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International Monetary Fund. Western Hemisphere Dept.
This 2022 Article IV Consultation highlights that with Eastern Caribbean Currency Union economies slowly emerging from the pandemic with scars, the impact of the war in Ukraine is a setback to the nascent recovery. Higher food and energy prices, amid ongoing supply disruptions and intra-regional transportation bottlenecks, are raising inflation, eroding income, lowering output growth, worsening fiscal and external positions, and threatening food and energy security. The financial system has remained broadly stable so far, with adequate capital and liquidity buffers, but nonperforming loans remain high and could rise further following the expiration of the Eastern Caribbean Central Bank’s loan moratoria program. The outlook is subject to large downside risks, primarily from further increases in commodity prices and new coronavirus disease variants amid vaccine hesitancy, in addition to the ever-present threat of natural disasters. The report recommends that maintaining fiscal prudence while protecting the vulnerable through health spending and temporary targeted transfers and enhanced social safety nets to cope with rising living costs. Adopting well-designed rule-based fiscal frameworks would help achieve fiscal consolidation, enhance resilience to shocks such as natural disasters, and preserve the credibility of the regional debt target.
Charles Cohen, S. M. Ali Abbas, Anthony Myrvin, Tom Best, Mr. Peter Breuer, Hui Miao, Ms. Alla Myrvoda, and Eriko Togo
The COVID-19 crisis may lead to a series of costly and inefficient sovereign debt restructurings. Any such restructurings will likely take place during a period of great economic uncertainty, which may lead to protracted negotiations between creditors and debtors over recovery values, and potentially even relapses into default post-restructuring. State-contingent debt instruments (SCDIs) could play an important role in improving the outcomes of these restructurings.