IMF Executive Board Concludes 2022 Article IV Consultation on Common Policies of Member Countries of the Eastern Caribbean Currency Union
IMF News, July 29, 2022
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- Published: July 29, 2022
Overview
- Executive Board concluded the 2022 Article IV consultation on common policies of member countries of the Eastern Caribbean Currency Union (ECCU) on July 27, 2022.
- ECCU economies are "slowly emerging from the pandemic with scars"; the war in Ukraine is a setback to the nascent recovery.
- Higher food and energy prices, supply disruptions, and intra-regional transportation bottlenecks are raising inflation, eroding income, lowering output growth, worsening fiscal and external positions, and threatening food and energy security.
Economic outlook and risks
- Inflation is expected to "hover over 5½ percent in 2022."
- Real GDP is projected to grow by "7½ percent in 2022," leaving output still well below the pre-pandemic level.
- Fiscal deficits are projected to remain sizable given continued pandemic- and disaster-related spending and temporary support to address rising living costs, keeping gross financing needs and public debt at elevated levels in the near term.
- The financial system has remained broadly stable so far, with adequate capital and liquidity buffers, but nonperforming loans remain high and could rise further following the expiration of the ECCB’s loan moratoria program.
- The outlook is subject to large downside risks, primarily from further increases in commodity prices and new COVID variants amid vaccine hesitancy, in addition to the ever-present threat of natural disasters.
Executive Board assessment and policy recommendations
- Directors welcomed ECCU and national authorities’ pandemic response that contributed to a nascent recovery in 2021.
- Directors noted the recovery will be gradual and uneven and that downside risks remain significant.
- Fiscal policy
- Stress the importance of maintaining fiscal prudence while protecting the vulnerable, given lingering pandemic effects, heightening inflation pressures, and tightening global financial conditions.
- Support temporary targeted transfers and call for efforts to improve the coverage and targeting of social safety nets.
- See merit in allowing a gradual pass-through of international energy and food prices to the domestic economy and phasing out generalized subsidies.
- Underscore the importance of medium-term fiscal consolidation, supported by revenue mobilization, expenditure rationalization, fiscal structural reforms, and reliance on concessional financing.
- Emphasize accelerating adoption of well-designed rule-based fiscal frameworks to support consolidation efforts and preserve the credibility of the regional debt target; internalize the impact of natural disasters in these frameworks.
- Financial sector and regulation
- Note the financial sector remains broadly stable but stress close monitoring of asset quality and provisioning buffers given elevated nonperforming loans following exit from loan moratoria.
- Recommend accelerating reforms to address long-standing lending and credit constraints to support private sector credit growth.
- Suggest mitigating risks to correspondent banking relationships by strengthening financial integrity, AML/CFT, governance, and offshore taxation frameworks.
- Call for reducing fragmentation in the non-bank supervision framework and expediting legislation to govern digitalized financial services.
- Welcome ECCB steps to integrate climate risks in supervisory and regulatory frameworks and recommend integrating climate risks in crisis management plans.
- Urge ECCB to raise public awareness and improve communication with end-users, reinforce capacity, and fully implement safeguard measures related to DCash.
- Structural and resilience policies
- Encourage further progress on structural policies to build climate resilience, strengthen competitiveness, and ensure food and energy security.
- Highlight importance of investing in resilient infrastructure and insurance for natural disasters and accelerating the shift to renewables.
- Recommend upgrading intra-regional transportation infrastructure, enhancing regional integration, and investing in skills development.
ECCU: Selected Economic and Financial Indicators, 2019–23 (Est./Proj.)
- Output and Prices (Annual percentage change)
- Real GDP: 2019: 2.3; 2020: -17.5; 2021: 4.9; 2022: 7.4; 2023: 5.5
- GDP deflator: 2019: 2.7; 2020: -0.9; 2021: 0.6; 2022: 5.2; 2023: 3.3
- Consumer prices, average: 2019: 0.7; 2020: -0.6; 2021: 1.7; 2022: 5.6
- Monetary Sector
- Net foreign assets: 2019: 5.1; 2020: 6.1; 2021: 16.5
- Central bank (net foreign assets): 2019: -2.8; 2020: 3.6; 2021: 11.6
- Commercial banks (net foreign assets): 2019: 14.1; 2020: 8.5; 2021: 21.1
- Net domestic assets: 2019: 1.0; 2020: -20.1; 2021: (not provided)
- Of which: private sector credit: 2019: 0.5; 2020: 1.5; 2021: (not provided)
- Broad money (M2): 2019: 3.1; 2020: -6.4; 2021: 10.2
- Public Finances (In percent of GDP, unless otherwise indicated)
- Central government total revenue and grants: 2019: 26.1; 2020: 29.1; 2021: 31.0; 2022: 28.6
- Total expenditure and net lending: 2019: 28.1; 2020: 34.7; 2021: 34.3; 2022: 33.2; 2023: 30.5
- Overall balance: 2019: -2.1; 2020: -5.6; 2021: -3.3; 2022: -4.1; 2023: -1.8
- Of which: expected fiscal cost of natural disasters (Excl. Citizenship-by-Investment Programs): 2019: -5.4; 2020: -10.9; 2021: -9.4; 2022: -8.0; 2023: -5.5
- Primary balance: 2019: 0.3; 2020: -3.1
- Total public sector debt: 2019: 65.9; 2020: 84.9; 2021: 85.2; 2022: 80.8; 2023: 77.7
- External Sector
- Current account balance: 2019: -6.6; 2020: -16.0; 2021: -16.7; 2022: -17.0; 2023: -13.4
- Trade balance: 2019: -30.3; 2020: -28.5; 2021: -30.9; 2022: -36.7; 2023: -35.9
- Exports, f.o.b. (annual percentage change): 2019: 38.2; 2020: -22.3; 2021: -0.2; 2022: 13.7; 2023: 8.8
- Imports, f.o.b. (annual percentage change): 2019: -22.8; 2020: 12.9; 2021: 32.6; 2022: 6.7
- Services, incomes and transfers: 2019: 23.7; 2020: 12.5; 2021: 14.2; 2022: 19.7; 2023: 22.5
- Of which: travel: 2019: 38.5; 2020: 15.1; 2021: 19.2; 2022: 30.0; 2023: 33.5
- External public debt: 2019: 34.0; 2020: 44.8; 2021: 47.8; 2022: 47.6; 2023: 47.7
- External debt service (percent of goods and nonfactor services): 2019: 9.9; 2020: 21.7; 2021: 15.9; 2022: 13.3
- International reserves
- In millions of U.S. dollars: 2019: 1,698; 2020: 1,747; 2021: 1,952; 2022: 1,838; 2023: 2,015
- In months of prospective year imports of goods and services: 2019: 6.5; 2020: 5.8; 2021: 4.3; 2022: 4.6
- In percent of broad money: 2019: 26.0; 2020: 29.0; 2021: 25.7; 2022: 26.5
- REER (average annual percentage change), Trade-weighted: 2019: 1.3; 2020: -2.2; 2021: -4.9
IMF Press Release No. 22/279, July 29, 2022.