IMF reviews common policies of member countries of the ECCU

WASHINGTON, USA.- The executive board of the International Monetary Fund (IMF) concluded the consideration of the 2016 discussion on the common policies of member countries of the Eastern Caribbean Currency Union (ECCU).

The regional recovery is gaining ground, supported by continued low oil prices, strong tourism arrivals, and robust citizenship-by-investment receipts. Three failed banks have been resolved with no spillovers to the rest of the region and fiscal management has improved.

Executive Board Assessment

Executive directors welcomed the authorities’ progress in addressing key challenges and the regional economic recovery, which is gradually gaining ground supported by strong external demand, low oil prices, and buoyant citizenship by investment receipts. Risks to the near term outlook are balanced, but growth in the ECCU continues to be hindered by weak competitiveness, banking sector fragilities, susceptibility to natural disasters, and large public debt.

In this context, directors encouraged the authorities to press ahead with sound macroeconomic policies and structural reforms to decisively address these issues and strengthen the conditions for robust long term growth.

Directors commended the decisive actions taken to strengthen the resilience of the banking system. In particular, they welcomed the passing of key banking legislation, and the successful resolution of three insolvent banks.

With non-performing loans still elevated and credit continuing to decline, directors stressed the importance of swift action to help banks clean up their balance sheets and resume lending. Specifically, they recommended quickly operationalizing the regional asset management company and moving ahead with regional foreclosure legislation.

While directors generally supported eliminating the minimum saving deposit rate, a few stressed the importance of accompanying this reform with measures to enhance the financial safety net and to avoid discouraging saving and reducing financial inclusion.

Directors encouraged the authorities to promote consolidation within the regional indigenous banking system to strengthen its long run viability and help lower the risk of further withdrawal of correspondent banking relationships (CBRs) from the region.

They agreed that efforts to strengthen frameworks for international tax cooperation and for anti-money laundering and combating the financing of terrorism should be complemented by continued engagement with international partners in order to mitigate the risk of further loss of CBRs. Directors supported further work in this area by the Fund to assist its members, and encouraged increased global cooperation to address this issue.

Directors welcomed the improvements in fiscal discipline, and emphasized that stronger action is needed to achieve the regional debt target of 60 percent of GDP by 2030. In particular, they recommended formulating detailed medium term fiscal adjustment plans and underpinning them with fiscal rules as well as continued enhancements to public finance management frameworks.

Given the region’s vulnerability to natural disasters, directors generally underscored the importance of internalizing those costs in the fiscal policy frameworks. They also encouraged the authorities to develop a strong, regionally accepted set of principles and guidelines for citizenship by investment programs in order to enhance their sustainability.

Directors noted that the quasi currency board arrangement continues to serve the ECCU well by fostering price stability, and that international reserve levels exceed most of the Fund’s reserve adequacy benchmarks. To improve international competitiveness, they encouraged the authorities to pursue structural reforms that reduce the costs of doing business.

In this context, directors commended the initiatives to reduce energy costs -- particularly investments in renewable energy sources -- and recommended policies to moderate labor costs, improve resilience to natural disasters, and deepen regional collaboration.

Directors recommended improving statistics and data provision in order to enhance economic analysis and better support policy making.

Directors agreed that the views they expressed will form part of their discussions in the context of the Article IV consultations with individual ECCU members that will take place until the next Board discussion of ECCU common policies.