This paper discusses key findings of the 2006 Regional Discussions on the Eastern Caribbean Currency Union. Fiscal revenues have improved, but there has been only a modest improvement in the fiscal and debt positions. Tax revenues have strengthened with the uptick in economic activity, administrative efforts, and tax reforms. The financial system has been resilient, but additional efforts are needed to strengthen the supervisory framework in the face of emerging risks. Progress continues to be made in implementing the Financial Sector Assessment Program (FSAP) recommendations, but there is a need to ensure enforcement of the new regulatory framework.
International Monetary Fund. Western Hemisphere Dept.
This IMF Staff Report for the 2016 Discussion on Common Policies of Eastern Caribbean Currency Union (ECCU) Member Countries highlights that the regional recovery in ECCU is gaining ground, supported by continued low oil prices, strong tourism arrivals, and robust 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. The Executive Directors have 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.
The quasi–currency board arrangement continues to serve the ECCUwell. Directors observed that the exchange rate peg has fostered a long period of price stability and that the currency appears to remain competitive.
In light of the region’s exchange rate peg, very high debt levels, vulnerability to natural disasters and other shocks, the key priority is to place fiscal positions on a sustainable path. Directors emphasized that it is critical that the present favorable cyclical circumstances be used to accelerate fiscal consolidation and to
International Monetary Fund. Western Hemisphere Dept.
Directors noted that the quasi currency board arrangement continues to serve the ECCUwell 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
sustaining growth and building resilience, through enhancing competitiveness and economic diversification.
Directors considered that the quasi-currency board arrangement continues to serve the ECCUwell by fostering price stability, despite recent price shocks arising from external factors. They observed that the level of the real exchange rate appears to be in line with fundamentals, but noted that there would be challenges in maintaining external competitiveness in the period ahead. While the real effective exchange rate has been depreciating, reflecting the ongoing
Mr. Mario Dehesa, Emilio Pineda, and Mr. Wendell A. Samuel
countries. By law, the ECCB is required to maintain international reserves equivalent to 60 percent of the central bank’s demand liabilities. Operationally, the ECCB is committed to maintaining a reserve cover greater than or equal to 80 percent of demand liabilities, and in practice the reserves have been close to 100 percent of demand liabilities, occasionally exceeding that figure. The reserve cover rule was brought over from the Eastern Caribbean Currency Authority which preceded the establishment of the ECCB in 1983. The reserve cover rule had served the ECCUwell
Mr. Wendell A. Samuel, Emilio Pineda, and Mr. Mario Dehesa
Recent turbulence in global and Caribbean regional financial markets underscore the importance of reassessing the adequacy of international reserves held by the Eastern Caribbean Central Bank (ECCB). Using the Jeanne (2007) optimization framework, this paper finds that international reserves held by the ECCB are generally adequate for a variety of external current account and capital account shocks. However, the ECCB would be challenged in the event of moderate to severe deposit outflows.
continues to serve the ECCUwell . The exchange rate peg has underpinned a prolonged period of price stability that has contributed importantly to economic development in the region. Available indicators suggest that the currency remains competitive, reserve coverage has been adequate, and the significant new private investment underway in the tourism sector points to continuing strong prospects in the key sector of the economy.
46. Nonetheless, the region’s exchange rate peg and vulnerability to natural disasters and other shocks makes it even more critical to place
Over the last decade, the Eastern Caribbean Currency Union (ECCU) macroeconomic performance has deteriorated relative to the rest of the Caribbean. Tourism accounts for three-fifths of exports, and the import content of consumption and investment is high. The ECCB-operated quasi-currency board arrangement (CBA) has continued to deliver price and exchange rate stability. The region has strong social indicators, but poverty, health, and crime remain concerns. Despite the implementation of ambitious revenue reforms, limited progress has been made toward fiscal consolidation. Credit has continued to expand rapidly.