Fiscal Sustainability and Policy Issues in the Eastern Caribbean Currency Union

IMF Working Papers, August 1, 2003

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Fiscal Sustainability and Policy Issues in the Eastern Caribbean Currency Union

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Bibliographic details

• Authors: Anthony J. Pellechio, Saqib Rizavi, Phebby Kufa
• Published: August 1, 2003
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451857894.001

Summary

• The fiscal position of the Eastern Caribbean Currency Union (ECCU) has deteriorated significantly in recent years, resulting in sharp increases in public debt.
• The paper examines the sustainability of public debt using the public sector budget constraint to derive the maximum public-debt-to-GDP ratio that can be sustained based on a country's projected steady-state primary balance, interest rate on public debt, and economic growth rate.
• In this context, government deficits and debt in several ECCU member countries appear unsustainable, posing a risk to the stability of the currency union.
• A critical issue facing member countries is to implement fiscal policies consistent with sustainable public finances and debt to underpin the currency union.

Methodology

• Fiscal sustainability is assessed using the public sector budget constraint framework.
• The maximum sustainable public-debt-to-GDP ratio is derived from three projected steady-state parameters:
  • steady-state primary balance,
  • interest rate on public debt,
  • economic growth rate.

Main Findings

• The ECCU’s fiscal position has deteriorated significantly, leading to sharp increases in public debt.
• Based on the public sector budget constraint analysis, government deficits and debt in several ECCU member countries appear unsustainable.
• Unsustainable public finances pose a risk to the stability of the currency union.

Policy Recommendations

• Implement fiscal policies consistent with sustainable public finances and debt to support the stability of the currency union.
• Strengthen measures in areas implied by the subject taxonomy (economic integration, fiscal policy, fiscal stance, government debt management, monetary unions, public financial management).

Content in this bundle

• Fiscal Sustainability and Policy Issues in the Eastern Caribbean Currency Union - WP/03/162
  • Fiscal Sustainability and Policy Issues in the Eastern Caribbean Currency Union - WP/03/162 (Markdown version)
  • Fiscal Sustainability and Policy Issues in the Eastern Caribbean Currency Union - WP/03/162 (PDF)