IMF Predicts Economic Growth For Eastern Caribbean Nations

by Amanda Banks, Tax-News.com, London

04 May 2005

In an economic assessment of the member counties of the Eastern Caribbean Currency Union (ECCU), which includes Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines, the IMF is predicting a return to robust economic growth in 2005.

The international body observed in a statement that:

"Despite a very damaging hurricane season, economic activity remained robust in 2004 and is expected to continue growing in 2005. Growth has been driven by construction and a sharp revival of tourism.

"While the impact of Hurricane Ivan on Grenada was devastating, there was limited damage in the remaining ECCU countries which grew by an average of about 4 percent. In view of the continued growth in the region's major tourism markets - the United States and the United Kingdom - a similar growth rate is projected for the ECCU this year."

"Supported by the regional monetary arrangement at the ECCB, inflation remains low and external foreign currency reserves have risen."

However, the IMF issued a warning with regard to the consequences of public debt, which remains high in most ECCU countries, although it praised the "bold steps" that are being made on the fiscal front to correct this.

"Public debt has risen in most countries, averaging nearly 115 percent of GDP in the IMF member countries. Cross-country studies have shown that high debt levels hinder growth; moreover, credible and sustained fiscal consolidation has gone hand in hand with higher growth," the IMF continued, adding:

"The ECCU authorities have already expressed their intention to reduce the high public debt levels through a combination of fiscal consolidation, growth, asset sales, and debt management, and many are already working towards achieving this goal. In this context, the mission commends the bold steps, such as the introduction of Personal Income Tax in Antigua and Barbuda, the announcement of the closure of the sugar industry in St. Kitts and Nevis, and fiscal consolidation achieved in Dominica."

"Looking forward, the global environment facing the region is changing: oil prices are likely to remain at a very high level, official development assistance to the region has been declining, trade preferences for bananas and sugar exports are eroding, global interest rates are rising, and natural disasters continue to hit the region regularly. The economies need to adapt to the changing times."

"On the positive side, globalization has afforded significant opportunities to raise growth rates and reduce unemployment and poverty. There is scope for expanding in non traditional areas in services, increasing the linkages between agriculture and tourism, strengthening local skills, tapping the OECS diaspora to invest domestically, and enhancing regional cooperation that facilitates global integration. At the same time, preserving macroeconomic stability, enhancing competitiveness, and improving the domestic investment climate are needed to exploit the global opportunities."

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