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Mr. Serhan Cevik and Vibha Nanda
Fiscal sustainability remains a paramount challenge for small economies with high debt and greater vulnerability to climate change. This paper applies the model-based sustainability test for fiscal policy in a panel of 16 Caribbean countries during the period 1980–2018. The results indicate that the coefficient on lagged government debt is positive and statistically significant, implying that fiscal policy in the Caribbean takes corrective actions to counteract an increase in the debt-to-GDP ratio. Nonlinear estimations, however, show that the quadratic debt parameter is negative, which indicates that fiscal policy response is not adequate to ensure sustainability at higher levels of debt. We also find that the fiscal stance tends to be countercyclical on average during the sample period. These empirical results confirm that maintaining prudent fiscal policies and implementing growth-enhancing structural reforms are necessary to build fiscal buffers and ensure debt sustainability with high probability even when negative shocks occur over the long term.
Abdullah Al-Hassan, Mary E. Burfisher, Mr. Julian T Chow, Ding Ding, Fabio Di Vittorio, Dmitriy Kovtun, Arnold McIntyre, Ms. Inci Ötker, Marika Santoro, Lulu Shui, and Karim Youssef
Deeper economic integration within the Caribbean has been a regional policy priority since the establishment of the Caribbean Community (CARICOM) and the decision to create the Caribbean Single Market and Economy (CSME). Implementation of integration initiatives has, however, been slow, despite the stated commitment of political leaders. The “implementation deficit” has led to skepticism about completing the CSME and controversy regarding its benefits. This paper analyzes how Caribbean integration has evolved, discusses the obstacles to progress, and explores the potential benefits from greater integration. It argues that further economic integration through liberalization of trade and labor mobility can generate significant macroeconomic benefits, but slow progress in completing the institutional arrangements has hindered implementation of the essential components of the CSME and progress in economic integration. Advancing institutional integration through harmonization and rationalization of key institutions and processes can reduce the fixed costs of institutions, providing the needed scale and boost to regional integration. Greater cooperation in several functional policy areas where the region is facing common challenges can also provide low-hanging fruit, creating momentum toward full integration as the Community continues to address the obstacles to full economic integration.
International Monetary Fund. Western Hemisphere Dept.
Economic growth slowed down, but became more broad-based. In 2017, real GDP growth was 2.1 percent, with the non-mining GDP rebounding from its contraction in 2016. The external balance turned negative due to weaker than expected export growth and higher oil prices. Inflation remains relatively low, and the monetary stance accommodative. Oil production is expected to commence in 2020, and additional oil discoveries have significantly improved the medium- and long-term outlook.
International Monetary Fund. Western Hemisphere Dept.
This 2017 Article IV Consultation highlights the expansion of Guyana’s real economic activity by 3.3 percent in 2016. Subdued agricultural commodity prices, bad weather, and delays in public investment weighed down activity, while large increases in gold output helped support growth. Consumer prices increased by 1.5 percent in the 12 months ending in December 2016 as weather-related shocks to food prices reversed the deflationary trend. The macroeconomic outlook is positive for 2017 and the medium term. Growth is projected at 3.5 percent in 2017, supported by an increase in public investment, continued expansion in the extractive sector, and a recovery in rice production.
International Monetary Fund. Western Hemisphere Dept.
This paper discusses recent economic developments, the outlook, and risks for the Czech Republic. The economy has been growing at an exceptionally strong pace. Driven by robust domestic demand, output expanded by 4.2 percent—the highest rate in the central and eastern European region—in 2015. Labor market performance has been strong. Fiscal performance was better than budgeted in 2015. The banking sector is stable, and credit growth continues to strengthen. However, economic activity is expected to slow in 2016. Private consumption will remain robust on the heels of higher disposable income and employment, but the projected slowdown in EU-fund absorption will weigh on growth.
International Monetary Fund. Western Hemisphere Dept.
The economy has experienced seven consecutive years of robust growth, buoyed by high commodity prices, foreign direct investment and expansion of private sector credit. As part of a strategy to sustain growth, reduce poverty and curtail dependence on imported oil, the authorities are pursuing the Amaila Falls Hydro-electric Project (AFHP), entailing investment of about 30 percent of GDP. However, steps by Parliament that delayed important approvals led the private sector partner to withdraw, which could delay the project while additional financing is sought. Meanwhile, public debt remains high—around 60 percent of GDP—limiting the room to finance inclusive growth.