This paper concludes that the existing framework remains broadly appropriate, but proposes methodological refinements to improve the assessment of market access, clarifies how serious short-term vulnerabilities are assessed, and proposes a modest extension of the transition period before graduation decisions become effective.
Guyana’s residential real estate prices have been rising, particularly in the capital city Georgetown, following the discovery of oil in 2015. In line with the growing demand for housing, commercial banks’ housing loans have increased, prompting higher household debt. This paper presents two analyses which suggest that housing prices in Georgetown and banks’ lending to the housing sector appear to be in their early stages of growth. However, given the data limitations and caveats that underpin the analyses, the findings could also indicate early signals of possible risks. Further data collection would support surveillance and deeper studies. At the same time, enhancing prudential measures would help safeguard financial and macroeconomic stability. These include strengthening the monitoring of the housing market, bank lending practices and household debt, as well as fortifying the macroprudential framework, including with more effective toolkits for early intervention.
Monetary independence is at the core of the macroeconomic policy trilemma stating that an independent monetary policy, a fixed exchange rate and free movement of capital cannot exist at the same time. This study examines the relationship between monetary autonomy and inflation dynamics in a panel of Caribbean countries over the period 1980–2017. The empirical results show that monetary independence is a significant factor in determining inflation, even after controlling for macroeconomic developments. In other words, greater monetary policy independence, measured as a country’s ability to conduct its own monetary policy for domestic purposes independent of external monetary influences, leads to lower consumer price inflation. This relationship—robust to alternative specifications and estimation methodologies—has clear policy implications, especially for countries that maintain pegged exchange rates relative to the U.S. dollar with a critical bearing on monetary autonomy.
Ms. Kimberly Beaton, Mr. Thomas Dowling, Dmitriy Kovtun, Franz Loyola, Ms. Alla Myrvoda, Mr. Joel Chiedu Okwuokei, Ms. Inci Ötker, and Mr. Jarkko Turunen
The high level of nonperforming loans (NPLs) in the Caribbean has been, in large part, a legacy of the global financial crisis, but their persistence owes much to the weak economic recovery in the region, as well as to structural obstacles to their resolution. A comprehensive strategy is needed to address these impediments to sever the adverse feedback loops between weak economic activity and weak asset quality. This paper finds that NPLs are a drag on Caribbean growth and macro-financial links are strong: a deterioration in asset quality hinders bank lending and dampens economic activity, undermining, in turn, efforts to resolve problem loans. A multifaceted approach is needed, involving a combination of macro- economic policies to support growth and employment; strong supervisory frameworks to ensure macro-financial stability and create incentives for resolution; efforts to address informational gaps and deficiencies in insolvency and debt-enforcement frameworks; and development of markets for distressed loans. The institutional capacity constraints require coordination of reforms within the region and support from international organizations through capacity-building.
The review of PRGT-eligibility, conducted biennially, is guided by a transparent, rules-based, and parsimonious framework. The framework determines which IMF members can access concessional resources based on an assessment of their level of income per capita, market access, and serious short-term vulnerabilities. Application of the framework should be consistent with the self-sustainability of the PRGT’s lending capacity over time. This paper concludes that the existing framework remains generally appropriate. The PRGT-eligibility framework is broadly aligned with the World Bank’s International Development Association practices, with minor differences between the lists of eligible countries explained by differences in the mandates of the two institutions and the timing of their respective review cycles. None of the countries that have graduated from the PRGT-eligibility list are at immediate risk of re-entering it. No country is proposed for graduation from or entry onto the PRGT-eligibility list. While thirteen countries meet either the income or market access graduation criterion, all are assessed to be facing serious short-term vulnerabilities and thus none are proposed for graduation. No non-PRGT-eligible country meets the criteria for entry onto the PRGT-eligibility list. The proposal to keep the list of PRGT-eligible countries unchanged is consistent with the self-sustained capacity of the PRGT.
Maximilien Kaffo Melou, Mariusz A. Sumlinski, and Chris Geiregat
We analyse the debt dynamics in countries that benefited from the HIPC/MDRI debt relief initiatives with a view to applying a probabilistic approach to estimating future debt paths for those countries. We extend the probabilistic approach to public debt sustainability analysis (DSA) proposed by Celasun et al. (2006). This required addressing the twin challenges of a the time period that is too short to conduct country-by-country estimations and the presence, suggested by econometric evidence, of a break–point around 2006 in the dynamics of debt accumulation. To overcome the data limitations, we pool the data and estimate a panel VAR, thus taking advantage of the large cross–section. To account for the break–point, while applying a probabilistic approach to forecasting debt paths, we use the post–break–point information so as not to bias the forecasts of debt paths. As an illustration of the approach we apply the methodology to eight countries with different debt profiles.
In this study, the economic developments and policy responses of Trinidad and Tobago after the crisis is reviewed. Policy recommendations are used to strengthen the legal and regulatory framework. According to the IMF’s financial system stability assessment (FSSA), there were critical gaps in the overall legal, regulatory, and supervisory structure for the insurance sector. The quality of insurance sector supervision can be assessed against internationally accepted established “core principles.” In this paper, an overview is presented of why the crisis occurred and some suggestions on how to prevent a future crisis.
With a fixed peg to the U.S. dollar for more than three decades, the tourism-dependent Eastern Caribbean Currency Union (ECCU) countries share a close economic relationship with the U.S. This paper analyzes the impact of the United States on ECCU business cycles and identifies possible transmission channels. Using two different approaches (the common trends and common cycles approach of Vahid and Engle (1993) and the standard VAR analysis), it finds that the ECCU economies are very sensitive to both temporary and permanent movements in the U.S. economy and that such linkages have strengthened over time. There is, however, less clear-cut evidence on the transmission channels. United States monetary policy does not appear to be an important channel of influence, while tourism is important for only one ECCU country.