Despite the growth in revenues from Citizenship by Investment programmes, the International Monetary Fund (IMF) has warned the Eastern Caribbean Currency Union (ECCU) that that income stream cannot be the economic panacea for challenges its member states face.
Following the conclusion of discussions with the ECCU on January 31, 2020, the IMF issued an assessment from its executive board with several recommendations.
“The region saw a respite from major hurricanes, which facilitated growth acceleration to 3¾ per cent. The fiscal position weakened, despite continued strength in Citizenship-by-Investment (CBI) inflows, but with headline deficits remaining moderate the public debt ratio has continued to decline,” the IMF board wrote.
“However, underlying fiscal deficits remain high. External imbalances are sizable and significant financial sector vulnerabilities affect both banks and non-banks. Growth is projected to gradually moderate as the cyclical momentum normalises and CBI inflows ease,” the fund added.
Taking into account these downside risks, the IMF said the region could find it challenging to meet the 2030 debt target of 60 per cent of gross domestic product.
So, although the directors welcomed “ECCU’s improved growth performance” and a decline in public debt, they also forecasted a moderation of growth in the future. The IMF said that “achieving debt sustainability while building resilience to natural disasters” will, therefore, remain a challenge for most ECCU member states.
“Growth is projected to gradually moderate as the cyclical momentum normalises and CBI inflows ease.”— IMF Executive Board
To this end, the IMF directors recommended even more fiscal consolidation, structural reforms and a swift resolution of financial sector vulnerabilities. In order to achieve these national policy objectives, the global financial institution argued that regional integration will be a critical factor.
Notwithstanding, the IMF also welcomed the steps the ECCU countries have taken to advance fiscal responsibility frameworks as they underpin commitments to meet the 2030 regional debt target.
The directorate also commended the ECCB for the early implementation of regional reforms to the financial sector and pursuing financial innovation. However, it cautioned the bank about the implementation of its digital currency pilot project, while encouraging the implementation of safeguard measures and a cost-benefit analysis.
In fact, the IMF said that the ECCU and ECCB should focus on “critical near-term priorities”. These include modernising the regional payment system; expeditiously introduce legislation to strengthen AML/CFT measures, especially to address correspondent banking concerns; and cooperate on the design of tax incentives and CBI programmes.
“Equally important is expediting the effort to strengthen the supervision of non-banks, given their growing systemic importance,” the IMF statement read.