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IMF Country Report No. 20/70

EASTERN CARIBBEAN CURRENCY UNION

2019 DISCUSSION ON COMMON POLICIES OF MEMBER COUNTRIES—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR THE EASTERN CARIBBEAN CURRENCY UNION

March 2020

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2019 Article IV consultation with ECCU, the following documents have been released and are included in this package:

  • A Press Release summarizing the views of the Executive Board as expressed during its February 3, 2020 consideration of the staff report.

  • The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on February 3, 2020, following discussions that ended on November 27, 2020, with the officials of the Eastern Caribbean Currency Union on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on January 10, 2020.

  • An Informational Annex prepared by the IMF staff.

  • A Statement by the Executive Director for the Eastern Caribbean Currency Union. The documents listed below have been or will be separately released.

  • - Selected Issues

The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.

Copies of this report are available to the public from

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© 2020 International Monetary Fund

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EASTERN CARIBBEAN CURRENCY UNION

STAFF REPORT FOR THE 2019 DISCUSSION ON COMMON POLICIES OF MEMBER COUNTRIES

January 10, 2020

Key Issues

The Eastern Caribbean Currency Union (ECCU) saw a respite from major hurricanes, which facilitated growth acceleration to 3¾ percent in 2018–19. The fiscal position weakened, despite continued strength in Citizenship-by-Investment (CBI) inflows, but with headline deficits remaining moderate the public debt ratio has continued to decline. However, underlying fiscal deficits remain high. External imbalances are sizable and significant financial sector vulnerabilities affect both banks and non-banks. Growth is projected to gradually moderate towards its long-term average of 2¼ percent as the cyclical momentum normalizes and CBI inflows ease. These trends would also contribute to wider fiscal deficits, ending the downward drift in public debt dynamics. Meeting the regional 60 percent of GDP debt benchmark by 2030 will be challenging for most countries. The outlook is clouded by downside risks, including a possible intensification of natural disasters and financial sector weaknesses. Larger well-managed CBI flows may be a source of an upside risk.

Main Policy Recommendations:

While reinforcing the importance of advancing national fiscal policies that incorporate resilience-building to natural disasters and accelerating actions to safeguard financial stability, staff recommended to leverage the following steps toward regional integration for better policy responses.

  • Increasing fiscal integration through coordinated revenues policies and pooled fiscal buffers, underpinned by preconditions to bolster fiscal governance at the national level;

  • Enhancing financial integration through a well-sequenced plan toward a fuller banking union alongside stronger steps to safeguard financial stability;

  • Solidifying the monetary union by raising payments’ efficiency, through, but not limited to, cautiously piloting a digital currency.

Approved By

Krishna Srinivasan (WHD) and Mary Goodman (SPR)

Mission Team: Sònia Muñoz (head), Alejandro Guerson, Kotaro Ishi, Bogdan Lissovolik (all WHD), and Gayon Hosin (MCM) held policy discussions with the eight ECCU jurisdictions (Anguilla, Antigua and Barbuda, Dominica, Grenada, Montserrat, St. Kitts and Nevis, St. Lucia, and St. Vincent and The Grenadines), the ECCB, the OECS Secretariat, and the CDB. Majid Malaika (ITD) joined the early part of the technical discussion on the central bank digital currency. Mike Sylvester (OED) participated in the closing meetings. The team met with the Prime Ministers and/or Ministers of Finance of six of the eight-member jurisdictions, Financial/Permanent Secretaries of eight-member jurisdictions, Financial Services Authorities of the eight member jurisdictions, the ECCB Governor and other senior officials, the Organization of Eastern Caribbean States (OECS), the Caribbean Development Bank (CDB), and a wide range of private sector representatives.

Mission Dates: October 31–November 8 and November 18–27, 2019.

Contributors: ECCU team. Additional analytical input was provided by Ding Ding, Manuel Rosales, Jan Moeller, Wayne Mitchell, Janne Hukka, Gonzalo Salinas, Mauricio Vargas, Abdoul Sidibe, Haobin Wang, and Samira Kalla. Raadhika Vishvesh provided research assistance. Anahit Aghababyan and Nicolas Landeta provided assistance.

Contents

  • CALMER HEADWINDS

  • A. Recent Developments

  • B. Outlook and Risks

  • POLICY DISCUSSIONS: LEVERAGING REGIONAL INTEGRATION

  • A. Fiscal Integration

  • B. Financial Integration

  • C. Solidifying the Currency Union by Raising Payments’ Efficiency

  • D. Other Issues

  • AUTHORITIES’ VIEWS

  • STAFF APPRAISAL

  • BOXES

  • 1. Tax Incentives in the ECCU: High Costs, Limited Benefits

  • 2. Enhancing Fiscal Integration through a Regional Stabilization Fund

  • 3. The Key Design Aspects of the ECCB Digital Currency for the Pilot

  • FIGURES

  • 1. Real Sector Developments

  • 2. External Sector Developments

  • 3. Monetary Developments

  • 4. Financial Soundness Indicators

  • 5. Credit Developments

  • 6. Asset Composition

  • 7. Doing Business Indicators

  • TABLES

  • 1. Selected Economic and Financial Indicators, 2017–25

  • 2. Selected Economic Indicators by Country, 2017–25

  • 3. Selected Central Government Fiscal Indicators by Country, 2017–25

  • 4. Selected Public Sector Debt Indicators by Country, 2017–25

  • 5. Monetary Survey, 2017–25

  • 6. Summary Balance of Payments, 2017–25

  • 7. Selected Vulnerability Indicators, 2014–18

  • 8. Financial Structure, end 2018

  • 9. Financial Soundness Indicators of the Banking Sector, 2010–19

  • 10. Financial Soundness Indicators of the Banking Sector by Country, 2010–19

  • ANNEXES

  • I. Implementation of Previous Staff Advice

  • 11. External Assessment

  • III. Risk Assessment Matrix

  • IV. United Kingdom Overseas Territories—Anguilla and Montserrat

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EASTERN CARIBBEAN CURRENCY UNION

STAFF REPORT FOR THE 2019 DISCUSSION ON COMMON POLICIES OF MEMBER COUNTRIES—INFORMATIONAL ANNEX

January 10, 2020

Prepared By

Western Hemisphere Department

(In consultation with other departments)

Contents

  • RELATIONS WITH THE FUND

  • CARTAC: CAPACITY BUILDING IN THE ECCU

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Press Release No. 20/82

FOR IMMEDIATE RELEASE

March 5, 2020

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