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Mr. Yehenew Endegnanew, Charles Amo-Yartey, and Ms. Therese Turner-Jones

Abstract

This chapter examines the empirical link between fiscal policy and the current account focusing on microstates, defined as countries with a population of less than 2 million between 1970 and 2009. The extent to which fiscal adjustment can lead to predictable development in the current account remains controversial, with two competing views. The traditional view argues that changes in fiscal policy are associated with changes in the current account through a number of channels that are discussed in the literature review. The traditional view is challenged by the Ricardian equivalence principle, which states that an increase in budget deficit (through reduced taxes) will be offset by increases in private saving, insofar as the private sector fully discounts the future tax liabilities associated with financing the fiscal deficit, hence not affecting the current balance.

Garth Peron Nicholls

Abstract

This chapter reviews selected Caribbean debt restructuring cases. In particular, it deals with three interrelated policy questions. First, it delineates the history of resolving debt overhangs in emerging market and low-income economies generally. Second, it reviews selected Caribbean experiences with debt restructuring and associated challenges in the region. And third, it examines the needs for additional traditional debt restructuring in Caribbean economies, along with some alternative options and the role that the IMF can play in helping to restore the region’s fiscal and debt sustainability.

Garth Peron Nicholls

Abstract

This chapter reviews the current public debt and debt management characteristics of Caribbean economies. In particular, it reviews the debt profile in the region and assesses whether the structure of public debt offsets the risks emanating from the high public debt ratios. It also briefly discusses estimates of selected contingent fiscal liabilities and reviews the institutional framework for debt management.

Garth Peron Nicholls and Alexandra Peter

Abstract

This chapter reviews different concepts of debt sustainability and gives illustrative results on debt limits for economies based on macroeconomic characteristics prevailing in the Caribbean region. In particular, we deal with three important policy-related issues: First, we delineate key aspects of the different approaches to measure fiscal sustainability and public debt limits; second, we measure the sustainability of fiscal policy and the extent of over- or under-borrowing by the public sector over the last two decades; and third, we derive debt benchmarks through illustrative scenarios, using reasonable assumptions about growth and interest rate shocks from the region’s economies.