## Eastern Caribbean Currency Union: IMF Staff Concluding Statement of the 2024 Article IV Mission on Common Policies of Member Countries

_IMF News, February 14, 2024_

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## Bibliographic details
- Published: February 14, 2024

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### Overview and headline findings
- The ECCU has undergone a strong rebound, led by tourism and investment, and supported by policies that helped moderate the impact from successive external shocks.
- Real GDP is estimated to have grown on average by nearly 7 percent per year over 2021-23 and has surpassed pre-pandemic levels.
- Inflation has moderated to around 4 percent in 2023 from a commodity price driven peak of 5½ percent in 2022.
- Overall public debt remains elevated and generally well-above the regional 2035 debt ceiling of 60 percent of GDP.
- The financial system remains highly liquid and appears to have weathered the recent successive shocks without a major impact, supported by the since expired loan moratoria, but continues to face long-standing asset quality weaknesses and growing vulnerabilities in the non-bank financial sector.
- Wide post-pandemic current account deficits are narrowing, albeit slowly.
- The ECCB’s currency backing ratio remains high, supporting confidence in the currency union.
- Strengthening data collection, quality, and transparency is critical to informing a well-calibrated policy design.

### Risks and macroeconomic outlook
- Capacity constraints increasingly weigh on the region’s outlook.
- GDP growth is projected to moderate toward pre-pandemic averages as tourism performance nears full capacity and continued restoration of public and private sector balance sheets narrows the space for home-grown investment.
- The growth and fiscal outlooks are heavily dependent on uncertain Citizenship-by-Investment (CBI) inflows which continue to be subject to international scrutiny.
- ECCU countries remain highly susceptible to volatility in commodity prices and an abrupt growth slowdown in major tourism source countries.
- Climate-related disasters remain a recurrent threat with potentially devastating impact.

### A. Protecting fiscal space for sustained growth-enhancing physical and social investment
Findings:
- The recovery, high inflation, and withdrawal of temporary fiscal measures led to an improvement in fiscal positions, but public debt remains elevated.
Policy recommendations:
- Pursue a steady reduction in public debt in countries where it is well-above the regional ceiling to maintain macro stability and safeguard the currency board.
- Continue withdrawal of temporary measures that responded to the cost-of-living crisis.
- Adopt fuel price pass-through frameworks to protect tax revenue, stabilize demand, and promote green transformation, supported by better coverage and targeting of transfers to the most vulnerable.
- Revive a regional initiative to agree on common benchmarks for streamlined tax exemptions to avoid a "race-to-the-bottom" and help lift revenue closer to international peers.
- Pool regional resources and expertise to reduce impediments and costs to qualify for and access international climate finance.
Institutional reforms:
- ECCU-wide adoption of national fiscal responsibility frameworks (FRFs) with well-defined country-specific operational rules and escape clauses to deliver a consistent decline in debt, including a cushion to provide fiscal space to respond to shocks.
- Operationalize regular ECCB Monetary Council peer reviews of member states’ policy strategies and progress toward meeting the regional debt target.
- Strengthen revenue administration, public investment and debt management, enhance medium-term fiscal frameworks, and improve state-owned enterprise oversight.
- Accelerate comprehensive pension reforms to address looming large contingent fiscal liabilities and improve fairness and equity of pension systems.
CBI-specific measures:
- Establish regional standards for CBI programs, including common standards on due diligence, enhanced transparency and disclosure, minimum pricing benchmarks, and common principles on revenue allocation toward fiscal buffers and growth-enhancing investment.

### B. Strengthening financial system balance sheets and reviving private investment
Banking sector asset quality:
- Banks are working toward the required full loan loss provisioning against long-overdue loans by end-2025, which form the bulk of the region’s high non-performing loans (NPLs).
Recommendations:
- Ensure all loan loss allowances are made in the form of provisions to appropriately record banks’ capital strength.
- Adopt similar impaired asset standards for credit unions.
- Streamline foreclosure and collateral sale processes and strengthen the capacity of the Eastern Caribbean Asset Management Company to facilitate disposal of impaired assets.
- Maintain supervisory focus on risk management of foreign security investments and high local sovereign exposures among some banks.
Non-bank financial institutions (NBFIs):
- Immediate priority: ensure national supervisors have adequate powers, staffing, and data reporting to monitor and assess credit union and insurance sector risks and enforce corrective action.
- Strengthen data and information exchange between the ECCB and national supervisors, particularly in the insurance sector given large cross-border institutions.
- Introduce common minimum regulatory standards for NBFIs expeditiously to mitigate arbitrage risks.
- Align regulations and supervisory standards for open-platform credit unions with banks as their activities expand beyond traditional market space.
- Consider centralizing fragmented NBFI supervision under a model leveraging national supervisors’ local presence to improve resource efficiency and early vulnerability identification.
Insurance and climate risk:
- Strengthen insurance sector data collection and regional supervisory cooperation to monitor climate change risks that can increase property insurance premia, underinsurance, and affect borrower repayment capacity.
- Undertake deeper assessment of insurance-banking interlinkages and integrate climate change risks into supervisory and stress testing frameworks.
Promoting private investment and credit:
- Operationalize the credit reporting bureau across bank and non-bank lending institutions.
- Complement partial credit guarantee programs and movable collateral frameworks with programs to strengthen small-business record-keeping, business planning, and financial literacy.
- Implement region-wide insolvency framework reforms and creditor rights enhancements to reduce cost-disincentives to private credit provision.
- Coordinate efforts with regional capital market development, investor and borrower education initiatives, and completion of related pending legislative processes in all jurisdictions.
Supervisory capacity and safety nets:
- Rollout of the Basel II/III prudential standards and formalization of ECCB’s system-wide oversight authority will support stability but place demand on limited supervisory resources.
- Align national supervisors’ capacity with NBFIs’ increasing systemic significance.
- Consider a regional bank deposit insurance once legacy bank vulnerabilities are reduced; extension to credit unions should be conditional on a more unified oversight framework.
AML/CFT:
- Continue strengthening AML/CFT frameworks to address CFATF Mutual Evaluation recommendations and complete long-pending designation of the ECCB as the AML/CFT supervisor for banks.
Digital payments:
- Review lessons from the recently concluded Cash pilot to assess complementarities with other payment solutions and ensure interoperability across domestic and international platforms.

### C. Addressing constraints to employment
Findings:
- Longstanding labor market frictions: rigidities in hiring and firing, high informality, emigration of skilled workers, skills mismatches, and high youth unemployment.
- Employment recovery lags the strong post-pandemic uptick in economic activity.
Policy recommendations:
- Recalibrate employment protection laws, including alignment of lengthy redundancy notice periods and generous severance regimes toward international peers to reduce disincentives to new hiring.
- Introduce targeted and actuarially sound unemployment insurance schemes to reduce fiscal costs of untargeted ad hoc interventions.
- Design minimum wage frameworks to avoid disrupting labor allocation efficiency, employment opportunities and regional competitiveness; emphasize targeted social protection frameworks for the most vulnerable.
- Review education programs with development partner expertise to support youth employability, reduce skills mismatches, and increase vocational training focus in sectors with labor shortages.
- Explore targeted policies (e.g., extension of parental and elderly care leave) to narrow gender gaps in labor force participation and wages, aligned with fiscal objectives.
- Tailor social programs to tackle barriers to employment, including low education and school dropout among young males.

### D. Strengthening data provision
Findings:
- Significant data gaps constrain policy design: labor market, household incomes and indebtedness, property markets, private sector insurance costs and coverage, and foreign direct investment.
Recommendations:
- Strengthen region-wide data collection, processing, and transparency to support calibration of economic policies.
- Increase data transparency for CBI inflows, tax exemptions, and medium-term fiscal projections to support regional coordination and public accountability.
- Strengthen resources at national statistics units to improve accuracy, timeliness, and frequency of key economic data and reduce long lags and frequent revisions.

### Implementation and institutional coordination
- ECCU-wide adoption of national FRFs, ECCB Monetary Council peer reviews, strengthened national supervisory capacity, and regional cooperation on CBI and climate finance are highlighted as critical implementation avenues.
- The IMF team thanks the authorities for their warm hospitality and insightful and constructive discussions.

*IMF Staff Concluding Statement of the 2024 Article IV Mission on Common Policies of ECCU Member Countries (February 14, 2024).*

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## References

- [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)
- [Mission Concluding Statements](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2024/02/14/cs021424-eccu-concluding-statement-of-the-2024-article-iv-mission-on-common-policies_