## _cr0796 — IMF staff report (Executive Summary and selected boxes/sections) ## Source details **Canonical URL:** [_cr0796 — IMF staff report (Executive Summary and selected boxes/sections)](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr0796.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr0796.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr0796.pdf.json) --- ### Executive Summary — Background and near-term prospects - First 25 years: Improved social outcomes but deepening macroeconomic imbalances driven by declining aid flows, erosion of EU preferences for bananas and sugar, and natural disasters. - Monetary framework: Regional quasi-currency board arrangement (CBA) delivered price and exchange rate stability and supported a relatively deep and stable financial system. - New external partners: China, Taiwan Province of China, Venezuela as important concessional providers for public infrastructure. - Regional integration: ECCU joined the CARICOM Single Market (CSM) in June 2006; OECS Economic Union Treaty discussions ongoing. - Key policy questions: Ensure transition to sustained growth; preserve macro stability and reduce imbalances; promote a dynamic but stable financial system. - Near-term activity: "Growth at its strongest rate in more than 15 years" (tourism and CWC-related construction). Inflation picked up but "remains in the low single digits." - Oil dependence: "Oil import bills increased by a cumulative 6 percent of GDP during 2003–05." ### Selected macro indicators (ECCU aggregates; annual percentage change or percent of GDP) - Real GDP: 2003 = 3.0; 2004 = 3.6; 2005 = 5.6; 2006 = 4.9; 2007 (Proj.) = 4.4 - CPI inflation, period average: 2003 = 1.6; 2004 = 2.1; 2005 = 3.5; 2006 = 3.7; 2007 (Proj.) = 3.2 - Revenues (percent of GDP): 2003 = 26.9; 2004 = 27.2; 2005 = 27.1; 2006 = 27.6; 2007 (Proj.) = 27.9 - Tax revenue (percent of GDP): 2003 = 23.0; 2004 = 23.8; 2005 = 24.5; 2006 = 24.8; 2007 (Proj.) = 25.1 - Grants (percent of GDP): 2003 = 2.4; 2004 = 1.8; 2005 = 3.0; 2006 = 3.5; 2007 (Proj.) = 1.8 - Noninterest current expenditures (percent of GDP): 2003 = 22.2; 2004 = 22.3; 2005 = 21.9; 2006 = 21.9; 2007 (Proj.) = 20.8 - Interest expenditures (percent of GDP): 2003 = 4.7; 2004 = 4.8; 2005 = 4.2; 2006 = 4.3; 2007 (Proj.) = 4.2 - Capital expenditures (percent of GDP): 2003 = 8.0; 2004 = 6.4; 2005 = 7.8; 2006 = 8.9; 2007 (Proj.) = 7.0 - Primary balance including grants (percent of GDP): 2003 = -0.8; 2004 = 0.2; 2005 = 0.4; 2006 = 0.3; 2007 (Proj.) = 2.0 - Overall balance (percent of GDP): 2003 = -5.6; 2004 = -4.5; 2005 = -3.8; 2006 = -4.0; 2007 (Proj.) = -2.3 - Public sector debt (percent of GDP): 2003 = 113.5; 2004 = 117.1; 2005 = 106.6; 2006 = 104.5; 2007 (Proj.) = 99.7 ### Box 2 — Macroeconomic Impact of Higher Global Oil Prices - Context: ECCU highly oil-import dependent; alternate energy little used; most countries used fixed retail pricing with consumption tax as residual. - Flexible retail pricing adopters and dates: - Dominica (from September 2003) - Grenada (from October 2006) - St. Kitts and Nevis (from December 2006) - Current account/import bill impact: Around 6 percent of GDP over 2003–05. - Elasticity assumption and estimated impact (2005): - Price elasticity of oil demand assumed = -0.25. - Flexible pricing could have reduced oil imports in 2005 by 0.5 percent of GDP in St. Kitts and Nevis and 0.9 percent of GDP in Antigua and Barbuda. - Government revenues: Declined by as much as 1 percent of GDP annually due to lack of domestic price adjustment. - Revenue potential from flexible pricing (staff estimates, end-2005 prices): additional ¼−1 percent of GDP in revenues annually, depending on the country. - Growth impact projection: Reduction in growth rates estimated between 0.08 and 0.12 percentage points per annum for a 14 percent projected annual increase in prices between 2006–10. - Historical reference: Average spot price of petroleum increased almost 36 percent annually in 2004–05. ### Fiscal policy, benchmarks, and credibility - Fiscal vulnerability: Public debt "remains very high, averaging 107 percent of GDP at end-2005." - Modified fiscal benchmarks (July 2006): Emphasize medium-term debt strategies and transparency; compliance target date moved from 2007 to 2020. - Fiscal benchmark specifics (as described): - Public debt: Gross central government debt to be less than 60 percent of GDP. Gross public and publicly guaranteed debt to be less than 60 percent of GDP. - Deficit: Previous current balance target dropped; replaced by primary balance of the public sector to be consistent with achieving and maintaining the public debt target by 2020. - Debt service: Total debt service to be less than 15 percent of current revenues was dropped. - Application: Different speeds of convergence permitted with intermediate targets by 2020. - Staff recommendations for credibility: - Credibly demonstrate commitment to attaining fiscal benchmark goals. - Build a broad and durable social consensus on fiscal prudence. - Prevent revenue increases from translating into new expenditure commitments. - Establish and meet annual targets plausibly consistent with medium-term objectives even under adverse shocks. - Implementation note: Emphasis on public sector (not central government) targets increases need for compiling public sector data and enforcing reporting on statutory bodies. ### Debt sustainability analyses (DSAs) and shock scenarios - Public sector debt (percent of GDP historical/projections): 2001 = 90.6; 2002 = 109.4; 2003 = 113.9; 2004 = 117.4; 2005 = 106.8; 2006 = 104.6; 2007 (Proj.) = 99.9; 2008 (Proj.) = 95.2; 2009 (Proj.) = 89.9; 2010 (Proj.) = 85.0; 2011 (Proj.) = 80.6 - Debt-stabilizing primary balance: -1.2 (most recent value reported) - Gross financing need (percent of GDP): 2001 = 9.4; 2002 = 12.5; 2003 = 8.3; 2004 = 7.5; 2005 = 7.0; 2006 = 8.0; 2007 (Proj.) = 6.9 - External debt (baseline percent of GDP): 2001 = 53.4; 2002 = 65.6; 2003 = 69.2; 2004 = 69.7; 2005 = 57.9; 2006 = 56.4; 2007 (Proj.) = 53.9 - Scenario shocks modeled (examples): - Permanent one-half standard deviation shocks to growth and interest rates. - Combined shocks; primary balance shocks. - One-time real depreciation of 30 percent scenario. - Contingent liabilities shock example: 10 percent of GDP in 2006 in one scenario. - Example bound-test outcome (public debt under a one-time 30 percent real depreciation, B5): public debt path includes 104.6; 126.6; 121.5; 115.7; 110.4; 105.8 (scenario years). - External DSA bound-test example (one-time 30 percent real depreciation, B5): external debt rising to 74.2 then gradually declining in subsequent years. - Staff conclusion: High debt levels leave limited room for maneuver; reliance on private inflows (including FDI) and access to official and market financing critical to sustain large current account deficits. ### Financial sector — supervision, risks, and market development - FSAP implementation: Progress made; harmonized Banking Act passed in all countries; new prudential guidelines implemented (including provisioning for nonperforming government debt). - Supervisory challenges: - Enforcement weak; resource constraints limit on-site inspections (only 7 full scope on-site inspections undertaken in 2005–06). - Slow progress on risk-based supervision; need for risk-profiling matrix and early warning systems (risk-profiling matrix expected by end of 2006). - Supervision of nonbank financial institutions (NBFIs) remains weak; monitoring and data collection gaps. - Banking stress tests (ECCB): Robust to plausible shocks overall but credit risk identified as a concern; NPLs relatively high. Interest rate, foreign exchange, and liquidity risks not found significant regionally. - Recommendations to strengthen oversight: - Strengthen accounting and auditing standards and prudential reporting; improve on-site verification. - Strengthen legislative frameworks for foreclosures and collateral realization. - Enhance ECCB powers and refocus ECCB resources on systemically important institutions. - Address union-wide risks from government borrowing from banks; positive risk-weighting and provisioning of nonperforming public sector exposures implemented since January 1, 2006. - Regional capital markets: - Interbank market volumes increased; ECCB not participating since 2002. - Regional Government Securities Market (RGSM): total issue amount around 6 percent of total central government borrowing at end-2005; about 50 percent of primary issues taken up by ECCU investors. - Eastern Caribbean Stock Exchange (ECSE): market capitalization increased after cross-listing in 2005; trading volumes remain limited. - Market impediments: absence of market makers; prevalence of family-owned businesses; predominance of “buy and hold” investors. - Market infrastructure: Electronic trading platform with T+1 settlement and dematerialized Central Securities Depository System; introduction of a master REPO agreement and development of an Eastern Caribbean Unit Trust underway. - Exchange controls: Exchange Control Act revoked (eliminating remaining capital controls except for a few prudential restrictions), expected to boost regional integration. ### Investment, incentives, and structural reform priorities - Investment and returns: - High investment with disappointing growth returns; part of investment for hurricane repair rather than net capital stock increase. - National accounts data weaknesses: domestic investment inflated by personal sector construction; FDI data sometimes reflect announced rather than actual flows. - Tax incentives and revenue effects: - Tax holidays up to 30 years and renewals common. - Average annual revenue foregone from concessions (2000–03) estimated between 10–16 percent of regional GDP. - Negative effects: erosion of tax base, higher tax burdens on nonfavored sectors, contribution to debt buildup. - Reforms underway: - Containing concessions by tightening administration and eliminating discretionary concessions. - Grenada introducing accelerated depreciation and loss carry-forward to tie incentives to new investment. - Regional coordination of incentives discussed but enforcement difficult. - Regulatory and administrative reforms recommended (Doing Business 2006 findings): - Cost of capital high; limited access to finance. - Difficult and costly to register property; weak property rights and contract enforcement. - Obstacles to closing a business; relatively expensive and unreliable public utilities. - Staff recommends emphasis on regulatory, administrative, and legal reforms to lower business costs. ### Social sector pressures — pensions, health, and demographics - Population aging: Share of seniors projected to more than triple in most countries over the next 30–40 years, increasing pressure on social security and health systems. - Pension liabilities (Percent of 2004 GDP, 60-year horizon, 5.5 percent discount rate): - Antigua and Barbuda 95.7 - Dominica 167.4 - Grenada 38.2 - St. Kitts and Nevis 20.7 - St. Lucia -4.0 - St. Vincent and the Grenadines 2/ n.a. - Pension reform levers: Adjust contribution rates, benefits formulae, retirement age, and portfolio management; address civil service pensions (Dominica, Grenada, and St. Lucia have addressed these). - Health care: Noncommunicable diseases rising; diabetes among leading causes of death; health care cost pressures require early action. - Health policy recommendations: - Exploit efficiency gains through regional sharing arrangements. - Encourage healthier lifestyles. - Consider alternative financing: well-targeted user fees and private insurance. - Develop comprehensive poverty-reduction strategies and well-targeted social safety nets (PRSP and I-PRSP examples cited). ### Trade preferences and agricultural adjustment - EU trade preference erosion: - Implicit assistance from EU banana preferences declined from about 15 percent of GDP in early 1990s to about 2 percent of GDP in 2005. - Dominica, St. Lucia, and St. Vincent and the Grenadines could each experience permanent loss of between 1–2 percent of GDP and deterioration in fiscal balances of ½–1 percent of GDP. - Sugar sector in St. Kitts and Nevis already closed. - Suggested adjustment policies: Facilitate movement of labor; temporary income transfers to farmers; retraining programs; limited subsidies on agricultural inputs; accelerate redeployment of land. ### Staff appraisal — key priorities and recommendations - Maintain macroeconomic stability within the CBA while managing fiscal implications of high oil prices and infrastructure spending. - Prioritize structural reforms to improve competitiveness and the investment climate to sustain growth after construction-led boost. - Strengthen fiscal frameworks and transparently pursue medium-term debt reduction strategies consistent with modified July 2006 benchmarks and the 2020 compliance target date. - Ensure enforcement of strengthened prudential and supervisory frameworks, focusing on NBFIs and cross-border/regional market developments. - Leverage CSM accession and regional integration to support private sector-led diversification while addressing labor and capital liberalization obstacles. - Address statistical weaknesses: improve quality, timeliness, and dissemination of statistics; consider greater regional role in compiling/analyzing data. - Proposed timing: Next consultation on ECCU policies proposed to take place in 12 months. ### Key external and monetary indicators (selected aggregates and projections) - Current account (US$ millions): 2002 = -595.2; 2003 = -680.9; 2004 = -544.9; 2005 = -798.6; 2006 = -904.4; 2007 (Proj.) = -882.1 - Trade balance (US$ millions): 2002 = -1,005.6; 2003 = -1,176.2; 2004 = -1,252.3; 2005 = -1,474.0; 2006 = -1,567.6; 2007 (Proj.) = -1,646.2 - Travel (US$ millions): 2002 = 723.0; 2003 = 852.6; 2004 = 955.8; 2005 = 965.4; 2006 = 1,021.3; 2007 (Proj.) = 1,125.9 - Direct investment (US$ millions): 2002 = 342.0; 2003 = 553.2; 2004 = 434.9; 2005 = 452.4; 2006 = 602.4; 2007 (Proj.) = 572.4 - End-year gross reserves of the ECCB, US$ millions: 2002 = 504.8; 2003 = 539.9; 2004 = 632.4; 2005 = 600.8; 2006 = 651.7; 2007 (Proj.) = 711.3 - Reserves in months of imports: 2002 = 4.6; 2003 = 4.4; 2004 = 4.7; 2005 = 4.0; 2006 = 4.1; 2007 (Proj.) = 4.3 *Source: Executive Summary, Box 2, paragraphs on exchange rate peg, DSAs, FSAP implementation, and appendices from IMF staff report text unit _cr0796.* ### Executive Summary ...................................................................................................... ### Executive Summary ### Background - During their first 25 years of independence, ECCU countries improved social outcomes while experiencing deepening macroeconomic imbalances driven by: declining aid flows, transition from traditional agriculture (bananas and sugar) as EU preferences eroded, and natural disasters. - The regional quasi-currency board arrangement (CBA) delivered price and exchange rate stability and supported a relatively deep and stable financial system. - New external partners (China, Taiwan Province of China, Venezuela) have become important providers of concessional support for public infrastructure projects. - The ECCU joined the CARICOM Single Market (CSM) in June 2006; discussions on a revised OECS Economic Union Treaty are ongoing. - Key policy questions discussed: - How to ensure a transition to a sustained growth path? - How to preserve macroeconomic stability and reduce imbalances? - How to promote a dynamic but stable financial system? ### Recent Economic Developments and Near-Term Prospects - Economic activity is buoyant with "growth at its strongest rate in more than 15 years," driven by tourism and construction ahead of the 2007 Cricket World Cup (CWC). - Construction expansion concentrated in Antigua and Barbuda and St. Lucia; CWC-related stadiums were largely grant-financed. - Inflation has picked up with higher pass-through of global oil prices but "remains in the low single digits." - The region is highly oil-import dependent; "oil import bills increased by a cumulative 6 percent of GDP during 2003–05." - Despite strengthened tax revenues, higher infrastructure and CWC-related spending limited improvement in fiscal balances; overall fiscal balance did not improve even with output running at or beyond estimates of potential in most countries. - Selected macro indicators (ECCU aggregates, annual percentage change or percent of GDP): - Real GDP: 2003 = 3.0; 2004 = 3.6; 2005 = 5.6; 2006 = 4.9; 2007 (Proj.) = 4.4 - CPI inflation, period average: 2003 = 1.6; 2004 = 2.1; 2005 = 3.5; 2006 = 3.7; 2007 (Proj.) = 3.2 - Revenues (percent of GDP): 2003 = 26.9; 2004 = 27.2; 2005 = 27.1; 2006 = 27.6; 2007 (Proj.) = 27.9 - Tax revenue (percent of GDP): 2003 = 23.0; 2004 = 23.8; 2005 = 24.5; 2006 = 24.8; 2007 (Proj.) = 25.1 - Grants (percent of GDP): 2003 = 2.4; 2004 = 1.8; 2005 = 3.0; 2006 = 3.5; 2007 (Proj.) = 1.8 - Noninterest current expenditures (percent of GDP): 2003 = 22.2; 2004 = 22.3; 2005 = 21.9; 2006 = 21.9; 2007 (Proj.) = 20.8 - Interest expenditures (percent of GDP): 2003 = 4.7; 2004 = 4.8; 2005 = 4.2; 2006 = 4.3; 2007 (Proj.) = 4.2 - Capital expenditures (percent of GDP): 2003 = 8.0; 2004 = 6.4; 2005 = 7.8; 2006 = 8.9; 2007 (Proj.) = 7.0 - Primary balance including grants (percent of GDP): 2003 = -0.8; 2004 = 0.2; 2005 = 0.4; 2006 = 0.3; 2007 (Proj.) = 2.0 - Overall balance (percent of GDP): 2003 = -5.6; 2004 = -4.5; 2005 = -3.8; 2006 = -4.0; 2007 (Proj.) = -2.3 - Public sector debt (percent of GDP): 2003 = 113.5; 2004 = 117.1; 2005 = 106.6; 2006 = 104.5; 2007 (Proj.) = 99.7 - Sectoral contribution to growth: tourism, government services, and construction are material contributors; agriculture contribution has declined. Box (CWC) highlights: - The ninth Cricket World Cup will be held from March 5 to April 28, 2007. - Organizers expect close to 800,000 tickets sold, over 2 billion television viewers, and about 100,000 non-Caribbean visitors. - Games to be played in Antigua and Barbuda, Grenada, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines, among others. - Stadium construction costs largely covered by grants from China or Taiwan Province of China; significant nongrant public expenditures on roads, utilities, security, and planned airport improvements. - Private investments could lead by end-2007 to a substantial increase in room capacity—"an almost doubling in the case of Antigua and Barbuda." - Private investors received generous fiscal incentives that will erode the tax base; government recurrent expenditures will need to rise to maintain new facilities. - Net economic costs and benefits of the CWC are unclear; near-term effect is a construction-led boom with potential longer-term benefits dependent on attracting additional tourists to fill expanded room capacity and using new stadia. ### Sustaining Growth - As construction-led impetus fades, there is a risk of a hard landing, particularly given likely intensified tourism competition in the Caribbean. - Structural reforms are required to improve competitiveness and the investment climate to generate sustainable employment and growth opportunities. - ECCU accession to the CSM (June 2006) offers potential benefits but near-term gains are likely modest due to remaining obstacles to liberalization of labor and capital markets. ### Preserving Macroeconomic Stability - Fiscal positions remain an important vulnerability; public debt "remains very high, averaging 107 percent of GDP at end-2005." - A modified system of fiscal benchmarks introduced in July 2006 emphasizes medium-term debt strategies and greater transparency; the target date for compliance was moved from 2007 to 2020. - Key policy priorities: - Credibly demonstrate commitment to attaining fiscal benchmark goals. - Build a broad and durable social consensus on fiscal prudence. - Prevent revenue increases from translating into new expenditure commitments. - Many governments delayed pass-through of higher global oil prices to retail prices at substantial fiscal cost; adjustments to domestic fuel prices have begun as the shock persisted. ### Fostering a Sound and Dynamic Financial System - The financial system has been resilient, but emerging risks require strengthened supervision and enforcement. - Progress in implementing FSAP recommendations is ongoing, but enforcement of the new regulatory framework needs to be ensured. - Supervision of the nonbank financial sector—which "appears to be growing rapidly"—is weak. - Liberalization and deepening of regional capital markets under CSM pose additional supervisory challenges. - Implementation status of FSAP recommendations on banking supervision is noted as an area needing attention. ### Institution Building and Regional Initiatives - Debt restructuring efforts: Dominica and Grenada have put debt on a more stable footing through creditor approaches; Antigua and Barbuda is pursuing a similar path. - Tax system modernization: introduction of VATs in most countries expected to strengthen revenues further over the medium term. - External partners and regional institutions (CARTAC, Caribbean Development Bank, World Bank Group) are engaged in capacity-building and program support (appendices referenced). ### Staff Appraisal (high-level findings and recommendations) - Maintain macroeconomic stability within the CBA framework while managing the fiscal implications of high oil prices and infrastructure spending. - Prioritize structural reforms to improve competitiveness and the investment climate to sustain growth post-construction boom. - Strengthen fiscal frameworks and transparently pursue medium-term debt reduction strategies consistent with modified July 2006 benchmarks and the compliance target date of 2020. - Ensure enforcement of strengthened prudential and supervisory frameworks, paying particular attention to the nonbank financial sector and cross-border/regional market developments. - Leverage CSM accession and regional integration to support private sector-led diversification while addressing labor and capital liberalization obstacles. *Executive Summary, IMF staff report (text provided).* ### Box 2. Macroeconomic Impact of Higher Global Oil Prices ### Box 2. Macroeconomic Impact of Higher Global Oil Prices ### Context and retail pricing arrangements - ECCU countries are highly dependent on imported oil products for direct consumption and electricity generation; alternate energy sources such as solar or geothermal are at present little used. - Most ECCU countries have maintained a fixed retail pricing regime with the price established based on the import price and fixed margins for wholesalers and retailers, with the consumption tax serving as the residual. - Countries with flexible retail pricing and full pass-through to consumers: - Dominica (from September 2003) - Grenada (from October 2006) - St. Kitts and Nevis (from December 2006) - Driven by social concerns, most governments resisted raising the retail price of petroleum products, which limited the inflationary impact but aggravated macroeconomic costs by constraining domestic adjustment. ### Current account and import bill impact - The current account impact has been around 6 percent of GDP over 2003–05, accentuated by the lack of adjustment in domestic consumption. - Oil import bills increased substantially; recent estimates from the World Economic Outlook identify the ECCU region as being among the worst affected by the increase in energy prices. - Assuming a price elasticity of oil demand of -0.25, flexible pricing could have reduced oil imports in 2005 by: - 0.5 percent of GDP in St. Kitts and Nevis - 0.9 percent of GDP in Antigua and Barbuda ### Government revenues and pricing reform potential - Government revenues have declined by as much as 1 percent of GDP annually as a result of the lack of adjustment in domestic prices. - The ECCB Monetary Council agreed in October 2005 that the region should move to a flexible pricing mechanism. After some initial moves in late-2005, there have been few subsequent adjustments. - Staff estimates suggest that a flexible pricing mechanism would (based on end-2005 prices) have generated an additional ¼−1 percent of GDP in revenues annually, depending on the country. ### Growth impact and projection links - A World Bank study, Assessing the Impact of Higher Oil Prices in Latin America (April 2006), concludes Caribbean islands are likely to suffer the largest losses in per capita growth due to increases in oil prices. - For ECCU countries, the reduction in growth rates is estimated to range between 0.08 and 0.12 percentage points per annum, resulting from a 14 percent projected annual increase in prices between 2006–10. - Historical reference: the average spot price of petroleum increased almost 36 percent annually in 2004–05. ### Supporting evidence and references from the box - Elasticity source: Elasticity estimates for a group of non-OECD countries from D. Gately and H. Huntington, 2002, “The Asymmetric Effects of Changes in Price and Income on Energy and Oil Demand,” The Energy Journal, 23(1), pp. 19–55. - Data sources cited: U.S. Department of Energy, ECCB, World Economic Outlook, and Fund staff calculations. *Source: _cr0796 - Box 2. Macroeconomic Impact of Higher Global Oil Prices* ### 18. The authorities reiterated their strong commitment to the exchange rate peg. ### 18. The authorities reiterated their strong commitment to the exchange rate peg. ### Exchange rate peg and required reforms - Authorities' position: - Strong commitment to the exchange rate peg. - Stressed that the peg yielded a long period of price stability. - If clear evidence of exchange rate misalignment emerges, best addressed via structural reforms. - Staff assessment: - Broad concurrence with authorities on role of structural reforms. - Emphasized that maintaining the peg requires determined efforts to: - Bring fiscal and debt positions to more sustainable levels. - Increase the flexibility of labor and product markets. ### Investment, returns, and measurement issues - Observations: - The region has seen high investment, but growth returns have been disappointing. - Low impact of investment on growth may reflect that some investment is directed to repairing hurricane damage rather than providing a net increase in the capital stock. - National accounts data are weak: - Domestic investment data are inflated by inclusion of personal sector construction. - FDI data in some cases based on announced rather than actual flows. - Public investment specifics: - Low return on public sector investment reflects: - Absence of an effective PSIP mechanism in many countries. - Lack of prioritization of capital spending. - Tourism-related data note: - Tourism expenditures are calculated based on arrivals data plus an estimate for daily expenditures based on surveys undertaken in the mid-1990s. ### Tax incentives, concessions, and effects on revenue and allocation - Structure and trends: - Tax holidays can be granted for up to 30 years and tend to be renewed. - The region’s share in world FDI has been declining, even relative to other small-island economies. - Pernicious effects of generous concessions in the ECCU: - Tax bases have been eroded, forcing higher tax burdens on nonfavored sectors. - The average annual revenue foregone from concessions, for 2000–03, is estimated at between 10–16 percent of regional GDP. - This has squeezed resources available for social and infrastructure expenditures and contributed to the debt build up, with negative implications for fiscal sustainability and growth. - Incentives linked to the size of the investment discriminate against smaller (typically locally-owned) projects in favor of large (typically foreign-owned) projects. ### Views and reforms on concessions regime - Authorities' views: - Divergent views within the region on desirability and modalities of changing concessions. - Emphasized dependence on FDI in the tourism sector given shallowness of domestic capital markets and fierce regional competition for FDI. - Ongoing reforms and proposals: - Efforts underway in many countries to contain concessions by tightening administration and eliminating discretionary concessions. - Grenada is introducing a system based on accelerated depreciation and loss carry-forward provisions to tie incentives to new investment. - Regional coordination (e.g., a common incentive regime discussed within CARICOM since 1973) might limit investor-induced competition between governments, though enforcing such a regime would be difficult. ### Regulatory, administrative, and legal reforms to lower business costs - Staff recommendations: - Greater emphasis on regulatory, administrative, and legal reforms to lower the cost of doing business. - Doing Business 2006 findings (region-level weaknesses identified): - Cost of capital is high and access to finance is limited. - Difficult and costly to register property. - Property rights and contract enforcement are weak. - Obstacles to closing a business. - Public utilities, particularly electricity, tend to be relatively expensive and unreliable. - Performance highlight: - St. Lucia was ranked 27th in the world in Doing Business 2006, with all ECCU countries in the top half. ### CARICOM Single Market (CSM) and Regional Development Fund - Integration status: - ECCU countries formally joined the CSM in June 2006, after postponing some requirements (notably liberalization of the Alien Land Holdings Acts). - Expected benefits and concerns: - Key medium-term benefit expected from greater liberalization of labor markets that would allow elimination of recurring skill shortages. - Authorities had mixed views on free movement of labor: - Potential for valuable opportunities for national populations. - Risk of overwhelming small societies and overburdening health and education systems. - Regional Development Fund: - Established with initial capitalization of US$130 million, with an aim of reaching US$250 million through contributions by international donors. - Authorities view the Fund as key for financing infrastructure and education projects in smaller states to enhance competitiveness. ### Impact of EU trade regime changes on bananas and sugar - Estimated impacts: - Value of implicit assistance from EU banana preferences declined from about 15 percent of GDP in the early 1990s to about 2 percent of GDP in 2005. - Dominica, St. Lucia, and St. Vincent and the Grenadines could each experience: - A permanent loss of between 1–2 percent of GDP. - A deterioration in fiscal balances of ½–1 percent of GDP. - The sugar sector in St. Kitts and Nevis has already been closed. - Staff policy suggestions for adjustment: - Facilitate movement of labor. - Temporary income transfers to farmers. - Retraining programs. - Limited subsidies on agricultural inputs. - Accelerate redeployment of land to generate alternative investment and growth opportunities. - Authorities’ stance: - Agreed growth impact likely modest but stressed employment challenges due to labor dependence on these sectors. - Emphasized sensitivities associated with land in small economies and severe resource constraints for transitioning labor. - Expressed frustration with traditional development partners, particularly the EU, for failing to deliver pledged transition assistance; cited complex EU procedures and very low levels of disbursements. ### Preserving macroeconomic stability — fiscal and debt vulnerabilities - Overall assessment: - Growth up-tick, orderly debt restructurings, and structural fiscal improvements have strengthened the currency union, but significant vulnerabilities remain. - Staff’s DSAs illustrate very high debt levels leave little room for maneuver in the event of an adverse shock. - Key risk: fiscal policy does not deliver a lasting improvement relative to recent years. - External financing risks: - Ability to run very large current account deficits will depend critically on: - Private sector inflows, including FDI. - Public sector's ability to access financing from capital markets and official creditors. - Fiscal benchmark history and reform: - Fiscal benchmarks introduced in 1998 failed to achieve fiscal convergence by target date of 2007; outcomes moved further from benchmarks due to shocks in late 1990s and post-9/11 tourism disruption. - New system of fiscal benchmarks approved by the ECCB’s Monetary Council in July 2006: - Pushes compliance back to 2020. - Places increased emphasis on integrating annual budget objectives with medium-term goals. - Little appetite for enforcement mechanism based on economic sanctions; credibility to be maintained through peer review in the Monetary Council and greater transparency. - Fiscal benchmark specifics (as described): - Public debt: Gross central government debt to be less than 60 percent of GDP. Gross public and publicly guaranteed debt to be less than 60 percent of GDP. - Deficit: Previous measure (Current balance of the central government to be between 4 and 6 percent of GDP) was dropped. Overall balance of the central government to be less than -3 percent of GDP was replaced by: Primary balance of the public sector to be consistent with achieving and maintaining the public debt target by 2020. - Debt service: Total debt service to be less than 15 percent of current revenues was dropped. - Application: Benchmarks previously applied equally across countries to be achieved by 2007; new approach permits different speeds of convergence with intermediate targets for each country to be achieved by 2020. ### Debt sustainability analyses (DSAs) and shock scenarios - Staff findings from DSAs: - Public and external DSAs highlight growth shocks as key concerns. - Ten-year historical averages and scenario boxes presented for baseline and shocked projections (figures referenced in source). - Scenarios and shocks referenced: - Individual shocks modeled as permanent one-half standard deviation shocks to growth and interest rates. - Combined shocks, primary balance shocks, real depreciation shocks, contingent liabilities shocks were considered (including a one-time real depreciation of 30 percent and a 10 percent of GDP contingent liabilities shock in 2006 in one scenario). - External DSA applied shocks including a one-time real depreciation of 30 percent occurring in 2007. - Gross financing needs and vulnerability indicators: - The external DSA underscores exposure of gross financing needs to adverse shocks, with continued reliance on FDI and access to official and market financing critical for sustaining large current account deficits. *Source: _cr0796 - 18. The authorities reiterated their strong commitment to the exchange rate peg.* ### 29. Staff noted that while the modifications were a pragmatic step, there was a clear ### _cr0796 - 29. Staff noted that while the modifications were a pragmatic step, there was a clear ### Fiscal credibility and benchmarks - Staff view: modifications are a pragmatic step but require credible demonstration of commitment to the new benchmarks. - Rationale: - Increased reliance on market sources of financing for government. - Anticipated diminution of social security surpluses as regional pension systems mature. - Policy implication: - Establish and meet annual targets that are appropriately ambitious and plausibly consistent with achieving medium-term objectives even in the event of adverse shocks. - Data/reporting requirement: - Emphasis on public sector, rather than central government, targets creates a need to regularly compile such data and, in some cases, enforce reporting requirements on statutory bodies. ### Achieving fiscal effort and public consensus - Staff assessment: - Achieving and sustaining fiscal effort will require a broad and durable social consensus on fiscal prudence. - Revenue reforms are well underway; future fiscal adjustment will stem largely from expenditure restraint. - Suggested actions: - Public discussion on the role of government in the economy to establish expectations on expenditure entitlements consistent with available fiscal envelopes (example: OECS commission on expenditure, modeled on tax policy work). - Key components recommended: - Development of comprehensive poverty-reduction strategies—examples cited: PRSP of Dominica, and I-PRSPs in St. Vincent and the Grenadines and Grenada—including well-targeted social safety nets. - A clear statement of the services to be provided by government and an assessment of the most effective means of delivering such services. - Civil service reform to ensure appropriate incentives for efficient provision of government services and to help reduce the size of government wage bills (noted: wage bills have been reduced in some countries but remain very high by international standards). - Well-prioritized Public Sector Investment Programs (PSIPs), including economic cost-benefit analysis, and consistent approval and evaluation procedures. - Options for providing further services at the regional level, for example in debt management. ### Authorities’ perspective on expenditure and development needs - Authorities’ view: - Importance of fiscal prudence acknowledged, but curbing expenditure is difficult given a changing global environment and development needs. - Government expected to continue to lead development because of erosion of trade preferences, lower aid flows, and pressures on offshore financial sectors and online gaming. - Substantial public infrastructure investments (for example new international airports) may be needed to secure future employment opportunities, implying debt ratios could rise further in some countries in coming years. - Resulting emphasis: continued focus on mobilizing revenues for fiscal adjustment. ### Population aging and pension sustainability - Demographic projection: - ECCU region likely to see a rapid aging of its population over the next few decades; share of seniors projected to more than triple in most countries over the next 30–40 years due to increased longevity, lower birth rates, and returning migrants. - Demographic shift will increase pressure on social security finances and health care systems. - Pension reform findings: - Pension reforms are needed in a number of countries to ensure viability. - Although national social security schemes were intended to be fully funded, pension liabilities in some countries are significantly larger than assets. - Net pension liabilities (Percent of 2004 GDP) as presented in the source: - Antigua and Barbuda 95.7 - Dominica 167.4 - Grenada 38.2 - St. Kitts and Nevis 20.7 - St. Lucia -4.0 - St. Vincent and the Grenadines 2/ n.a. - Note: "Figures for ECCU based on a 60-year horizon and a 5.5 percent discount rate." - Recommended reform levers: - Adjustments to contribution rates, benefits formulae, retirement age, and portfolio management to ensure long-term sustainability and align parameters with other Caribbean islands. - Address civil service pensions (noncontributory and provided in addition to social security pensions); Dominica, Grenada, and St. Lucia had addressed these; staff urged remaining authorities to limit this potentially massive fiscal liability. - Status/example: - Dominica has recently approved a reform package expected to eliminate its unfunded liability. ### Health care cost pressures and policy responses - Staff observation: - Early action needed to contain growth of health care costs. - Incidence of noncommunicable diseases increasing rapidly; diabetes already among the leading causes of death in many countries. - Impact of noncommunicable diseases significantly exceeds that of HIV/AIDS (which is being addressed through grant-financed programs). - Fiscal pressure: - Resources devoted to public health systems are already large and likely to grow with population aging. - Policy recommendations: - Careful consideration of government’s role in providing health care. - Multi-pronged approach to balance public provision within fiscal envelopes: - Exploit efficiency gains through regional sharing arrangements. - Encourage healthier lifestyles. - Consider alternative financing arrangements such as well-targeted user fees and private insurance. - Authorities’ concern: - Difficult for small states to deny health care to needy persons; pressures exist to introduce universal health care systems. ### Fostering a sound and dynamic financial system — banking supervision and stability - Progress noted: - Implementation of FSAP recommendations to strengthen regulatory framework for banks; harmonized Banking Act passed in all countries. - New prudential guidelines implemented, including requiring provisioning for nonperforming government debt. - Remaining challenges: - Enforcement is a challenge, especially for banks that delayed remedial measures. - Slow progress in developing a risk-based supervisory framework; resource constraints limit scope and frequency of on-site inspections by the ECCB. - Stress test results and risks: - ECCB stress tests point to robustness to plausible shocks but identify credit risk as a concern. - Interest rate risk, foreign exchange risk, and liquidity risk not found to be significant. - Credit risk is a regional weakness; NPLs are relatively high. - ECCB staff did not view the current credit boom as exacerbating risks because it reflected improved long-term prospects. - Government exposures were a particular vulnerability in just one country. - Recommendations to strengthen oversight: - Strengthen accounting and auditing standards to ensure accuracy of banks’ balance sheet data for accurate assessment of capital and risks. - Address weaknesses in legislative frameworks for foreclosures and collateral realization; recognize sensitivities around evicting borrowers and the need for public education to protect depositors’ rights. ### Supervision of nonbank financial institutions (NBFIs) - Current state: - Progress underway in introducing a harmonized framework for supervising NBFIs, but supervision remains an area of concern. - Gap in supervision of NBFIs with little monitoring or data collection. - Some progress setting up single regulatory units in each country; development and approval of harmonized legislation has been time-consuming. ### ECCB liquidity support and crisis management frameworks - Institutional view: - Institutional setup of the CBA implies liquidity and risk management at individual institutions is first line of defense. - Authorities considered coordination and information-sharing could be handled effectively by the Monetary Council, and therefore saw no need for a commonly agreed and fully articulated crisis management framework—despite this being an FSAP recommendation. - Staff concern: - ECCB’s frameworks for liquidity support and crisis management need to be kept under close review. ### FSAP implementation status on banking supervision (selected points) - Reprioritize ECCB resources to focus on systemically important institutions; only 7 full scope on-site inspections undertaken in 2005–06. - Develop risk-focused supervision and remedial action plans; risk-profiling matrix expected by end of 2006; early warning system being developed. - Strengthen data integrity and collection; program in place to improve prudential reporting with noted improvements from June 2005, but infrequent on-site verification poses risk of mis-reporting. - Strengthen prudential regulation and financial sector governance; guidelines issued May 2006 on liquidity risk management, corporate governance, and related party transactions; other guidelines and minimum capital legislation in process. - Address union-wide risks from government borrowing from banks; positive risk-weighting and provisioning of nonperforming public sector exposures implemented since January 1, 2006, but limited effect on capital due to few nonperforming government exposures and favorable treatment relative to private sector exposures. - Enhance ECCB powers for more effective supervision; amendments to uniform Banking Act passed in all countries, but bank licensing authority remains with Ministers of Finance. ### Regional capital markets and liquidity - Key markets development: - Interbank market: market volumes increased significantly; ECCB has not participated since 2002; interbank rates slowly converging to international markets. - Regional Government Securities Market (RGSM): total issue amount small relative to total central government borrowing (around 6 percent at end-2005); several national governments regularly access the market; all countries have at least one issue listed. - About 50 percent of primary issues have been taken up by ECCU investors, reflecting high liquidity within ECCU (notably national social security schemes and local banks). - Eastern Caribbean Stock Exchange (ECSE): market capitalization increased sharply after cross-listing of two CARICOM conglomerates in 2005; trading volume remains limited. - Market segmentation and pricing: - Regional markets remain fairly segmented despite absence of capital controls and show fairly rigid pricing. - Nonresponsiveness of regional interest rates to changes in global interest rates noted as puzzling. - Authorities attribute RGSM rates largely to Federal Funds Rate, LIBOR, and local market conditions; high local liquidity and portfolio allocation decisions by social security funds have generated strong demand for locally issued securities despite generally high debt levels. _Italic: Source document content provided in the prompt._ ### 41. Markets are expected to deepen with progress toward CSM and further ### _cr0796 - 41. Markets are expected to deepen with progress toward CSM and further ### Market development and infrastructure - Technological infrastructure is described as state-of-the-art, with an electronic trading platform with T+1 settlement and a dematerialized Central Securities Depository System. - Trading costs are high by international standards, but comparable to those in other Caribbean stock exchanges. - Structural impediments to capital market development noted: - absence of market makers; - prevalence of family-owned businesses; - predominance of “buy and hold” investors in the region. - Legal and regulatory changes: - The Exchange Control Act was recently revoked—eliminating remaining capital controls except for a few prudential restrictions10—which should boost the integration of ECCU markets with those in the broader Caribbean and provide opportunities for regional investors to raise capital at lower costs. - Footnote 10 (text from source): The remaining restrictions include the restriction on local resident to hold foreign currency account, the restriction on lending abroad by local financial institutions, and the Alien Land Holding Act that requires approval for nonresidents to hold financial and real assets (holdings through the ECSE are exempt in four countries). - Market development initiatives underway: - introduction of a master REPO agreement to facilitate secondary trading in government securities; - development of an Eastern Caribbean Unit Trust to enhance trading in equities and create an additional savings vehicle. ### Institution building and technical assistance - Small states face difficult capacity constraints when implementing policy reforms. - Authorities welcomed technical assistance from CARTAC, the Fund, and donors in supporting both the design and implementation of key measures.11 - Anticipated additional technical assistance needs include: - implementation of VATs; - strengthening financial sector supervision; - improving public expenditure management systems; - debt management. ### Data weaknesses (constraints on policymaking and surveillance) - Particular concerns are data on: - (i) operations of the broader public sector; - (ii) domestic and external debt of the public sector; - (iii) balance of payments and national accounts—particularly the coverage of tourism and foreign direct investment;12 - (iv) indicators of competitiveness, such as labor market outcomes; - (v) financial soundness indicators; - (vi) poverty and other social indicators. - Footnote 12 (text from source): Vuletin, Chapter III in ECCU: 2006 Selected Issues “The Size of the Informal Economy in the Caribbean,” suggests the presence of a large informal sector in most countries which may not be captured in the official statistics. ### Staff appraisal — macroeconomic assessment and risks - Recent performance: - The ECCU region is benefiting from a welcome resurgence of economic activity, but the challenge will be to sustain the growth momentum in 2007 and beyond. - Growth has reached a 15-year high, reflecting the effects of the preparations for the CWC as well as a pick up in private investment. - New employment opportunities have been created and have ameliorated adverse effects of both the decline in traditional agriculture and, in some countries, a scaling back of public sector employment. - Key risks and vulnerabilities: - risk of a hard landing following the CWC seems manageable; - significant headwinds remain, including still high world energy prices, declining trade preferences, and a massive public debt burden. - The CBA (currency board arrangement) continues to serve the ECCU well: exchange rate peg has underpinned a prolonged period of price stability; available indicators suggest that the currency remains competitive and reserve coverage has been adequate. - The exchange rate peg and vulnerability to natural disasters and other shocks make it even more critical to place fiscal positions on a sustainable path. - The public debt ratio remains among the highest in the world, and fiscal situations are likely to become even more challenging in coming years as population aging causes social security surpluses to wane and increases pressures on public health systems. ### Policy priorities and recommendations - From paragraph 46 — key priorities going forward: - Early and sustained progress toward meeting the new fiscal benchmarks: Demonstrating commitment to the revised timeline is essential given the failure of the previous benchmarks to ensure fiscal convergence. - Effective tax reform: Encouraging steps have been taken to strengthen tax systems throughout the region, and care will be needed to ensure that VAT implementation is effective, with limited exemptions. - Expenditure consolidation: - With CWC spending pressures easing and domestic fuel prices now largely having been adjusted, it will be important to establish firmer spending controls and to allow increased tax revenues to support rapid and sustained declines in debt positions. - Civil service reform—both to enhance the efficiency of government service provision and to reduce wage bills that remain very high—will be a key component of the expenditure consolidation. - Domestic and regional approaches to building a social consensus on the role of government could be useful, especially in the area of health care, where demands are likely to rise sharply in the coming years. - Additional recommendations: - Foster conditions that support private-sector-led growth: - Discipline provision of tax concessions (tax concessions have proven to be extremely costly and appear to be relatively ineffective in encouraging new investment). - Strengthen regulatory, administrative, and legal environment to reduce impediments to private business activity. - Leverage the CSME to further liberalize factor markets and benefit from globalization. - Strengthen financial sector supervision: - Translate supervisory framework improvements into effective interventions to bring banks into compliance with norms. - Bolster supervision of the nonbank financial sector. - Expedite implementation of initiatives to harmonize and consolidate regulation and supervision. - Address statistical weaknesses: - Improve quality, timeliness, and dissemination of statistics. - Consider innovative solutions, possibly including a greater role for regional entities in compiling and analyzing data. - Enhance dissemination of relevant data to enable more informed public debate and provide a better basis for creditors and investors. *Source: IMF staff country report text unit _cr0796 - 41. Markets are expected to deepen with progress toward CSM and further* ### 50. It is proposed that the next consultation on ECCU policies take place in ### _cr0796 - 50. It is proposed that the next consultation on ECCU policies take place in ### Consultation timing - It is proposed that the next consultation on ECCU policies take place in 12 months. ### National income and prices (Annual percentage change) - Real GDP: 2002: 0.8; 2003: 3.0; 2004: 3.6; 2005: 5.6; 2006: 4.9; 2007 (Proj.): 4.4 - GDP deflator: 2002: 0.5; 2003: 1.2; 2004: 2.1; 2005: 2.5; 2006: 2.3; 2007 (Proj.): 2.9 - Consumer prices, average: 2002: 1.1; 2003: 1.6; 2004: 2.1; 2005: 3.5; 2006: 3.7; 2007 (Proj.): 3.2 ### Monetary sector (Annual change, in percent of M2 at the beginning of the year) - Liabilities to the private sector (M2): 2002: 6.6; 2003: 9.5; 2004: 13.2; 2005: 8.4; 2006: 9.8; 2007 (Proj.): 9.5 - Net foreign assets: 2002: 5.9; 2003: 8.7; 2004: 6.8; 2005: 1.4; 2006: 0.3; 2007 (Proj.): 1.8 - Net domestic assets: 2002: 0.7; 2003: 0.8; 2004: 6.4; 2005: 7.1; 2006: 9.5; 2007 (Proj.): 7.7 - Private sector credit: 2002: 1.8; 2003: 2.0; 2004: 5.1; 2005: 9.2; 2006: 11.7; 2007 (Proj.): 7.2 - Credit to central government: 2002: -0.2; 2003: -1.3; 2004: -1.0; 2005: 2.0; 2006: -1.0; 2007 (Proj.): 0.5 ### Public sector fiscal indicators (In percent of GDP) - Primary central government balance: 2002: -6.6; 2003: -0.8; 2004: 0.2; 2005: 0.4; 2006: 0.3; 2007 (Proj.): 2.0 - Overall central government balance: 2002: -10.9; 2003: -5.6; 2004: -4.5; 2005: -3.8; 2006: -4.0; 2007 (Proj.): -2.3 - Total revenue and grants: 2002: 28.0; 2003: 29.4; 2004: 29.0; 2005: 30.1; 2006: 31.1; 2007 (Proj.): 29.7 - Total expenditure and net lending: 2002: 38.9; 2003: 34.9; 2004: 33.5; 2005: 33.9; 2006: 35.1; 2007 (Proj.): 32.0 - Foreign financing: 2002: 6.0; 2003: 6.1; 2004: 3.8; 2005: -4.1; 2006: 1.8; 2007 (Proj.): -0.4 - Domestic financing including arrears: 2002: 3.1; 2003: 1.8; 2004: 0.6; 2005: 3.1; 2006: 1.8; 2007 (Proj.): 1.4 - Central government current account balance: 2002: -2.5; 2003: -0.2; 2004: 0.1; 2005: 0.9; 2006: 1.3; 2007 (Proj.): 2.9 - Total public debt (end-of-period): 2002: 109.3; 2003: 113.5; 2004: 117.1; 2005: 106.6; 2006: 104.5; 2007 (Proj.): 99.7 ### Selected country fiscal ratios (Total revenues and grants, percent of GDP; 2002–2007) - ECCU aggregate: 2002: 28.0; 2003: 29.4; 2004: 29.0; 2005: 30.1; 2006: 31.1; 2007 (Proj.): 29.7 - Antigua and Barbuda: 2002: 21.7; 2003: 21.1; 2004: 21.6; 2005: 21.8; 2006: 21.6; 2007 (Proj.): 23.4 - Dominica: 2002: 32.5; 2003: 40.0; 2004: 38.8; 2005: 41.1; 2006: 38.7; 2007 (Proj.): 37.5 - Grenada: 2002: 29.0; 2003: 34.5; 2004: 33.9; 2005: 36.8; 2006: 36.5; 2007 (Proj.): 30.3 - St. Kitts and Nevis: 2002: 34.8; 2003: 33.3; 2004: 34.1; 2005: 39.3; 2006: 40.1; 2007 (Proj.): 38.8 - St. Lucia: 2002: 27.0; 2003: 27.9; 2004: 27.4; 2005: 25.9; 2006: 26.3; 2007 (Proj.): 27.5 - St. Vincent and the Grenadines: 2002: 31.7; 2003: 31.3; 2004: 30.0; 2005: 30.5; 2006: 31.1; 2007 (Proj.): 31.7 ### Central government expenditure and balances (Selected) - Tax revenues (ECCU aggregate): 2002: 22.1; 2003: 23.0; 2004: 23.8; 2005: 24.5; 2006: 24.8; 2007 (Proj.): 25.1 - Current expenditure (ECCU aggregate): 2002: 28.0; 2003: 26.9; 2004: 27.1; 2005: 26.1; 2006: 26.3; 2007 (Proj.): 25.0 - Interest payments (ECCU aggregate): 2002: 4.4; 2003: 4.7; 2004: 4.8; 2005: 4.2; 2006: 4.3; 2007 (Proj.): 4.2 ### External sector and balance of payments (In millions of U.S. dollars; Annual change and percent of GDP) - Current account (US$ millions): 2002: -595.2; 2003: -680.9; 2004: -544.9; 2005: -798.6; 2006: -904.4; 2007 (Proj.): -882.1 - Trade balance (US$ millions): 2002: -1,005.6; 2003: -1,176.2; 2004: -1,252.3; 2005: -1,474.0; 2006: -1,567.6; 2007 (Proj.): -1,646.2 - Exports (US$ millions): 2002: 305.1; 2003: 307.3; 2004: 351.6; 2005: 324.7; 2006: 339.8; 2007 (Proj.): 354.8 - Imports (US$ millions): 2002: -1,310.7; 2003: -1,483.5; 2004: -1,603.9; 2005: -1,798.8; 2006: -1,907.4; 2007 (Proj.): -2,001.0 - Services and income (US$ millions): 2002: 310.7; 2003: 366.0; 2004: 486.6; 2005: 468.0; 2006: 509.5; 2007 (Proj.): 605.4 - Travel (US$ millions): 2002: 723.0; 2003: 852.6; 2004: 955.8; 2005: 965.4; 2006: 1,021.3; 2007 (Proj.): 1,125.9 - Capital and financial account (US$ millions): 2002: 656.4; 2003: 726.8; 2004: 654.9; 2005: 764.8; 2006: 955.3; 2007 (Proj.): 941.7 - Direct investment (US$ millions): 2002: 342.0; 2003: 553.2; 2004: 434.9; 2005: 452.4; 2006: 602.4; 2007 (Proj.): 572.4 - Overall balance (US$ millions): 2002: 61.2; 2003: 45.8; 2004: 110.0; 2005: -33.8; 2006: 50.9; 2007 (Proj.): 59.6 ### External sector ratios (Percent of GDP, selected) - Current account balance: 2002: -20.2; 2003: -22.0; 2004: -16.4; 2005: -21.7; 2006: -22.9; 2007 (Proj.): -20.8 - Trade balance: 2002: -34.1; 2003: -38.0; 2004: -37.6; 2005: -40.0; 2006: -39.7; 2007 (Proj.): -38.7 - Services, incomes and transfers: 2002: 13.9; 2003: 16.0; 2004: 21.2; 2005: 18.3; 2006: 16.8; 2007 (Proj.): 18.0 - Travel (percent of GDP): 2002: 24.5; 2003: 27.5; 2004: 28.7; 2005: 26.2; 2006: 25.8; 2007 (Proj.): 26.5 - Capital and financial account: 2002: 22.3; 2003: 23.5; 2004: 19.7; 2005: 20.8; 2006: 24.2; 2007 (Proj.): 22.2 - Direct investment (percent of GDP): 2002: 11.6; 2003: 17.9; 2004: 13.1; 2005: 12.3; 2006: 15.2; 2007 (Proj.): 13.5 - Overall balance (percent of GDP): 2002: 2.1; 2003: 1.5; 2004: 3.3; 2005: -0.9; 2006: 1.3; 2007 (Proj.): 1.4 ### Reserves and external debt (Memorandum items) - End-year gross reserves of the ECCB, US$ millions: 2002: 504.8; 2003: 539.9; 2004: 632.4; 2005: 600.8; 2006: 651.7; 2007 (Proj.): 711.3 - Reserves in months of imports: 2002: 4.6; 2003: 4.4; 2004: 4.7; 2005: 4.0; 2006: 4.1; 2007 (Proj.): 4.3 - ECCU GDP at market prices, US$ millions: 2002: 2,947.6; 2003: 3,099.2; 2004: 3,331.5; 2005: 3,682.2; 2006: 3,951.6; 2007 (Proj.): 4,249.2 - Total gross external public debt (percent of GDP): 2002: 61.9; 2003: 65.1; 2004: 64.7; 2005: 53.7; 2006: 52.3; 2007 (Proj.): 50.0 - Gross external financing requirement (US$ billions): 2002: 0.7; 2003: 0.8; 2004: 0.7; 2005: 1.0; 2006: 1.0; 2007 (Proj.): 1.0 ### Banking system and financial indicators (Selected) - Real GDP growth (Table 6 summary): 2002: 0.8; 2003: 3.0; 2004: 3.6; 2005: 5.6; 2006: 3.0; 2007 (Proj.): 4.4 - CPI inflation, end of year: 2002: 1.2; 2003: 1.8; 2004: 2.4; 2005: 4.2; 2006: 3.7; 2007 (Proj.): 3.0 - Interbank interest rate: 2002: 6.3; 2003: 6.1; 2004: 4.7; 2005: 4.0; 2006: 4.9; 2007 (Proj.): ... - Net foreign assets (percent of M2 growth): 2002: 5.9; 2003: 8.7; 2004: 6.8; 2005: 1.4; 2006: 0.3; 2007 (Proj.): 1.8 - Private sector credit/GDP (percent): 2002: 76.5; 2003: 74.4; 2004: 73.4; 2005: 74.1; 2006: 79.0; 2007 (Proj.): 79.7 - Broad money/GDP (percent): 2002: 84.6; 2003: 88.2; 2004: 92.8; 2005: 91.1; 2006: 93.2; 2007 (Proj.): 94.9 - Foreign currency deposits/GDP (percent): 2002: 11.5; 2003: 11.7; 2004: 13.1; 2005: 14.2; 2006: 14.5; 2007 (Proj.): 14.3 - Income velocity of broad money: 2002–2007: 1.2; 1.1; 1.1; 1.1; 1.1; 1.1 ### Banking sector soundness indicators (Table 6 / Table 7 excerpts) - Capital adequacy ratio (indigenous banks, Tier I): 2002: 17.4; 2003: 16.4; 2004: 16.2; 2005: 16.6; 2006: 17.3; 2007 (Proj.): ... - NPLs/total loans (indigenous banks and foreign banks): aggregate NPLs/total loans: 2002: 13.7; 2003: 12.8; 2004: 11.9; 2005: 9.4; 2006: 8.2; 2007 (Proj.): ... - Loan loss provision/NPLs (aggregate): 2002: 29.7; 2003: 32.5; 2004: 34.7; 2005: 34.9; 2006: 32.4; 2007 (Proj.): ... - (Pre-tax) return on average assets: 2002: 1.6; 2003: 1.7; 2004: 1.7; 2005: 2.1; 2006: 2.9; 2007 (Proj.): ... - ECCB reserve cover (percent): 2002: 97.1; 2003: 95.3; 2004: 96.2; 2005: 96.5; 2006: ......; 2007 (Proj.): ...... ### Debt sustainability (Public Sector Debt Sustainability Framework, 2001–2011) - Public sector debt (percent of GDP): 2001: 90.6; 2002: 109.4; 2003: 113.9; 2004: 117.4; 2005: 106.8; 2006: 104.6; 2007 (Proj.): 99.9; 2008 (Proj.): 95.2; 2009 (Proj.): 89.9; 2010 (Proj.): 85.0; 2011 (Proj.): 80.6 - Debt-stabilizing primary balance: -1.2 (most recent value reported) - Change in public sector debt (annual): 2001: 7.6; 2002: 18.8; 2003: 4.5; 2004: 3.5; 2005: -10.6; 2006: -2.2; 2007 (Proj.): -4.8 - Identified debt-creating flows (percent of GDP): 2001: 7.4; 2002: 9.6; 2003: 1.1; 2004: -2.0; 2005: -5.3; 2006: -3.5; 2007 (Proj.): -5.1 - Primary deficit (percent of GDP): 2001: 4.2; 2002: 6.5; 2003: 0.8; 2004: -0.3; 2005: -0.4; 2006: -0.3; 2007 (Proj.): -2.0 - Revenue and grants (percent of GDP): 2001: 26.1; 2002: 28.1; 2003: 29.5; 2004: 29.1; 2005: 30.1; 2006: 31.2; 2007 (Proj.): 29.7 - Primary (noninterest) expenditure (percent of GDP): 2001: 30.3; 2002: 34.5; 2003: 30.3; 2004: 28.8; 2005: 29.7; 2006: 30.9; 2007 (Proj.): 27.8 - Automatic debt dynamics contribution (percent of GDP): 2001: 3.1; 2002: 3.4; 2003: 0.4; 2004: -1.4; 2005: -4.6; 2006: -2.9; 2007 (Proj.): -3.0 - Contribution from real interest rate/growth differential: 2001: 3.1; 2002: 3.4; 2003: 0.4; 2004: -1.4; 2005: -4.6; 2006: -2.9; 2007 (Proj.): -3.0 - Contribution from real interest rate: 2001: 1.9; 2002: 4.1; 2003: 3.5; 2004: 2.5; 2005: 1.5; 2006: 1.9; 2007 (Proj.): 1.3 - Contribution from real GDP growth: 2001: 1.2; 2002: -0.7; 2003: -3.1; 2004: -3.9; 2005: -6.1; 2006: -4.9; 2007 (Proj.): -4.3 - Residual, including asset changes (percent of GDP): 2001: 0.1; 2002: 9.2; 2003: 3.5; 2004: 5.5; 2005: -5.2; 2006: 1.3; 2007 (Proj.): 0.4 - Public sector debt-to-revenue ratio: 2001: 346.7; 2002: 389.7; 2003: 386.6; 2004: 403.7; 2005: 354.7; 2006: 335.3; 2007 (Proj.): 335.9 - Gross financing need (percent of GDP): 2001: 9.4; 2002: 12.5; 2003: 8.3; 2004: 7.5; 2005: 7.0; 2006: 8.0; 2007 (Proj.): 6.9 ### External debt sustainability (Selected) - Baseline external debt (percent of GDP): 2001: 53.4; 2002: 65.6; 2003: 69.2; 2004: 69.7; 2005: 57.9; 2006: 56.4; 2007 (Proj.): 53.9; 2008 (Proj.): 51.8; 2009 (Proj.): 48.9; 2010 (Proj.): 46.4; 2011 (Proj.): 45.5 - Change in external debt (percent of GDP): 2001: 6.4; 2002: 12.1; 2003: 3.6; 2004: 0.5; 2005: -11.8; 2006: -1.5; 2007 (Proj.): -2.5 - Identified external debt-creating flows (percent of GDP): 2001: 0.2; 2002: 3.7; 2003: -2.7; 2004: -4.6; 2005: -4.7; 2006: -0.1; 2007 (Proj.): 1.9 - Current account deficit excluding interest payments (percent of GDP): 2001: 17.4; 2002: 19.2; 2003: 20.8; 2004: 15.0; 2005: 21.2; 2006: 22.4; 2007 (Proj.): 20.3 - Net nondebt creating capital inflows (negative, percent of GDP): 2001: -18.5; 2002: -17.0; 2003: -23.5; 2004: -18.5; 2005: -22.8; 2006: -22.0; 2007 (Proj.): -18.1 - External debt-to-exports ratio (percent): 2001: 96.6; 2002: 124.4; 2003: 128.4; 2004: 119.4; 2005: 110.5; 2006: 109.5; 2007 (Proj.): 99.1 - Gross external financing need (US$ billions / percent of GDP): 2001: 0.6 / 22.1; 2002: 0.7 / 26.3; 2003: 0.8 / 28.7; 2004: 0.8 / 24.4; 2005: 1.2 / 35.8; 2006: 1.1 / 28.9; 2007 (Proj.): 1.1 / 28.3 ### Stress tests and scenarios (Public debt and external debt frameworks) - Public debt scenarios (selected outcomes, public debt percent of GDP): - Baseline: 2006: 104.6; 2007: 99.9; 2008: 95.2; 2009: 89.9; 2010: 85.0; 2011: 80.6 - A1 (key variables at historical averages): 2007–2011 path shows a modestly higher debt trajectory ending at 110.0 in final reported year of scenario period (table layout indicates series starting 2006). - A2 (No policy change, constant primary balance): 2006–2011 path ends at 95.2 in final reported year of scenario period. - Bound tests (B1–B6) include shocks such as higher real interest rate, lower real GDP growth, weaker primary balance, one-time real depreciation, and increases in other debt-creating flows with resulting debt trajectories shown (e.g., B5 one-time 30 percent real depreciation yields public debt peaks in scenario years: 104.6; 126.6; 121.5; 115.7; 110.4; 105.8). - External debt scenarios and bound tests (selected): - A1 (key variables at historical averages): external debt percent of GDP declines over scenario period to 47.4 (final reported year). - A2 (Natural Disaster Scenario): external debt percent of GDP rises markedly in early scenario years (e.g., 56.5; 56.4; 57.3; 59.2; 59.6; 58.7). - Bound tests (B1–B5) include shocks to nominal interest rate, real GDP growth, non-interest current account, combinations of shocks, and one-time 30 percent real depreciation (B5 produces external debt rising to 74.2 then gradually declining). *Sources: Eastern Caribbean Central Bank; and Fund staff estimates and projections.* ### Appendix I. ECCU—Relations with the Fund ### Appendix I. ECCU—Relations with the Fund ### I. Membership Status - Not Applicable ### II. Exchange Arrangement - The Eastern Caribbean Currency Union consists of eight countries that have a common currency, monetary policy, and exchange system. - The common currency, the Eastern Caribbean dollar, has been pegged to the U.S. dollar at the rate of EC$2.70 per U.S. dollar since July 1976. - The common central bank, the Eastern Caribbean Central Bank (ECCB), has operated like a quasi-currency board, maintaining foreign exchange backing of its currency and demand liabilities of close to 100 percent. ### III. Safeguards Assessment - Under the Fund’s safeguards assessment policy, the ECCB is subject to a full safeguards assessment. - The on-site safeguards assessment was competed on February 20, 2003, and concluded that the ECCB has in place appropriate mechanisms to manage resources, including Fund disbursements, and that the vulnerabilities that remain do not pose an undue risk. - The safeguards assessment proposed specific measures to address these vulnerabilities, which have been substantially implemented by the ECCB. ### IV. Report on the Observance of Standards and Codes - The Financial System Stability Assessment for the Eastern Caribbean Currency Union was completed in April 2004, and examined the adherence of the domestic banking sector to the Basel Core Principles for Effective Banking Supervision. - Assessors’ observations and recommended priorities: - Strengthen the legislative framework to enhance the powers and autonomy of the ECCB and to generally beef up the enforcement process. - Conduct more frequent and comprehensive on-site examinations, particularly in light of the high levels of non-performing loans and perceived gaps in data integrity. - Implement a risk-based capital framework for banks as a priority, which adequately reflects risk of public sector loans. - Develop supervisory practices further toward risk-focused supervision that also takes into consideration ongoing communication with external auditors and overseas supervisors. - Establish a more formal information exchange mechanism with the home supervisor, identified as a priority especially with regard to the consolidated supervision of significant regional banking groups. - Implementation status noted: - New regulatory guidelines for risk-weighting non-performing public sector exposures went into effect in January 2006. - Amendments to the Uniform Banking Act have been passed and gazetted in each jurisdiction. *Appendix I. ECCU—Relations with the Fund (As of December 21, 2006)* ### Appendix IV. OECS: ### _cr0796 - Appendix IV. OECS: ### World Bank Group strategy and objectives - Guiding principles: - (a) supporting regional integration and coordination efforts; - (b) partnering and harmonization in both lending and analytical work with other development partners; - (c) active pursuit of simplification and capacity building initiatives tailored to small states. - Focus areas: public sector reforms with particular emphasis on efficiency of public spending, social expenditures (including safety nets), disaster mitigation, and environmental management. ### Bank–Fund collaboration and technical assistance - Collaborative areas: - financial sector; - medium-term structural reform agenda; - joint technical assistance on macroeconomic management with the Caribbean Regional Technical Assistance Center (CARTAC); - support in preparing Poverty Reduction Strategies (PRS). - CARTAC: noted role in assisting ECCU members and continued donor support for technical assistance was encouraged. ### World Bank Group Eastern Caribbean Sub-Region Country Assistance Strategy (CAS) FY06-09 - CAS pillars: - (1) stimulating growth and improving competitiveness; - (2) reducing vulnerability by promoting greater social inclusion and strengthening disaster risk management. - Lending envelope and scenarios: - Total CAS proposed lending envelope: US$103.4 million. - Indicative Base Case lending scenario: about US$51.3 million in IDA resources for the four OECS blend countries (Dominica, Grenada, St. Lucia and St. Vincent and the Grenadines). - Includes IDA Regional allocation of US$15.2 million for two regional projects: - US$12 million for Catastrophe Risk Insurance; - US$3.2 million for Infrastructure and Utilities Reform. - Indicative high case lending scenario: approximately US$52.1 million in IBRD investments and development policy operation commitments for the six OECS countries, in addition to the Base Case. ### Growth, competitiveness, and vulnerability reduction priorities - Policy and reform priorities: - (i) improve the investment climate: broaden tax base, streamline and increase transparency of investment incentives; - (ii) improve public sector performance: raise efficiency of public investment and improve service delivery; - (iii) reduce transaction costs: strengthen regulation and efficiency of public utilities; - (iv) promote education and skills development to exploit global opportunities; - (v) reduce vulnerability: strengthen social protection mechanisms and disaster risk management. - Sub-regional functional cooperation to expand (examples cited): common central bank, telecommunications regulation, pharmaceutical procurement, and potential expansion to energy sector regulation. ### Analytical, advisory, and planned operations - Analytical/advisory activities and studies listed: - “Towards a New Agenda for Growth”-OECS growth and competitiveness study; - Caribbean Air Transport Rationalization report (draft recently completed); - Caribbean Skills and Curriculum Study; - Institutions, Performance and the Financing of Infrastructure Services in the Caribbean (recently completed); - Caribbean Financial Sector and Regulation report; - Caribbean Social Protection Strategy Review (recently completed); - regional study on Crime and Violence in the Caribbean (draft recently completed); - planned OECS private sector financing study. - Projects and technical assistance: - planned OECS Telecom Reform project; - ongoing pilot St. Lucia Water Sector Reform Project; - technical assistance in power and energy sectors aimed at future regulatory reform for utilities. - Planned country/regional operations: - Growth and Social Protection Technical Assistance Project for Dominica; - OECS Risk Financing Project to support participation in the Caribbean Catastrophe Risk Insurance Facility (CCRIF); - OECS Skills Enhancement for Inclusive Growth Project to establish a competitive training fund for demand-driven training and traineeships; - additional operations planned for environmental, utilities, and infrastructure sectors. ### Disaster management and safety nets - Disaster vulnerability: - Frequent natural disasters identified as a major cause of income insecurity and high poverty; households cycle in and out of poverty in tandem with events. - Authorities have pursued reactive responses; need shift to proactive mitigation with greater cooperation among governments, donors, and civil society. - World Bank support: - ongoing OECS Disaster Management Programs I and II; - work on development of a Caribbean Catastrophe Risk Insurance Facility (CCRIF). - Safety nets: - Unemployment estimates: between 5-20 percent. - Poverty levels: ranging 12–38 percent. - Identified problems: uncoordinated programs, lack of appropriate targeting mechanisms and adequate coverage; need improvements to address preference erosion impacts, youth-at-risk, aging population, external shocks, and HIV/AIDS vulnerabilities. - Bank support examples: - financial support for an ongoing Poverty Reduction Fund in St. Lucia (piloted community procurement); - Social Protection Review for Dominica; - IDF grant to strengthen poverty measurement in the OECS; - Caribbean Regional HIV/AIDS program including Barbados, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines. ### Financial relations (US$ millions) — Regional and country project financials - Regional Operations (Original | Principal Disbursed | Undisbursed): - Telecom. & ICT Development Project (DMA,GRD,LCA,KNA,VCT): 2.71 | 0.36 | 2.49 - HIV/AIDS Prevention and Control (GRD,LCA,KNA,VCT): 23.49 | 2.99 | 21.04 - Education Development Project (GRD,LCA,KNA,VCT): 31.20 | 10.53 | 22.22 - Total regional projects: 57.40 | 13.87 | 45.75 - Total (all projects): 97.18 | 27.28 | 72.05 - Country project totals (Original | Principal Disbursed | Undisbursed): - Dominica — Total **: 0.54 | 0.07 | 0.53 - Grenada: - Hurricane Ivan Emergency Project: 19.78 | 7.17 | 12.61 - Public Sector Modernization Technical Assistance Credit: 3.50 | 0.35 | 3.37 - Total: 37.86 | 9.93 | 29.04 - St. Lucia: - Water Supply Infrastructure Improvement: 7.70 | 2.52 | 5.20 - Disaster Management Project II: 7.50 | 3.35 | 4.23 - Water Sector Reform Technical Assistance Project: 1.30 | 0.01 | 0.89 - Total: 35.44 | 14.27 | 22.06 - St. Kitts & Nevis — Total: 9.59 | 1.65 | 7.84 - St. Vincent and the Grenadines — Total: 13.74 | 1.36 | 12.59 - Note: DMA = Dominica, LCA = St. Lucia, VCT = St. Vincent and the Grenadines, GRD = Grenada, KNA = St. Kitts & Nevis. **Totals include country allocations for regional projects listed above. ### IMF Public Information Notice (PIN) — Executive Board conclusions from 2006 Regional Discussions with ECCU (concluded January 17, 2007; PIN No. 07/13, February 6, 2007) - Macroeconomic backdrop and findings: - Growth: 5.6 percent in 2005, the strongest rate in more than 15 years, driven by tourism and construction ahead of the 2007 Cricket World Cup. - Inflation: picked up reflecting pass-through of global oil prices, but remained in the low single digits. - Public sector debt: very high, averaging 107 percent of end-2005 GDP, despite restructuring in Dominica and Grenada and some debt relief in Antigua and Barbuda. - Fiscal policy: tax revenues strengthened (economic activity, administrative efforts, and VAT introductions), but expenditure restraint was difficult due to social priorities and public infrastructure spending. - Monetary aggregates: expanding rapidly with a credit boom in the private sector; financial system resilient; progress on financial sector supervision in line with 2004 FSAP recommendations. - External current account deficits: widened to well over 20 percent of GDP in 2005 and into 2006, financed mostly by foreign direct investment and grants. - Reserves: ECCB gross international reserves dipped in 2005 but were reversed by mid-2006; coverage of monetary demand liabilities over 96 percent (legal floor 60 percent). - Integration: ECCU joined the CARICOM Single Market (CSM) in June 2006; OECS integration framework being revisited in context of a revised OECS Economic Union Treaty. - Executive Board priorities and recommendations: - Place fiscal positions on a sustainable path given exchange rate peg, high debt, and vulnerability to shocks. - Use favorable cyclical circumstances to accelerate fiscal consolidation and demonstrate commitment to new fiscal benchmarks. - Prompt action to reform social security and public health systems to address fiscal pressures from population aging. - Avoid tax distortions: strictly limit VAT exemptions and rein in tax concessions; regional approach to harmonizing and reducing tax concessions recommended by some Directors. - Firm control over spending: limit new expenditure commitments and contain government wage bills within civil service reforms. - Continue strengthening supervisory and regulatory frameworks for banks and nonbanks; ensure credibility through effective enforcement. - Further regulatory, administrative and legal reforms to remove impediments to private business activity; liberalize factor markets in context of Caribbean Single Market and Economy. - Strengthen quality, timeliness and dissemination of statistics to support economic management and public transparency. - Continued donor support for CARTAC and technical assistance. ### Eastern Caribbean Currency Union: Selected Economic Indicators (annual data and projections) - Real sector (annual percentage change): - Real GDP: 2003 = 3.0; 2004 = 3.6; 2005 = 5.6; Proj. 2006 = 4.9; Proj. 2007 = 4.4 - GDP deflator: 2003 = 1.2; 2004 = 2.1; 2005 = 2.5; Proj. 2006 = 2.3; Proj. 2007 = 2.9 - Consumer prices, end of year: 2003 = 1.8; 2004 = 2.4; 2005 = 4.2; Proj. 2006 = 3.7; Proj. 2007 = 3.0 - Public finances (In percent of GDP): - Central government overall balance: 2003 = -5.6; 2004 = -4.5; 2005 = -3.8; Proj. 2006 = -4.0; Proj. 2007 = -2.3 - Revenue and grants: 2003 = 29.4; 2004 = 29.0; 2005 = 30.1; Proj. 2006 = 31.1; Proj. 2007 = 29.7 - Expenditure and net lending: 2003 = 34.9; 2004 = 33.5; 2005 = 33.9; Proj. 2006 = 35.1; Proj. 2007 = 32.0 - Total public sector debt: 2003 = 113.5; 2004 = 117.1; 2005 = 106.6; Proj. 2006 = 104.5; Proj. 2007 = 99.7 - External sector (In percent of GDP, unless otherwise indicated): - Current account balance: 2003 = -22.0; 2004 = -16.4; 2005 = -21.7; Proj. 2006 = -22.9; Proj. 2007 = -20.8 - Trade balance: 2003 = -38.0; 2004 = -37.6; 2005 = -40.0; Proj. 2006 = -39.7; Proj. 2007 = -38.7 - Travel: 2003 = 27.5; 2004 = 28.7; 2005 = 26.2; Proj. 2006 = 25.8; Proj. 2007 = 26.5 - Exports, f.o.b. (annual percentage change): 2003 = 0.7; 2004 = 14.4; 2005 = -7.6; Proj. 2006 = 4.6; Proj. 2007 = 4.4 - Imports, f.o.b. (annual percentage change): 2003 = 13.2; 2004 = 8.1; 2005 = 12.2; Proj. 2006 = 6.0; Proj. 2007 = 4.9 - Stayover visitors (annual percentage change): 2004 = 14.3; 2005 = 10.0; 2006 = 0.2; 2003, 2007 = ... - Terms of trade (12-month percentage change) 2/: 2003 = 0.0; 2004 = 0.2; 2005 = -0.8; Proj. 2006 = -0.1; Proj. 2007 = -0.5 - Real effective exchange rate (annual percentage change) 1/ 3/: 2003 = -4.2; 2004 = -3.6; 2005 = -1.0; 2006, 2007 = ... - End-year gross foreign reserves of the ECCB: - In U.S. dollar million: 2003 = 539.9; 2004 = 632.4; 2005 = 600.8; Proj. 2006 = 651.7; Proj. 2007 = 711.3 - In months of imports: 2003 = 4.4; 2004 = 4.7; 2005 = 4.0; Proj. 2006 = 4.1; Proj. 2007 = 4.3 - In percent of broad money: 2003 = 19.8; 2004 = 20.5; 2005 = 17.9; Proj. 2006 = 17.7; Proj. 2007 = 17.6 - External public debt (end-of-period): 2003 = 69.2; 2004 = 69.7; 2005 = 57.9; Proj. 2006 = 56.4; Proj. 2007 = 53.8 - Money and credit (Percentage change): - Net foreign assets 4/: 2003 = 8.7; 2004 = 6.8; 2005 = 1.4; Proj. 2006 = 0.3; Proj. 2007 = 1.8 - Net domestic assets 4/: 2003 = 0.8; 2004 = 6.4; 2005 = 7.1; Proj. 2006 = 9.5; Proj. 2007 = 7.7 - Broad money: 2003 = 9.5; 2004 = 13.2; 2005 = 8.4; Proj. 2006 = 9.8; Proj. 2007 = 9.5 *Sources: ECCU country authorities; and IMF staff estimates.* *Compiled from: Appendix IV. OECS (RELATIONS WITH THE WORLD BANK GROUP) and Public Information Notice No. 07/13 (IMF Executive Board conclusions on 2006 Regional Discussions with the Eastern Caribbean Currency Union).* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr0796.pdf_