May 11, 2021

OECS continues to grapple with low economic growth, high debt

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images-Caribbean-dwight_venner_779336530From Caribbean360

Governor of the Eastern Caribbean Central Bank (ECCB), Sir Dwight Venner said that economic and financial developments in the Eastern Caribbean Currency Union (ECCU) continue to be shaped by the global economic environment which is still uncertain

BASSETERRE, St. Kitts, Wednesday January 29, 2014, CMC – Member states of the Organisation of Eastern Caribbean States (OECS) are still grappling with low economic growth, persistent fiscal deficits and rising debt levels, Governor of the Eastern Caribbean Central Bank (ECCB), Sir Dwight Venner, has said.

Delivering the 2013 Economic Review of the sub-regional grouping on Tuesday night, Sir Dwight said it was evident that 2013 had been “another challenging year for the Currency Union” with high unemployment and poverty rates and some fragility in the financial sector.

“Once again the structural characteristics of our countries, namely, small size, extreme openness and high vulnerability to external shocks and natural disasters have become more evident.”

Sir Dwight said that economic and financial developments in the Eastern Caribbean Currency Union (ECCU) continue to be shaped by the global economic environment which is still uncertain, with growth for 2013 likely to be lower than previously anticipated.

He said in the United States, the sub-region’s main trading partner, a major contributor to the slowdown was the fiscal policy stance of the Federal government and the political gridlock which had adverse effects on business and consumer confidence, despite the uptick in the housing market and the easing of credit conditions.

In Europe, uncertainties persisted and unemployment rates remained elevated, while in the emerging economies there was a slowing down in economic activity,” Sir Dwight said.

According to figures released here, preliminary data indicate that economic activity in the ECCU expanded at a modest pace of 0.7per cent in 2013, building on the marginal growth of 0 .2 per cent achieved in 2012, which reversed the negative growth trends experienced since 2009.

The increase in economic activity was primarily driven by improved performances in agriculture, construction and tourism. The construction sector expanded by 2.9 per cent following a 4.3 per cent decline in 2012, as public sector construction gained momentum.

In the tourism industry, value added is estimated to have increased by 0.4 per cent due to improvements in major source markets and more intense marketing efforts. However, this rate was lower than the 1.4 per cent growth recorded in 2012.

The ECCB said the consolidated fiscal position of the Central Government is provisionally estimated to have deteriorated in 2013 as the growth in expenditure outpaced revenue collections.

An overall deficit of approximately EC$427.3 million (One EC dollar = US$0.37 cents) or  2.8 per cent of gross domestic product (GDP) was recorded compared with one of EC$367.3 million or 2.4 per cent GDP in 2012.

The bank said the deterioration in the overall deficit position reflected the increase in capital expenditure while current expenditure decreased.

Sir Dwight told the population of Antigua and Barbuda, Dominica, Grenada, St. Lucia, St. Vincent and the Grenadines, St. Kitts-Nevis, Montserrat, Anguilla and the British Virgin Islands that it may be safe to say that never before has the Currency Union witnessed such a prolonged period of economic stagnation.

He said in looking ahead there are three possible scenarios which confront the ECCU and would weigh heavily on the decisions to be taken.

He said these scenarios are the global economy remains in its relatively low growth, high unemployment mode, “particularly in our main trading partners while the ECCU countries continue with their current policies” as well as economic activity in the global economy does not return to its precise levels while the ECCU makes significant policy adjustments and the global economy goes through substantial restructuring and rebalancing and the ECCU undergoes significant socioeconomic transformation.

In his report, Sir Dwight said there was a need for the sub-region’s private sector to play a meaningful role in the socio-economic development of the OECS.

He said the current situation is that the structure of the private sector does not lend itself to performing a major role in the development process.

He told radio and television listeners that based on census and survey data the private sector is currently two thirds informal and one third formal and concentrates its activities primarily in the wholesale, retail, real estate, construction, and services sectors.

“These sectors are referred to as the non tradable activities as opposed to the export-oriented or tradeable ones. This ratio needs to be reversed so that a new private sector can emerge which can contribute significantly to economic growth and development.

“For this process to be carried out a deliberate effort to develop the private sector should commence with the full involvement of the most enterprising elements of that sector,” Sir Dwight said, adding that the process must concentrate on the development of firms, industries and markets.

“One needs once again to stress the factor of critical mass. Each industry, generally speaking, has to reach a critical minimum size to be competitive and to provide the linkages which would contribute to its success.”

He said an interesting example was the development of the banana industry in the Windward Islands which focused on critical mass, research and development and transportation and marketing efficiencies.

“This gives us a very good idea of how to start a successful industry,” he said, adding that the OECS would have to negotiate market access, have a competitive product and be able to differentiate the product or move to entirely new products as the market environment changes.

“There must be a systematic programme for the development of a viable and innovative private sector in our countries. Without this most of our important business enterprises in the traditional sectors will be sold off to regional or foreign interests, others will cease operations as the founders pass from the scene; and the current age of internet buying will finish off the rest.””

But the ECCB Governor said the private sector itself should be organised and represented at the sectorial level, for example agriculture; and at the national and the OECS levels.

He said this organiational system and structure should facilitate the development of industry sectors through a better representation for interfacing with governments and other important institutions nationally, regionally and internationally; research activities to facilitate effective advocacy, product improvement and marketing and the provision of technical assistance to the sector as a whole.

He said at  the governmental level, agencies such as Offices of Private Sector Relations (OPSRs), Investment Promotion Agencies (IPAs), Bureaux of Standards, Air and Seaport Authorities and Community Colleges are all critical to private sector development.

“The private sector representative bodies must themselves also look to the region and the international community for willing partners. These partnerships are crucial for the transfer of technology, investment opportunities from joint ventures, and the absorption of business and management practices. “

Sir Dwight said that it has become clear that much more coordinated efforts at both the national and OECS levels need to be the hallmark of the sub-region’s policies in the coming year.

“We must enlarge our perspectives to realise that while there is a lot to be done within our borders, we will not succeed if we do not combine our efforts across our countries. This is one of the stark realities we must face for in this lies our hope for sustained and equitable development,” he added

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