Caribbean economies face high and rising debt-to-GDP ratios that jeopardize prospects for medium-term debt sustainability and growth. This book provides a comprehensive analysis of the challenges of fiscal consolidation and debt reduction in the Caribbean. It examines the problem of high debt in the region and discusses policy options for improving debt sustainability, including fiscal consolidation, robust growth, and structural reforms. The book also examines empirically the factors underlying global large debt reduction episodes to draw important policy lessons for the Caribbean. It also reviews the literature on successful fiscal consolidation experiences and provides an overview of past and current consolidation efforts in the Caribbean. The book concludes that the region needs a broad and sustained package of reforms to reduce debt ratios to more manageable levels and strengthen economic resilience.

© 2014 International Monetary Fund

Cover design: IMF Multimedia Services Division

Cataloging-in-Publication Data

Joint Bank-Fund Library

Caribbean renewal : tackling fiscal and debt challenges / edited by Charles, Amo-Yartey and Therese Turner-Jones. – Washington, D.C. : International Monetary Fund, c2014.

p.; cm.

Includes bibliographical references and index.

ISBN: 978-1-48436-914-2

1. Fiscal policy—Caribbean Area. 2. Debts, Public—Caribbean Area. I. Yartey, Charles Amo. II. Turner-Jones, Therese. III. International Monetary Fund.

HJ844.3.C37 2014

Disclaimer: The views expressed in this book are those of the authors and should not be reported as or attributed to the International Monetary Fund, its Executive Board, or the governments of any of its member countries.

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  • Acronyms

  • Foreword

  • Acknowledgments

  • About the Authors

  • 1 | Fiscal Consolidation and Debt Reduction in the Caribbean: An Overview

    • Charles Amo-Yartey and Therese Turner-Jones

  • 2 | Fiscal Performance in the Caribbean Before and After the Global Financial Crisis

    • Alexandra Peter

  • 3 | Public Debt Profile and Public Debt Management in the Caribbean

    • Garth Peron Nicholls

  • 4 | Global Large Debt Reduction: Lessons for the Caribbean

    • Charles Amo-Yartey and Joel Chiedu Okwuokei

  • 5 | Fiscal Consolidation: Country Experiences and Lessons from the Empirical Literature

    • Joel Chiedu Okwuokei

  • 6 | Fiscal Sustainability and Public Debt Limits in the Caribbean: An Illustrative Analysis

    • Garth Peron Nicholls and Alexandra Peter

  • 7 | Fiscal Consolidation in the Caribbean: Past and Current Experiences

    • Joel Chiedu Okwuokei, Charles Amo-Yartey, and Machiko Narita

  • 8 | Fiscal Multipliers in the Caribbean

    • Machiko Narita

  • 9 | Selected Debt Restructuring Experiences in the Caribbean

    • Garth Peron Nicholls

  • 10 | Fiscal Policy and the Current Account in Microstates

    • Yehenew Endegnanew, Charles Amo-Yartey, and Therese Turner-Jones

  • 11 | Fiscal Policy Rules and Fiscal Performance: Evidence from Microstates

    • Joel Chiedu Okwuokei

  • 12 | Fiscal and Debt Sustainability in the Caribbean: A New Agenda

    • Charles Amo-Yartey and Therese Turner-Jones

  • Index



British American Insurance Company


Canada Eastern Caribbean Debt Management Advisory Service


cyclically adjusted primary balance


Caribbean Center for Money and Finance


Central African Economic and Monetary Community


Canadian International Development Agency


Colonial Life Insurance Company


foreign direct investment


Eastern Caribbean Central Bank


Eastern Caribbean Currency Union


European Monetary Union


European Union


Heavily Indebted Poor Countries Initiative


Millennium Development Goal


net present value


Organization for Economic Co-operation and Development


Multilateral Debt Relief Initiative


Southern African Customs Union


state-owned enterprises


value-added tax


West African Economic and Monetary Union


It is indeed a pleasure and honor to be a part of this effort to produce an important analysis of such quality on the fiscal and debt challenges of the Caribbean. This book culminates more than a year’s collaboration and preparation by teams in the Caribbean II Division of the IMF’s Western Hemisphere Department. It also comes at an important time for the IMF, where work on small states is receiving more attention. The IMF is working to promote deeper understanding of small countries’ economic concerns and ways their economic problems can be addressed in a manner that suits their idiosyncratic nature.

This book also follows a series of regional conferences the IMF has been hosting around the world to tackle small states’ issues. In Port of Spain, Trinidad and Tobago in September 2012, close to one hundred high-level officials from around the CARICOM region came together to discuss their economic concerns with the IMF and other development partner participants. This was the first time in many years that prime ministers, central bank governors, and other key policymakers in the Caribbean gathered in one space to deal with some of the most pressing issues facing the region. It is no surprise that urgency for more action was underscored at the event, given the impact of the 2008 global crisis on the Caribbean. The region was by far one of the worst hit by the crisis, given its openness and its dependence for growth on international tourism and trade. It was in this context that the IMF presentation on fiscal issues garnered attention.

This book synthesizes the issues discussed in Trinidad and Tobago in 2012 and elaborates on the theoretical underpinnings supporting the IMF recommendations for the Caribbean at this juncture. The chapters draw on a broad and relevant swath of academic literature as well as experiences from around the world. The real challenge for the Caribbean is to not just read this book and admire its analytics but to find the willingness to adopt a new policy framework, one that will help sustain public finances in such a manner that transparency, predictability of fiscal policy, and debt sustainability can all be achieved. This is a tall order, but I have every expectation that the region will rise to the challenge and reach its goals in this important area of economic management. There has never been a more urgent time to address this challenge than now.

Min Zhu

Deputy Managing Director

International Monetary Fund


The authors would like to acknowledge the valuable comments and suggestions provided on earlier versions of the chapters in this book by the Caribbean authorities during the 2012 high-level forum in Port of Spain, Trinidad and Tobago. We also thank the Caribbean academics and policymakers who attended conferences and seminars held in the Caribbean (the 2011 Caribbean Centre for Money and Finance [CCMF] Annual Monetary Studies Conference and the 2013 Sir Arthur Lewis Institute for Social and Economic Studies [SALISES] conferences in Barbados) for comments and suggestions.

We are extremely grateful to our external peer reviewers, Dr. Winston Moore of the University of the West Indies, Cave Hill, Barbados; and Prof. Olajide Oladipo of York College of the City University of New York. We are also indebted to current and former colleagues at the IMF—particularly Gilbert Terrier, Luis Breuer, Marcelo Estevao, Charles Kramer, and Adrienne Cheasty—for comments and guidance on previous versions of the chapters of this book. Thanks are also due to Genevieve Lindow for excellent research assistance. The authors would like to thank Marc DeFrancis for his skillful editing of the book and Sean Culhane, Joanne Johnson, and Patricia Loo of the Communications Department of the IMF for coordinating the book’s production.

The views expressed in the book, as well as any errors, are the sole responsibility of the authors and do not necessarily reflect the views of the Caribbean authorities, the Executive Directors of the IMF, or other members of the IMF staff.

About the Authors

Charles Amo-Yartey is a senior economist in the Caribbean II Division of the Western Hemisphere Department of the IMF. He holds a Ph.D. in economics from the University of Cambridge, which he attended as a Gates Scholar. He is the author of the book, Stock Market Development in Africa, published by VDM Verlag, and has published in leading journals including Applied Economics, Applied Financial Economics, and the Journal of International Trade and Economic Development.

Yehenew Endegnanew is a Ph.D. candidate in economics in the International Doctorate of Economic Analysis (IDEA) program at the Universitat Autonoma de Barcelona (UAB). His research interests include fiscal policy, time series analysis, monetary policy, and macroeconomics.

Machiko Narita is an economist (as part of the IMF’s Economist Program) in the Asian Division at the IMF Institute for Capacity Development. She has worked in the Caribbean II Division of the Western Hemisphere Department. She holds a Ph.D. in economics from the University of Minnesota. Her research interest includes consumption, housing, resource reallocation, aggregate productivity, fiscal policy, and macroeconomics.

Garth Peron Nicholls is a senior economist in the South America II Division of the Western Hemisphere Department of the IMF. He holds a Ph.D. in economics from the University of the West Indies (UWI). He is the coauthor of the book, The Regulation of Non-bank Financial Institutions in the Eastern Caribbean Currency Union, published by the UWI. Before joining the IMF, he was Senior Director of Research at the Eastern Caribbean Central Bank. His research interests include monetary policy, financial regulation, economic growth, fiscal policy and pension reform.

Joel Chiedu Okwuokei is an economist in the Caribbean II Division of the Western Hemisphere Department of the IMF. He holds a Ph.D. in economics from the University of Benin, Nigeria. Before joining the IMF, he worked with the federal government of Nigeria for several years. His research interests include economic growth, fiscal policy, monetary policy, and environmental policy.

Alexandra Peter is an economist (as part of the IMF’s Economist Program) in the Financial Supervision and Regulation Division of the Monetary and Capital Markets Department of the IMF. She worked in the Caribbean II Division of the Western Hemisphere Department prior to her current assignment. She holds a Ph.D. in economics from the University of Bonn. Her research interests include fiscal and monetary policy, financial regulation, and financial stability.

Therese Turner-Jones is a former deputy division chief in the Caribbean II Division of the Western Hemisphere Department of the IMF. She holds a master’s degree in economics from the University of East Anglia (United Kingdom). She worked at the IMF for more than 20 years (1993–2013) in various positions and departments, including at the Executive Board. In May 2013, she assumed the position as Country Representative for the Inter-American Development Bank in Jamaica.