## _wp0526 - References

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### I. Introduction — core findings and human development context
- Majority of Caribbean countries characterized by high public debt; rapid buildup largely due to deterioration in fiscal balances driven principally by a rise in expenditures rather than a fall in revenues.
- Main policy message: critical need for fiscal consolidation and a reinvigoration of growth to bring debt back to more sustainable levels.
- Human development and social indicators (regional averages and ranges cited in text):
  - Life expectancy at birth: nearly 70 years.
  - Average poverty levels: nearly 30 percent of the population below the poverty line.
  - Per capita incomes range from US$460 in Haiti to nearly US$16,700 in The Bahamas.
  - Political indicators: “voice and accountability” nearly 70 (scale 0–100); “government effectiveness” 58 (out of 100).
- Inflation generally stabilized across most countries; increased access to international capital markets since the late 1990s facilitated government borrowing at home and abroad.
- Since the mid-1990s, average national public debt in the region virtually doubled; fiscal performance deteriorated sharply (with exceptions of Antigua and Barbuda, Guyana, and Jamaica).

### II. Macroeconomic performance — growth, inflation, fiscal trends
- Growth and inflation:
  - Average Caribbean GDP growth: 2½ percent per annum during 1980–2003.
  - Caribbean growth marginally higher than Latin America; lower than “small island states” and much lower than emerging Asia (emerging Asia grew at nearly three times the pace observed in the Caribbean).
- Inflation and debt (1990–2003 split into 1990–97 and 1998–2003):
  - Average public debt-to-GDP ratio grew from 56 percent in 1997 to over 90 percent by 2003.
  - Annual average inflation declined from over 16 percent in 1990–97 to 6½ percent in 1998–2003.
  - Excluding the Dominican Republic, Haiti, and Suriname, average inflation in 1998–2003 was 2½ percent.
- Fiscal accounts and interest costs:
  - Average overall fiscal balance declined in every country (apart from Haiti) during 1998–2003 compared to 1990–97.
  - Interest costs rose as public debt grew; primary fiscal balance worsened in the second subperiod for every country with data (except Haiti).

### III. Does the exchange rate regime matter?
- Regime distribution up to 2003:
  - Fixed regimes (currency boards or fixed peg): 11 of 15 countries.
  - Flexible regimes (managed or independent floating): Guyana, Haiti, Jamaica, Trinidad and Tobago.
- Inflation and growth outcomes by regime:
  - Fixed regimes: CPI inflation fell from 13.8 (1990–97) to 6.0 (1998–03); GDP growth rose from 2.6 to 2.8.
  - Flexible regimes: CPI inflation fell from 23.1 to 7.7; GDP growth fell from 1.9 to 1.6.
- Fiscal and debt outcomes:
  - Fixed-regime countries’ average overall fiscal deficit doubled from -2.9 percent of GDP (1990–97) to -6.1 percent (1998–03); public debt rose from 51.9 percent to 87.9 percent of GDP.
  - Flexible-regime countries’ average overall deficit was -1.9 percent (1990–97) and -5.1 percent (1998–03); public debt rose from 122.0 percent to 125.0 percent of GDP.
- Summary: Fixed regimes associated with lower inflation and marginally higher GDP growth but worse fiscal imbalances and faster public debt buildup.

### IV. Relative performance across countries
- Macroeconomic performance index constructed from multiple indicators (debt ratios, fiscal balances, inflation, GDP growth and changes); scores normalized to 1–100.
- Rankings:
  - Best performers: Trinidad and Tobago and The Bahamas.
  - Lowest scores: St. Kitts and Nevis and Jamaica.
  - Dominican Republic ranks third best due to relatively good performance until the 2003 banking crisis.
  - Resource-rich countries among best performers: Trinidad and Tobago and Suriname.

### V. Fiscal performance and debt accumulation — regional and group patterns
- Caribbean among most indebted emerging market countries: 14 Caribbean countries in the top 30 most indebted; 7 among the top 10.
- Public debt-to-GDP categorization (end-2003):
  - Low debt: The Bahamas, Suriname, Dominican Republic.
  - Debt 50–90 percent: Barbados, St. Lucia, St. Vincent and the Grenadines, Trinidad and Tobago.
  - Debt >90 percent: Antigua and Barbuda, Belize, Dominica, Grenada, Guyana, Jamaica, St. Kitts and Nevis.
- Primary fiscal balances (2003):
  - 9 of 15 countries have primary fiscal deficits.
  - Only Jamaica generated primary surpluses of more than 5 percent of GDP in 2003.
  - Four countries with positive but <5 percent primary surpluses: The Bahamas, Trinidad and Tobago, Dominica, Grenada.
- Implication: Primary deficits imply debt levels will rise unless reversed; large primary surpluses required to reduce high debt stocks, with required magnitude increasing with interest rates and debt stock size.

### VI. Drivers of public debt accumulation — regional decomposition (1991–2003)
- Caribbean-6 group: Antigua and Barbuda, Belize, Dominica, Grenada, Jamaica, St. Kitts and Nevis (public debt-to-GDP > 90% at end-2003).
- Aggregate decomposition (1991–2003):
  - Total public debt accumulation averaged 8.5 percent of GDP per year in 1998–2003 (versus no growth during 1991–97 for the group).
  - Overall drivers (1991–2003): 4.5 percent of GDP accounted by deterioration of primary fiscal balances (excluding grants); 3.3 percent of GDP by the net effect of interest payments and output growth.
  - Price effect and grants together reduced the debt ratio by 3 percent of GDP.
  - Events and measurement error explain 3½ percent of GDP per year; positive measurement errors indicate fiscal accounts consistently understated accumulation of debt.
- Subperiod change (1991–97 vs 1998–2003):
  - Significant worsening of primary balance contribution to debt accumulation.
  - Rise in interest costs relative to GDP growth.
  - Increased measurement error, suggesting underestimation of fiscal deficits or realization of government-guaranteed debt.

### VII. Country-specific highlights (Caribbean-6)
- St. Kitts and Nevis:
  - End-2003 public debt-to-GDP ratio: 160 percent (highest).
  - Rapid rise: grew by 13.2 percent of GDP per year between 1997 and 2003 (fastest rise).
- Jamaica:
  - Only country with primary fiscal surpluses in both subperiods, averaging nearly 8½ percent of GDP per year during 1991–2003.
  - Rapid public debt accumulation 1997–2003 driven mostly by sharp increase in interest payments: interest payments rose by 8.8 percent per year between subperiods.
  - High interest costs reflect a major bail-out of domestic financial institutions in 1996–97 and earlier large depreciation effects in 1991.
- Antigua and Barbuda:
  - Partial debt restructuring and reduction; arrears incurred on most public sector debt.
- Sectoral losses:
  - St. Kitts and Nevis state-owned sugar industry losses: 3 to 4 percent of GDP per year in recent years.

### VIII. Revenues versus expenditures — proximate cause of fiscal deterioration
- 1998–2003: overall fiscal balance deteriorated in each Caribbean-6 case, mostly due to a rise in expenditures.
- Revenue patterns:
  - Revenues as share of GDP declined in Belize and Antigua and Barbuda in 1998–2003; in all other countries revenues rose or stayed the same.
- Expenditure patterns:
  - Total current expenditures increased in all cases except Grenada.
  - Capital expenditures rose in all countries except Jamaica.
  - Interest expenditures rose in all six countries.
  - Noninterest current expenditures rose in four countries (exceptions: Belize and Grenada).

### IX. Exogenous shocks versus policy slippage — roles in debt buildup
- Shocks considered: global interest rate changes, oil price hikes, global growth slowdowns (tourism exposure), terms-of-trade shocks (banana, sugar, cotton), natural disasters.
- Interest payments:
  - Interest payments rose in 1998–2003 despite declining global interest rates; main drivers were larger debt stocks and greater access to international markets.
- Oil prices and growth:
  - Negative relationship between oil prices and GDP growth in the wider Caribbean (correlation = -0.50); weaker for Caribbean-6 (correlation = -0.15).
- Tourism and external demand:
  - Strong co-movement between industrial countries’ GDP growth and Caribbean growth (correlation = 0.70 for the Caribbean; 0.55 for very highly indebted countries).
  - Tourism-dominated economies were affected by the September 11th shock in 2001–2002; Antigua and Barbuda, Belize, and St. Kitts and Nevis appear to have lost competitiveness in attracting tourists.
- Preferential trade dismantling:
  - Dominica (bananas), Belize and St. Kitts and Nevis (sugar) suffered permanent, anticipated shocks from dismantling of preferential trade agreements with significant fiscal losses.
- Natural disasters:
  - Frequency higher in the 1998–2003 period than in 1991–97 for most countries (except Jamaica); fiscal cost data limited.
- Net conclusion: Rapid fiscal expansion largely related to policy slippages, insufficient fiscal planning for anticipated adverse shocks (e.g., loss of preferences), and to some extent unanticipated shocks (e.g., September 11th). Given frequent natural disasters, countries should have saved in good times.

### X. Debt sustainability scenarios and required fiscal effort (Tables 9a, 9b)
- Table 9a — end-2003 status and parameters (selected entries):
  - St. Kitts and Nevis: Public debt 159.7 (percent of GDP); Primary balance 0.0 (percent of GDP); GDP growth 2.3 (percent per annum); Interest rate 3.2 (percent per annum).
  - Jamaica: Public debt 142.0; Primary balance 10.4; GDP growth 1.0; Interest rate 7.1.
  - Dominica: Public debt 122.0; Primary balance 0.2; GDP growth -0.5; Interest rate 4.1.
  - Antigua and Barbuda: Public debt 114.3; Primary balance -4.8; GDP growth 3.3; Interest rate 3.1.
  - Grenada: Public debt 108.5; Primary balance 0.4; GDP growth 3.9; Interest rate 3.5.
  - Belize: Public debt 93.2; Primary balance -7.9; GDP growth 7.2; Interest rate 3.6.
- Primary balance targets to reduce public debt-to-GDP to 60 percent in five years (percent of GDP):
  - Jamaica: 23.1
  - St. Kitts and Nevis: 21.0
  - Dominica: 16.9
  - Antigua and Barbuda: 10.7
  - Grenada: 9.4
  - Belize: 4.0
- Stabilizing debt at 2003 levels: several countries would still need to increase primary balances beyond current levels (notably St. Kitts and Nevis, Dominica, Antigua and Barbuda, Belize).
- Projected public debt by 2008 under current policies (percent of GDP, selected):
  - Antigua and Barbuda: 137.1
  - St. Kitts and Nevis: 166.8
  - Dominica: 151.5
  - Jamaica: 131.8
  - Belize: 115.4
  - Grenada: 104.6
- Note: Real interest rates computed using a common annual price increase of 1.4 percent.

### XI. Policy implications and recommendations
- Five key elements recommended to reduce public debt and support growth:
  - Fiscal consolidation.
  - Prudent debt management strategies.
  - Asset sales/privatization.
  - Reducing vulnerabilities to exogenous shocks.
  - Growth-enhancing structural reforms.
- Fiscal consolidation details:
  - Average fiscal deficit of nearly 6 percent of GDP at the end of 2003 cited as very high.
  - Main proximate causes: rise in expenditures and steadily rising interest payments.
  - Consolidation can raise growth by increasing credibility and attracting foreign investors.
- Debt management:
  - Active debt management can lengthen maturities and reduce servicing costs; several countries pursuing restructuring, maturity lengthening, and cost reduction.
  - Limits exist, especially if global interest rates rise.
- Asset sales/privatization:
  - Historical receipts rarely exceed 5 percent of GDP at any point; to maximize receipts require careful planning and transparent processes.
- Reducing exposure to exogenous shocks:
  - Strengthen disaster mitigation and management; save in good times for recurrent natural disasters; adjust proactively to anticipated shocks (e.g., loss of preferential agricultural access).
- Addressing domestic vulnerabilities and financial sector risks:
  - Domestic weaknesses include large holdings of government paper by public pension systems and domestic banks, poor-quality loan portfolios, and weak regulation/supervision.
  - Two lessons: address domestic vulnerabilities ex ante; build crisis-management capacity to respond if crises occur.
- Structural reforms to raise growth potential:
  - Increase labor market flexibility, promote regional economic cooperation, create an enabling environment for private sector (domestic firms), and reduce the role of the public sector including high government employment.

*Source: _wp0526 - References (IMF working paper).*

### References..............................................................................................................

### _wp0526 - References

### I. INTRODUCTION
- Paper examines macroeconomic performance of the Caribbean countries since the 1990s with special emphasis on public debt accumulation.
- Majority of Caribbean countries characterized by high public debt.
- Rapid buildup of public debt largely accounted for by deterioration in fiscal balances owing principally to a rise in expenditures rather than a fall in revenues.
- Rise in expenditures reflects both policy slippages and exogenous shocks.
- Main policy message: critical need for fiscal consolidation and a reinvigoration of growth to bring debt back to more sustainable levels.
- Human development and social indicators:
  - Life expectancy at birth: nearly 70 years.
  - Average poverty levels: nearly 30 percent of the population below the poverty line (based on national surveys).
  - Per capita incomes range from US$460 in Haiti to nearly US$16,700 in The Bahamas (Table 1).
  - Political indicators: “voice and accountability” nearly 70 on a scale of 0 to 100; “government effectiveness” 58 (out of 100).
- Inflation generally stabilized in the overwhelming majority of countries; credible efforts made where control was lost.
- Since the late 1990s, increased access to international capital markets and development of domestic financial markets facilitated government borrowing at home and abroad.
- Since the mid-1990s, average national public debt in the region virtually doubled; fiscal performance deteriorated sharply. With exceptions of Antigua and Barbuda, Guyana, and Jamaica, public debt was not a major economic problem until the mid-1990s.
- Paper outline:
  - Section II: overview of macroeconomic developments in 15 Caribbean countries.
  - Section III: focus on very highly indebted countries and factors contributing to public debt accumulation.
  - Section IV: documents revenue and expenditure developments in very highly indebted countries, explores sources of fiscal expansion, and implications for medium-term prospects.
  - Section V: conclusions and policy implications.

### II. MACROECONOMIC PERFORMANCE
- Regional growth and inflation:
  - Average Caribbean GDP growth: 2½ percent per annum during 1980–2003.
  - Caribbean growth marginally higher than Latin America; lower than average of “small island states” and much lower than emerging Asian countries (emerging Asia grew at nearly three times the pace observed in the Caribbean).
  - Per capita performance: Caribbean higher than average of small island states and Latin America, but lower than other regional groupings.
- Inflation and public debt trends (1990–2003 split into 1990–97 and 1998–2003):
  - Average public debt to GDP ratio in the region grew from 56 percent in 1997 to over 90 percent by 2003.
  - Annual average inflation declined from over 16 percent in 1990–97 to 6½ percent in 1998–2003.
  - Excluding the Dominican Republic, Haiti, and Suriname, average inflation in the second subperiod was 2½ percent.
- Fiscal accounts and interest costs:
  - Average overall fiscal balance declined in every country (apart from Haiti) during 1998–2003 compared to 1990–97 (Table 2).
  - Interest costs rose as public debt grew; primary fiscal balance worsened in the second subperiod for every country for which data are available (except Haiti).

### A. Does the Exchange Rate Regime Matter?
- Exchange rate regime distribution up to 2003:
  - Fixed regimes (currency boards or fixed peg): 11 of 15 countries — Antigua and Barbuda, The Bahamas, Barbados, Belize, Dominica, the Dominican Republic (floated only in early 2003), Grenada, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname.
  - Flexible regimes (managed or independent floating): Guyana, Haiti, Jamaica, Trinidad and Tobago.
  - Note: Suriname has multiple exchange rates.
- Inflation outcomes:
  - Inflation generally lower under fixed regimes than under floating regimes in both subperiods (Table 3).
  - Fixed regimes: annual inflation declined from nearly 14 percent in 1990–97 to 6 percent in 1998–2003.
  - Flexible regimes: inflation fell from 23 percent in 1990–97 to less than 8 percent in 1998–2003.
- Growth outcomes:
  - Countries with fixed exchange rate regimes grew faster in both subperiods.
  - Fixed regimes: GDP growth rose from 2.6 percent per annum in 1990–97 to 2.8 percent in 1998–2003.
  - Flexible regimes: GDP growth fell from 1.9 percent per annum to 1.6 percent per annum.
- Fiscal outcomes and public debt:
  - Contrary to expectations, average fiscal outcomes in countries with fixed regimes were worse than those with flexible regimes.
  - Average overall fiscal deficit in the 11 fixed-regime countries doubled from 3 percent of GDP in 1990–97 to 6 percent of GDP in 1998–2003.
  - In the four flexible-regime countries, average overall deficit was 2 percent and 5 percent of GDP for the same subperiods.
  - Public debt in fixed-regime countries rose from just over 50 percent of GDP in 1990–97 to nearly 90 percent in 1998–2003.
  - Floating-regime countries had higher average public debt levels in both subperiods, reflecting predominance of Jamaica-Guyana effects (already high average public debt-to-GDP ratio at over 120 percent remained virtually unchanged).
- Summary point:
  - Fixed regimes associated with lower inflation and marginally higher GDP growth but with higher fiscal imbalances and faster public debt buildup. Historical debt and fiscal imbalances under fixed regimes (notably in Guyana and Jamaica during the 1980s) contributed to abandoning pegs.

### B. Relative Performance Across Countries
- Macroeconomic performance index:
  - Constructed on multiple indicators (total public debt to GDP ratio in 2003; absolute change in public debt ratio 1990–97 to 1998–2003; overall fiscal balance in 2003; absolute change in overall fiscal balance 1990–97 to 1998–2003; CPI inflation in 2003; absolute change in CPI inflation 1990–97 to 1998–2003; real GDP growth in 2003; absolute change in real GDP growth 1990–97 to 1998–2003).
  - Countries ranked 1 to 15 in each category; scores aggregated and normalized to range from 1 to 100.
  - Low score can reflect negative exogenous shocks as well as policy performance (example: St. Kitts and Nevis likely affected by natural disasters).
- Rankings:
  - Best macroeconomic performance: Trinidad and Tobago and The Bahamas.
  - Lowest scores: St. Kitts and Nevis and Jamaica.
  - Dominican Republic ranks third best because of relatively good performance until the banking crisis in 2003.
  - Resource-rich countries among best performers: Trinidad and Tobago and Suriname (ranked fourth).
- Alternative ranking (dropping inflation, adding primary fiscal balance):
  - The Bahamas is best performer; St. Kitts and Nevis remains lowest.
  - Notable moves: Belize falls from middle to third lowest; St. Lucia improves from ninth to fourth.

### III. FISCAL PERFORMANCE AND DEBT ACCUMULATION
- Focus on two main concerns: rise in public debt and fiscal expansion.
- Primary fiscal balance emphasized because it corresponds more closely to government effort in generating surpluses; overall fiscal balance includes interest payments which depend on past debt accumulation.
- Caribbean among most indebted emerging market countries:
  - 14 Caribbean countries are in the top 30 most indebted countries; 7 are among the top 10 (Figure 4).
  - Note: Guyana and Haiti arguably should be excluded since they do not have access to private capital.
- Public debt-to-GDP categorization (2003, Table 4a):
  - Low debt: The Bahamas, Suriname, Dominican Republic.
  - Debt 50–90 percent of GDP: Barbados, St. Lucia, St. Vincent and the Grenadines, Trinidad and Tobago.
  - Debt beyond 90 percent: Antigua and Barbuda, Belize, Dominica, Grenada, Guyana, Jamaica, St. Kitts and Nevis.
- Primary fiscal balances (2003, Table 4a):
  - 9 of 15 countries have primary fiscal deficits.
  - Only Jamaica generated primary surpluses of more than 5 percent of GDP in 2003.
  - Four countries with positive but less than 5 percent primary surpluses: The Bahamas, Trinidad and Tobago, Dominica, Grenada.
  - Remaining nine countries registered primary deficits.
- Implication:
  - Primary deficits imply debt levels will rise unless reversed.
  - Large primary surpluses are required to reduce high debt stocks; required surplus magnitude increases with interest rates and debt stock size, reduced by real exchange rate appreciation and real GDP growth.
  - Example: Jamaica has generated primary surpluses in the range of 8–13 percent of GDP for many years, yet public debt continued to rise because of high interest costs and low growth.
- Table 4b (2001–2003 average) largely confirms Table 4a with similar patterns; exceptions noted for Suriname, Dominica, Dominican Republic:
  - Suriname: fiscal performance worsened in 2003.
  - Dominica: primary balance registered a sharp improvement in 2003 under a Fund-supported program.
  - Dominican Republic: public debt increased sharply following the banking crisis in 2003.

### A. What Accounts for the Rise in Public Debt in the Average Caribbean Country?
- Focus on six very highly indebted countries (Caribbean-6) with public debt-to-GDP ratios exceeding 90 percent at end-2003:
  - Antigua and Barbuda, Belize, Dominica, Grenada, Jamaica, St. Kitts and Nevis.
- A debt accounting exercise (Equation (2) in Annex II) is used to decompose sources of public debt buildup for the Caribbean-6.
- Analysis divided into two subperiods: 1991–97 and 1998–2003, marking timing when debt began to rise sharply.
- Empirical result preview:
  - During 1991–97, average public debt to GDP ratio in the Caribbean-6 did not grow.
  - During 1998–2003 it rose rapidly—by 8.5 percent of GDP per year (Table 5).

*Source: _wp0526 - References*

### 8.5 percent, more than half—4.5 percent of GDP is accounted by the deterioration of fiscal

### _wp0526 - 8.5 percent, more than half—4.5 percent of GDP is accounted by the deterioration of fiscal

### Drivers of public debt accumulation (regional summary)
- Overall drivers (1991–2003): 4.5 percent of GDP is accounted by the deterioration of fiscal primary balances (excluding grants) and 3.3 percent of GDP by the net effect of interest payments and output growth.
- Price effect and grants: price effect (inflation and real exchange rate appreciation) and grants together reduced the debt ratio by 3 percent of GDP.
- Events and measurement error: "Events" (e.g., assumption of government-guaranteed private-sector debt) and measurement error explain 3½ percent of GDP per year; positive measurement errors indicate fiscal accounts consistently understated accumulation of debt.
- Subperiod changes (1991–97 vs 1998–2003):
  - Significant worsening of the primary balance and its relative contribution to debt accumulation.
  - Rise in interest costs relative to GDP growth.
  - Increased measurement error, suggesting underestimation of fiscal deficits or realization of government-guaranteed debt.

### Country-specific findings (Caribbean-6 highlights)
- End-2003 public debt ratios and dynamics:
  - St. Kitts and Nevis: highest public debt-to-GDP ratio at 160 percent at end-2003.
  - Grenada: fastest rise between 1997 and 2003, growing by 13.2 percent of GDP per year.
- Jamaica:
  - Only country with primary fiscal surpluses in both subperiods, averaging nearly 8½ percent of GDP per year during 1991–2003.
  - Rapid public debt accumulation between 1997 and 2003 driven mostly by sharp increase in interest payments: interest payments rose by 8.8 percent per year between the two subperiods, nearly equaling the rise in debt-to-GDP ratio per year.
  - The rise in interest payments occurred despite falling global interest rates, reflecting country-specific factors (including a major bail-out of domestic financial institutions in 1996–97 and earlier large depreciation effects in 1991).
- Other countries:
  - Virtually all other countries registered primary fiscal deficits in both subperiods.
  - In all countries except Antigua and Barbuda, interest payments increased and contributed positively to debt accumulation.
  - Antigua and Barbuda: partial debt restructuring and reduction; arrears incurred on most public sector debt.
- Sectoral/production losses:
  - St. Kitts and Nevis state-owned sugar industry losses: 3 to 4 percent of GDP per year in recent years.

### Did fiscal deterioration stem from revenues or expenditures?
- 1998–2003 subperiod: overall fiscal balance deteriorated in each Caribbean-6 case, mostly due to a rise in expenditures.
- Revenue patterns:
  - Revenues as a share of GDP declined in Belize and Antigua and Barbuda in the second subperiod.
  - In all other countries, revenues rose or stayed the same.
- Expenditure patterns:
  - Total current expenditures increased in all cases except Grenada.
  - Capital expenditures rose in all countries except Jamaica.
  - Within current expenditures, interest expenditures rose in all six countries.
  - Noninterest current expenditures rose in four countries (exceptions: Belize and Grenada).

### Role of exogenous shocks versus policy slippage
- Types of shocks considered: global interest rate changes, oil price hikes, global growth slowdowns (tourism exposure), terms-of-trade shocks (banana, sugar, cotton), natural disasters.
- Interest payments:
  - Interest payments rose in 1998–2003 even though global interest rates declined; primary driver was larger stock of debt and greater access to international markets rather than higher global rates.
- Oil prices:
  - Negative relationship between oil prices and GDP growth in the wider Caribbean, weaker relationship for Caribbean-6 because oil price increases were not fully passed through to domestic prices in these highly indebted countries.
- Tourism and external demand:
  - Strong co-movement between industrial countries’ GDP growth and Caribbean growth; tourism-dominated economies suffered from the September 11th shock in 2001–2002.
  - Antigua and Barbuda, Belize, and St. Kitts and Nevis appear to have lost competitiveness in attracting tourists.
- Preferential trade dismantling:
  - Dominica (bananas), Belize and St. Kitts and Nevis (sugar) were affected by dismantling of preferential trade agreements; these are permanent, anticipated shocks that generated significant fiscal losses.
- Natural disasters:
  - Frequency higher in the second half of the 1990s than the first half (except Jamaica); insufficient information on severity and fiscal costs.
- Net conclusion on causes:
  - Rapid fiscal expansion largely related to policy slippages, insufficient fiscal planning for anticipated adverse shocks (e.g., loss of preferences), and to some extent unanticipated shocks (e.g., September 11th). Given frequent natural disasters, countries should have saved in good times to cover disaster-related expenditures.

### Debt sustainability scenarios and required fiscal effort
- Assessment questions in Table 9:
  - (i) primary fiscal surplus needed to reduce public debt-to-GDP ratio to 60 percent in five years;
  - (ii) primary surplus needed to stabilize debt at current levels;
  - (iii) projected debt level by 2008 under current policies (with GDP growth and interest rates assumed at historical five-year averages per Table 9a).
- Primary surplus needed to reach 60 percent of GDP in five years (Table 9b):
  - Jamaica: 23 percent of GDP in each of the next five years.
  - St. Kitts and Nevis: 21 percent of GDP.
  - Dominica: 17 percent of GDP.
  - Antigua and Barbuda: 11 percent of GDP.
  - Grenada: 9½ percent of GDP.
  - Belize: 4 percent of GDP.
- Stabilizing debt at current levels:
  - Four countries would still need to increase primary fiscal balances beyond current levels: St. Kitts and Nevis, Dominica, Antigua and Barbuda, and Belize.
- If current policies continue:
  - Debt would remain in the triple-digit range and rise significantly in four of the six countries by 2008, endangering macroeconomic stability.

### Policy implications and recommendations
- Five key elements for reducing public debt and supporting growth:
  - Fiscal consolidation.
  - Prudent debt management strategies.
  - Asset sales/privatization.
  - Reducing vulnerabilities to exogenous shocks.
  - Growth-enhancing structural reforms.
- Fiscal consolidation:
  - Average fiscal deficit of nearly 6 percent of GDP at the end of 2003 is very high.
  - Main proximate causes: rise in expenditures (not fall in revenues) and steadily rising interest payments.
  - Fiscal consolidation can raise growth by increasing credibility and attracting foreign investors.
- Debt management:
  - Active debt management can lengthen maturities and reduce servicing costs; several countries are pursuing restructuring, maturity lengthening, and cost reduction.
  - Limits exist to active debt management, especially if global interest rates rise.
- Asset sales/privatization:
  - Historical experience: privatization receipts rarely exceed 5 percent of GDP at any point.
  - To maximize receipts: careful planning, avoid distress sales, ensure transparent processes.
- Reducing exposure to exogenous shocks:
  - Strengthen disaster mitigation and management capacities.
  - Adjust to anticipated shocks (e.g., dismantling of preferential agricultural access) and save in good times for recurrent natural disasters.
- Addressing domestic vulnerabilities:
  - Weak financial systems, large fiscal deficits, high public debt, and fixed exchange rate regimes are compounding vulnerabilities.
  - Financial sector weaknesses: large holdings of government paper by public pension systems and domestic banks, poor-quality loan portfolios, and weak regulation/supervision.
  - Two key lessons from past crises: (1) address domestic vulnerabilities ex ante to prevent crises; (2) build financial crisis-management capacity to respond effectively if crises occur.
- Structural reforms to raise growth potential:
  - Increase labor market flexibility.
  - Achieve greater regional economic cooperation.
  - Create an enabling environment for the private sector, especially domestic private firms.
  - Reduce the role of the public sector, including high levels of government employment.

*Source: _wp0526 - 8.5 percent, more than half—4.5 percent of GDP is accounted by the deterioration of fiscal (IMF working paper).*

### REFERENCES

### _wp0526 - REFERENCES

### References
- Baqir, R., R. Ramcharan, and R. Sahay, 2004, “IMF Program Design and Growth: Is Optimism Deliberate? Is it Defensible?” (unpublished; Washington: International Monetary Fund).
- Ghosh, A. R., A. Gulde, J. D. Ostry, and H. Wolf, 1996, “Exchange Rate Regimes: Choices and Consequences” Cambridge, Massachusetts: MIT Press, 2003.
- Gupta, S., B. J. Clements, E. Baldacci, and C. Mulas-Granados, 2002, “Expenditure Composition, Fiscal Adjustment, and Growth in Low-Income Countries,” IMF Working Paper No. 02/77 (Washington: International Monetary Fund).
- Helbling, T. F., A. Mody, and R. Sahay, 2004, “The Low-Income Countries of the Commonwealth of Independent States: Progress and Challenges in Transition,” IMF Working Paper No. 04/93 (Washington: International Monetary Fund).
- International Monetary Fund, 2004, “Eastern Caribbean Currency Union: 2004 Regional Surveillance—Staff Report,” IMF Country Report No. 04/299 (Washington).
- Reinhart, C. M., K. S. Rogoff, and M. A. Savastano, 2003, “Debt Intolerance,” NBER Working Paper No. 9908 (Cambridge, Massachusetts: National Bureau of Economic Research).
- Sachs, J. D., and A. M. Warner, 1995, “Natural Resource Abundance and Economic Growth,” NBER Working Paper No. 5398 (Cambridge, Massachusetts: National Bureau of Economic Research).
- Tornell, A., and A. Velasco, 2000, “Fixed or Flexible Exchange Rates: Which Provides More Fiscal Discipline?” Journal of Monetary Economics, Vol. 45, pp. 399–436.

### Socio-economic indicators (Table 1: Fifteen Caribbean Countries: Selected Socio-economic Indicators)
- Caribbean simple averages:
  - Population: 1,561 (in thousands)
  - Nominal GDP Per Capita: $5,366 (in US dollars)
  - Distance from United States: 1,203 (in miles)
  - Poverty: 28 (percent of population below poverty line)
  - Income inequality (GINI coefficient): 38
  - Human Development Index ranking: 74 (out of 175 countries)
  - Illiteracy (percent of population age 15 years and over): 10 (percent)
  - Life expectancy at birth (years, average): 69
  - Voice and accountability (percentile ranking, 2002): 68
  - Government effectiveness (percentile ranking, 2002): 58
- Selected country examples (most recent year survey or 2003 unless noted):
  - Haiti: Population 8,132 (in thousands), Nominal GDP Per Capita $460, Distance 713 miles, Poverty 66 percent, HDI rank 150, Illiteracy 49 percent, Life expectancy 15 years, Voice/accountability 2, Government effectiveness 0–2 range noted in table.
  - Bahamas, The: Population 314, Nominal GDP Per Capita $16,691, Distance 112 miles, Poverty 49 percent, GINI 5, Illiteracy 5 percent, Life expectancy 67 years, Voice/accountability 87, Government effectiveness 88.
  - Trinidad and Tobago: Population 1,303, Nominal GDP Per Capita $7,836, Distance 1,622 miles, Poverty 21 percent, GINI 40, Illiteracy 54 percent, Life expectancy 71 years, Voice/accountability 66, Government effectiveness 68.

Notes from table:
- Population for Haiti is that of 2001.
- Distance measured from Miami, Florida, U.S.A.
- Larger GINI indicates greater income inequality.
- Larger HDI ranking value indicates lower development ranking.
- Voice and accountability and Government effectiveness are percentile rankings (scale: 0 - 100). Sources include American Airline website, UNDP Human Development Report 2003, OECS Human Development Report 2002, World Bank Development Indicators, ECLAC Social Panorama 2002–2003, Kaufman, Kraay, Mastruzzi (2003), and country authorities.

### Macroeconomic indicators and exchange regimes (Table 2; Table 3)
- Exchange rate regimes (selected):
  - Currency board: Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines.
  - Fixed peg: Bahamas, The; Barbados; Belize; Suriname.
  - Managed floating / Independently floating: Guyana (managed floating), Haiti (managed floating), Jamaica (managed floating), Dominican Republic (independently floating).
- Caribbean averages (1990–97 vs 1998–03):
  - CPI inflation:
    - Fixed Exchange Rate Regime: 1990–97 = 13.8; 1998–03 = 6.0; Change = -7.8
    - Flexible Exchange Rate Regime: 1990–97 = 23.1; 1998–03 = 7.7; Change = -15.3
  - Annual GDP Growth:
    - Fixed: 1990–97 = 2.6; 1998–03 = 2.8; Change = 0.2
    - Flexible: 1990–97 = 1.9; 1998–03 = 1.6; Change = -0.4
  - Overall Fiscal Balance (percent of GDP):
    - Fixed: 1990–97 = -2.9; 1998–03 = -6.1; Change = -3.2
    - Flexible: 1990–97 = -1.9; 1998–03 = -5.1; Change = -3.2
  - Public Debt (percent of GDP):
    - Fixed: 1990–97 = 51.9; 1998–03 = 87.9; Change = 36.0
    - Flexible: 1990–97 = 122.0; 1998–03 = 125.0; Change = 3.0
- Caribbean (overall) averages reported:
  - Exchange regime counts: 1997 = 56; 2003 = 92 (column implies number of months or observations).
  - GDP growth (1990–97 vs 1998–03): -2.6 vs -5.9 in some columns — note table presents country-level series and different indicators (see table for full breakdown).
- Footnotes:
  - Overall fiscal balance = government revenues and grants minus government expenditures.
  - Primary fiscal balance = overall fiscal balance plus interest payments.
  - Dominican Republic has a fixed peg until early 2003; Guyana until 1989; Haiti until 1991; Jamaica until 1990; Trinidad and Tobago until 1993.
  - Figures for the Caribbean are simple averages.

### Debt levels, classification and public debt snapshots (Tables 4a, 4b, 5, 6, 7)
- Classification by debt and primary fiscal balance (end-2003 and 2001–2003 averages):
  - Debt categories: Low to Medium Debt (0 to 50% of GDP), High Debt (50 to 90%), Very High Debt (Higher than 90%).
  - Primary fiscal balance bands: Higher than 5%, 0 to 5%, Less than 0%.
  - Specific country placements (highlights):
    - Jamaica is often in the Very High Debt category with large primary fiscal deficits historically.
    - Antigua and Barbuda, Belize, Guyana, St. Kitts and Nevis appear in Very High Debt when primary balances are less than 0% in the period averages.
- Total public debt accumulation for "Very Highly Indebted Caribbean Countries" (Table 5; country group defined as having public debt-to-GDP ratio averaging greater than 90%):
  - Group aggregate: Total Public Debt-to-GDP rose from 72.7 in 1990 to 123.3 in 2003 (series shows year-by-year).
  - Notable annual changes (selected years, contribution to debt accumulation in percent of GDP excluding grants):
    - 1991: Debt-to-GDP 81.7; Public Debt Accumulation 9.0; Primary fiscal balance (excl. grants) 1.4; Interest-output difference effect -3.5; Price effect 15.8; Events and measurement errors -2.7.
    - 2002: Debt-to-GDP 121.5; Public Debt Accumulation 19.1; Primary fiscal balance 7.4; Interest-output difference effect -2.0; Price effect 4.4; Events and measurement errors 9.1.
    - 2003: Debt-to-GDP 123.3; Public Debt Accumulation 1.8; Primary fiscal balance 2.3; Interest-output difference effect -2.1; Price effect 4.1; Events and measurement errors 0.5.
  - Period aggregates:
    - 1991–97 (selected line): Contribution components include primary fiscal balance 0.7; interest-output difference -1.6; price effect 1.5; events 1.0.
    - 1998–2003: Public Debt Accumulation 8.5; Primary fiscal balance 4.5; interest-output difference -1.8; price effect 3.3; events 3.7.
- Table 6 presents country-specific contributions (antigua, belize, dominica, grenada, jamaica, st. kitts and nevis) to debt-to-GDP changes comparing 1991–97 vs 1998–03. Selected examples (percent of GDP):
  - Jamaica: Total Public Debt-to-GDP 1991–97 = 103.0; 1998–03 = 142.0; Change = 39.0. Components 1998–03 include primary fiscal balance -8.3 (includes grants 0.0), interest-output difference 11.8, price effect -0.5, events 4.8.
  - St. Kitts and Nevis: Total Public Debt-to-GDP 1991–97 = 85.6; 1998–03 = 159.7; Change = 74.1. Components 1998–03 include public debt accumulation 12.3; primary fiscal balance 6.9; interest-output difference 5.9; price effect -3.2; events 7.0.
- Table 7 (Central Government Revenues and Expenditure changes for Very Highly Indebted Countries):
  - Antigua and Barbuda:
    - 1991–97 central government overall fiscal balance: -5.3; revenues 21.3; non-interest current expenditures 18.7; interest expenditures 3.4; capital expenditures 2.9; current expenditures 22.1.
    - 1998–2003 overall fiscal balance: -7.9; revenues 20.6; non-interest current expenditures 21.5; interest expenditures 4.1; capital expenditures 3.4; current expenditures 25.6.
  - Jamaica:
    - 1991–97 overall fiscal balance -0.1; revenues 25.7; non-interest current expenditures 12.6; interest expenditures 8.4; capital expenditures 4.5; current expenditures 21.1.
    - 1998–2003 overall fiscal balance -8.5; revenues 28.2; non-interest current expenditures 16.9; interest expenditures 13.7; capital expenditures 2.4; current expenditures 30.6.
  - St. Kitts and Nevis:
    - 1991–97 overall fiscal balance -2.2; revenues 27.9; non-interest current expenditures 23.1; interest expenditures 2.7; capital expenditures 4.3; current expenditures 25.7.
    - 1998–2003 overall fiscal balance -11.2; revenues 31.4; non-interest current expenditures 27.4; interest expenditures 5.3; capital expenditures 10.0; current expenditures 32.7.

### Exogenous shocks, global environment and policy outcomes (Table 8)
- Global shocks and macro context (selected country rows, values reflect 1991–97 vs 1998–2003 and changes):
  - Common global changes across very highly indebted countries (1991–97 vs 1998–2003):
    - LIBOR: 1991–97 = 5.1; 1998–2003 = 4.1; Change = -1.0
    - Oil prices (in percent per annum): 1991–97 = 18.3; 1998–2003 = 22.9; Change = 4.6
    - World GDP growth (per annum): 1991–97 = 3.1; 1998–2003 = 3.4; Change = 0.3
  - Country examples:
    - Belize (sugar-dependent): Number of natural disaster events 1991–97 = 1; 1998–2003 = 4; Change = 3. Central government non-interest expenditures changed from 17.2 to 16.3; central government interest expenditures from 1.6 to 2.9.
    - Jamaica (no commodity preference shock): Natural disasters count 1991–97 = 4; 1998–2003 = 5; Change = 1. Central government non-interest expenditures increased from 12.6 to 16.9; central government interest expenditures from 8.4 to 13.7.

### Public debt sustainability and policy metrics (Tables 9a, 9b)
- Table 9a — Current situation at end-2003 and assumptions (Very Highly Indebted Caribbean Countries):
  - St. Kitts and Nevis: Public debt 159.7 (percent of GDP); Primary balance 0.0 (percent of GDP); GDP growth 2.3 (percent per annum); Interest rate 3.2 (percent per annum).
  - Jamaica: Public debt 142.0; Primary balance 10.4; GDP growth 1.0; Interest rate 7.1.
  - Dominica: Public debt 122.0; Primary balance 0.2; GDP growth -0.5; Interest rate 4.1.
  - Antigua and Barbuda: Public debt 114.3; Primary balance -4.8; GDP growth 3.3; Interest rate 3.1.
  - Grenada: Public debt 108.5; Primary balance 0.4; GDP growth 3.9; Interest rate 3.5.
  - Belize: Public debt 93.2; Primary balance -7.9; GDP growth 7.2; Interest rate 3.6.
- Table 9b — Primary balance targets and projected public debt by 2008 under current policies:
  - Primary Balance Needed to Reduce the Public Debt-to-GDP Ratio to 60 Percent of GDP in 5 Years (percent of GDP):
    - Jamaica (23.1)
    - St. Kitts and Nevis (21.0)
    - Dominica (16.9)
    - Antigua and Barbuda (10.7)
    - Grenada (9.4)
    - Belize (4.0)
  - Primary Balance Needed to Stabilize the Public Debt-to-GDP Ratio at the 2003 Level (percent of GDP):
    - Dominica (5.6)
    - St. Kitts and Nevis (1.4)
    - Jamaica (131.8) — note value appears as public debt by 2008 at current policies in percent of GDP in the table context; cross-check full table for exact mapping.
  - Public Debt by 2008 at Current Policies (percent of GDP):
    - Antigua and Barbuda (137.1)
    - St. Kitts and Nevis (166.8)
    - Dominica (151.5)
    - Jamaica (131.8)
    - Belize (115.4)
    - Grenada (104.6)
    - (Some entries show negative projected changes: Grenada (-0.4); Belize (-3.1); Antigua and Barbuda (-0.2) — refer to table layout for whether these are changes or net numbers.)

Notes:
- Real interest rates computed using a common annual price increase of 1.4 percent (price increase refers to prices in U.S. dollars and is the average observed for the group during 1990–2003).

### Correlations, growth patterns, and key graphical findings (Figures 1–13)
- Regional growth comparisons:
  - Figure 1 (Real GDP Growth, Average annual growth rate, 1980–2003): Regions shown include Emerging Asia, Developing Countries, ECCU, Small Island States, The Caribbean, Latin America and The Caribbean. (Exact plotted values are in figure.)
- Relative rankings (Figures 2–4):
  - Figure 2: Relative Ranking on Macroeconomic Performance (average performance 1998–2003 vs 1990–97) normalizes scores 1 to 100 across 15 countries.
  - Figure 3: Relative Ranking on Fiscal and Debt Performance (average 1998–2003 vs 1990–1997); Haiti excluded due to missing data.
  - Figure 4: Ranking among top 30 most indebted emerging market countries (Public Sector Debt-to-GDP Ratio, End-2002) — shows Caribbean countries such as Guyana, St. Kitts and Nevis, Jamaica, Antigua and Barbuda, Dominica, Grenada, Belize, Trinidad and Tobago, Barbados, Suriname, Bahamas, The, Haiti among others with their relative positions (values presented on plotted axis).
- Central government revenues and expenditures and composition (Figures 5–7):
  - Figure 5: Central government revenues and expenditures (in percent of GDP) for very highly indebted Caribbean countries across 1990–2002 — shows time series plots for Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, Belize, Jamaica with revenues and grants vs expenditures.
  - Figure 6: Current expenditures composition — Noninterest current expenditures (left axis) and Interest expenditures (right axis) (1990–2002) for the same country set.
  - Figure 7: Composition of central government expenditures — Current vs Capital expenditures (in percent of GDP) (1990–2002) for same countries.
- Global environment correlations (Figures 8–10):
  - Figure 8a: Caribbean Region GDP growth and World Interest Rate (6-month LIBOR) 1980–2003; reported correlation = 0.002.
  - Figure 8b: Very Highly Indebted Caribbean Countries — correlation(world interest rate, growth) = 0.34; correlation(world interest rate, interest expenditure) = -0.63.
  - Figure 9a: Caribbean GDP Growth and Oil Price (1980–2003) — correlation = -0.50.
  - Figure 9b: Very Highly Indebted Countries: correlation(oil, growth) = -0.15; correlation(oil, non-interest expenditures) = 0.23.
  - Figure 10: Caribbean and Industrial Countries GDP growth (1980–2003) — correlation (industrial, the Caribbean) = 0.70; correlation (industrial, very highly indebted Caribbean countries) = 0.55.
- Tourism and commodity price trends (Figures 11–12):
  - Figure 11: Stay-over Arrivals (in thousands, 1990=100) for very highly indebted Caribbean countries, 1990–2002 — time series for Antigua and Barbuda, Belize, Dominica, Grenada, Jamaica, St. Kitts and Nevis.
  - Figure 12: Real Sugar and Banana Prices (January 1990–February 2004) — USA and European real sugar prices (U.S. cents per pound) and World banana price (U.S. dollars per metric tonne); dashed lines show long-run trends.
- Natural disasters and growth (Figure 13):
  - Figure 13: Very Highly Indebted Caribbean Countries — Real GDP Growth and Natural Disasters (1990–2002) plotted for Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, Belize, Jamaica. Natural disaster lists by country provided in figure notes (e.g., Antigua and Barbuda: Hurricane Gustav (1990), Hurricane Luis (1995), Hurricane Georges (1998), Hurricane Jose (1999), Hurricane Lenny (1999); Belize: Cold Wave (1990), Flood (1990), Flood (1995), Hurricane Mitch (1998), Hurricane Keith (2000), Hurricane Iris (2001), Hurricane Chantal (2001); Jamaica: listed series including Floods, Hurricanes, Droughts across period).

Sources: As listed in the document tables and figure notes — IMF staff estimates, country authorities, IMF, World Economic Outlook, EM-DAT, UNDP Human Development Report 2003, OECS Human Development Report 2002, World Bank Governance indicators (Kaufman, Kraay, Mastruzzi, 2003), International Monetary Fund Commodity Price System, national tourism and statistical offices.

*Document: _wp0526 - REFERENCES (IMF PDF content unit).*

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