Abstract

The growth of real GDP in the OECS region declined from 3 percent in 1997 to a little more than 2 percent in 1998, with real GDP per capita growing at just over 1 percent (Table 9). The utilities and construction sectors registered strong gains (Table 10), supported by substantial public sector investment and private residential construction in most countries in the region. Tourism activity in 1995–96 suffered from the damage caused by hurricanes in the fall of 1995, but the number of stayover visitors and cruise ship passengers increased markedly in 1997–98, aided by improvements in port facilities, visits by larger cruise ships, and greater marketing efforts.

Output, Employment, and Prices

The growth of real GDP in the OECS region declined from 3 percent in 1997 to a little more than 2 percent in 1998, with real GDP per capita growing at just over 1 percent (Table 9). The utilities and construction sectors registered strong gains (Table 10), supported by substantial public sector investment and private residential construction in most countries in the region. Tourism activity in 1995–96 suffered from the damage caused by hurricanes in the fall of 1995, but the number of stayover visitors and cruise ship passengers increased markedly in 1997–98, aided by improvements in port facilities, visits by larger cruise ships, and greater marketing efforts.

Table 9.

ECCB Area: Output and Population Growth

(Annual percentage changes)

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Sources: Eastern Caribbean Central Bank, and IMF staff estimates.

Data refer to growth of GDP at factor cost.

Table 10.

ECCB Area: Rate of Growth of Gross Domestic Product by Economic Activity, at Factor Cost, in Constant Prices1

(Percent)

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Source: Eastern Caribbean Central Bank.

The area includes Anguilla, Antigua and Barbuda, Dominica, Grenada, Montserrat, St Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines.

As tourism and other services have gained importance, the structure of the economy has continued to shift away from agriculture and manufacturing. The contribution of agriculture to GDP declined from 10 ½ percent in 1990–95 to about 8 ½ percent in 1996–98, while that of manufacturing remained at around 6 percent of GDP (Table 11). Agricultural production has been affected by high unit costs and bad weather, with banana output also hampered by quality problems and, mainly in Grenada, pests. More stringent quality requirements for export and the uncertain prospects for continued preferential access to the EU market have recently accelerated the exit of farmers from the banana industry (see below). Performance in other key crops (sugarcane, nutmeg, and cocoa) has been mixed. High production costs have also hindered the manufacturing sector, with increased competition from lower cost countries in export markets and the persistent decline in the demand for inputs from banana exporters recently affecting output adversely.

Table 11.

ECCB Area: Contribution of Gross Domestic Product by Economic Activity, at Factor Cost, in Current Prices1

(Percent)

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Sources: Eastern Caribbean Central Bank, and IMF staff estimates.

The area includes Anguilla, Antigua and Barbuda, Dominica, Grenada, Montserrat, St. Kitts and Nevis, St Lucia, and St. Vincent and the Grenadines.

Official estimates indicate that the unemployment rate has been declining in most countries in recent years, but it remains high in some. Analyzing the severity of this problem is hampered by the lack of statistics on unemployment and wages. The information on wages that is readily available points to wage increases to government employees that outpaced inflation in most countries during 1996–98.

A slight deterioration in public sector saving accompanied by an expansion in public sector investment contributed to the widening of the external current account deficit during 1996–98. While gross national saving is estimated to have eroded markedly during this period, gross domestic investment has remained broadly unchanged at 31–32 percent of GDP (Table 12). Reported high investment rates in most countries may reflect inefficiencies, in part associated with large capital outlays in relation to the scale of operations required in small island economies, as well as statistical inaccuracies.

Table 12.

ECBB Area: Saving and Investment

(Percent of GDP)

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Sources: Eastern Caribbean Central Bank, and IMF staff estimates.

Inflation was relatively low during 1996–98. with the 12-month rate of increase in the consumer price index estimated at about 2 ½ percent in 1998 (Table 13), and about 2 percent in 1999. The moderate inflation reflects the slow rate of increase in import prices in recent years and the stability of the Eastern Caribbean dollar. Sporadic deviations from price stability have been temporary and largely associated with policy changes. Such was the case of St. Kitts and Nevis in 1997, when the rate of inflation rose temporarily following changes in tax policy. More recently, concerns have arisen that large public investment programs in certain countries and large increases in compensation for government employees in others, may be contributing to a less favorable price performance than that warranted by external conditions.

Table 13.

ECCB Area: Consumer Prices

(Annual percentage change)

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Sources: Eastern Caribbean Central Bank.

Banana Sector

The Windward Islands (Dominica, Grenada, St. Lucia, and St. Vincent and the Grenadines) have been exporting bananas to the United Kingdom since the early 1950s, and by the early 1960s bananas had become the most important economic activity. Banana production and exports from the Windward Islands, however, declined sharply after 1990. Output fell by half, from about 280,000 tons in 1990 to under 145,000 tons in 1998.28 The decline was most severe in Grenada (Table 14).

Table 14.

Windward Islands: Selected Banana Sector Indicators

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Sources: Windward Island Banana Development and Export Company (WIBDECO).

The decline in production and exports was caused by several factors. Low productivity and fruit quality have been persistent problems. More recently, there has been the uncertainty arising from the prospects of a less favorable EU banana import regime following the emergence of a single European market in 1993 and the legal challenges brought against this regime by Latin American producers and the United States in 1995 (Box 5). As a result, farmers have left the industry and planted acreage has declined. The price of bananas in the United Kingdom (the green market price) also fluctuated sharply during the 1990s, while the British pound depreciated against the U.S. dollar and hence, the EC dollar (Table 14). In addition, output was affected by periodic natural disasters (droughts, tropical storms, and hurricanes) and strikes by growers (St. Lucia) or by port workers (St. Vincent and the Grenadines).

To address product quality problems, the Windward Islands Banana Growers Associations and WIBDECO29 implemented a certified farmer program in 1996–97, with the technical and financial help of the EU. The objective is to certify a pool of farmers as capable of producing, processing, and packaging bananas to meet the requirements of the United Kingdom supermarket trade. By the end of 1997, almost one third of the farmers in Dominica and St. Lucia, and 17 percent of banana farmers in St. Vincent and the Grenadines had been certified, and the Windward Islands’ score on the quality index for exported bananas had improved to 84 from 76 in 1996 (on a scale of 100, with a score of 80 or more generally considered acceptable). At the same time, efforts were undertaken to reduce production and marketing costs through the introduction of a new carton-purchasing system, usage of pallets (as opposed to boxes) in shipping, and irrigation projects (especially in St. Vincent and the Grenadines). In part due to these efforts, output increased somewhat in 1998 (St. Vincent and the Grenadines registered an increase of about 30 percent).

Tourism

Tourism, as noted, has become an increasingly important sector in the economies of the ECCB region. The number of stayover arrivals30 increased at an average annual rate of nearly 4 percent during 1990–98 (Tables 19 and 20), while the number of hotel rooms expanded at an average annual rate of 15 percent (Table 21), and employment almost doubled to over 14,500. St. Lucia registered the fastest growth in stayover arrivals during the period (average annual growth rate of about 8 percent), followed by Dominica (around 5 percent). In contrast, stay over arrivals in Antigua and Barbuda grew at an average rate of only 1 ½ percent a year during the same period. As a result, by 1995 St. Lucia had become the number one destination, replacing Antigua and Barbuda.

Table 15.

EU: Duty-Free Banana Import Quotas for ACP Countries

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Source: European Union Council Regulation 404/93.
Table 16.

EU: Comparison of Quota/Tariff Structure Under the Previous and Current Banana Import Regimes

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Source: European Union Council Regulations 404/93 and 1637/98.

Defined as the bananas from 12 specific ACP countries (the traditional ACP countries) within a country-specific quota.

By definition, any amount outside of a country-specific quota falls into the category of “nontraditional ACP bananas.”

Defined as both any quantities in excess of traditional quantities supplied by traditional ACP countries and any quantities supplied by nontraditional ACP countries.

Defined as all other bananas.

Table 17.

Windward Islands: Banana Growers Profile1

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Source: Windward Islands Banana Industry-Production Recovery Plan, July 1998.

Windward Islands banana growers are classified in five groups according to their productivity (output per acre).

Table 18.

Windward Islands: Banana Recovery Plan1

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Source: Windward Islands Banana industry-Production Recovery Plan, July 1998.

Production levels expected to reduce the dead freight cost and help sustain the guaranteed price to farmers as envisaged in the Banana Recovery Plan.

Table 19.

Caribbean Region: Stayover Tourist Arrivals

(In thousands, unless otherwise indicated)

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Sources: Caribbean Tourism Organization, World Tourism Organization.

Includes Barbados, Belize, Bermuda, Cayman Islands, Guyana, Trinidad and Tobago, Turks and Caicos Islands, Aruba, Bonaire, Curaçao, Saba, St. Eustatius, St. Maarten, Guadeloupe, Martinique, Haiti, Suriname and U.S. Virgin Islands.

Table 20.

ECCB Area: Stayover Tourist Arrivals by Country of Origin

(Thousands)

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Source: Caribbean Tourism Organization.

Data estimated for 1990.

Table 21.

Caribbean Region: Number of Hotel Rooms1

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Source: Caribbean Tourism Organization.

Includes apartments, villas, and guest houses.

Includes, Barbados, Belize, Bermuda, Cayman Islands, Guyana, Trinidad and Tobago, Turks and Caicos Islands, Aruba, Bonaire, Curaçao, Saba, St. Eustatius, St. Maarten. Guadeloupe, Martinique, Haiti, Surinam, and U.S. Virgin Islands.

The Caribbean is the most important destination in the world for the cruise industry, accounting for more than 50 percent of world cruise ship passengers. Cruise tourism expanded rapidly in the ECCB region as well as in the rest of the Caribbean during the 1990s (Table 22). In particular, cruise ship tourist arrivals increased at an annual average rate of 10 ½ percent during 1990–98 in the ECCB region. Dominica had the largest annual average increase in cruise ship tourist arrivals (56 percent) during this period (from a very low base), followed by St. Kitts and Nevis and St. Lucia (21 percent and 18 percent). In contrast, the number of cruise ship tourist arrivals to St. Vincent and the Grenadines declined sharply.

Table 22.

Caribbean Region: Cruise Passenger Arrivals

(Thousands)

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Source: Caribbean Tourism Organization.

Includes Barbados, Belize, Bermuda, Cayman Islands, Trinidad and Tobago, Aruba, Bonaire, Curaçao, St. Maarten, Guadeloupe, Martinique, and U.S. Virgin Islands.

Reflecting the increase in total arrivals, tourism earnings of the ECCB region increased at an average annual rate of about 6 percent during 1990–98 (Table 23). St. Vincent and the Grenadines had the highest average annual growth rate of receipts from tourism, followed by St. Lucia and Dominica. Nevertheless, and despite the 1995 hurricanes, Antigua and Barbuda continued to be one of the two largest recipients of tourism earnings (along with St. Lucia), reflecting its concentration in the high end of the market. The share of the ECCB region in the total tourism receipts of the Caribbean has remained in the range of 6–7 percent, performance that was due in part to the large proportion of visitors who arrive aboard cruise ships, as spending by these visitors is comparatively small.

Table 23.

Caribbean Region: Visitor Expenditure

(Millions of U.S. dollars)

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Sources: Eastern Caribbean Central Bank, Caribbean Tourism Organization, and IMF staff estimates.

Includes Barbados, Belize, Bermuda, Cayman Islands, Guyana, Trinidad and Tobago, Turks and Caicos Islands, Aruba, Bonaire, Curaçao, Saba, St. Eustatius, St. Maarten, Guadeloupe, Martinique, Haiti, Suriname, and U.S. Virgin Islands.

Public Finances

Most of the ECCB member countries maintained fairly sound fiscal policies in the 1990s, but there were noticeable differences in performance. St. Lucia and St. Vincent and the Grenadines attained substantial public saving and moderate public sector surpluses or relatively small deficits during most of the period, while Antigua and Barbuda showed persistent negative public saving and a public sector deficit averaging 5 percent of GDP over 1990–98 (Table 24). In Dominica and Grenada, countries that undertook largely successful adjustment efforts in the 1980s with IMF support, performance has been unsteady, with public sector balances deteriorating in 1997–98, although in Grenada the public sector deficit narrowed in 1999. In the case of St. Kitts and Nevis, the condition of the public finances weakened markedly in 1998, mainly as a result of the damage inflicted by Hurricane Georges, and again in 1999 when reconstruction got under way.

Table 24.

ECCB Area: Selected Public Sector Indicators by Country

(Percent of GDP)

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Sources: National authorities, and IMF staff estimates.

Includes privatization proceeds.