BASSETERRE, St. Kitts – IN the face of a weak and volatile external environment, economic activity in the Eastern Caribbean Currency Union has weakened and, according to the International Monetary Fund (IMF), the region has entered a recession.
This announcement was made following the May 15 Discussion on Common Policies of Member Countries of the Eastern Caribbean Currency Union (ECCU).
The report explains that due to construction and tourism, average annual growth for the region reached 4.5 percent during 2003–07 but declined to 1.8 percent in 2008. Also, the region’s real Gross Domestic Product (GDP) is expected to contract by a further 2.5 percent in 2009, reflecting a “sharply-slowing global economy, declining tourist arrivals and foreign direct investment (FDI) flows, and increased financial sector stresses”.
The IMF reported that there has been limited progress made towards fiscal consolidation, adding that although tax revenues increased as a result of the introduction of Value Added Tax, current expenditure remained high.
“While some fiscal consolidation was achieved during 2007, no major progress was made in 2008. Recession-induced revenue losses and higher debt-servicing costs are projected to raise the region’s overall fiscal deficit to 6.8 percent of GDP in 2009 (4? percent in 2008), with public debt rising to 98 percent of GDP at end-2009 (91 percent at end-2008),” the report revealed.
The IMF report indicated that with the negative spinoffs from recent fiscal challenges with CL Financial and Stanford International Bank, authorities have accelerated their efforts in strengthening financial sector regulation and supervision. Yet, despite some recent real appreciation, the Eastern Caribbean dollar’s real effective exchange rate remains close to its most depreciated level in almost 20 years, according to the report.
However, regional governments remain hopeful as the IMF’s World Economic Outlook, released on April 22, predicted that the economies in Latin America and the Caribbean may benefit from a rebound in 2010.
