help ensure (i) leadership, management, and governance; (ii) trade facilitation; and (iii) securing revenue.

### Strengthening strategic management and leadership
- Initiative to improve managerial skills of customs staff in Grenada via Leadership and Management Development (LMD) training focused on enhancing reform management.
- CARTAC assisted St. Vincent and the Grenadines with updating their customs corporate plan and defining a new strategic plan aimed at achieving departmental priorities and government policy objectives.
- Implementation financing: These initiatives will primarily be implemented with financial support from the World Bank.
- Expected outcome: Better prioritization and management of reform initiatives and improved resource efficiency in customs administrations.

### Customs risk management (petroleum imports focus)
- Technical assistance (TA) provided to St. Vincent and the Grenadines and Grenada.
- Rationale: Petroleum imports represent a significant source of revenue; Customs Departments focused on enhancing controls to ensure accurate trader reporting and correct duty payments.
- Future support: Further technical assistance will be offered in this area.

### Building capacity to extract, analyze and use customs data
- Regional workshop organized on “Enhancing Data Management for Customs Risk Management.”
- Participation: 30 officers from the Customs Administrations covered by CARTAC, including Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Anguilla, and Montserrat.
- Coordination: Event organized with the Caribbean Customs Law Enforcement Council (CCLEC) and the World Customs Organization (WCO).
- Objective: Build capacity in acquisition, analysis, and use of data for informed decision-making and more effective customs risk management to improve compliance.

*Italicized source attribution: Content from 1eccea2025001-print-pdf - 11. Customs administration focused on strengthening managerial skills and risk management to help ensure (i) leadership, management, and governance; (ii) trade facilitation; and (iii) securing revenue.*

### 35. During the period December 2019–May 2025, the CARTAC program on economic and

### During the period December 2019–May 2025, the CARTAC program on economic and financial statistics concentrated on improving external sector, national accounts, and price statistics in the ECCU countries.

### National accounts: rebasing, GDP-E, and supply-use work
- Objective: rebasing GDP, development of expenditure-based GDP (GDP-E), and development/updating of the Consumer Price Index (CPI) and the Producer Price Index (PPI).
- Scheduling: CARTAC missions on External Sector Statistics (ESS) are scheduled right after ECCB missions to ECCU countries to maximize efficiency for working teams.
- FY2025 progress:
  - Dominica and Montserrat made good progress on GDP rebasing.
  - Dominica, Grenada and Montserrat finalized rebased or re-referenced estimates of GDP to 2018 prices.
  - A Mission to Grenada in January 2025 supported development of supply and use tables (SUT).
  - Improvements introduced: use of administrative data (Value Added Tax, Social Security Data).
  - The rebased estimates resulted in revisions to GDP at current prices, with results backcasted to 2000.
  - In St. Lucia, methodology and templates were developed to estimate GDP-E; methodology is reusable for other ECCU countries that compile SUT.
- Training:
  - A regional national accounts training workshop took place in Panama during FY2025, focused on broad-based national accounts and estimation of production-based GDP (GDP-P) for relatively new compilers.
  - Participation: Of the 42 participants, 13 were representatives of ECCU, as well as staff from the ECCB.

### Price statistics and PPI/CPI improvements
- Country-specific assistance:
  - Antigua & Barbuda and Saint Lucia: assistance to develop and update the PPI.
  - St. Kitts and Nevis: built institutional capacity to improve CPI compilation methodology and update expenditure weights based on the 2019 Household Budget Survey.

### External sector statistics (ESS), balance of payments, and IIP dissemination
- Joint dissemination:
  - Since 2017, ECCB and ECCU’s NSOs have jointly disseminated enhanced annual balance of payments and International Investment Position (IIP) statistics for each ECCU member country and the ECCU region following BPM6 guidelines.
  - Data for 2014 onwards are available on the ECCB’s website and re-disseminated in the IMF’s Balance of Payments Statistics Yearbook (BOPSY) and International Financial Statistics (IFS).
- Improvements and tools:
  - CARTAC assistance focused on timeliness, coverage, methodology, and quality of prioritized balance of payments components, incorporating a wider variety of data sources to supplement business surveys.
  - In December 2022, the ECCB started to disseminate a table with several quarterly indicators for the balance of payments of the eight ECCU countries starting from 2019-Q4.
  - Metadata of the balance of payments and the IIP for the ECCU countries and an advance release calendar for ESS were released on the ECCB website.
  - Target: production of more comprehensive quarterly balance of payments and IIP is targeted for December 2025.
- Backcasting and methodological transition:
  - In January 2024, the ECCB disseminated the backcasted BPM6-based balance of payments for 2000-13.
  - Backcasting included:
    - reclassification of time series from BPM5 to BPM6 presentation;
    - identification of structural breaks;
    - selection of backcasting techniques to adjust historical estimates, considering data availability.

### Country-level ESS technical updates and pending tasks
- FY2025 ESS mission outcomes:
  - Recommendations on travel exports adopted in Anguilla and Montserrat BOPs.
  - Imports of fuel revised in St. Lucia.
  - Imports of services related to port modernization included in St. Vincent and the Grenadines.
  - Recommendations regarding direct investment related to Citizenship by Investment (CBI) programs are pending.
- Tourism and yacht-sector data:
  - Limitations exist in current tourism surveys.
  - Actions to better identify yacht industry expenditures and other cross-border transactions (maintenance and other services, and fuel) are expected to be accomplished during 2025 for Antigua and Barbuda, Grenada, St. Lucia and St. Vincent and the Grenadines.
  - A workshop on travel credits for the ECCU countries was delivered in June 2024; compilers from NSOs, the ECCB and tourism authorities attended.

### Medium-term CARTAC work program priorities (statistics)
- Ongoing support includes:
  - compilation and dissemination of quarterly balance of payments and IIP;
  - addressing pending tasks regarding merchandise trade statistics;
  - the Coordinated Direct Investment Survey;
  - compilation of public and private external debt in line with international standards.

### Macroeconomic forecasting and analysis
- Focus areas: analyzing debt dynamics, Nowcasting, and medium-term fiscal frameworks.
- Capacity building and tools:
  - July 2024 hands-on workshop: customized iterations of the IMF ICD 'Public Debt Dynamics Tool' (DDT) were developed with ECCB staff; participants presented country-specific analyses and risk scenarios using the DDT.
  - Nowcasting technical assistance: focused on using high-frequency data to estimate and monitor GDP dynamics across ECCU countries.
  - ECCB staff are converting Nowcasting programs from EViews into the open-source R environment.
- Country support:
  - Grenada: support for enhanced real sector analysis and medium-term fiscal projections, updating forecasting components and equations within the real sector framework, refining models for GDP, inflation, and tax revenues, training on advanced macro-econometric techniques, and integration of new tools within EViews.
- Regional learning:
  - Staff from the ECCB and ECCU governments attended regional events, webinars and ICD joint sessions on Inclusive Growth, the Macroeconomics of Climate Change, Fintech, and fiscal policy.
  - September 2024: CARTAC and UNFPA hosted a workshop “Assessing the macro-impact of gender gaps and costing investments to close them,” training participants to: (i) examine gender related statistics; (ii) identify macro-critical gender gaps; (iii) estimate the impact of gender gaps on GDP; and (iv) cost policy interventions.

### Debt management
- Program launch and engagement:
  - CARTAC’s debt management program launched in late 2020 and engaged ECCU countries and the ECCB.
  - Most countries develop medium-term debt management strategies, but these do not always consistently guide individual borrowing decisions.
  - Pandemic impact: countries raised higher-than-usual volumes of financing, balancing financing needs and debt sustainability vulnerabilities.
- Transparency and reporting challenges:
  - Transparency of debt stocks and flows is generally low.
  - Published reports on debt policy, composition, and operations often have limited coverage, uneven data quality, and lengthy delays between reporting date and public release.
- Technical assistance delivery:
  - CARTAC TA missions to date: ECCB and Antigua and Barbuda, St. Lucia, Dominica, and St. Vincent and the Grenadines.
  - Additional TA missions planned for Antigua and Barbuda and St. Lucia.
- Capacity-building activities:
  - Two capacity-building activities targeted solely at ECCU countries and the ECCB focused on strengthening the Regional Government Securities Market (RGSM) and developing a regional retail bond market.
  - Sessions included exploration of retail bond options and a peer learning activity with the Brazilian treasury on the Brazilian retail bond market (pricing, platform, costing, resources, and communication strategy).
- Planned regional training events:
  - climate finance seminar scheduled for February 2025;
  - workshop on the Low-Income Countries Debt Sustainability Analysis Tool (LIC DSA) scheduled for May 2025;
  - workshop on debt transparency, debt recording and reporting scheduled for May 2025.

*Source: IMF content unit covering CARTAC activities in the ECCU (December 2019–May 2025).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1eccea2025001-print-pdf.pdf_