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1

This paper could not have been prepared without extensive cooperation from the national insurance schemes in the ECCU. The paper has also benefited from comments and suggestions by Paul Cashin, Mario Dehesa, Pablo Druck, Kevin Fletcher, Robert Gillingham, Gregorio Impavido, Padamja Khandelwal, Nkunde Mwase, Koffie Nassar, Cathy Pattillo, Sean Roache, Markus Rodlauer, Erica Tsounta, Nancy Wagner, and participants in a seminar in the Western Hemisphere Department of the IMF. Any remaining errors are my own.

2

In this paper, the ECCU refers to the six independent states of Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines.

3

These are International Labor Organization (2005; 2004a; 2004b) for St. Lucia, Grenada, and St. Kitts and Nevis; by Veira (2005) for St. Vincent and the Grenadines; findings by IMF’s Fiscal Affairs Department for Antigua and Barbuda, Dominica (and Horizonow (2005)), and for St. Vincent and the Grenadines (and Veira (2005)). Pension schemes for civil servants are excluded from the analysis below. This paper incorporates information available as of October 2008.

5

Defined as the ratio of the economically-inactive population to the economically-active population.

6

The assumption is stated in terms of the “net emigration rate,” that is, the rate of emigration net of immigration.

7

Yet another approach, calculating the change in the stock between 1990 and 2000 OECD censuses, would imply even higher rates of emigration for all ECCU countries but Dominica.

8

The baseline projection for Dominica in Figure 6, prepared by the IMF’s Fiscal Affairs Department, predicts that asset depletion will take place in 2033. The ninth actuarial review (Horizonow (2005)) predicts that asset depletion will take place in 2038.

9

Pension fund financial statements do not provide sufficient detail to calculate the rate of return on nonpublic assets based on interest received rather than interest earned.

10

Since January 2008, the cashflow of the pension fund has improved as the government is now paying its monthly contributions as an employer.

11

A study of age-related spending in the European Union found that population aging will increase costs on pensions, health care, and long-term care by more than it will reduce spending on education and unemployment benefits (Economic Policy Committee and European Commission 2006).

12

All spending by Ministries of Health and Education are included, due to data limitations, and includes some spending that is not related to health or education.

13

In the ECCU, primary education to ages 12–14 is compulsory, while entrance to higher grades is selective.

14

In the ECCU, government mandates to provide health care are broadly stated, with an evolving practice as to which treatments and medicines are covered.

16

This is particularly important in light of recent turmoil in international financial markets.

17

For a discussion of selected countries’ efforts to upgrade their public pension schemes’ investment frameworks and to strengthen their governance structure, see Vittas et al (2008).

Can the Eastern Caribbean Currency Union Afford to Grow Old?
Author: Mr. Hunter K Monroe