New IDB study urges Caribbean to build sound fiscal, monetary, financial institutions to boost growth

 A new study by the Inter-American Development Bank (IDB) has urged Caribbean countries to build sound fiscal, monetary and financial institutions in order to boost growth.

“To build resilience against external shocks and recover from the COVID-19 pandemic, Caribbean countries must advance key fiscal and financial reforms that range from stronger tax and pensions systems to improved debt and financial management,” recommends the study, released on Wednesday in the book Economic Institutions for a Resilient Caribbean.

(Photo: IDB)

It recommends that the region strengthen its institutions to promote economic growth in line with sustainable fiscal management, effective monetary policy, and resilient financial systems.

Institutionalised fiscal management

The analysis lays out specific reform agendas for The Bahamas, Barbados, Guyana, Jamaica, Suriname, and Trinidad and Tobago, which are borrowing member countries of the Washington-based IDB.

“As Caribbean governments pivot towards smart and resilient investments, strong economic institutions are needed to ensure public spending benefits all citizens,” said Therese Turner-Jones, general manager of the Country Department Caribbean Group at the financial institution.

Therese Turner-Jones, general manager, Caribbean Country Department — Inter-American Development Bank (Photo: Caribbean Camera)

“In addition to recommendations for improving fiscal management, the book also proposes important monetary and financial system reforms to ensure Caribbean institutions and people are prepared for the future,” she added.

Moisés J Schwartz — manager of the IDB’s Institutions for Development Department, and one of the editors of the book — said that “stronger and better-equipped institutions constitute a formula for success, and sound economic institutions are a prerequisite for economic development and prosperity.

Moisés J Schwartz, at the podium, addresses a gathering in attendance at an Inter-American Dialogue forum on the theme ‘Nurturing Institution for a Resilient Caribbean’ on November

“The reforms needed in Caribbean countries should not be underestimated or postponed,” he urged.

The study says that economic growth in the six Caribbean countries has lagged Latin America.

Resilient to shocks

“As highly indebted small states dependent on either tourism or on non-renewable natural resources, these countries are vulnerable to boom-and-bust commodity cycles, interest rate swings, and natural disasters,” it says.

Drilling of the Candelones Extension in the UniGold Inc’s Neita Concession.
(Photo: Northern Miner)

The book says that stronger institutions will allow governments in the region to better plan and respond to such economic challenges by promoting improved fiscal and monetary discipline.

It says such actions can help reduce the risk of debt and financial crises.

“Countries that have engaged in institutional development have been shown to be better equipped to confront economic shocks, such as the coronavirus pandemic, be more resilient in responding to them, and have better prospects to recover more rapidly,” said Diether W. Beuermann, Economics Lead Specialist for the IDB’s Caribbean Department and one of the editors of the book.

Making reform a priority

The book highlights a number of reform opportunities for the Caribbean to promote fiscal sustainability, including simplifying taxes and reducing incentives; modernising tax administration; and strengthening public financial management.

The book recommends that the region improve budget formulation, execution and oversight, as well as financial governance.

The study highlights significant reforms to promote monetary stability and stronger financial systems, such as promoting central bank independence; strengthening financial regulation; and keeping lending during economic downturns and “preventing their lending from overheating the economy during good times.

In addition, the study recommends reforms to foster greater competition and financial inclusion, including the establishment of credit registries and bureaus “to facilitate more effective sharing of credit performance records, strengthened property rights and insolvency procedures, and improved financial technologies with adequate safeguards”.