IMF: Eastern Caribbean economies growth weakened
Wednesday, June 14 2017 @ 11:00 PM AST
Contributed by: michaelariston
* Local banks profits impacted by increasing costs to secure correspondent banking relationships
* The short-term outlook is favorable and risks are broadly balanced, but strong structural policies are needed to address impediments to medium-term growth.
More: (verbatim from release)
Directors underscored the need to place public debt on a path consistent with the 2030 regional benchmark of 60 percent of GDP, while a few Directors called for a ceiling at this level. The adoption of credible fiscal frameworks, strengthened by fiscal responsibility legislation where appropriate, would help achieve the debt target. Directors stressed that sound management of the public sector wage bill is critical for fiscal consolidation. The decision by the Monetary Council of the central bank to discuss members’ medium-term frameworks and interim fiscal targets is a useful step, but determined implementation will be key.
Directors emphasized the need to prepare for natural disasters and build resilience, including through investment in infrastructure and ex-ante financing arrangements which are fully integrated in macroeconomic frameworks. Revenues from Citizenship-by-Investment (CBI) programs, which should be used to reduce public debt where necessary, can also be directed to saving funds and to finance appropriate investment plans. Directors suggested that a regional approach to CBI programs would help strengthen the integrity of these programs while reducing their costs.
While recognizing steps taken by the ECCB, Directors noted that weaknesses remain in the financial sector, with banks still burdened by high nonperforming loans. They highlighted the importance of enforcing prudential requirements based on a realistic assessments of banks’ capital needs. Prompt activation of the Eastern Caribbean Asset Management Company would accelerate banks’ disposal of their bad assets. Directors also encouraged early completion of key legislation, including a harmonized law on asset quality, a stronger regulatory framework for credit unions and insurance companies, and new insolvency legislation.
Directors suggested that the cost of securing correspondent banking relationships can be reduced through stronger AML/CFT legislation and supervision, bank consolidation, and improved communication. They also noted that removing the saving rate floor would improve the functioning of credit markets. Efficiency enhancements in the Regional Government Securities Market would help lower borrowing costs and improve financial intermediation.
Directors stressed that accelerating structural reforms is necessary to address high unemployment, raise competitiveness, and boost growth prospects. Priorities include reducing costs of doing business and speeding up the implementation of renewable energy projects. Directors noted that furthering regional integration would help achieve economies of scale and enhance competitiveness. Strengthening the link between wages and productivity would help address structural unemployment.
Directors welcomed recent improvements in the quality of statistics and data provision, and encouraged further progress to enhance the quality of surveillance and policy analysis.