By Mbuyamu Matungulu and Marcio Ronci, IMF, Caribbean Corner From Breaking News T&T

With the exception of commmodity exporters, most Caribbean countries have experienced low growth and low inflation (above) and large fiscal and external imbalances that brought about high debt burdens (see attached).

The region remains saddled with low growth, high public debt burdens, and financial sector fragility.

Growth in the Caribbean continues to be weak, at a projected 1.5 percent for 2014, on average, up from 1.4 percent in 2013. The commodity exporters continue to grow at a faster pace than the economies dependent on tourism services, despite the recent softening of key commodity prices. Among the commodity exporters, Guyana and Suriname are slowing down to around 3 percent in 2014 because of lower commodity prices, and Belize to 2 percent because of declining oil production.

In contrast, growth in tourism-based economies is projected at 1.2 percent, on average. Barbados is experiencing its second consecutive year of economic stagnation, and St. Lucia is projected to contract by 1.1 percent in 2014. After bottoming out in 2013, the key regional economy of Jamaica is recovering slowly, and is projected to grow by a modest 1.1 percent in 2014. Over the medium term, competition from other less expensive tourist destinations could depress further the economic prospects for the region, which will require a renewed reform momentum to boost growth.

Fiscal and external imbalances are expected to remain large in 2014 in many countries across the Caribbean.

Fiscal and external imbalances are expected to remain large in 2014 in many countries across the Caribbean. Fiscal deficits are projected to narrow to 3 percent of GDP on average, down from 4 percent in 2013, reflecting fiscal consolidation efforts in various countries, notably Jamaica, and large revenues from citizenship by investment programs in some countries in the Eastern Caribbean Currency Union. However, five out of the thirteen Caribbean countries will continue to have fiscal deficits above 6 percent of GDP, mostly those that are heavily indebted. Against this background, public debt-to-GDP ratios will remain high in most countries, averaging 71 percent of GDP for the region. Most countries in the region are also expected to register large current account deficits in 2014, although the majority has international reserves well above the Latin American average of 7 months of imports of goods.

A renewed reform momentum is important to boost economic growth in the region, which could otherwise be checked by competition from other more affordable tourist destinations.

Some Caribbean economies are at a critical point and vulnerabilities remain high everywhere. Securing adequate financing for the largest fiscal deficits will be challenging and represents a major risk. Despite high liquidity in local financial systems, some countries are experiencing such pressures because of declining government revenues, high refinancing needs, and saturation of domestic markets with sovereign debt.

Authorities in the region are well aware of the risks, and many are taking steps to confront the lack of growth, large fiscal deficits, and high debt. The IMF remains ready to support countries in these efforts. St. Kitts and Nevis completed an IMF-supported reform program in July, while Jamaica’s is on track; and Grenada has just established a new three-year IMF arrangement.

Concurrently, Antigua and Barbuda is in a post-program monitoring phase. These programs aim to restore fiscal and debt sustainability, strengthen financial stability, shore up competitiveness more generally, and improve the region’s medium-term growth prospects.

An additional vulnerability for the region is the Eastern Caribbean Currency Union’s financial sector, which is under considerable stress as a result of high levels of nonperforming loans. The IMF, together with the World Bank and the Caribbean Development Bank are working with the Eastern Caribbean Central Bank to strengthen the banking system.

Technical assistance is being provided to improve bank supervision, including in the area of credit risk management and collateral valuation; and to develop legal and institutional reforms to bring the regulatory framework in line with international standards.

Development partners are working with the ECCB to strengthen the banking system.

For more on this story go to: http://news.co.tt/public_html/article.php?story=20141024085217572

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