Stabilization, Debt, and Fiscal Policy in the Caribbean
IMF Working Papers, February 1, 2005
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Bibliographic details
- Authors: Ratna Sahay
- Published: February 1, 2005
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451860450.001
Summary and key findings
- Although Caribbean countries have been largely successful in bringing annual inflation down to single digits in recent years—regardless of their exchange rate regime—their growth rates have been disappointing and their public debt has risen rapidly.
- By 2003, 14 of 15 Caribbean countries ranked in the top 30 of the world's highly indebted emerging market countries.
- Most of the increase in public debt is accounted for by a deterioration in primary fiscal balances that has been largely due to a sharp increase in expenditures rather than a fall in revenues.
- With countries in the region increasingly facing unsustainable debt positions, innovative ways are needed to raise economic growth rates and generate fiscal savings to reverse the debt buildup, and to maintain or raise current living standards.
Drivers of debt accumulation
- Sharp increase in government expenditures as the principal contributor to deterioration in primary fiscal balances.
- Revenue performance is not identified as the main driver; the text emphasizes expenditures rather than a fall in revenues.
- Low growth rates have coincided with disinflation to single-digit annual inflation, limiting fiscal space to address rising debt.
Policy implications and recommendations
- Raise economic growth rates through innovative policies tailored to the region's circumstances.
- Generate fiscal savings to reverse the debt buildup while maintaining or raising current living standards.
- Design fiscal strategies that target expenditure composition and sustainability given limited scope from revenue shortfalls.
Context and scope
- The analysis emphasizes exchange rate regime neutrality with respect to recent disinflation: single-digit inflation achieved "regardless of their exchange rate regime."
- The focus is on public debt dynamics and fiscal stance across Caribbean countries up to 2003, with policy recommendations aimed at restoring sustainability.
Source: Stabilization, Debt, and Fiscal Policy in the Caribbean (Ratna Sahay, February 1, 2005).
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