Press Release No. 15/348

Press Release: IMF Executive Board Concludes 2015 Discussion on Common Policies of Member Countries of the Eastern Caribbean Currency Union

July 22, 2015

On June 15, 2015, the Executive Board of the International Monetary Fund (IMF) concluded the 2015 discussion on the common policies of member countries of the Eastern Caribbean Currency Union (ECCU).

The regional economy is recovering slowly, with average real GDP growth projected at 2.0 percent in 2015, above the estimated 1.7 percent for 2014. Inflation is projected to remain subdued in 2015 on the back of moderating oil and food prices. In 2014, the fiscal stance was neutral on average, with the cyclically-adjusted primary balance unchanged. At the same time, external sector performance improved with the current account deficit estimated to have narrowed to an average of about 16 percent of GDP. Risks to the outlook remain elevated, stemming from the vulnerabilities in the financial sector and member countries’ fiscal conditions.

Executive Board Assessment¹

Executive Directors noted that the economic recovery across the Eastern Caribbean Currency Union (ECCU) is gaining momentum on the back of stronger tourist arrivals and low oil prices. However, Directors highlighted significant policy challenges for the period ahead, arising from weak competitiveness, banking sector stress, and slim policy buffers in many member countries. Accordingly, Directors encouraged the authorities to take advantage of the favorable external conditions to tackle remaining vulnerabilities, paving the way for robust and inclusive growth in the long run.

Directors commended the authorities for the progress thus far in implementing their regional bank resolution strategy. They noted that key legislation has been passed in nearly all countries and that bank diagnostic exercises to develop restructuring options for troubled banks are being finalized. They encouraged the authorities to move expeditiously to restore weak banks to soundness in a coordinated manner and in a way that minimizes fiscal costs and supports regional financial stability. More broadly, Directors recommended putting in place contingency plans to support public confidence in financial institutions.

Directors noted that fiscal discipline has improved in the region. Nonetheless, they concurred that it will be important to intensify consolidation efforts since public debt ratios are projected to remain high in many cases under current policies. In particular, many Directors encouraged member countries to reach the ECCU debt target ahead of the 2030 deadline in order to build adequate policy space as soon as possible. A few Directors, however, supported a more gradual consolidation, tailored to country circumstances, to avoid undermining the rebound underway.

Directors agreed that fiscal adjustment should reflect the need to scale back tax concessions, continue to restrain the wage bill, reform the social security system, and improve the performance of state owned enterprises. Deeper regional collaboration in public service delivery could further mobilize budgetary savings. Directors also saw merit in the adoption of fiscal rules to anchor long term fiscal policy and in additional steps to strengthen public financial management, including as regards revenues from citizenship by investment programs.

Directors encouraged the authorities to pursue deeper structural reforms to improve the business environment and boost external competitiveness. Taking note of the staff assessment that the exchange rate appears to be overvalued in real effective terms, albeit to different degrees across countries and methodologies, Directors highlighted the need for reforms in the energy and labor markets, as well as steps to improve intra regional connectedness, to further promote the tourism sector and the resilience of the economy.

Directors stressed to national and regional authorities the importance of improving statistics and data provision in order to enhance economic analysis and better support policy making.