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OECS countries remain in a challenging position

Overall, OECS countries remain in a challenging position. The region was strongly affected by the world economic downturn and recovery has been slow. Based on IMF forecasts, the situation is expected to continue improving but varies among countries. The weak fiscal situation, high level of debt and weak growth forecasts pose the most important challenges to the region. The main drivers of growth remain construction and tourism, while the contribution of agriculture varied depending on climatic conditions. At the same time, the financial sector remains stable (see below for summaries of individual countries).

According to the Eastern Caribbean Central Bank’s (ECCB) Economic and Financial Review for Q1 2014 (EFR), preliminary estimates indicate that the currency union overall expanded, based on growth in the construction; mining and quarrying; hotels and restaurants; wholesale and retail trade; and transport, storage, and communication sectors. Overall, the agriculture sector is estimated to have remained flat, while manufacturing contracted.

Construction, driven by foreign direct investment and domestic private spending, is estimated to have risen, while capital spending in the public sector fell by 5.6 percent to XCD193.0 million in Q1 2014 year-on-year, driven mainly by declines in Saint Lucia and Grenada.

Tourism sector performance is estimated to have improved based on an 8.8 percent year-on-year increase in total visitor arrivals to 1.6 million, driven by 3.3 percent year-on-year growth in stopover arrivals from the United States, United Kingdom, and Canada. Cruise passenger arrivals, which account for roughly 75 percent of total arrivals to the region, expanded by 10 percent year-on-year to 1.2 million, according to the EFR. Although output of cocoa, hot peppers, and nutmeg is estimated to have grown for the period under review, the 17.1 percent overall decline in banana production meant the agriculture sector overall contracted.

Inflation reached 1 percent in Q1 2014 year-on-year versus deflation of 0.5 percent recorded in Q1 2013, as a result of broad-based price increases across most subindices and across most territories.

The overall fiscal balance swung into deficit, compared with Q1 2013, driving up total public sector debt by 0.4 percent yearon- year to just under XCD13 billion. Only St. Kitts and Nevis, Montserrat, and Anguilla saw no increases in their debt stock. The proportion of ECCB Foreign Reserve Assets held under Article 24 (2) of the ECCB Agreement as a Percentage of Demand Liabilities is 95.35 percent as at July 31, 2014, indicating that the EC dollar is almost fully backed by US dollars.

For the full IDB report, see the Caribbean Region Quarterly Bulletin, Volume 3, Issue 4, November 2014

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