Eastern Caribbean Currency Union: Staff Report for the 2017 Discussion on Common Policies of member countries
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International Monetary Fund. Western Hemisphere Dept.
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Publication Date:
14 Jun 2017
eISBN:
9781484303375
Language:
English
Keywords:
ISCR; CR; ECCU country; cost; legislation; director; country authorities; due diligence; bank consolidation; physical capital; ECCU bank; debt target
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Eastern Caribbean Currency Union: 2017 Discussion on Common Policies of Member Countries-Press Release and Staff Report

Abstract

Eastern Caribbean Currency Union: 2017 Discussion on Common Policies of Member Countries-Press Release and Staff Report

Recent Developments

1. Economy activity decelerated in 2016, reflecting flat tourism receipts and falling revenues from citizenship programs. GDP growth fell slightly from 2.6 percent in 2015 to an estimated 2 percent in 2016 (Figure 1). Tourist inflows were steady, with stay-over arrivals growing by 3 percent, mostly from the U.S., while visitors from the U.K. continued to decline (Figure 2). Nonetheless, despite higher arrivals, tourism receipts were virtually flat (Table 6). The inflow of revenues from Citizenship-By-Investment (CBI) programs decelerated, weakening construction activity in St. Kitts and Nevis and, to a lesser extent, in Antigua and Barbuda. Declining commodity and food prices and a negative output gap continued to exercise downward pressure on inflation.

uA01fig01

ECCU: Indicators of Economic Activity

(In percent, year-on-year growth)

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

Sources: ECCB; and IMF staff estimates and calculations.
uA01fig02

Stay-Over Tourist Arrivals

(In percent, year-on-year growth)

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

Sources: ECCB; and IMF staff estimates and calculations.
Figure 1.
Figure 1.

ECCU: Real Sector Developments

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

Source: Country authorities, ECCB and Fund staff calculations.
Figure 2.
Figure 2.

ECCU: Tourism Developments

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

Source: ECCB, CTO and Fund staff calculations.
Table 1.

ECCU: Selected Economic and Financial Indicators, 2010–221

article image
Sources: Country authorities; and Fund staff estimates and projections.

Data as of February 22, 2017. Includes all eight ECCU members unless otherwise noted. ECCU price aggregates are calculated as weighted averages of individual country data. Other ECCU aggregates are calculated as sum of individual country data; ratios to GDP are then calculated by dividing this sum by the aggregated GDP.

In Anguilla and Antigua, the baselines include banks resolution with important fiscal consolidation commitments that lower significantly the debt-to-GDP ratio over the projection horizon. Additionally, in Grenada, the debt restructuring has taken place with significant impact on the debt-to-GDP ratio.

Includes errors and omissions.

Table 2.

ECCU: Selected Economic Indicators by Country, 2010–22

article image
Sources: Country authorities; and Fund staff estimates and projections.

The contraction in 2012,2013, and 2014 is associated with restructuring of public debt.

Table 3.

ECCU: Selected Central Government Fiscal Indicators by Country, 2010–221

article image
Sources: Country authorities; and Fund staff estimates and projections.

Fiscal years for Dominica, Montserrat (since 2010) and St. Lucia.

An estimate of the bank resolution cost is included for 2016.

An estimate of the bank resolution cost is included for 2015.

Table 4.

ECCU: Selected Public Sector Debt Indicators by Country, 2010–221

article image
Sources: Country authorities; and Fund staff estimates and projections.

Fiscal years for Dominica, Montserrat (since 2010) and St. Lucia.

In Anguilla and Antigua, the baselines include banks resolution with important fiscal consolidation commitments that lower significantly the debt-to-GDP ratio over the projection horizon. Additionally, in Grenada, the debt restructuring has taken place with significant impact on the debt-to-GDP ratio.

An estimate of the bank resolution cost is included for 2016 for Anguilla, and 2015 for Antinuga in Barbuda.

Includes external arrears.

Interest payments from 2009 are on accrual basis.

The increase (decrease) in implicit domestic (external) interest rate in 2010 is due to the projected repayment of domestic debt financed by external borrowing, resulting in a large decline (increase) in year-end domestic (external) debt outstanding.

Table 5.

ECCU: Monetary Survey, 2010–18

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Sources: ECCB; and Fund staff estimates and projections.
Table 6.

ECCU: Summary Balance of Payments, 2010–221

article image
Sources: ECCB; and Fund staff estimates and projections.

Based on BPM5 (Balance of Payments 5) methodology.

Includes errors and omissions.

2. Fiscal receipts from CBI programs declined. While the number of applications has been stable, increased competition among countries is reducing requirements, which lower revenue per citizenship, and an increasing share of receipts are not recorded on budget. Revenue in St. Kitts and Nevis dropped sharply after its 2014 peak (Annex II). Increased competition and intensified due diligence of prospective applicants impacted income in Antigua and Barbuda. Conversely, Dominica’s lower cost and more aggressive marketing approach has contributed to increase its regional market share. St. Lucia, after a disappointing launch in 2016, made its program more competitive.

uA01fig03

CBI Fiscal Revenues – On Budget1

(In percent of GDP)

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

Sources: Country Authorities; and IMF Staff Calculations.1 CBI fiscal revenues as a share of the total nominal GDP of Antigua & Barbuda, Dominica, Grenada, St. Kitts & Nevis, and St. Lucia. May include projected figures for 2016 as fiscal year duration varies.2 Figure for Grenada includes NTF.

3. External conditions were broadly stable in 2016. The regional current account deficit is estimated to have worsened from 10 percent of GDP in 2015 to about 11.9 percent of GDP in 2016.1 This deterioration resulted from repatriation of hotel profits and lower exports of goods, which declined by about 12 percent, largely reflecting one-off factors in St. Lucia and Dominica. The deficit continues to be financed mostly through FDI inflows, which—at 12.1percent of GDP—are largely aligned with the average of 12 percent of GDP over the last 20 years. International reserves rose by 8.3 percent to almost $1.7 billion, equivalent to 6.5 months of current year imports of goods and services.

uA01fig04

Current Account Balance

(In percent of GDP)

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

1/ Mainly remittancesSources: IMF estimates and calculations.

4. The fiscal position weakened and public debt remains high. The regional fiscal deficit of central governments rose from 0.7 percent of GDP in 2015 to 1.9 percent of GDP in 2016. This reflected the costs of bank resolution in Anguilla; declining receipts from the citizenship program in St. Kitts and Nevis; reconstruction expenditure in Dominica following tropical storm Erika; and fiscal policy easing in St. Lucia. Improvements in other countries reflected previous costs of bank resolution (Antigua and Barbuda); fiscal consolidation (Grenada); and financing constraints (St. Vincent and the Grenadines). Increasing financing pressures, evidenced by deposit drawdowns in Antigua and Barbuda and capital spending compression in St. Vincent and the Grenadines, further highlight the need for fiscal adjustment. Public sector debt declined marginally from 81 percent of GDP in 2015 to 79.8 percent of GDP in 2016, remaining well above the 2030 regional target of 60 percent of GDP.

uA01fig05

Central Government Overall Balance

(In percent of GDP)

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

Sources: Country authorities; and IMF staff estimates.

5. Persistent weaknesses restrain bank lending. NPLs remain high at 15.1 percent of total loans for indigenous banks and 9.2 percent for foreign banks. Bank’s efforts to strengthen their balance sheets are often frustrated by debtor-friendly foreclosure laws, while near-zero profitability restricts banks’ ability to raise provisioning, which remains low at 46 percent of NPLs. Accordingly, banks have been unwilling to expand credit to the private sector, which fell by 5.9 percent year-on-year in December 2016—the fourth consecutive year of decline, dragging down growth.

6. The withdrawal of correspondent banking relationships (CBRs) has mostly hit the offshore sector, but increasing costs have reduced profitability in indigenous banks. Terminations of CBRs have caused some offshore banks to lose their license, and discouraged new applications. Conversely, and unlike elsewhere in the Caribbean, onshore indigenous banks overall have not experienced any significant loss of CBRs.2 Due diligence costs and fees charged by correspondent banks have increased, but only partly passed onto customers, thereby reducing already low profitability. Moreover, clients considered risky, including money business services, were denied CBR services. Trade finance has been restricted in some countries and check clearing, particularly Eurocheque services, was discontinued in some cases due to increased transaction costs.

uA01fig06

ECCU Banks: Number of Foreign Nostro CBR Accounts

(Number; selected surveyed banks)1

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

Sources: IMF Survey of Caribbean Banks and Authoritiesd; and IMF staff estimates and calculations.1 Number of Corresponding Banking Relationship (CBR) nostro accounts as reported by selected banks and country authorities. Bank coverage varies by country. Other Caribbean includes the Bahamas, Suriname, Guyana, Trinidad and Tobago, Belize. Data as of June in each year.
uA01fig07

Selected Banks: CBR Fees

(In percent bar represents the range of survey responses)1

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

Sources: Country Authorities; IMF Survey of selected banks (Sept, 2016);and IMF Staff estimates and calculations.1 Response range of changes in CBR fees over 5 years prior to data collection.

Outlook and Risks

7. Growth is expected to rise to 2½ percent in the near term before converging to its potential at around 2 percent. Regional prospects have improved since the last decade, given a broadly positive external environment, significant CBI inflows, and the resolution of the intervened banks in Antigua and Barbuda and Anguilla. The expected improvement in growth is underpinned by a recovery in tourism, and sizable investment projects in public infrastructure and in the tourism industry. Over the longer term, staff estimates indicate that, without a significant change in policies, potential growth in the region will remain low, in the range of 1.5–2.5 percent. These estimates are based on historical trends in employment and accumulation of physical and human capital, and account for the impact of natural disasters (Box 1).

8. Risks to the baseline are broadly balanced. The rebalancing of the U.S. policy mix is likely to entail spillovers to the ECCU, but the net effect is uncertain, with an upside risk from an expansionary U.S. fiscal policy at least partly offset by the risk of a stronger U.S. dollar, lowering ECCU competitiveness, and higher interest rates. Tighter U.S. immigration policy may increase the demand for CBI programs, which however may fall if host countries reduce visa-free access to CBI passport holders. Lack of progress on reducing public debt, strengthening the banking sector, and boosting productivity could undermine confidence and hold back growth. Recurrent natural disasters present a major risk for ECCU countries (Box 2).

Potential Growth 1/

In the last decade, growth in the ECCU has been historically low and well below that of the rest of the world. This is explained by developments affecting the accumulation and utilization of all factors of production, and by productivity trends. Labor was affected by out-migration, especially of skilled workers. Physical capital accumulation was hampered by natural disasters—a trend that could worsen over time with climate change—, financial sector weaknesses, and high public debt.

Staff estimates based on a growth accounting framework highlight the role of productivity. These estimates—which account for the impact of natural disasters on physical capital and of migration on labor and human capital—show that total factor productivity was negative in the last decade, with important differences across countries. Without stronger policies to enhance the business environment and the functioning of labor markets, annual potential growth can be expected to be in the 1.5–2.5 percent range for the region.

uA01fig08

Determinants of growth in the ECCU

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

1\ Based on Conto, B. and A. Guerson” Productivity and Growth in the ECCU”, Selected Issues Paper, forthcoming 2\ Ranges indicate potential growth under alternative assumptions on the evolution of the factors of production based on trends observed in alternative historical periods.

Risk Assessment Matrix (RAM)1

article image

The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). The relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly. “Short term” and “medium term” are meant to indicate that the risk could materialize within 1 year and 3 years, respectively.

Policy Discussions

The currency union is providing a strong anchor for macroeconomic stability and low inflation in a region highly exposed to external shocks and natural disasters. Continued success depends on its ability to reduce high public debt, strengthen resilience to shocks, address financial sector weaknesses, and boost productivity and competitiveness. Discussions focused on policies to achieve these objectives in the context of greater policy coordination and deeper economic integration.

A. Strengthening the Fiscal Policy Framework to Address Sustainability Challenges

9. Policy responses to the global financial crisis have increased rigidities in government budgets which will be best addressed by medium-term structural reforms. Wage bills absorb a large share of budgetary resources, which has increased in most countries over the last decade. Moreover, public pension increments are often linked to wage increases, magnifying their impact on government spending. Reversing this trend will require well-designed programs to reform institutions and policies and improve the framework for wage negotiations, the composition and distribution of government, addressing shortages and overstaffing. Adequate social safety nets will also be needed to de-link public employment policies from social welfare objectives. Dominica, Antigua and Barbuda, St. Kitts and Nevis are taking steps in this direction while Grenada has developed a public service management reform strategy to be implemented over 2017–2019 (Annex III).

uA01fig09

Wage Bill

(In percent of GDP)

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

Sources: Country authorities, and IMF staff estimates.

10. ECCU member countries need a significant fiscal effort to achieve their debt target. ECCU governments set a public debt target of 60 percent of GDP by 2030, but fiscal policies in member countries are not explicitly designed to achieve this commitment. On current policies (passive scenario), or even in a more realistic scenario where current policies cannot be fully financed (baseline scenario), the region is not expected to reach its debt target by 2030. Where possible, large deposits from CBI inflows should be used to reduce debt. The adoption of appropriately designed fiscal rules would provide governments with a commitment device to anchor their fiscal adjustment strategies (active scenario) to the debt target, and safeguard them from pressures to deviate from that path (Box 3).3 This effort could build on reforms already under way to adopt or refine medium-term fiscal frameworks and strengthen public financial management, including in the design and implementation of public investment programs (Annex IV).

uA01fig10

ECCU-6: Total Public Sector Debt

(In percent of GDP)1

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

Source: IMF staff estimates and calculations.1 Fiscal year.

Fiscal Rules1/

The ECCU debt target is not accompanied by a policy coordination mechanism to meet the target. The ECCU has set a target for member countries’ public debt of 60 percent of GDP by 2030. However, attaining this target requires a framework to provide short-term operational guidance, including outlining the target’s path and ensuring adherence to it.

Setting fiscal rules and sound foundations for their effective implementation would help countries achieve the debt target. Some ECCU countries are preparing or refining their medium-term fiscal frameworks and reforming their public financial management. Building on these reforms, implementing fiscal rules would provide governments with a pre-commitment strategy to help them pursue sustainable fiscal policies, despite political economy pressures to deviate from that path.

Empirical evidence shows that countries with well-designed fiscal rules (such as budget balance and debt rules) are associated with stronger fiscal performance.2 Moreover, countries with more binding fiscal rules tend to run larger primary balances than countries without fiscal rules.3 Furthermore, more recent evidence for advanced economies indicates that, even in countries with a mixed record of fiscal responsibility, fiscal rules can lower financing costs.4

Laws already adopted in Jamaica and Grenada provide useful benchmarks for designing fiscal rules in ECCU countries.5 Both countries designed their fiscal rules to reflect best practices and each country’s specific circumstances. Both sets of rules feature: (i) a ceiling on the wage bill; (ii) a primary surplus floor; (iii) a public debt ceiling; (iv) automatic correction mechanisms for deviations from the rule; (v) escape clauses; and (vi) an institution responsible for monitoring and reporting to parliament on the consistency of fiscal developments with the rule, like the fiscal councils adopted in many countries. Anguilla’s Fiscal Responsibility Act also is an interesting case of legislation setting borrowing limits.

Fiscal rules for ECCU countries should be easily monitored and communicated, exclude exceptional non-tax revenue, recognize the recurrence of natural disasters, and be supported by strong PFM and statistical reporting. The selected operational target should be the primary balance floor, as it is fully controlled by each country’s government, is simple to understand, leads to a lasting reduction in public debt, and is verifiable. The definition of government should cover statutory bodies and government enterprises. The primary balance rule should exclude most exceptional non-tax revenue such as receipts from CBI programs. To preserve its credibility, the fiscal rule needs to include escape clauses allowing the government to temporarily deviate from the rule under very specific circumstances and a procedure for returning to the rule. Effective public finance management (PFM), credible medium-term fiscal plans, and adequate statistics, including from public enterprises, are necessary preconditions for the implementation of fiscal rules. The task of monitoring the government’s implementation of the fiscal rule and reporting it to the public should be performed by an independent institution with sufficient technical capacity.

1/

Based on G. Impavido and D. Simard “Fiscal Rules for the ECCU”, Selected Issues Paper, forthcoming

2/

Schaechter et al. (2012), “Fiscal Rules in Response to the Crisis. Toward the “Next Generation” Rules”, IMF Working Paper 12/187.

3/

International Monetary Fund (2013), “The Functions and Impact of Fiscal Councils”, IMF Policy Paper, November.

4/

International Monetary Fund, April 2017 Fiscal Monitor, chapter 1, “Achieving More with Less”.

5/

Jamaica, IMF country report No. 14/169, p. 13 and pp. 67–68, and Grenada, IMF country report No. 15/193, Annex IV.

11. Fiscal rules should be flexible, but ought not substitute for sound preparation for natural disasters. In the case of large scale natural disasters, escape clauses can be considered to allow governments the ability to respond quickly and adequately. Meanwhile, governments should shift their focus from disaster response to disaster preparation. Domestic policies to address natural disasters should be strengthened and integrated into investment, debt, and public financial management frameworks. Countries should assess risks from natural disasters, including to financial stability, and adopt adequate crisis management frameworks. Disaster financing should be arranged before the event through a combination of fiscal buffers, contingent financing plans, and risk transfer arrangements. The medium-term fiscal framework should fully internalize the estimated fiscal costs of natural disasters. In this context, the need for an escape clause would be limited to exceptional disasters.

12. ECCU countries are looking at ways to strengthen regional collaboration on CBI programs. These programs present fiscal, macroeconomic, and reputational externalities that require careful management. ECCU authorities have asked the Organization of Eastern Caribbean States (OECS) Commission to provide a framework to readjust, reposition, and recalibrate individual CBI programs, including in representing these programs to the rest of the world. A regional approach would have several advantages, including: (i) reducing costs as economies of scale could result from concentrating certain functions, such as background checks; (ii) increasing revenues by preventing a “race to the bottom” that lower conditions for citizenships; and (iii) reducing reputational risks by centralizing safeguards and eliminating incentives to reduce governance standards

The Authorities’ View

13. ECCU countries intend to focus on forward-looking fiscal policies to attain their 2030 debt target. In the July session of the ECCB’s Monetary Council, member countries will discuss interim targets for 2020 and 2025, which are expected to be underpinned by well-articulated fiscal frameworks. Most member countries appreciate the importance of adopting fiscal responsibility legislation to support the adjustment effort and create additional fiscal space. The ECCB stands ready to provide member countries with technical support. The ECCB agrees on the importance of containing the wage bill and some national government are preparing reform plans.

14. Fiscal buffers are needed to address recurrent natural disasters, but may be difficult to build in some countries. The ECCB reiterated that member countries should allocate some resources from CBI programs to a fund covering the fiscal cost of natural disasters as they arise and to finance investment in climate resilient infrastructure. It acknowledged, however, that building adequate buffers might strain countries that cannot count on significant CBI resources or are confronted by immediate fiscal challenges.

B. Strengthening the Financial Sector

15. Finalizing the regional strategy to strengthen the banking sector is key to enhance financial sector stability and for banks to resume lending. Completing the final steps to establish the ECAMC will allow the collection under one roof of distressed assets under receivership, providing a vehicle for the disposal of banks’ bad assets. Meanwhile, easing restrictions on non-citizen property ownership would support the sale of collateral while a new macro-prudential framework would provide additional tools to the ECCB.4 Modernizing the foreclosure and insolvency framework is also necessary to maximize the recovery of bad assets, minimize fiscal costs, and improve bank resolution in future crises. New harmonized collateral appraisal guidelines developed with Fund TA and new provisioning regulations will improve the quality of credit decisions and reduce losses from NPLs. Bank consolidation can address capital needs in some cases. Moreover, staff analysis indicates that it could help enhance the efficiency and resilience of the banking system (Box 4).

The Consolidation of Indigenous Banks

ECCU banks with relatively high NPLs show higher loan portfolio concentration, both across economic sectors and countries. Staff simulations indicate that the consolidation of existing indigenous banks could strengthen capital positions and increase financial stability. These simulations also show that consolidation can enhance banks’ resilience to shocks by increasing portfolio diversification across sectors and countries. To some extent, these gains can be achieved with a limited impact on the market power of the amalgamated institutions, but the ECCB should monitor carefully the risk of a large bank becoming too big to fail, which could undermine the stability of the currency union.

uA01fig11

Concentration risk NPL ratio

(2001Q1–2015Q4, all banks)

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

Sources: ECCB and IMF staff estimates

As the number of amalgamated banks increases, loan concentration risk falls and the likelihood of bank failure (measured by an increasing Z-score) also declines…

uA01fig12

ECCU Banks: Financial Stability and Loan Portfolio Risk after amalgamation

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

Sources: ECCB and IMF staff estimates.

…while market concentration rises only slowly, suggesting that a trade-off between financial stability and competition would arise only at high levels of concentration

uA01fig13

Loan and Deposit concentration after amalgamation

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

1/ The Herfindahl-Hirschman index (HHI) is a measure of market concentration. It is calculated by squaring the market share of each firm competing in a market, and then summing the resulting numbers. It can range from close to zero (highly competitive market) to 10,000 (Highly concentrated market). HHI-Loan is calculated by share of loan size, HHI-Deposit is calculated by share of deposit size.Sources: ECCB and IMF staff estimates.

16. Operations of the Regional Government Securities’ Market (RGSM) can be improved to increase financial deepening and support fiscal consolidation. Member governments spend on average 3 percent of GDP in interest, reflecting high public debt and servicing costs. Lack of depth, low competition, limited information, and inefficient auction operations contribute to increasing reliance on over-the-counter issuance and limiting the development of the RGSM, both in volumes and yield reduction. Moreover, these shortcomings prevent the development of a secondary market, which is key to ensure effective functioning of a competitive primary market. Improving the efficiency of the RGSM and a more active debt issuance policy by governments could yield valuable savings, supporting the fiscal adjustment effort needed to achieve their 2030 debt target (Annex V).

17. The minimum saving rate (MSR) distorts credit markets and contributes to increasing the cost of government financing. The MSR has several drawbacks, including its impact on public debt service.5 By setting a floor to the remuneration of excess liquidity, it raises the interest rate on government securities when markets are very liquid and discourages the development of a secondary market. Evidence shows that the MSR significantly impacts credit markets.6

18. Full compliance with international AML/CFT standards, stronger regulatory and supervisory frameworks, and bank consolidation would reduce the risk of further withdrawal of CBRs. The authorities have made significant efforts to ensure compliance with international AML/CFT standards. Consolidation of AML/CFT supervision with the ECCB and harmonization of AML/CFT legislations are welcome. However, more progress is needed to comply with the 2012 FATF and tax transparency standards. Implementation by all banks of the Basel Capital Accord based on updated asset quality assessments and of risk-based supervision in bank and non-bank financial sectors would improve perceptions held by international banks. Another important step is improving communication and information sharing between respondent and correspondent banks, while bundling correspondent banking services with other products can generate economies of scale and lower fixed compliance costs. Lastly, bank consolidation could lower compliance costs, promote sharing of best practices, and generate sufficient volumes and profitable traffic for large foreign correspondent banks.

19. Gaps in the regulatory framework for credit unions are a source of concern. Credit unions are a significant component of the financial sector in some ECCU countries—especially St. Vincent and the Grenadines, Dominica, and St. Lucia—and have grown elsewhere. The sector, however, is affected by weak regulatory standards, insufficient enforcement, and low profitability. Regulation and supervision in each country rest under the responsibility of local regulatory authorities, which are constrained by insufficient resources and weak enforcement powers.

uA01fig14

Non-Bank Resident Deposits, 2016

(Percent - Share of Total Resident Deposits)

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

Sources: ECCB; and IMF Staff Estimates.

Strengthening the regulatory framework is particularly important given the close links between credit unions and the banking sector, mainly through deposits.

uA01fig15

Credit Unions: Loans

(In percent of total loans)

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

Sources: Country authorities; and ECCB.
uA01fig16

Credit Unions: Return on Assets

(Percent)

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

Sources: Country authorities.

20. The authorities are strengthening the regulatory framework for credit unions. Draft harmonized legislation on credit unions, currently under review by local regulators, includes specific penalties for noncompliance; the requirement of annual license registration; a maximum of three years to comply with minimum capital requirements. It also includes: (i) a cap on mortgage loans of 45 percent of total loans; (ii) allowing membership of credit unions to companies, as opposed to natural persons only; (iii) a minimum capital contribution to serve as a volunteer, applicable to Board members; (iv) a minimum threshold of shared capital of 20 percent of total capital; and (v) fit-and-proper requirements on management, including minimum education requirements for Board members, and a cap on the number of volunteers and immediate family members. The harmonized legislation on credit unions may provide a first step towards future unification of credit union regulation.

21. The 2016 update safeguards assessment found that the ECCB continues to maintain a governance framework that provides for independent oversight. Transparency in financial reporting has been maintained and the external audit mechanism is sound. The ECCB is taking steps to restructure the internal audit and risk management functions to align them with leading international practices.

The Authorities’ View

22. The ECCB underscored progress in strengthening the financial sector. It noted that intensified on-site supervision supported stronger regulatory enforcement and the identification of emerging capital needs. The ECCB further noted that all banks now comply with minimum capital adequacy ratios, and are expected to conform with the minimum capital requirement within the 450-day deadline established by the new Banking Act. The authorities agreed on the importance of the timely transfer of receiverships to the ECAMC. The authorities expect the ECAMC to be fully operational soon. Efforts are ongoing towards fully implementing a consolidated supervisory framework. Fund and World Bank technical assistance has been deployed in 2016 and 2017 to improve credit unions’ data reporting quality and consistency, and to develop stress testing capacity among local regulators and supervisors. The ECCB is also developing its own capacity to monitor developments in credit unions and mitigate related risks for banks.

23. AML/CFT supervision was strengthened, but maintaining CBRs is challenging. The authorities noted the recent decision by the Monetary Council for the ECCB to assume responsibility for AML/CFT regulation of all institutions licensed under the Banking Act. Risks to CBRs are mostly related to the small scale of business of respondent banks relative to the high penalties imposed by foreign regulators on correspondent banks, which in some cases make CBRs unprofitable, and bank consolidation may contribute to alleviate this problem.

24. The authorities maintained their reservations on the benefits of eliminating the MSR. They noted that lending rates declined only slightly after the recent reduction in the MSR, and the impact has been muted on credit dynamics and credit growth in general. Additional bank fees on savings accounts have reduced the effective MSR to almost zero or negative in some instances. Without saving and investment alternatives, the maintenance of the MSR is an instrument to incentivize private saving and support households’ income. Future decisions regarding the minimum savings rate would be influenced by recurrent assessment of the monetary and credit conditions in the ECCU and the ongoing review of the impact of the reduction in the minimum savings rate. The authorities welcome joint research on the MSR.

C. Enhancing Competitiveness and Boosting Potential Growth

25. The external position is weaker than implied by fundamentals and desirable policies. Despite some appreciation since mid-2014, the EC dollar has remained near its long-term average in real effective terms, in line with the de-facto peg. While the INS-based REER has appreciated by about 7.6 percent over three years to December 2016, the de-facto peg of the EC dollar to the U.S. dollar and lower inflation have contributed to maintaining the customer-based REER close to its 30-year average. Meanwhile, the competitor-based REER appreciated only by 2 percent over the last three years. Estimates of the REER misalignment show an overvaluation ranging between 2.3 percent and 21½ percent. Record excess liquidity, mostly held at the central bank, has boosted gross international reserves, assessed to be adequate against several benchmarks (Annex VI).

uA01fig17

ECCU: REER

(Index, 2005=100)

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

Sources: IMF staff estimates and calculations.

26. Sluggish productivity is the key reason for low growth, which has become entrenched after the global financial crisis. Moreover, investment is impacted by recurrent natural disasters, inadequate public infrastructure, financing and capacity constraints. The contribution of labor is weakened by significant outward migration, particularly of skilled workers, further reducing growth. Labor is concentrated in low-productivity sectors, reflecting labor market rigidities and skills mismatches (Box 1). Public employment and wage policies have contributed to labor misallocation and structural unemployment by weakening the link between wages and productivity (Annex III).7

27. The region is highly vulnerable to natural disasters, which entail high costs. The average annual cost of disasters for small states is almost 2 percent of GDP, over fourfold that for larger countries. For ECCU microstates, this value rises to 3.4 percent of GDP. These disasters have significant macroeconomic implications, lowering investment, increasing poverty, and reducing fiscal space. Moreover, financial and capacity constraints affect the ability of these countries to recover quickly after disasters, making their effect more permanent.

uA01fig18

Average Effects of Natural Disasters, 1990–2014

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

28. The authorities are making progress on the structural reform agenda.

  • All ECCU members are rebalancing their energy mix towards renewable energy, which is essential to reduce dependence on fossil fuels and generate savings in energy costs over the long term. However, delays and regulatory impediments, including restrictions on reselling solar power back to the grid, are preventing countries from reaping all the benefits.

  • Some members are strengthening their connectivity, but a coordinated approach is lacking. St. Lucia is adding new international flights, Antigua and Barbuda has completed its new airport terminal, and St. Vincent and the Grenadines has opened its new international airport. However, the cost of interisland air travel is raised by diseconomies of scale, labor rigidities, taxation and fees, and service quality is highly variable. Overall, air transport network development in the broader Caribbean reflects competition between islands for tourism, which involves distorting subsidy schemes and suboptimal routing.8

  • Members are improving their tourism infrastructure by adopting development plans, strengthening regulations, and reviewing frameworks to encourage FDI in the sector. They are also developing a regional strategy for human resource development, which focuses on addressing country-specific needs in training.

  • Members are implementing programs to improve resilience to natural disasters and climate change Dominica is rebuilding its infrastructure strengthening resilience to climatic shocks; and St. Vincent and the Grenadines and other countries are upgrading their building codes.

  • Members are also working to reduce costs of doing business and improve the business climate in several areas, with St. Lucia actively working on a program of reforms under the Caribbean Growth Forum, and Grenada and St. Vincent and the Grenadines developing on-line search facilities for deeds and property titles. Regionally, the Growth Dialogue initiative, aiming to forge consensus on the main obstacles to growth, will develop an action plan for the next two years to be implemented jointly with the OECS, ECCU governments, social and development partners.

29. Further progress hinges on improving resilience to natural disasters, enhancing public sector efficiency, and increasing regional integration. An integrated approach to risk reduction and recovery from natural disasters requires shifting from ex-post relief to ex-ante preparation (¶11). Civil service reform is also necessary to improve efficiency and quality of services, better align public sector wages with productivity, and reduce a key source of budgetary pressures. ECCU small island economies would benefit greatly from further steps to increase regional economic integration, particularly in goods and labor markets, connectivity, and financial regulation. A single jurisdiction for businesses would facilitate access to cross-border commercial opportunities and harmonized border controls would ease mobility of goods and visitors within the region and, together with enhanced inter-island connectivity, promote multi-destination tourism. Operationalizing the OECS Air Services Agreement would enable smaller airlines to field less profitable routes and concentrate service by the regional airline on key routes.

The Authorities’ View

30. The authorities broadly agree with staff assessment of low external competitiveness. Improving business climate is a shared objective. Most islands are pursuing energy substitution from fossil fuels to renewables, which should lead to cost reductions in the long run. Regional authorities plan to benchmark the competitiveness of air travel in the Caribbean and assess the economic impact of connectivity, including marine transport, to further discussions in that area. Attempts are being made at reducing labor market rigidities by introducing personnel shift systems in hotels and port operations. Frictions affecting access to credit—especially foreclosure legislation and the lack of a credit registry—are being addressed at the regional level, with five countries to date agreeing to the recommendations from the report of the high-level committee established to review the land registration and foreclosure processes and procedures following a harmonized template and the establishment of a credit bureau. The decision to establish a Partial Credit Guarantee Facility jointly with the World Bank is expected to facilitate lending to SMEs.

31. They noted that progress on economic integration will generate economies of scale and enhance competitiveness. The draft bills on the free circulation of goods throughout the OECS are being reviewed in each member state. To boost the competitiveness of agriculture, standards for agriculture health and food safety are being upgraded and an initiative to ship agriculture goods is being implemented. To improve educational skills, the regional education strategy is being implemented in St. Lucia, Dominica, Grenada and St. Vincent and the Grenadines. Work is also under way to upgrade training and skills in tourism and hospitality.

Staff Appraisal

32. The short-term outlook is favorable, but stronger policies are needed to break away from a low-growth trap. Growth prospects continue to be buttressed by steady demand for tourism, low oil prices, and robust FDI inflows, partly related to CBI programs. While risks to the outlook are broadly balanced, the region remains vulnerable to external shocks, policy slippages, and natural disasters. High public debt, a fragile financial system, and weak competitiveness are the main stumbling blocks on the path to higher growth. Without more decisive policies to tackle these issues, growth performance will continue to be lackluster.

33. Credible medium-term fiscal frameworks are necessary to ensure debt sustainability. The decision of the ECCB’s Monetary Council to discuss interim targets towards the 2030 regional benchmark at its July 2017 meeting is a step in the right direction. The ability to adhere to medium-term fiscal consolidation plans would be strengthened by the adoption of fiscal responsibility legislation. Grenada’s Fiscal Responsibility Act, based on simple operational targets, may provide a model for other ECCU countries. Countries that have large deposits from CBI programs should use them to lower debt where possible.

34. Managing the wage bill is key to a sound fiscal consolidation strategy. Wage bills present a major budgetary rigidity, and public sector wage negotiations are often not informed by considerations of the fiscal situation and productivity. The authorities should follow a three-pronged approach based on wage moderation; employment attrition; and a functional review of the civil service. Part of the savings, which will occur gradually, could be used to build well-targeted social safety nets and reduce the need for governments to be employers of last resort.

35. Adequate preparation for natural disasters should be a top priority. The extreme vulnerability of the region to natural disasters underscores the need to enhance disaster preparedness. ECCU countries should prepare plans for investment in climate adaptation, financing, and risk management, to be fully integrated in macroeconomic and fiscal frameworks. Resilient public infrastructure should be accompanied by adequate enforcement of appropriate building and zoning codes. Mobilizing private investment and using concessional financing will be essential.

36. A formal regional framework is needed for CBI programs to strengthen their integrity, reduce risks, and preserve their capacity to generate revenue. Regional coordination would create economies of scale in due diligence on applicants, enhance transparency, and avoid a race to the bottom on programs’ terms. CBI inflows should be fully recorded on budget and integrated in medium-term fiscal frameworks. CBI revenues should be prioritized for debt reduction, particularly where public debt is high; saving funds for natural disasters, which should have strong institutional frameworks; and key infrastructure investment.

37. More progress is needed in addressing financial sector fragilities, and strict enforcement of prudential requirements is critical. Updated asset quality reviews based on international best practices are necessary to provide effective guidance on provisioning and capital needs for indigenous banks. Strict enforcement of the 2015 Banking Act and of new regulation on asset classification would prompt the recognition of losses and the provision of capital to undercapitalized banks. Strong governance arrangements and risk-management frameworks should be put in place where needed to avoid further losses. Strict enforcement is also important to ensure a level playing field, promote healthy competition, and sector consolidation.

38. New financial sector legislation should be finalized promptly. Activating the ECAMC should not be further delayed with a clearly defined role, full independence of its operations, and adequately experienced staff. Harmonized legislation on asset quality should also be finalized rapidly. Foreclosure and insolvency legislation, a key obstacle in some countries to the reduction of NPLs and a more dynamic credit market, should be rebalanced to facilitate the recovery of impaired loans. Harmonized legislation on credit unions and insurance is also important to strengthen the non-bank financial sector. The draft law should be extended to building societies, articulate the need to improve the frequency of financial reporting, and specify sanctions for non-compliant entities. Moreover, it should clarify the definition of capital and the procedures to address NPLs.

39. Steady progress towards stronger AML/CFT legislation and supervision is key to securing CBRs. In this regard, the decision to transfer AML/CFT supervisory powers from national agencies to the ECCB is welcome and further steps are needed to harmonize AML/CFT legislation. Full compliance with the 2012 FATF standards and tax transparency standards should be prioritized. Bank consolidation and improved communications between respondent and correspondent banks would further reduce risks of losing CBRs.

40. Measures to remove financial market distortions would promote financial deepening. The MSR remains an obstacle to the efficient functioning of credit markets and it should be removed. This would facilitate the development of financial markets, providing alternative financial instruments for small savers. The functioning of the RGSM could also be improved, including by simplifying issuance procedures and reviewing brokers’ fee structures. These measures could help reduce government borrowing costs.

41. Structural reforms remain critical to address high unemployment, lack of competitiveness, and low growth. The external position is weaker than implied by fundamentals and desirable policies, reflecting structural factors. Reducing costs of doing business remains a top priority. Additional efforts are needed to accelerate the implementation of renewable energy projects, which is lagging in some countries. Adequate preparedness would reduce the costs of natural disasters and their impact on growth. Furthering regional integration, particularly in goods and labor markets, connectivity, and financial regulation, is essential to boost competitiveness. Strengthening the link between wages and productivity, including through civil service reform, would support intersectoral labor mobility, helping to lower structural unemployment.

42. Improving statistics is necessary to enhance the quality of surveillance and policy analysis. Data quality varies across ECCU countries, but capacity needs strengthening in several areas, including balance of payments, labor markets, and government finance. Removing legal impediments to the use of fiscal information would help supplement the external sector survey when the response rate is low.

43. The discussion with the ECCU authorities will be on the 12-month cycle in accordance with Decision No. 13655-(06/1), as amended.

Figure 3.
Figure 3.

ECCU: Monetary Developments

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

Figure 4.
Figure 4.

ECCU: Financial Soundness Indicators

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

Source: ECCB and Fund staff calculations
Figure 5.
Figure 5.

ECCU: Doing Business Indicators1

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

Sources: World Bank 2016 Doing Business Indicators; and Fund staff calculations.1/ Smaller numbers represent greater ease in doing business. 2016 Doing Business rankings are across 189 countries. These indicators should be interpreted with caution due to a limited number of respondents, a limited geographical coverage, and standardized assumptions on business constraints and information availability.2/ Annual rankings are rebased to adjust for different sample sizes.Note: Antigua and Barbuda (ATG), Dominica (DMA), Grenada (GRD), St. Kitts and Nevis (KNA), St. Lucia (LCA), St. Vincent and the Grenadines (VCT), and Latin America and Caribbean (LAC).
Table 7.

ECCU: Selected Labor Market Indicators1

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Sources: WEO, World Bank, WDI, National Authorities (censuses and poverty assessments); and IMF staff calculations.

2015

2013

2014

2012

Annex I. Implementation of Previous Staff Advice

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Annex II. Citizenship-By-Investment Programs1

The number of CBI programs has surged in recent years on the back of soaring demand for secondary citizenships and the advantages of these programs for small island states. This has yielded substantial inflows of CBI revenues in some countries, increasing their reliance on this volatile and unpredictable source. The success of programs with lower required contributions indicates intensified regional competition pointing to a “race to the bottom”. To fend off external risks and foster program integrity and transparency, the ECCU is considering a regional approach to promote best practices, achieve economies of scale, and stop revenue erosion. Given the volatile and unpredictable nature of these receipts, priority should be given to using them for debt reduction, investment in key infrastructure and climate change adaptation, and building fiscal buffers.

1. The launch of new citizenship programs in recent years has intensified competition, creating pressure to ease conditions. After peaking in 2014, the demand for the citizenship program in St. Kitts and Nevis has continued to weaken, and started declining in Antigua and Barbuda in 2016. This reduction in CBI revenues, however, was largely offset by the surge experienced in Dominica owing to very competitive conditions and extensive outreach activities. Dominica’s promotion, marketing, and outreach efforts during FY2015/16 amounted to 1.1 percent of GDP. Most of Dominica’s CBI inflows, however, were recorded off-budget, and transferred to budget only as needed. Total inflows to Grenada held up in 2016, although the share of applicants interested in NTF option exceeded the number of real estate applicants. The newly established program in St. Lucia met only limited success in its first year of operations, owing to its relative high pricing and political uncertainty in an election year.2

uA01fig19

CBI Fiscal Revenues – On Budget1

(In percent of GDP)

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

Sources: Country Authorities; and IMF Staff Calculations.1 Data shown in fiscal years. May include projected figures for 2016 as fiscal year duration varies.2 On budget flows exclude SIDF contribution St. Kitts and Nevis which is added for comparison.

2. Until now, CBI revenues have largely been used for general budget financing, debt consolidation, and reconstruction after natural disasters. In Antigua and Barbuda, for instance, these resources have been used for debt servicing and general financing purposes, with a portion of funds—largely off-budget—used to support the social security system and state-owned enterprises. In Grenada, in accordance with the legislation, funds have been used to pay budgetary arrears, accumulate savings in the Contingency Fund, and investment projects. In St. Kitts and Nevis, revenues have contributed to funding a broad spectrum of expenditures, including social programs and grants, but a large part (about 38% of GDP) was saved in bank deposits to establish the Growth Resilience Fund, as recommended by staff. In Dominica, CBI receipts were largely used to service and consolidate debt, finance infrastructure rehabilitation after storm Erika, and fund employment programs (see box). All countries have or intend to set up a sovereign wealth fund to save the proceeds from the citizenship program and use them to finance capital projects and debt repurchase.

The Use of CBI Revenues in Dominica

Interest in Dominica’s CBI program has gained momentum, reflecting aggressive outreach and competitive conditions. CBI-generated revenues (gross of CBI-related expenses) reached an estimated 19 percent of GDP in FY2015/16.

The use of CBI funds has largely targeted debt reduction, post-Erika reconstruction and infrastructure rehabilitation.1 Of the revenues generated in FY2015/16, 7 percent of GDP was used and 12 percent was deposited in the government’s bank accounts. Of the amount spent, only 5 percent of GDP utilized in FY2015/16 was reflected in the central government budget, and 2 percent accrued directly to state-owned enterprises. Concerning the composition of spending, the largest share was used to consolidate and service debt (3.2 percent of GDP). Spending on public works (1.8 percent) targeted emergency infrastructure works at the Douglas Charles Airport and reconstruction and rehabilitation of roads and bridges post-Erika. With unemployment rising in the aftermath of the disaster, some inflows (0.7 percent of GDP) were used to finance the National Employment program. The remaining funds were spent on social services, agriculture, tourism, housing, and commercial.

uA01fig20

Use of CBI Revenues

(In percent of total, FY2015/161)

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

Sources: Budget Address FY2015/16.1 Total excludes program marketing, and due dilligence fees.
1/

On August 27, 2015, Dominica was hit by Tropical Storm Erika, resulting in loss of life and substantial damage to crops and physical infrastructure. The damage was estimated at US$483 million or 96 percent of GDP, of which 65 percent are attributed to the public-sector reconstruction costs.

3. There are early signs of a “race to the bottom”. To expand hotel construction, Dominica amended its CBI program requirements by lowering the government fee of the real estate investment option. To enhance the program’s competitiveness and revenue, St. Lucia has substantially eased accessibility to the citizenship program (see table).3 The authorities expect that these changes will improve the appeal of St. Lucia’s program and boost applications and revenues. While this decision aligns St. Lucia’s citizenship program with Dominica’s, and may therefore generate additional demand, it is unlikely that CBI revenues in the former will become as important a source of revenue as in the latter owing to the much larger size of the St. Lucian economy.

uA01fig21

Number of Main Applicants Needed to Generate Inflows Equivalent to 1 Percent of GDP1/

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

1/ Based on minimum investment requirements per country for the NDF and real estate options. Assumes equal weights to the composition of applications (single vs. family applications). Based on 2016 figure for nominal GDP.Sources: Citizenship-by-Investment Units and IMF staff calculations.

4. The demand for citizenship programs is susceptible to exogenous shocks independent of the governments’ control, making CBI inflows volatile and unpredictable. While the passport is the underlying asset, it is the ability to access other countries visa-free (or with limited hassle if visa is required) that is important to potential applicants. Thus, any potential change in advanced countries’ migration policies poses a significant risk to the appeal of the passport and the demand for the CBI program. In the current complex global political and economic environment, the uncertainty surrounding future CBI inflows becomes even more acute, making budget planning more difficult.

5. The authorities are considering a regional approach to CBI programs, which seems best to reduce costs, increase revenues, and reduce reputational risks. To establish a stronger regulatory framework and promote collaboration on due diligence, the Citizenship-by-Investment Programs Association was formed in 2015. Moreover, the authorities of ECCU countries have recently granted to the Organization of Eastern Caribbean States (OECS) the mandate to coordinate regional cooperation on CBI programs. Joint management of CBI applications would yield economies of scale and reduce costs. A regional approach would prevent a race to the bottom, which reduces revenues. It would also ensure the adoption of best practices across the region, promoting information sharing and transparency, and preventing applicants who fail due diligence in one country from applying elsewhereelsewhere.

Investment Requirements of Citizenship-by-Investment Programs in the Caribbean1

(In US dollars)

Sources: Country Authorities; Citizenship by Investment Units Guidelines; Henley and Partners and Arton Capital.

Depicts minimum Investment requirements for single vs. family applications (a couple with up to two dependents under the age of 18). Additional due diligence and processing fees apply.

A limited time offer that remained valid from the launch of the program in 2013 through end-April 2016 allowed for a flat government processing fee of USD100,000 for a family of four, waiving the processing fees for the two dependents.

Dominica ammended program requirements effective December 2016. Changes include higher age limit of young dependents, and lower government fees for real estate investment option.

Although an explicit government application fee is not required in the NDF option of St. Kitts and Nevis, about 25 percent of the contribution is retained by the government as budgetary fees.

Business investment must fall under one of the following categories: Specialty Restaurants, Cruise ports and marinas, Agro-processing plants, Pharmaceutical products, Ports, bridges, roads and highways, Research institutions and facilities, or Offshore universities. In early 2017, St. Lucia made an announcement to change its program requirements. The required contribution to the Economic Fund was reduced fro USD200,000 to USD100,000 for single applicants, and from USD250,000 to USD190,000 for a family (applicant with a spouse and up to two dependents). The cap of 500 citizenships per year was removed. An administrative fee of USD50,000 was introduced for the bond option. The remaining two options were left unchanged.

For most programs, a minimum holding period of 5 years is required for redeemable investment options. Assets maybe eligible for resale to future applicants under the CIP.

Annex III. Central Government Wage Bills1

Wage bills absorb a large share of ECCU countries’ budgets. Many governments responded to the global financial crisis by increasing public sector employment and/or wages, which reduced budget flexibility and fiscal space. Governments are acting to contain the wage bill and reassign budgetary resources to boosting growth. Civil service reform is key to improve its cost-effectiveness over the medium term.

1. ECCU governments devote a large share of their budget to wages, nearly half of current outlays or tax revenues in some countries. The regional median wage bill is 10.2 percent of GDP, indicating that the central government is the main employer in each island. Wage bills in the region are comparable as a share of GDP with other small island developing states, which are equally affected by diseconomies of scale in assuring basic functions of government, particularly for multi-islands countries.

uA01fig23

ECCU Central Government Wage Bill, 2016

(In percent of tax revenue)

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

Sources: WEO; and IMF staff calculations.

2. Without proper social safety nets, including unemployment insurance, many ECCU governments responded to the global financial crisis by increasing employment and/or wages. Countries that did not have an IMF program had more flexibility to increase both public employment and wages in the aftermath of the crisis (St. Lucia, Dominica, and mostly wages for St. Vincent and the Grenadines). St. Kitts and Nevis started to increase both public wages and employment to honor commitments that predated the program.

uA01fig24

ECCU Central Government Wage Bill, 2016

(In percent of GDP)

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

Sources: WEO; and IMF staff calculations.

3. To restore fiscal sustainability, enhance fiscal space, and improve the delivery of public services, ECCU governments have pursued actions to contain the wage bill in recent years. These have ranged from salary freezes,2 attempts to alter the size and composition of the workforce3 to compensation reforms modifying the size and structure of pay and benefits packages.4

uA01fig25

Price and Employment Effect on the Wage Bill

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

Sources: Country authorities; and IMF staff estimates.

4. More comprehensive structural reforms of the civil service are needed over the medium term. These would include: (i) functional reviews, to remedy critical skills in some areas and overstaffing in others; (ii) enhanced HR information systems; (iii) reviews of HR policies and processes; (iv) legal reforms addressing internal civil service procedures; and (v) reforms of compensation systems and wage setting mechanisms to internalize fiscal sustainability objectives. Grenada has developed a holistic approach to reform in a bid to improve the strategic direction, operations, and efficiency of the public sector and define a fair and rational system of compensation and incentives. The "Public Sector Management Reform Strategy" has four pillars: (i) re-engineering the public service to make it more efficient; (ii) strategic human resource management; (iii) wage bill reform; and (iv) an integrated ICT platform. The strategy includes a timeline for consultation with stakeholders, finalization of reforms, and implementation by 2019.

5. Strengthening social safety nets is critical to de-link public employment policies from social welfare objectives. Grenada has merged its cash transfer programs and improved their targeting while enhancing technical vocational and educational training. Over the medium term, the authorities should consider setting up a broader safety net, including unemployment insurance schemes.

Annex IV. Public Investment Management1

Reforming the management of their public investment—including its planning, allocation and implementation—would help ECCU countries address their public infrastructure needs with fewer budgetary resources.

1. Public investment should address significant infrastructure needs. The Caribbean Development Bank has identified important gaps in the volume of economic infrastructure (measured by length of road network, electricity production, and access to water) in ECCU countries relative to a comparator group.2 When social infrastructure (number of secondary teachers and hospital beds) is considered—as in the physical infrastructure efficiency index elaborated by IMF staff—the ECCU looks much better in comparison (see chart).3 Infrastructure services—electricity, transport, water, and sanitation—need to be improved to satisfy higher service quality standards, keep pace with population growth, and support economic development. Public-private partnerships can help address these needs, but public sector investment remains key in ECCU countries.

uA01fig26

Physical Infrastructure Efficiency Index

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

Source: IMF staff calculations

2. Against a background of high indebtedness, limited fiscal space, and sluggish growth, there are concerns about the ability of ECCU countries to finance such expenditures while maintaining fiscal and debt sustainability. Infrastructure investment can spur growth and pay for itself when well executed, and lead to inefficiency and waste when not. Properly executed infrastructure investment requires a strong institutional and legal environment and adequate technical expertise in planning, allocation, and execution of public investment.

3. There are several areas where significant improvements can be made. Preliminary findings from a Public Investment Management Assessment, which examines 15 key institutions shaping public investment, shows scores ranging from 1.54 to 2.30 (average of 1.8) out of a top score of 3. The results show shortcomings in (i) planning sustainable levels of investment across the public sector; (ii) allocating investment to the right projects, the use of multiyear budgeting, and project appraisal and selection; and (iii) implementing projects on time and budget through appropriate funding, monitoring and executions as well as protecting investment through adequate maintenance.

uA01fig27

ECCU PIMA SCORES

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

Source: IMF staff calculation

4. A targeted program to address these shortcomings, particularly in planning and implementation, can improve quality and focus of public investment and increase its return. ECCU countries are at different stages of implementing modern Public Financial Management (PFM) frameworks. Grenada has revised its new PFM legislation and adopted the associated regulations; a final draft legislation is ready in Antigua and Barbuda, St. Lucia, Anguilla, and Dominica; and St. Vincent and the Grenadines has an initial draft PFM law, which is under review.

Annex V. The Regional Government Securities’ Market1

1. The RGSM was established in 2002 to provide cost-effective financing for ECCU member governments and greater risk diversification for investors. In many respects, the RGSM has been successful, and issuance has increased significantly over the years, particularly for short-term instruments. However, the investor base remains limited to banks and public pension funds, and most governments continue to place securities over the counter (OTC) owing to swifter administrative procedures and overall lower cost, as no fees are paid to the Stock Exchange and brokers. Only St. Lucia and St. Vincent and the Grenadines, and, to a lesser extent, Grenada, issue significant volumes on the primary market. Volumes traded on the secondary market are very small.

uA01fig28

RGSM Issuances by Instruments

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

Source: ECCB
uA01fig29

RGSM Issuances by Countries

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

2. The functioning of the market could be enhanced, and costs for issuers reduced. Primary market activity for T-bills is dominated by two of the six licensed brokers, who subscribed 84 percent of securities auctioned in 2016. Single-price competitive auctions with a reserve price take place on the trading platform of the Eastern Caribbean Security Exchange, to which government debt management offices (DMOs) have no access. Interest rates are capped, with caps set in advance for the entire year. In many auctions the final yield turns out to be equal to the cap, therefore frustrating any price discovery. Some countries can raise the initial amount offered within the limits established in the securities’ prospectus. However, whenever this “top-up” option is allowed, DMOs use it entirely, thus becoming price takers. In other words, DMOs run the risk of accepting bids that contribute only marginally to achieving the total amount desired, but may be very costly to issuers because they must pay the same marginal yield to all successful bidders, as in a “single price” auction. This practice may raise considerably the final cost of the issuance (by as much as 200 basis points). Moreover, since auctions are “open”, brokers have an informational advantage as they can adjust bids (increasing amounts and lowering yields) in real time. Issuance of bonds is much more limited. Single-price competitive auctions are also used, but the preferred method are subscriptions (“fixed-price auctions”), with the government fixing the price and allocations determined on a “first-come, first served” basis.

3. Changes to some of these practices could enhance market efficiency and yield fiscal savings. Possible measures include: (i) establishing competitive auctions as the only issuance method; (ii) enabling DMOs to observe auctioned amounts and yields and determine cut-off prices and final amounts within the range communicated to investors; (iii) reducing incentives to issue OTC by simplifying RGSM issuance procedures and reviewing current brokers’ fee structures, which are very different across countries; and (iv) modifying the rules for the top-up allocation to improve its cost effectiveness. More structural reforms could also be explored, such as introducing multi-price auctions, removing interest rate caps, and assessing if preconditions for a primary dealership can be met.

Annex VI. External Sector Assessment1

The ECCU external position is weaker than implied by fundamentals and desirable policies. EBA-Lite REER analysis suggests an exchange rate overvaluation ranging from 2.3 percent to 21.4 percent in 2016 (BPM5), but the assessment remains sensitive to data revisions. Weak external competitiveness is also corroborated by non-price indicators, namely high structural unemployment, increasing unit labor costs, and deficiencies in the business environment. Consequently, boosting competitiveness will require a swift implementation of structural reforms aimed at lowering the cost of doing business, increasing labor productivity, and further integrating ECCU economies.

1. The ECCU current account is estimated to have deteriorated in 2016, largely driven by one-off factors. The regional current account deficit is estimated to have worsened from 10 percent of GDP in 2015 to about 11.9 percent of GDP in 20162. This deterioration was largely driven by lower exports of goods, which declined by about 10 percent year-on-year in 2016 mostly because delayed fuel re-exports in St. Lucia and a soap factory closure Dominica. Most of the current account deficit continues to be financed by FDI inflows, which—at 12.1 percent of GDP—remain well below the peak of 22 percent of GDP in 2006 and 2007, but largely in line with the 1996–2016 average of 12 percent of GDP.

2. Revised BPM6 statistics, which are expected to be released later this year, are likely to present smaller external deficits throughout the region. The ECCB, in cooperation with national statistical offices, is soon expected to release external sector statistics for 2014 and 2015, based on BPM6 methodology and updated surveys. Preliminary estimates for 2014 released in 2015 show a current account deficit on average 10 percent of GDP lower than in previous BPM5-based estimates BPM6 current account balance figures also showed the misalignment virtually eliminated or even changing sign in EBA-Lite (see ECCU staff report 2016 and 2015). Most of the differences were driven by changes to methodology and coverage. Specifically, BPM6 estimates rely on updated visitor expenditure data, and expanded coverage to include a broader group of respondents, such as offshore universities. Regional authorities continue revising and improving the Balance of Payments statistics.

REER Misalignment

3. While the INS-based REER shows some appreciation in real terms since 2014, customer-based REER has remained broadly in line with historical averages. The observed appreciation of the customer-based REER is relatively low given the large weight of the U.S. as a trading partner and the fixed nominal exchange rate to the U.S. dollar. Competitor-based REER also shows limited misalignment as currencies of some competitors are also linked to the US dollar. The INS-based REER, on the other hand, which reflects the largest number of trading partners, shows an appreciation of 7.6 percent over three years between end-2013 and end-2016.

uA01fig30

ECCU: REER

(Index, 2005=100)

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

Sources: IMF staff estimates and calculations.

4. The estimated REER misalignment figures are substantially affected by the methodology and data revisions. As the authorities are currently in the process of migrating the balance of payments statistics from BPM5 to BPM6, the new external sector statistics are likely to change significantly given the use of updated expenditure surveys and broadening of coverage. Estimates based on BPM5 present a significant discrepancy between regressions based on the current account and those based on REER estimates, partly reflecting the poor fit of the model for small tourist-dependent economies exposed to natural disasters. For instance, current account-based regressions point to an average overvaluation of about 21 percent in 2016, but regressions based on index REER indicate an overvaluation of 2.3 percent on average, with a wide variation among countries.

Table 1.

REER Misalignment Estimation: EBA-Lite1/

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Source: IMF staff estimates and calculations.

Assessment for 2016. Based on September, 2016 WEO vintage. Estimates may differ from individual staff report due to data revisions or vintage variation.

Estimate for St. Vincent and Grenadines is excluded to avoid biasing the regional average due to poor model fit caused by high FDI flows related to airport construction. Poor model fit in part reflects the impact of natural disaster shocks.

Non-price indicators

5. Non-price indicators point to weak competitiveness in the region, driven by labor market rigidities and high costs of doing business. Data show that while wages increased over the last decade, productivity has continued to decline since the onset of the financial crisis, thus, contributing to rising unit labor costs and weakening competitiveness within the region. Stagnant economic activity, labor skills mismatches, labor market rigidities, future economic uncertainty, and migration are often cited as the main causes of low productivity and high unemployment.

uA01fig31

Wages, Productivity, Unit Labor Cost

(3 yr, Moving Average Index, 2001=1001)

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

Sources: National Insurance Scheme, National Authorities, arid IMF staff calculations.1 Average for ECCU using data for Antigua and Barbuda, Grenada, St. Lucia, and St. Vincent and the Grenadines during 2002–13, Dominica 2009–13, and St. Kitts and Nevis 2003–12.

6. Labor market data in the ECCU show persistently high levels of unemployment, particularly among the youth. In some ECCU countries, the long-term decline in agricultural employment following the downsizing of the banana industry has not been fully absorbed by the public sector or tourism, leading to high levels of structural unemployment. There is evidence that high wages in public sector and tourism increase the reservation wage and that skills mismatches are prevalent. Strong and politically influential unions add rigidity to the wage setting process. 3 The increase in unemployment in many ECCU countries since the global financial crisis also points to a significant cyclical component of the high unemployment rates in recent years. Since the start of the financial crisis, unemployment rates increased most significantly in St. Lucia, Antigua and Barbuda, and St. Vincent and the Grenadines, while employment programs in St. Kitts and Nevis helped contain unemployment. Youth unemployment is considerably higher than the overall unemployment rate in all ECCU countries. The ratio of youth to total employment, however, is similar to that of other regions, including Latin American and other Caribbean countries.

uA01fig32

Unemployment Rate

(In percent)

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

Sources: World Bank WDI and “Youth Unemployment in the Caribbean”; National Authorities: and IMF staff calculations.
uA01fig33

Youth to Overall Unemployment Ratio 1/

(2014)

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

Sources: World Bank. WDI and National Authorities.1/ Percent of total labor force ages 15-24

7. Difficulties to access credit and weak insolvency framework are major impediments to doing business. As suggested by the World Bank Doing Business Indicators, rigidities in the business environment continue to persist in many ECCU countries. For instance, access to credit and insolvency resolution in all the member states remain well below LAC and OECD averages. The ease of trading across borders, registering property, and paying taxes largely are in line with LAC averages, but well below advanced economies.

uA01fig34

ECCU: Ease of Doing Business, Relative to Peers (2017)

(Distance to frontier score, higher number represents better performance1)

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

Source: World Bank Doing Business Report1/ Distance to frontier (DTF) score measures the deviation of a country from the best perfomer, 0 representing the worst performer and 100 the fontier

Reserve Adequacy

8. The ECCU’s reserve position further improved in 2016, reaching an all times high. At EC$4.5 billion at end-2016, gross international reserves covered about 6.1 months of prospective imports, well exceeding the 3-month cover benchmark. Similarly, reserve coverage was well above 20 percent of broad money and 100 percent of foreign currency deposits in 2016. Over the medium term, reserve accumulation is expected to decelerate reflecting the recovery of domestic activity.

uA01fig35

Reserve Adequacy

(2016)

Citation: IMF Staff Country Reports 2017, 150; 10.5089/9781484303375.002.A001

Annex VII. United Kingdom Overseas Territories—Anguilla and Montserrat1

Anguilla

1. Economic activity in Anguilla continues to recover, mostly driven by tourism. Real GDP grew by 3.8 percent in 2016, but it did not extend across all sectors. Value added in hotels and restaurants grew by 10 percent, and, with tourism accounting for about 35 percent of the Anguillan economy, other sectors were positively affected. While mining and construction also experienced strong growth, activity declined in agriculture, manufacturing, and the financial sector, reflecting the resolution of two intervened banks.

2. The resolution of two insolvent banks in April 2016 led to a sizable increase in public debt. To support the banks’ resolution, the government issued a new bond and contracted a loan from the Caribbean Development Bank for a total of EC$325 million, which brought public debt-to-GDP to 47 percent in 2016 from 24.6 percent in 2015. After receiving a waiver by the U.K. for noncompliance with its fiscal rules, the Anguillan government remains committed to achieving its fiscal targets by 2028 and significantly strengthening bank supervision and regulation. Debt repayment requires an effective effort in recovering nonperforming loans, as well as higher primary balances based on spending control and continued U.K. capital grants. With a 75 percent NPLs recovery—which may be optimistic—, to return public debt to its pre-resolution level by 2022, the primary fiscal surplus should increase from an average of 2.2 percent of GDP in the last 5 years to 4.3 percent over the next 5 years.

3. The government is undertaking a significant fiscal adjustment. The fiscal measures included in the FY2016/17 budget are expected to improve Anguilla’s fiscal position by raising the primary surplus to 6.2 percent of GDP in 2017. Infrastructure projects have been postponed and capital expenditure for 2016 was well below the budgeted amount. Capital revenue is projected to rise from 0.5 percent of GDP in 2016 to 6 percent of GDP in 2017, primarily because of EDF funds, U.K. government grants, and the sale of ANGELEC shares. Revenues and grants are expected to increase in 2018 reflecting the introduction of a new tax on AirBnB accommodations and improvements in tax administration and compliance.

4. The growth outlook largely depends on the effective implementation of the authorities’ plan. Growth is expected at 2¾ percent in the medium term, based on continued growth of tourism, return to normalcy in the banking system, and success of the fiscal consolidation effort. U.K. grants will be instrumental to the expansion of tourism infrastructure and improvement of competitiveness, with EC$20 million allocated to the development of Road Bay Jetty and additional funds assigned to the production of a National Economic Development Plan. Nonetheless, given high amortization payments associated with the banking resolution and future restrictions on borrowing from the U.K. government, a strong turn-around in revenues is needed to avoid cash flow constraints. Economic recovery also requires a normalization of credit to the economy, which is expected to recover following the bank resolution. Considering global regulatory initiatives, reliance on the offshore financial sector as a source of growth should be reconsidered.

Montserrat

5. Preliminary indicators point to strengthening economic growth. GDP is estimated to have grown by 3.6 percent in 2016, up from 0.3 percent in 2015, underpinned by a sharply accelerating construction activity and robust activity in tourism, with visitors increasing by 4 percent and cruise ship passenger arrivals rising by 40 percent. Consumer price inflation turned negative for the fourth year in a row, reflecting favorable international commodity prices. The fiscal balance deteriorated markedly to −0.3 percent on the back of lower grants. Public debt remains very low at 5.3 percent of GDP. Credit to private sector increased by 3.9 percent while deposit accumulation remained flat. The current account deficit increased to 9.8 percent of GDP, mainly because of large data revisions (Table 2).

6. The growth outlook will be enhanced by the realization of key government projects. Over the medium term, economic growth is projected to average about 2.2 percent of GDP. Social programs to improve health and education, combined with capital projects to support and enhance tourism, energy, and construction are critical to unlocking growth. Efforts continue to expand access to social housing, upgrade health and educational infrastructures, and to improve social and human development. In addition, the authorities are implementing infrastructure projects aimed at improving roads and bridges, upgrading electricity distribution, water distribution, and waste management systems. The construction of a new port will improve cruise tourism and connectivity to the island. A resumption of strong, sustainable growth is necessary to reduce reliance on U.K. grants, which finance about 70–80 percent of total expenditures.

7. The authorities target total independence from fossil fuels by 2020. The authorities aim to exploit favorable conditions for solar, wind, and geothermal energy production, which would reduce the island’s exposure to volatile oil prices and lower high energy costs. Combined with easier access to the island by tourism, this would significantly reduce the costs of doing business.

Table 1.

Anguilla: Selected Indicators, 2011–18

article image
Sources: Authorities; and Fund staff estimates and projections.

Estimates are for the year 2016, except where noted.

Includes UK and EDF grants, and sales of ANGLEC shares.

Includes bank resolution transfers, all above the line for 2016.

Excludes central government debt to the Social Security Board.

Table 2.

Montserrat: Selected Indicators, 2011–18

article image
Sources: Authorities; ECCB; and Fund staff estimates and projections.

Estimates are for the year 2016, except where noted. Balance of payments 2014 onwards projections (BPM5 methodology).

References

  • Xu, Sin; El-Ashram, Ahmed, and Gold, Judith; Too Much of a Good Thing? Prudent Management of Inflows under Economic Citizenship Programs; IMF Working Paper 15/193.

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  • Dominica, Selected Issues Papers; Optimal Management of Economic Citizenship Revenues in Dominica, forthcoming.

  • St. Lucia, Staff Report for the 2017 Article IV Consultation; IMF, 2017.

1

Based on BPM5 methodology. BPM6-based statistics, which the ECCB is expected to release soon for 2014 and 2015, are likely to present smaller external deficits throughout the region, mainly on account on new improved surveys for selected items, including tourism. Preliminary estimates for 2014 released in 2015 show a current account deficit on average 10 percentage points of GDP lower than in previous BPM5-based estimates.

2

The results of a survey of Caribbean banks conducted by the IMF in September 2016 indicate that the few indigenous banks that lost CBRs in the ECCU were able either to find replacements or to continue with no significant consequences with fewer correspondent banks.

3

The only two Caribbean countries (Jamaica in 2014 and Grenada in 2015) that have adopted fiscal responsibility laws did so while undertaking fiscal adjustment supported by IMF programs and hence benefited from a commitment strategy. Anguilla’s Fiscal Responsibility Act also includes ceilings for net debt contracted and debt service (80 percent and 10 percent of recurrent revenue, respectively).

4

CARTAC is expected to provide technical assistance in selecting instruments and preparing key inputs, like a real estate price index.

5

The MSR was extensively covered in last year’s discussion on ECCU common policies (Country Report No. 16/333).

6

The 2015 reduction of the MSR has been passed on fully to deposit rates (Figure 3). The partial transmission to observed lending rates, which are measured relative to the stock of bank credit, could be explained by the limited flow of new lending and banks’ using higher profits to clean up balance sheets.

7

Lafeuillee, J., Li, M., James, R. Salinas, G. and Y. Savchenko, “Explaining High Unemployment in ECCU Countries”. IMF Working Paper, forthcoming

8

Extra-regional routes account for 82 percent of the air traffic in the region. See C. Briceño-Garmendia, H.C. Bofinger, D. Cubas, and M.F. Millán-Placci “Connectivity for Caribbean Countries”, The World Bank, 2014.

1

Prepared by Alla Myrvoda

2

During the first year of operations, six applications were approved under the real estate option, but none of them had reached investment stage by end-2016; fourteen applications were accepted under the donation option for a total of USD 1.4 million; and five applicants were approved under the bond option for USD 2.7 million. No interest was shown in the enterprise investment option.

3

Main changes to St. Lucia’s CBI program include: (i) removal of a minimum personal wealth requirement (US$3 million); (ii) reduction of required contribution from US$200,000 to US$100,000 for single applicants (with a similar reduction in fees for applicants with dependents); (iii) removal of the cap of 500 citizenships per year. The bond option, which was considered the most advantageous before the changes, was discouraged with a new administrative fee of US$50,000.

1

Prepared by Ronald James and Wayne Mitchell.

2

Dominica in 2001 and 2003, Antigua and Barbuda (2010–12), St. Kitts and Nevis (2011–14), Grenada (2014–17), St. Lucia (2014/15 and 2015/16).

3

Antigua and Barbuda’s 2010–13 National Economic and Social Transformation Plan and attrition policies in Grenada and St. Lucia.

4

Dominica 2004–2006, St. Vincent and the Grenadines 2007, Antigua and Barbuda 2013.

1

Prepared by Wayne Mitchell.

2

The group included five countries (Botswana, Costa Rica, Malta, Mauritius, and Seychelles). See Caribbean Development Bank, "Public Private Partnerships in the Caribbean: Building on Early Lessons", May 2014.

3

The number of secondary teachers in ECCU countries is internationally high.

1

Prepared by Diego Rivetti.

1

Prepared by Alla Myrvoda

2

Based on the BPM5 methodology.

3

See Lafeuillee, J., R. James, G. Salinas and Y. Savchenko “Explaining High Unemployment in ECCU Countries”, IMF working paper, forthcoming.

1

Prepared by Daniela C. Hess and Hanlei Yun.

Same Series

Other IMF Content

Other Publishers

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Cover IMF Staff Country Reports
Eastern Caribbean Currency Union: 2017 Discussion on Common Policies of Member Countries-Press Release and Staff Report
Author:
International Monetary Fund. Western Hemisphere Dept.
Volume/Issue:
Volume 2017: Issue 150
Publisher:
International Monetary Fund
ISBN:
9781484303375
ISSN:
1934-7685
Pages:
78
DOI:
https://doi.org/10.5089/9781484303375.002

ECCU: Indicators of Economic Activity

(In percent, year-on-year growth)

Stay-Over Tourist Arrivals

(In percent, year-on-year growth)
Figure 1.

ECCU: Real Sector Developments
Figure 2.

ECCU: Tourism Developments

CBI Fiscal Revenues – On Budget1

(In percent of GDP)

Current Account Balance

(In percent of GDP)

Central Government Overall Balance

(In percent of GDP)

ECCU Banks: Number of Foreign Nostro CBR Accounts

(Number; selected surveyed banks)1

Selected Banks: CBR Fees

(In percent bar represents the range of survey responses)1

Determinants of growth in the ECCU

Wage Bill

(In percent of GDP)

ECCU-6: Total Public Sector Debt

(In percent of GDP)1

Concentration risk NPL ratio

(2001Q1–2015Q4, all banks)

ECCU Banks: Financial Stability and Loan Portfolio Risk after amalgamation

Loan and Deposit concentration after amalgamation

Non-Bank Resident Deposits, 2016

(Percent - Share of Total Resident Deposits)

Credit Unions: Loans

(In percent of total loans)

Credit Unions: Return on Assets

(Percent)

ECCU: REER

(Index, 2005=100)

Average Effects of Natural Disasters, 1990–2014
Figure 3.

ECCU: Monetary Developments
Figure 4.

ECCU: Financial Soundness Indicators
Figure 5.

ECCU: Doing Business Indicators1

CBI Fiscal Revenues – On Budget1

(In percent of GDP)

Use of CBI Revenues

(In percent of total, FY2015/161)

Number of Main Applicants Needed to Generate Inflows Equivalent to 1 Percent of GDP1/

ECCU Central Government Wage Bill, 2016

(In percent of tax revenue)

ECCU Central Government Wage Bill, 2016

(In percent of GDP)

Price and Employment Effect on the Wage Bill

Physical Infrastructure Efficiency Index

ECCU PIMA SCORES

RGSM Issuances by Instruments

RGSM Issuances by Countries

ECCU: REER

(Index, 2005=100)

Wages, Productivity, Unit Labor Cost

(3 yr, Moving Average Index, 2001=1001)

Unemployment Rate

(In percent)

Youth to Overall Unemployment Ratio 1/

(2014)

ECCU: Ease of Doing Business, Relative to Peers (2017)

(Distance to frontier score, higher number represents better performance1)

Reserve Adequacy

(2016)