IMF Executive Board Concludes 2021 Discussion on Common Policies of member Countries of the Eastern Caribbean Currency Union
IMF News, May 4, 2021
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- Published: May 4, 2021
Executive summary and context
- On April 26, 2021, the IMF Executive Board concluded the 2021 discussion on the common policies of the Eastern Caribbean Currency Union (ECCU) in the context of Article IV consultations with member countries.
- The fallout from the COVID-19 crisis is hitting ECCU economies hard: tourism receipts (accounting for nearly 40 percent of GDP) have dried up as tourist arrivals halted; reopening since the summer led to a surge in COVID cases.
- The ECCU economy is projected to contract by 16 percent in 2020 and by a further near ½ percent in 2021.
- Fiscal positions have deteriorated sharply; public debt is projected to reach 90 percent of GDP in 2021 and remain elevated for years.
- Headline indicators suggest the financial system is relatively sound with ample liquidity buffers, but nonperforming loans are expected to rise significantly.
- Outlook is clouded by exceptionally high risks, including uncertainty on the evolution of the pandemic.
Executive Board Assessment — key judgments
- Directors commended authorities for swift policy responses mitigating the pandemic’s socio-economic toll.
- Emergency financing from the Fund and other IFIs helped some economies cope with the pandemic fallout.
- Near-term policy priority: protect lives and livelihoods, including continued support to the vulnerable and efforts to maximize COVID-19 vaccination.
- Careful balancing and continued engagement with international institutions, including the Fund, is important to ensure sustainable inclusive growth while safeguarding macro-fiscal sustainability.
- Directors noted the postponement of the regional debt target date by five years and emphasized enhancing regional and national fiscal frameworks so the target remains an important fiscal anchor.
- They welcomed progress by several countries on adopting rules-based fiscal frameworks and called for further strengthening of fiscal policies and institutions at regional and national levels to safeguard credibility of the revised debt anchor.
- Financial sector: measures by regional and national authorities helped soften immediate financial stability impacts. Near-term supervisory flexibility should be balanced with measures to support financial institutions’ capacity to weather the crisis:
- Limit moratoria extensions within the time frame announced by the ECCB.
- Ensure loan restructurings follow realistically achievable repayment terms.
- Encourage capital conservation until the full impact of the pandemic is clear.
- Directors encouraged authorities to formalize crisis management plans at regional and national levels, identifying coordination, enforcement, and legal requirements.
- To preserve the financial system’s longer-term ability to provide credit, Directors encouraged development of credible and sustainably funded strategies to reduce non-performing loans.
- Maintain broader financial sector reform momentum while ensuring implementation timelines do not unduly burden supervised institutions post-pandemic.
- Address gaps in supervision of non-banks, improve AML/CFT framework, and further mitigate CBR risk.
- Directors supported ECCB’s practice to keep the backing ratio at a robust level to safeguard the quasi-currency board arrangement; heightened external risks call for enhanced monitoring of foreign exchange movements and preparation of policy responses to downside risks.
- Encouraged continued structural reforms to increase competitiveness and resilience, including digital transformation and building resilience to climate-related shocks.
- Directors agreed their views will form part of Article IV consultation discussions with individual ECCU members.
Selected economic and financial indicators (2017–21)
- Output and prices (annual percentage change)
- Real GDP: 2017: 1.2; 2018: 3.8; 2019: 2.6; 2020: -16.0; 2021 (Proj.): -0.2
- GDP deflator: 2017: 1.4; 2018: 0.7; 2019: 1.7; 2020: -0.6
- Consumer prices, average: 2017: 1.1; 2018: 1.6
- Monetary sector
- Net foreign assets: 2017: 14.6; 2018: 5.8; 2019: 5.1; 2020: …; 2021: …
- Central bank: 2017: 3.3; 2018: -1.1; 2019: -2.8
- Commercial banks (net): 2017: 34.1; 2018: 15.1; 2019: 14.1
- Net domestic assets: 2017: -6.0; 2018: 0.5
- Of which: private sector credit: 2017: -0.1; 2018: 0.0
- Broad money (M2): 2017: 3.4; 2018: 2.9
- Note: Data for 2020 and 2021 are not reported for monetary sector growth due to methodological changes.
- Public finances (percent of GDP; unless otherwise specified)
- Central government total revenue and grants: 2017: 26.8; 2018: 27.8; 2019: 27.0; 2020: 26.7; 2021 (Proj.): 27.2
- Total expenditure and net lending: 2017: 27.7; 2018: 29.5; 2019: 29.0; 2020: 32.0; 2021 (Proj.): 32.2
- Overall balance: 2017: -0.9; 2018: -1.7; 2019: -2.0; 2020: -5.3; 2021 (Proj.): -5.0
- Excl. Citizenship by Investment Programs: 2017: -3.6; 2018: -4.0; 2019: -6.6; 2020: -5.8
- Primary balance (2017–2019 shown): 2017: 0.6; 2018: 0.4; 2019: -2.4
- Total public sector debt: 2017: 72.1; 2018: 69.6; 2019: 67.1; 2020: 83.9; 2021 (Proj.): 88.8
- External sector
- Current account balance: 2017: -7.5; 2018: -11.9; 2019: -6.5; 2020: -15.3; 2021 (Proj.): -21.6
- Trade balance: 2017: -29.7; 2018: -34.3; 2019: -32.3; 2020: -25.0; 2021 (Proj.): -24.9
- Exports, f.o.b. (annual percentage change): 2017: -5.7; 2018: -14.6; 2019: 2.5; 2020: -24.3; 2021 (Proj.): 12.2
- Imports, f.o.b. (annual percentage change): 2017: 3.2; 2018: 17.4; 2019: -1.4; 2020: -34.6; 2021 (Proj.): …
- Services, incomes and transfers: 2017: 22.3; 2018: 22.4; 2019: 25.8; 2020: 9.7; 2021 (Proj.): …
- Of which: travel: 2017: 37.4; 2018: 36.9; 2019: 39.7; 2020: 15.4; 2021 (Proj.): 8.4
- External public debt: 2017: 37.0; 2018: 35.9; 2019: 34.5; 2020: 45.5; 2021 (Proj.): 51.0
- External debt service (percent of goods and nonfactor services): 2017: 9.4; 2018: 9.9; 2019: 28.1; 2020: 28.7
- International reserves
- In millions of U.S. dollars: 2017: 1,750; 2018: 1,747; 2019: 1,698; 2020: 1,717
- In months of current year imports of goods and services: 2017: 5.3; 2018: 4.7; 2019: 4.5; 2020: 7.5; 2021 (Proj.): 7.6
- In percent of broad money: 2017: 26.5; 2018: 28.6
- REER (average annual percentage change) trade-weighted: 2017: -1.9
Policy recommendations and near-term priorities (summarized)
- Protect lives and livelihoods; continue support to vulnerable populations and maximize COVID-19 vaccination.
- Maintain careful policy balancing to support inclusive growth while safeguarding macro-fiscal sustainability.
- Complement the postponed regional debt target date with stronger regional and national fiscal frameworks and rules-based fiscal frameworks to preserve credibility of the debt anchor.
- Use targeted supervisory flexibility while:
- Limiting moratoria extensions within the ECCB-announced time frame.
- Ensuring loan restructurings are realistic.
- Encouraging capital conservation.
- Formalize crisis management plans at regional and national levels with clear coordination, enforcement, and legal frameworks.
- Develop credible, sustainably funded strategies to reduce non-performing loans.
- Continue financial sector reforms, address supervision gaps for non-banks, improve AML/CFT frameworks, and mitigate CBR risk.
- Keep ECCB backing ratio robust; enhance monitoring of foreign exchange movements and prepare policy responses to downside external risks.
- Pursue structural reforms including digital transformation and climate resilience measures.
Source: IMF Press Release, May 4, 2021.
