IMF predicts moderate growth for OECS

WASHINGTON, United States — The International Monetary Fund (IMF) says growth has recovered strongly in 2018-19 in the Eastern Caribbean Currency Union (ECCU) but is set to moderate, with the outlook clouded by downside risks.

The Washington-based financial institution said that the St Kitts-based Eastern Caribbean Central Bank (ECCB) and individual ECCU countries have continued to advance their reform agendas, but added that progress needs to be accelerated.

“While robust national fiscal frameworks remain key to the region’s policy priorities, well-sequenced steps to regional integration can catalyze capacity and resources,” the IMF said at the end of the 2019 discussion on common policies of member countries.

In the statement, the IMF said that this would include increasing fiscal integration, enhancing financial integration, and solidifying the monetary union by raising payment’s efficiency through — but not limited to — cautiously piloting a digital currency.

The ECCU member states are Anguilla, Antigua and Barbuda, Dominica, Grenada, Montserrat, St Kitts-Nevis, St Lucia and St Vincent and the Grenadines.

The IMF said ECCU’s gross domestic product (GDP) growth accelerated to 3.75 per cent in 2018, reflecting buoyant tourism and sizable Citizenship-by-Investment (CBI) inflows, “which helped support Dominica’s reconstruction-led recovery from the 2017 hurricane.

“Growth momentum has remained strong in 2019, while inflation has been muted,” the IMF said, adding that the sub- region’s fiscal deficits have been edging upwards in 2018-19, despite continued strength in CBI inflows.

But, with the deficits remaining moderate, the IMF said the public debt ratio declined in 2018 and is set to fall further in 2019.

“While the region’s external deficits are high, they are amply financed by FDI flows. Bank credit to the private sector remains weak despite substantial excess liquidity,” the IMF said, noting that going forward, growth is set to moderate, with risks remaining mostly on the downside.

The IMF said GDP growth is expected to gradually ease to 2.25 per cent, a long-term historical average for the sub-region, adding that CBI inflows are also projected to be moderate.

In the near term, the IMF said economic activity would be supported by further post-hurricane reconstruction, tourism investment and some agribusiness projects.

Achieving the 60 per cent of GDP debt target would remain challenging for most countries, the IMF said, with global risks, such as adverse confidence effects from rising protectionism and weaker US growth, likely to weigh on the outlook.

The international financial institution said region-specific risks include natural disasters, increasing banks’ foreign exposures, continuing exit of global banks and continued pressures on corresponding banking relationships (CBRs) against the backdrop of elevated non-performing assets.

“Positive surprises in CBI inflows, if well-managed, constitute potential upside risks,” the IMF said, adding that greater regional integration can substantially complement robust national policies in improving the outlook and mitigating risks.

The IMF said the ECCU’s challenges are compounded by large shocks and lack of economies of scale.

“Robust national fiscal responsibility frameworks that ensure public debt sustainability and buffers are crucial for improving the ECCU growth potential,” it said, adding that ECCB’s advocacy for achieving the 60 per cent of GDP debt target by 2030 through national fiscal responsibility frameworks and its efforts to improve debt management have supported this process.