““THE IMPACT OF HIGH THE IMPACT OF HIGH DEBT DEBT

BURDENS ONBURDENS ON

SMALL CARIBBEAN SMALL CARIBBEAN

STATES”STATES”

PRESENTED BY: PRESENTED BY:

RALSTON HYMANRALSTON HYMAN

DATE:

SEPTEMBER 29, 2007

EVENT: EVENT:

CONFERENCE ON CONFERENCE ON

““ECONOMIC ECONOMIC GROWTH AND TRANSFORMATION GROWTH AND TRANSFORMATION

REASSESSING THE CHALLENGESREASSESSING THE CHALLENGES

AT THE DAWN OF THE 21ST AT THE DAWN OF THE 21ST CENTURY”CENTURY”

IntroductionIntroduction:: The growth and development The growth and development

of many small Caribbean of many small Caribbean states are being negatively states are being negatively impacted by their onerous debt impacted by their onerous debt burdens, which force them to burdens, which force them to generate high primary generate high primary surpluses as a percentage of surpluses as a percentage of Gross Domestic Product (GDP) Gross Domestic Product (GDP) thereby preventing them from thereby preventing them from spending on infrastructure spending on infrastructure development and the provision development and the provision of basic social services which of basic social services which are necessary to attract are necessary to attract investments and improve their investments and improve their absorptive capacities. absorptive capacities.

The primary surplus represents The primary surplus represents the extent which a government the extent which a government is prepared to reduce is prepared to reduce expenditure on basic social expenditure on basic social services such as- health, services such as- health, education, national security education, national security and infrastructure and infrastructure development, in order to development, in order to service the public debt. service the public debt. However, in order to properly However, in order to properly assess the impact of the debt assess the impact of the debt burden on the growth and burden on the growth and development of small development of small Caribbean states, it is of Caribbean states, it is of paramount importance to take paramount importance to take a contemporary as well as a contemporary as well as historical perspective. historical perspective.

While the international While the international community, particularly the community, particularly the Washington based Washington based International Monetary Fund International Monetary Fund (IMF) and its sister agencies, (IMF) and its sister agencies, the World Bank and the Inter-the World Bank and the Inter-American Development Bank American Development Bank (IDB), as well as the African (IDB), as well as the African Development Bank (ADB), are Development Bank (ADB), are focused on the debt problems focused on the debt problems of major debtors and highly of major debtors and highly indebted poor countries (HIPC), indebted poor countries (HIPC), very little attention is being very little attention is being paid to the debt problems of paid to the debt problems of small Caribbean states, such small Caribbean states, such as Jamaica which are middle as Jamaica which are middle income countries.income countries.

Empirical analysis indicate that Empirical analysis indicate that since 1990 the debt burdens, since 1990 the debt burdens, particularly the external debts particularly the external debts of small states have been of small states have been growing faster than those of growing faster than those of low income countries, with the low income countries, with the biggest jumps being recorded biggest jumps being recorded by members of the by members of the Organisation of Eastern Organisation of Eastern Caribbean States (OECS) East Caribbean States (OECS) East Caribbean Central Bank (ECCB) Caribbean Central Bank (ECCB) and Belize.and Belize.

The same data also revealed The same data also revealed that since 1999 the rate of that since 1999 the rate of external debt accumulation in external debt accumulation in small states has been twice small states has been twice that as fast as that of that as fast as that of developing countries as a developing countries as a whole. A further analysis of the whole. A further analysis of the situation also indicate that this situation also indicate that this represented a reversal of the represented a reversal of the situation which existed in 1990 situation which existed in 1990 when the external debts of when the external debts of developing countries rose developing countries rose twice as fast as those of small twice as fast as those of small states.states.

A deeper analysis of the data A deeper analysis of the data reveals that during the year reveals that during the year 2003 small states such as 2003 small states such as Belize, Dominica, St Kitts and Belize, Dominica, St Kitts and Nevis as well as Samoa Nevis as well as Samoa recorded external debt to GDP recorded external debt to GDP ratios of more than 100 per ratios of more than 100 per cent. Meanwhile, Grenada, and cent. Meanwhile, Grenada, and Antigua had external debt to Antigua had external debt to GDP ratios of over 75 per cent GDP ratios of over 75 per cent according to data provided by according to data provided by the Washington based, World the Washington based, World Bank.Bank.

Using the net present value of Using the net present value of external debt thresholds, the external debt thresholds, the Bank posited that St Kitts/ Bank posited that St Kitts/ Nevis, Grenada, Jamaica, St Nevis, Grenada, Jamaica, St Lucia and St Vincent and the Lucia and St Vincent and the Grenadines were moderately Grenadines were moderately indebted. The governments of indebted. The governments of these small Caribbean states these small Caribbean states do not only have to service do not only have to service their external debts, but their their external debts, but their total debt burden, which total debt burden, which includes the high cost internal includes the high cost internal debt in Jamaica’s case. debt in Jamaica’s case. Jamaica’s total debt to GDP Jamaica’s total debt to GDP ratio currently stands at 134 ratio currently stands at 134 per cent.per cent.

DEBT TO GDP RATIOS OF SMALL CARIBBEAN STATES (%)

Country Dec. 2000 Dec. 2001 Dec. 2002 Dec. 2003

Barbados 73.3 81.6 83.8 84.1

Dominica 92.5 107.5 124.6 127.3

Grenada 59.5 82.6 116.4 116.7

Jamaica 140.0 146.4 142.6 136.4

St Lucia 43.2 49.6 56.2 62.8

St Vincent 66.7

68.2 74.4 74.9

Genesis of crisisGenesis of crisis::

The international debt crisis The international debt crisis became apparent in 1982 became apparent in 1982 when Mexico defaulted on its when Mexico defaulted on its foreign debt, sending shock foreign debt, sending shock waves through the waves through the international community, as international community, as creditors feared that other creditors feared that other countries would do the same. countries would do the same.

The immediate cause of the The immediate cause of the crisis occurred in 1973 through crisis occurred in 1973 through the process of petro dollar the process of petro dollar recycling- when the members recycling- when the members of the then Sheik Ahmed Zaki of the then Sheik Ahmed Zaki Yamani–led Organisation of Yamani–led Organisation of Petroleum Exporting Countries Petroleum Exporting Countries (OPEC) quadrupled the price of (OPEC) quadrupled the price of crude and invested the excess crude and invested the excess liquidity in European and liquidity in European and American Commercial Banks.American Commercial Banks.

• These banks then used these These banks then used these funds to make loans to developing funds to make loans to developing countries without conducting countries without conducting proper sovereign and credit risk proper sovereign and credit risk analyses and monitoring of these analyses and monitoring of these loan flows.loan flows.

• This irresponsible behaviour on This irresponsible behaviour on the part of the creditors and many the part of the creditors and many donor governments resulted in a donor governments resulted in a lot of these funds being lot of these funds being squandered on non productive squandered on non productive projects such as, the purchase of projects such as, the purchase of armaments, grandiose public armaments, grandiose public development initiatives and other development initiatives and other private sector ones which only private sector ones which only benefited public officials and the benefited public officials and the ruling elites. The jump in oil prices ruling elites. The jump in oil prices in 1973 also helped to spread the in 1973 also helped to spread the inflation virus in the United States inflation virus in the United States and Europe.and Europe.

In 1979 OPEC raised the price of oil- In 1979 OPEC raised the price of oil- the precious commodity again the precious commodity again and the US Federal Reserve and the US Federal Reserve Board (Fed)- the world’s most Board (Fed)- the world’s most powerful central bank which was powerful central bank which was then led by Paul A volcker- hiked then led by Paul A volcker- hiked interest rates in order to contain interest rates in order to contain the spreading inflation virus the spreading inflation virus leading to a recession. leading to a recession.

The locomotive theory contends The locomotive theory contends that the American economy is the that the American economy is the locomotive of the international locomotive of the international economy because of its share of economy because of its share of the world’s Gross Domestic the world’s Gross Domestic Product (GDP), therefore the Product (GDP), therefore the recession in the US and the recession in the US and the combined impact of rising fuel combined impact of rising fuel prices, as well as interest rates prices, as well as interest rates led to a worldwide recession.led to a worldwide recession.

Developing countries suffered Developing countries suffered the most from this crisis as the the most from this crisis as the demand for their exports demand for their exports basically collapsed, while the basically collapsed, while the cost of production jumped, on cost of production jumped, on the back of the higher crude the back of the higher crude prices- simply put, the terms of prices- simply put, the terms of trade or the ratio of export trade or the ratio of export prices to import prices prices to import prices deteriorated badly.deteriorated badly.

The debt burdens of many The debt burdens of many Latin American and Caribbean Latin American and Caribbean countries surge in both countries surge in both absolute and relative terms, as absolute and relative terms, as the cost of servicing their the cost of servicing their variable rate debt climbed. variable rate debt climbed.

African governments also African governments also reacted to the worldwide reacted to the worldwide collapse in commodity prices collapse in commodity prices by borrowing from other by borrowing from other governments and multilateral governments and multilateral agencies at both market and agencies at both market and concessional rates. When concessional rates. When Mexico finally announced that Mexico finally announced that it could not repay its external it could not repay its external debt the international financial debt the international financial system appeared to be on the system appeared to be on the brink of collapse, forcing the brink of collapse, forcing the world’s major creditors to take world’s major creditors to take coordinated actions to save the coordinated actions to save the commercial banks and the commercial banks and the world economy.world economy.

Impact on the South:Impact on the South:

The existence of debt has The existence of debt has social, financial and political social, financial and political implications for example implications for example heavily indebted poor heavily indebted poor countries have higher rates of countries have higher rates of infant mortality, disease, infant mortality, disease, illiteracy and malnutrition than illiteracy and malnutrition than the developing and developed the developing and developed ones. Massive debt ones. Massive debt repayments preclude them repayments preclude them from dealing with many of from dealing with many of these problems these problems simultaneously.simultaneously.

From a financial stand point, high From a financial stand point, high levels of indebtedness is a signal to levels of indebtedness is a signal to the international financial the international financial community that a country is an community that a country is an investment risk because it is either investment risk because it is either unwilling or unable to repay its unwilling or unable to repay its debts. This contributes to the debts. This contributes to the cutting-off of these countries from cutting-off of these countries from the international capital markets, the international capital markets, unless they are willing to pay unless they are willing to pay extremely high rates.extremely high rates.

The United Nations Development The United Nations Development Programme (UNDP) posits that the Programme (UNDP) posits that the interest paid by poor countries were interest paid by poor countries were four times as high as those paid by four times as high as those paid by developing countries in the 1980s, developing countries in the 1980s, due to their inferior creditdue to their inferior credit ratings, as ratings, as well as currency deteriorations.well as currency deteriorations.

Impact on Small Caribbean Impact on Small Caribbean

StatesStates::

Many small Caribbean states, Many small Caribbean states, including Jamaica, suffered the including Jamaica, suffered the same fate as their counterparts same fate as their counterparts in Africa, Asia and Latin in Africa, Asia and Latin America. For example, Jamaica America. For example, Jamaica was not able to successfully re-was not able to successfully re-enter the international capital enter the international capital market until 1997and even market until 1997and even then the country had to pay a then the country had to pay a high cost.high cost.

The high cost of serving this The high cost of serving this massive debt and the need the massive debt and the need the generate huge primary generate huge primary surpluses have severely surpluses have severely constrained the abilities of constrained the abilities of these countries to invest in these countries to invest in basic social services and basic social services and human as well as human as well as infrastructural development.infrastructural development.

Let’s use Jamaica as a case Let’s use Jamaica as a case in point, the country in point, the country mobilized almost US$5 mobilized almost US$5 billion in foreign direct billion in foreign direct investment during the last investment during the last five years, but despite this five years, but despite this the economy has officially the economy has officially grown at a weak annual grown at a weak annual average rate of only 1 per average rate of only 1 per cent.cent.

This is mainly because the cost This is mainly because the cost of servicing the debt as a of servicing the debt as a percentage of the budget percentage of the budget which climbed to as high as 70 which climbed to as high as 70 per cent during the year 2000 per cent during the year 2000 before falling to 54 per cent before falling to 54 per cent last year, prevented the last year, prevented the government from pumping the government from pumping the kind of resources needed in kind of resources needed in order to facilitate the order to facilitate the development of education solid development of education solid waste management, health waste management, health care and infrastructure as well care and infrastructure as well as human resources.as human resources.

In Jamaica the $210 billion or In Jamaica the $210 billion or 33 per cent of GDP needed to 33 per cent of GDP needed to service the debt prevents the service the debt prevents the government from funding the government from funding the vital area of national security vital area of national security properly. Data released by the properly. Data released by the International Monetary Fund International Monetary Fund (IMF) and the World Bank posit (IMF) and the World Bank posit that crime is costing the that crime is costing the country some 4 per cent of country some 4 per cent of GDP or $40 billion annually.GDP or $40 billion annually.

The cost of crime to the The cost of crime to the economy, in combination with economy, in combination with the weak absorptive capacity, the weak absorptive capacity, due to the insufficiency of due to the insufficiency of investments in education, investments in education, training and infrastructural training and infrastructural development have severely development have severely constrained the official rate of constrained the official rate of growth of the Jamaica growth of the Jamaica economy during the last 10 economy during the last 10 years. The private sector’s lack years. The private sector’s lack of Schumpetarian innovative of Schumpetarian innovative capacity also played a capacity also played a significant role in the poor significant role in the poor growth performance of the growth performance of the economy during the period economy during the period under review.under review.

REALREAL RATE OF GROWTH OF RATE OF GROWTH OF JAMAICAN ECONOMYJAMAICAN ECONOMY

(%)(%)

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

-2.4 1.0 0.8 0.7 1.5 1.1 2.3 0.7 2.4 2.9

GUYANA:GUYANA:

Guyana’s debt burden which Guyana’s debt burden which stood at 189 per cent of GDP in stood at 189 per cent of GDP in 1999 forced the country to 1999 forced the country to seek debt relief under the seek debt relief under the Highly Indebted Poor Countries Highly Indebted Poor Countries Initiative (HIPC) in 1999 in Initiative (HIPC) in 1999 in order to maintain macro order to maintain macro economic stability. In October economic stability. In October 2000 the country also became 2000 the country also became eligible for additional debt eligible for additional debt relief under the enhanced HIPC relief under the enhanced HIPC initiative. initiative.

Guyana however experienced Guyana however experienced some serious set backs in its some serious set backs in its quest for debt relief, in quest for debt relief, in particular, the country went particular, the country went off-track with its IMF off-track with its IMF programme in December 2002 programme in December 2002 when it refused to reduce its when it refused to reduce its public sector apparatus and public sector apparatus and privatize the Guyana Sugar privatize the Guyana Sugar Company (GUYSUCO).Company (GUYSUCO).

The country also narrowly The country also narrowly escaped being sued by Booker escaped being sued by Booker Plc for an old debt, which Plc for an old debt, which should have been cancelled should have been cancelled under the HIPC initiative. under the HIPC initiative.

Booker however dropped the Booker however dropped the case, on the back of British case, on the back of British based, Jubilee campaigners. based, Jubilee campaigners. The debt sustainability analysis The debt sustainability analysis for the country which has a per for the country which has a per capita GDP of US$1,040 capita GDP of US$1,040 however indicates that it has however indicates that it has enough resources to service its enough resources to service its debt, while fully funding its debt, while fully funding its Millennium Development Goals Millennium Development Goals (MDGS).(MDGS).

The change in ideology, which The change in ideology, which followed the 1985 elections, followed the 1985 elections, enabled Guyana to borrow enabled Guyana to borrow heavily from western heavily from western governments. During the governments. During the 1970s when the country 1970s when the country pursued an anti-western stance pursued an anti-western stance its total public debt stood $83 its total public debt stood $83 million, or 33 per cent of its million, or 33 per cent of its $247 million GDP. This figure $247 million GDP. This figure however jumped to $1.7 billion however jumped to $1.7 billion or 161 per cent of its $651 or 161 per cent of its $651 million GDP.million GDP.

This growth in the debt was not This growth in the debt was not accompanied by growth in the accompanied by growth in the economy and this exacerbated economy and this exacerbated the political instability which the political instability which characterized the country for characterized the country for most of the previous decade. most of the previous decade. The fall in commodity prices The fall in commodity prices also led to a steep reduction in also led to a steep reduction in the country’s revenues from the country’s revenues from exports.exports.

Guyana is a very interesting Guyana is a very interesting case because the country went case because the country went through the HIPC Initiative through the HIPC Initiative twice-first it was the original twice-first it was the original HIPC and then it was the HIPC and then it was the enhanced HIPC.enhanced HIPC.

The original HIPC was launched The original HIPC was launched in 1996 and the admission in 1996 and the admission criteria related to sustainability criteria related to sustainability of debt. The ratio between the of debt. The ratio between the net present value of the total net present value of the total public debt and exports, as public debt and exports, as well as revenues was the two well as revenues was the two eligibility criteria used. A eligibility criteria used. A country’s debt was considered country’s debt was considered unsustainable if its ratio of unsustainable if its ratio of debt to exports was more than debt to exports was more than between 200 to 250 per cent. between 200 to 250 per cent. The debt was also said to be The debt was also said to be unsustainable if the ratio of unsustainable if the ratio of debt to revenues was more debt to revenues was more than 280 per cent. than 280 per cent.

Guyana’s debt to exports was Guyana’s debt to exports was only 180 per cent but the NPV only 180 per cent but the NPV of its debt was 469 per cent of of its debt was 469 per cent of its revenues therefore its debt its revenues therefore its debt service burden was deemed to service burden was deemed to be unsustainable.be unsustainable.

The country reached the The country reached the decision point under the decision point under the original HIPC programme in original HIPC programme in 1997 and the completion point 1997 and the completion point in 1999. Meanwhile, the in 1999. Meanwhile, the enhanced HIPC programme enhanced HIPC programme was launched 1999, on the was launched 1999, on the back of pressures from jubilee back of pressures from jubilee campaigners and the indicators campaigners and the indicators used for admission were used for admission were lowered to a NPV to export lowered to a NPV to export ratio of 150 per cent and a NPV ratio of 150 per cent and a NPV to revenue ratio of 250 per to revenue ratio of 250 per cent.cent.

The IMF and the World Bank The IMF and the World Bank decided that some of Guyana’s decided that some of Guyana’s debt should be cancelled in debt should be cancelled in 1997 because of the 1997 because of the recognition that the country’s recognition that the country’s debt burden was onerous and debt burden was onerous and therefore servicing it meant therefore servicing it meant that the country had to divert that the country had to divert resources from the provision of resources from the provision of basic social services.basic social services.

Simply put- the country would Simply put- the country would have to generate huge primary have to generate huge primary surpluses. The country has also surpluses. The country has also been running large fiscal been running large fiscal deficits for years. deficits for years.

The country however had to The country however had to

give a commitment to give a commitment to implement the neo liberal implement the neo liberal policies of the Washington policies of the Washington consensus, which includes consensus, which includes structural reforms, structural reforms, privatization, public sector privatization, public sector restructuring and debt restructuring and debt management as well as management as well as poverty alleviation measures.poverty alleviation measures.

The IMF contended in its latest The IMF contended in its latest Article Four Consultations on Article Four Consultations on the economy dated May 11, the economy dated May 11, 2007 that the country grew by 2007 that the country grew by 5 per cent in 2006, after 5 per cent in 2006, after declining by 2 per cent during declining by 2 per cent during the year 2005. This recovery the year 2005. This recovery was driven by strong increases was driven by strong increases in private sector credit, in private sector credit, remittance flows and foreign remittance flows and foreign direct investment. direct investment.

Inflation fell to 4 per cent last Inflation fell to 4 per cent last year but the country’s current year but the country’s current account deficit zipped to 28 account deficit zipped to 28 per cent of GDP from 9 per per cent of GDP from 9 per cent in 2004 due to a big jump cent in 2004 due to a big jump in imports of capital and in imports of capital and consumer goods. The country’s consumer goods. The country’s fiscal deficit however declined fiscal deficit however declined from 13.6 per cent of GDP in from 13.6 per cent of GDP in 2005 to 11.2 per cent last year, 2005 to 11.2 per cent last year, despite an ambitious public despite an ambitious public sector investment programme.sector investment programme.

The deficit- excluding the cost The deficit- excluding the cost of the public sector of the public sector modernization programme was modernization programme was however projected at 5 per however projected at 5 per cent of GDP. cent of GDP.

Public expenditures were Public expenditures were estimated at 25.5 per cent of estimated at 25.5 per cent of GDP in 2006, while total public GDP in 2006, while total public expenditures social services expenditures social services remained at a high 23 per cent remained at a high 23 per cent of GDP. of GDP.

Public sector wage increases Public sector wage increases were also kept in line with were also kept in line with inflation in order to support the inflation in order to support the process of fiscal consolidation. process of fiscal consolidation. The executive directors of the The executive directors of the Fund also commended the Fund also commended the authorities for implementing authorities for implementing sound macro economic sound macro economic policies, leading to higher policies, leading to higher levels of growth lower levels of levels of growth lower levels of inflation and an improved in inflation and an improved in the debt sustainability outlook. the debt sustainability outlook.

GUYANA SELECTED ECONOMIC GUYANA SELECTED ECONOMIC INDICATORSINDICATORS

(ANNUAL % CHANGE (ANNUAL % CHANGE))

2003 2004 2005 2006 2007

GDP 0.7 1.6 -1.9 3.5 5.2PR

GDP DEF 5.4 4.3 7.5 4.3 4.2

CPI 5.0 5.5 8.3 5.7 5.0

EX RAT 1.3 2.8 0.3 0.2

RER -5.6 -4.3 8.9

Source: International Monetary Fund

Guyana’s Public Finances Guyana’s Public Finances % of GDP% of GDP

2003 2004 2005 2006 2007

Rev/grants 39.6 44.0 44.1 51.3 45.2

Non int ex 42.0 43.2 49.0 51.9 46.6

Pri-surp. -2.4 0.9 -4.9 -0.5 -0.9

Int.payment 5.8 5.0 4.4 4.2 3.7

Savings 5.8 10.1 6.7 11.4 9.2

ST LUCIA:ST LUCIA: St Lucia had the best debt to St Lucia had the best debt to

GDP ratio of all independent GDP ratio of all independent Caribbean states, apart from Caribbean states, apart from Trinidad & Tobago in December Trinidad & Tobago in December 2004. The country’s public debt 2004. The country’s public debt however jumped during the last however jumped during the last 14 years because of a steep 14 years because of a steep reduction in the level of grants reduction in the level of grants and aid, which it received. and aid, which it received.

The country was also unable to The country was also unable to generate the levels of budget generate the levels of budget surpluses needed to fund surpluses needed to fund certain public sector projects, certain public sector projects, forcing it to borrow more forcing it to borrow more heavily. The country as also heavily. The country as also been running large fiscal been running large fiscal deficits during the last few deficits during the last few years.years.

IMF ARTICLE FOUR IMF ARTICLE FOUR CONSULTATIONS:CONSULTATIONS:

The IMF posited in its most The IMF posited in its most recent Article Four recent Article Four Consultation that the St Lucian Consultation that the St Lucian economy strengthened in economy strengthened in recent years. Real GDP growth recent years. Real GDP growth ran at an annual average of 4 ran at an annual average of 4 per cent during the period per cent during the period 2003-2005 and about 5 per 2003-2005 and about 5 per cent last year.cent last year.

Economic activity was driven Economic activity was driven by the construction and by the construction and government services, related government services, related to the hosting of Cricket World to the hosting of Cricket World Cup 2007. Inflation remained Cup 2007. Inflation remained low anchored on the country’s low anchored on the country’s membership in the Eastern membership in the Eastern Caribbean Currency Union Caribbean Currency Union (ECCU). The pace of growth is (ECCU). The pace of growth is however expected to however expected to decelerate to 3.5 per cent this decelerate to 3.5 per cent this year, on the back of slower year, on the back of slower tourism earnings.tourism earnings.

The country’s current account The country’s current account deficit however rose sharply to deficit however rose sharply to 30 per cent of GDP last year, 30 per cent of GDP last year, despite strong capital inflows. despite strong capital inflows. This was mainly due to the This was mainly due to the higher levels of imports related higher levels of imports related to hotel construction and a to hotel construction and a deterioration in the terms of deterioration in the terms of trade. trade.

This deficit is however This deficit is however expected to narrow this year expected to narrow this year due to a slowing of CWC due to a slowing of CWC related import spending and a related import spending and a modest rebound in exports of modest rebound in exports of goods and services. This goods and services. This current account deficit is current account deficit is projected to be largely projected to be largely financed by foreign direct financed by foreign direct investment flows. investment flows.

The country however remains The country however remains vulnerable to external shocks, vulnerable to external shocks, due to its dependence on oil, due to its dependence on oil, declining European Union (EU) declining European Union (EU) banana preferences, volatile banana preferences, volatile tourism receipts and heavy tourism receipts and heavy exposure to natural exposure to natural catastrophes.catastrophes.

There was however a general There was however a general acceptance of the key acceptance of the key challenge related to the challenge related to the achievement of sound public achievement of sound public finances and ensuring debt finances and ensuring debt sustainability during the sustainability during the consultation process. consultation process.

Although St Lucia’s debt is Although St Lucia’s debt is the lowest in the ECCU, it is the lowest in the ECCU, it is still high by international still high by international norms. The IMF also pointed norms. The IMF also pointed out that the country’s high out that the country’s high debt service costs constrain debt service costs constrain the extent of the fiscal room the extent of the fiscal room in which it has to manoeuvre in which it has to manoeuvre in order to deal with adverse in order to deal with adverse economic shocks.economic shocks.

The IMF also supported the St The IMF also supported the St Lucian Authorities’ medium-Lucian Authorities’ medium-term objective to deepen term objective to deepen fiscal consolidation, reducing fiscal consolidation, reducing the public debt through the public debt through tighter spending and tighter spending and increasing the efficiency of increasing the efficiency of tax collections.tax collections.

St. Lucia: Selected Economic Indicators

          Prel. Proj.  2000 2001 2002 2003 2004 2005

(Annual percentage changes, unless otherwise specified)              Output and prices

           

Real GDP at factor cost -0.3 -4.1 0.1 2.9 4.0 5.1Consumer prices (period average)

3.6 2.1 -0.3 1.0 1.5 3.0

Banana production 7.8 -51.6 41.5 -29.5 24.6 -14.7

Tourist stayovers 3.6 -7.3 1.3 9.3 3.6 5.0             External sector            Exports, f.o.b. -13.2 2.7 27.8 3.6 43.6 2.7

Imports, f.o.b. 0.1 -12.9 -0.1 30.4 6.9 18.7

Travel receipts 5.9 -16.4 -9.9 34.3 15.4 8.0

Terms of trade -6.3 -10.6 -2.1 -3.5 -3.7 -0.1

Excluding tourism -5.9 1.6 1.3 -10.3 -7.2 0.9

Nominal effective exchange rate (end of

8.2 0.7 -4.2 -8.6 -6.4 ...

period, depreciation -)            Real effective exchange rate (end of

4.7 -1.0 -5.0 -10.9 -0.7 ...

period, depreciation -)                         

Money and credit 1/            Domestic assets (net) 4.7 4.6 3.8 -10.1 11.3 8.1

Credit to public sector (net)

-1.8 -2.0 2.1 -2.8 -2.5 0.6

Credit to private sector 8.0 5.1 0.9 -4.3 11.1 9.8Money and quasi-money 7.9 4.7 3.2 7.6 10.1 10.8Velocity of money (M2) 2/

1.6 1.5 1.5 1.5 1.4 1.4

             

(In percent of GDP, unless otherwise specified)             Central government 3/            

Current balance 5.3 1.6 0.1 1.1 3.7 2.7Capital outlays 7.3 7.4 10.7 7.0 8.0 9.3Overall balance (before grants)

-2.0 -5.6 -9.6 -5.5 -4.2 -6.5

Overall balance (after grants)

-1.4 -4.2 -7.6 -3.8 -4.2 -5.0

Total public sector debt 4/

44.8 51.1 63.6 62.9 67.9 67.6

Of which: central government

31.6 37.7 50.6 51.0 57.3 57.8

             External sector            Current account balance -14.1 -16.2 -15.2 -20.3 -13.3 -16.4

External public debt (end of period) 5/

28.4 33.0 46.4 46.9 48.7 48.5

Debt-service ratio 5.3 11.2 10.8 8.4 8.8 10.4             

(In millions of U.S. dollars)

             

GDP at current market prices

685.3 664.4 682.1 715.7 763.2 825.2

Gross international reserves of the      

ECCB, end-of-period 383.7 446.0 504.8 539.9 581.9 628.1

             

Sources: St. Lucian authorities; Eastern Caribbean Central Bank; and Fund staff estimates and projections.1/ Changes in relation to liabilities to private sector at beginning of period.2/ Nominal GDP at market prices divided by the average stock of money (measured as the simple average of the current period stock and the stock 12-months earlier).3/ Data are for fiscal years beginning April 1.4/ Includes liabilities to the NIC.5/ Total public and publicly guaranteed debt.

DOMINICA :DOMINICA : Goohoon Kwon, chief of the Goohoon Kwon, chief of the

IMF’s mission to Dominica and IMF’s mission to Dominica and his team, recently stressed his team, recently stressed that economic activity picked-that economic activity picked-up in the country last year with up in the country last year with growth projected at 4 per cent growth projected at 4 per cent therefore the short-term therefore the short-term outlook is positive.outlook is positive.

Kwon and his team also Kwon and his team also contended that last year’s contended that last year’s growth, which was the growth, which was the strongest in 10 years, was strongest in 10 years, was accompanied by a fall in the accompanied by a fall in the inflation rate to 2 per cent. inflation rate to 2 per cent.

The current growth trajectory The current growth trajectory is however expected to slow is however expected to slow during the short-term mainly during the short-term mainly because of the closing down of because of the closing down of a large manufacturing entity. a large manufacturing entity. It is however projected to It is however projected to continue above trend, on the continue above trend, on the back of strong performances back of strong performances by the tourism and by the tourism and construction sectors. construction sectors. Dominica’s public debt to GDP Dominica’s public debt to GDP ratio also continues to fall, ratio also continues to fall, reflecting the country’s strong reflecting the country’s strong fiscal effort and continued fiscal effort and continued economic expansion. economic expansion.

This expansion was driven by This expansion was driven by the availability of more credit the availability of more credit to the private sector, due to to the private sector, due to the process of fiscal the process of fiscal consolidation carried out by consolidation carried out by the authorities.the authorities.

There was a surge in grants to There was a surge in grants to 14 per cent of GDP, which 14 per cent of GDP, which helped the government to helped the government to improve the country’s improve the country’s infrastructure, while infrastructure, while consolidating the fiscal consolidating the fiscal accounts, leading to an accounts, leading to an improvement in the debt improvement in the debt ratios. The IMF team and the ratios. The IMF team and the authorities agreed on the need authorities agreed on the need to target a primary surplus of 3 to target a primary surplus of 3 per cent of GDP under the per cent of GDP under the growth and social protection growth and social protection strategy. strategy.

The upcoming public sector The upcoming public sector wage increases indicate that wage increases indicate that the government has very little the government has very little fiscal flexibility therefore a fiscal flexibility therefore a delicate balance must be delicate balance must be struck between tax reductions struck between tax reductions as well as exemptions and as well as exemptions and higher levels of investment higher levels of investment spending. There is however, spending. There is however, likely to be an increase in likely to be an increase in private sector access to credit, private sector access to credit, due to the fiscal consolidation due to the fiscal consolidation being carried out by the being carried out by the government.government.

Dominica: Selected Economic Indicators

        Prog.1/ Est. Proj. 

  2003 2004 2005 2006 2007(Annual percentage change, unless otherwise specified)

Output and prices            Real GDP (factor cost) 0.1 3.0 3.3 4.1 4.0 3.2

GDP deflator (factor cost)

0.9 2.1 1.5 1.2 1.9 1.8

Consumer prices (end of period)

2.9 0.8 2.7 2.0 1.6 1.5

Money and credit 2/           Net foreign assets of the banking system

17.3 8.1 -8.0 5.1 17.6 4.4

Net domestic assets of the banking system

-16.4 -2.1 14.7 2.9 -8.0 1.6

Of which            Net credit to the nonfinancial public sector

-4.3 -5.1 -1.2 -2.0 -10.8 -3.5

Credit to the private sector

-2.3 5.4 4.6 6.1 8.5 5.0

Liabilities to the private sector (M2)

1.0 5.9 6.7 8.0 9.6 6.0

Balance of payments            Merchandise exports, f.o.b.

-6.0 4.5 0.4 -1.0 -1.1 3.9

Merchandise imports, f.o.b.

9.3 14.2 14.2 0.5 0.6 1.3

Real effective exchange rate

           

(end of period, depreciation -)

-1.9 -6.0 1.9 ... -2.6 ...

(In percent of GDP, unless otherwise specified)

Central government 3/            Savings (incl. grants) 8.6 7.6 10.6 11.5 12.7 9.6Of which            Primary savings (before grants)

5.8 7.8 8.5 5.5 6.4 5.4

Grants 4/ 8.8 5.9 7.6 8.5 8.9 6.5Capital expenditure and net lending

10.1 8.8 9.5 10.1 9.5 8.9

Primary balance 4/ 5.4 3.5 7.3 4.0 5.9 3.0Overall balance 4/ -1.3 -0.9 1.2 1.6 3.4 0.8Nonfinancial public sector debt (gross)5/

             

Total 130.8 116.0 108.1 101.4 102.5 95.8External 84.6 80.6 74.8 70.8 70.9 65.2Domestic 46.2 35.4 33.3 30.6 31.6 30.6External sector            Current account balance -13.0 -17.3 -29.5 -21.3 -19.4 -17.0External public debt service 6/

19.5 20.7 17.5 13.1 13.0 9.5

Amortization 12.8 14.0 9.1 8.4 8.3 5.1Interest 6.8 6.7 8.4 4.7 4.7 4.4Memorandum items:            Nominal GDP at market prices (EC$ millions)

           

Calendar year 696.1 733.7 767.5 809.5 813.6 854.0Net international reserves            (U.S. dollars millions; end-of-period)

44.0 33.6 37.6 44.2 51.9 54.5

 Sources: Dominica authorities; Eastern Caribbean Central Bank (ECCB); and IMF staff estimates and projections.1/ IMF Country Report No. 07/1, Seventh PRGF Review (November 2006).2/ Change relative to the stock of M2 at the beginning of the period.3/ This refers to the fiscal year (July-June) beginning July of the reference year.4/ Does not include grants that were received but not spent.5/ 5/ For 2005, it includes the reallocation of part of an external bond (around 4 percent of GDP) from external to domestic.6/ In percent of exports of goods and non-factor services. Up to 2005 data are on pre-restructuring terms. After that, data are on post-restructuring terms for creditors participating in the debt restructuring and on pre-restructuring terms for creditors not participating

ST VINCENT/GRENADINESST VINCENT/GRENADINES::

An IMF mission led by Paul An IMF mission led by Paul Cashin, deputy chief of the Cashin, deputy chief of the western hemisphere western hemisphere department, visited St Vincent department, visited St Vincent & the Grenadines during the & the Grenadines during the period July 25 to August 2 of period July 25 to August 2 of this year in order to conduct this year in order to conduct the annual Article Four the annual Article Four Consultations. The discussions Consultations. The discussions covered the current and covered the current and medium-term economic medium-term economic outlook.outlook.

The team concluded that the The team concluded that the country’s near-term economic country’s near-term economic outlook remains favourable, outlook remains favourable, as the economy is estimated as the economy is estimated to have grown by 4 per cent to have grown by 4 per cent last year, fuelled by the last year, fuelled by the construction, tourism and construction, tourism and agricultural sectors. There was agricultural sectors. There was however an up-tick in however an up-tick in inflationary pressures due to inflationary pressures due to higher international prices but higher international prices but inflation remained low due to inflation remained low due to the country’s membership in the country’s membership in the ECCB.the ECCB.

Looking further ahead, the IMF Looking further ahead, the IMF posited that the country posited that the country remained vulnerable because remained vulnerable because of its dependence on imported of its dependence on imported oil, the erosion of trade oil, the erosion of trade preferences in bananas and preferences in bananas and frequent natural disasters.frequent natural disasters.

The country however, needs to The country however, needs to accelerate economic growth in accelerate economic growth in order to reduce poverty, foster order to reduce poverty, foster greater levels of income greater levels of income equality and it was therefore equality and it was therefore against this background that against this background that the IMF team emphasized the the IMF team emphasized the need to consolidate its fiscal need to consolidate its fiscal accounts.accounts.

More specifically, on the fiscal More specifically, on the fiscal front, the IMF recommended a front, the IMF recommended a prudent fiscal policy stance, prudent fiscal policy stance, which would balance the which would balance the pressures between fiscal pressures between fiscal stimulus in times of low stimulus in times of low economic growth and debt economic growth and debt sustainability. This -is in order sustainability. This -is in order to prevent fiscal stimuli from to prevent fiscal stimuli from leading to an increase in the leading to an increase in the public debt and as a public debt and as a consequence debt service consequence debt service charges, as occurred in the charges, as occurred in the past.past.

Cashin and his team also Cashin and his team also supported the authorities’ supported the authorities’ plans to replace several plans to replace several indirect taxes with a value indirect taxes with a value added tax this year, in order to added tax this year, in order to place the fiscal accounts on a place the fiscal accounts on a solid footing, leading to an solid footing, leading to an increase in debt sustainability increase in debt sustainability in the long-run. There was also in the long-run. There was also agreement on other fiscal and agreement on other fiscal and debt sustainability measures debt sustainability measures such as the prioritization of the such as the prioritization of the capital budget, the challenges capital budget, the challenges facing the National Insurance facing the National Insurance Service (NIS), education and Service (NIS), education and investments in human capital.investments in human capital.

The prudential indicators also The prudential indicators also pointed to a strengthening of pointed to a strengthening of the country’s financial sector, the country’s financial sector, due to steps taken to enhance due to steps taken to enhance the regulatory and supervisory the regulatory and supervisory framework of both the banking framework of both the banking and non-banking financial and non-banking financial institutions.institutions.

St. Vincent and the Grenadines: Selected Economic Indicators, 2000-2005

        Est. Proj.

  2000 2001 2002 2003 2004 2005

  (Annual percentage change, unless otherwise specified)

Output and prices            Real GDP at factor cost 2.0 -0.1 3.2 3.4 4.3 4.9Nominal GDP (market prices) 1.5 3.1 5.8 3.9 6.4 6.0Consumer prices, end of period

1.4 -0.6 0.4 2.7 1.7 2.3

Consumer prices, period average

0.2 0.8 0.8 0.2 3.0 2.6

             Banking system            Net foreign assets 1/ 11.2 -4.1 2.9 5.7 16.0 3.9Net domestic assets 1/ -1.7 7.2 5.4 -3.9 -3.6 2.1Of which:            Net credit to the public sector 1/

1.9 0.3 4.8 -4.0 3.3 2.0

Credit to private sector 1/ 8.0 2.1 4.3 0.6 0.2 2.0Broad money 1/ 9.5 3.0 8.3 1.9 12.4 6.0Average deposit interest rate (in percent per annum)

4.6 4.5 4.5 4.5 3.3 ...

Average lending interest rate (in percent per annum)

11.8 11.9 11.5 11.5 9.5 ...

               (In percent of GDP, unless otherwise

specified)

             

Public sector            

Central government finances

           

Total revenue and grants 29.4 30.7 31.7 31.6 30.3 31.7

Total expenditure and net lending

31.4 32.8 34.0 34.9 33.7 35.8

Current expenditure 26.6 27.7 28.0 26.9 26.4 27.5

Capital expenditure 3.9 5.0 6.4 8.0 7.3 8.3

Overall balance (cash basis) 2/ -2.0 -2.1 -4.2 -3.4 -3.4 -4.1

Primary balance (after grants) 0.8 0.5 -1.6 -0.6 -0.9 -0.5

Central government debt 3/ 63.6 65.5 68.3 68.2 70.9 70.8

Public sector finances            

Public sector overall balance 4/

-4.2 -0.6 -5.8 -3.0 -6.4 -5.2

Gross public sector debt 3/ 4/ 67.5 68.2 70.5 72.8 78.9 81.2

             

External sector            

External current account -6.8 -10.5 -11.3 -19.9 -25.5 -27.6

Stayover arrivals (percentage change)

6.7 -3.0 9.8 1.2 10.4 ...

Public sector external debt (end of period)

47.8 49.1 46.5 51.3 54.7 56.4

External public debt service            

In percent of exports of goods and services

5.7 6.7 6.5 7.4 10.6 11.5

Real effective exchange rate (- = depreciation, in percent)

5.1 0.5 -6.7 -8.3 -5.0 ...

External terms of trade (- = deterioration, in percent)

-3.3 2.9 2.1 -4.2 -3.4 -3.2

           

Sources: Eastern Caribbean Central Bank, Ministry of Finance and Planning; Banana Growers' Association, and Fund staff estimates and projections.

1/ Annual changes relative to the stock of broad money at the beginning of the period.

2/ Includes the difference between the overall balance as measured from above the line and from below the line (i.e. financing), which may include float and unidentified discrepancies.

3/ Net of intra-public sector debt (mainly central government debt to the NIS).

4/ The consolidated public sector includes the central government, the National Insurance Scheme (NIS), Kingstown Board, and 10 nonfinancial public enterprises.

BARBADOSBARBADOS::

An IMF team led by Christina An IMF team led by Christina Daseking, deputy division chief Daseking, deputy division chief of its western hemisphere of its western hemisphere department conducted the department conducted the most recent Article Four most recent Article Four Consultations on the Bajan Consultations on the Bajan economy in July of this year. economy in July of this year. The team concluded that The team concluded that economic growth was very economic growth was very solid during the year 2006, solid during the year 2006, with a drop in the with a drop in the unemployment rate to unemployment rate to historical lows.historical lows.

The Fund also posited that the The Fund also posited that the prospects for this year are prospects for this year are favourable because growth is favourable because growth is projected at 4 per cent and projected at 4 per cent and inflation at 5.5 per cent. The inflation at 5.5 per cent. The country’s external current country’s external current account deficit is however account deficit is however programmed at 8.5 per cent, programmed at 8.5 per cent, despite the decline in recent despite the decline in recent years.years.

Fiscal consolidation to reduce Fiscal consolidation to reduce the country’s external current the country’s external current account deficit, and the high account deficit, and the high public debt in an effort to public debt in an effort to maintain the scope for an maintain the scope for an effective policy response and effective policy response and uphold the credibility of the uphold the credibility of the country’s exchange rate country’s exchange rate regime were also regime were also recommended by the team.recommended by the team.

Barbados: Selected Economic Indicators

 

          Prel Proj.

  2002 2003 2004 2005 2006 2007 2008

 

  (Annual percentage change)

Output and prices              

Real GDP 0.6 2.0 4.8 4.1 3.9 4.2 2.7

Consumer prices (12-month increase)

-1.2 1.6 1.4 6.0 7.3 5.5 3.6

Unemployment 10.4 11.1 9.6 9.1 8.7 8.4 9.0

   

Money and credit              

Net domestic assets 8.7 1.3 43.5 14.1 14.2 8.6 6.7

Of which 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Private sector credit 3.3 0.9 16.7 21.7 13.2 7.5 6.3

Public sector credit -621.

4

38.3 33.6 -40.8

-11.4

28.3 11.7

Broad money 10.3 6.5 17.4 6.9 11.3 9.0 6.3

  (In percent of GDP)Public sector operations 1/

             

Overall balance -10.1 -5.0 1.3 -3.7 0.0 -4.0 -1.6

Central government balance

-5.5 -2.4 -2.5 -1.4 -2.0 -2.2 -1.0

Off-budget activities -5.7 -2.9 1.3 -1.9 -1.4 -3.3 -2.2

National Insurance Scheme balance

2.4 2.4 3.6 3.6 3.9 3.9 4.0

Public enterprises balance

-1.3 -2.0 -1.0 -4.0 -0.5 -2.3 -2.3

Primary balance -5.3 -0.3 5.5 0.8 4.5 0.3 3.1

Public sector debt 2/ 87.8 86.0 87.4 89.0 87.0 88.4 89.0

Central government debt

78.5 75.4 76.4 75.0 73.1 73.2 72.4

 External sector  External current account balance

-6.8 -6.3 -12.4 -12.5 -8.4 -8.6 -8.5

Public sector external debt 2/

28.5 27.1 27.1 27.7 26.8 27.9 27.3

               Gross international reserves (in millions of U.S. dollars)

683 752 595 619 600 620 623

28.Sources: Barbadian authorities; and IMF staff estimates.1/ Fiscal year (April-March).2/ Includes central government and government guaranteed debt.

TRINIDAD&TOBAGOTRINIDAD&TOBAGO::

The latest Article Four The latest Article Four Consultation on the Trinidad & Consultation on the Trinidad & Tobago economy was Tobago economy was conducted by Jose conducted by Jose Fajgenbaum, deputy director Fajgenbaum, deputy director of the western hemisphere of the western hemisphere department and Max Alier department and Max Alier mission chief for the country mission chief for the country and their team.and their team.

They concluded that the They concluded that the country has been able to grow country has been able to grow rapidly during the last decade rapidly during the last decade because of the reforms because of the reforms implemented in the 1990s by implemented in the 1990s by the George Chambers led the George Chambers led administration.administration.

The Fund also concluded that T The Fund also concluded that T &T’s economic performance &T’s economic performance was spectacular when was spectacular when compared to other countries in compared to other countries in the region, as well as to other the region, as well as to other energy producers. Despite the energy producers. Despite the dip in energy output the dip in energy output the economy is projected to canter economy is projected to canter at a rate of 6 per cent this, due at a rate of 6 per cent this, due to higher foreign direct to higher foreign direct investment inflows.investment inflows.

The conclusion was however The conclusion was however drawn that fiscal policy needs drawn that fiscal policy needs to be tightened in response to to be tightened in response to signs that the economy is signs that the economy is currently operating at full currently operating at full capacity, in order to contain the capacity, in order to contain the spreading inflation virus. The spreading inflation virus. The country’s external current country’s external current account is programmed to account is programmed to generate another surplus.generate another surplus.

The IMF supported the The IMF supported the country’s efforts to contain country’s efforts to contain expenditures in order to expenditures in order to contain the deficit, while contain the deficit, while stressing that the non-energy stressing that the non-energy deficit widened to 16 per cent deficit widened to 16 per cent of GDP last year.of GDP last year.

The Fund also argued that this The Fund also argued that this was mainly due to the tax cuts was mainly due to the tax cuts given to the non-energy given to the non-energy sectors and rapidly rising sectors and rapidly rising capital expenditures.capital expenditures.

The mission also The mission also recommended that the recommended that the government cut expenditures, government cut expenditures, while pointing out that in order while pointing out that in order to improve medium-term fiscal to improve medium-term fiscal sustainability a tighter fiscal sustainability a tighter fiscal stance will have to be adopted.stance will have to be adopted.

The IMF also posited that a The IMF also posited that a non-energy sector deficit of 10 non-energy sector deficit of 10 per cent is needed to prevent per cent is needed to prevent large policy reversals when large policy reversals when energy income declines. Pacing energy income declines. Pacing the use of energy resources the use of energy resources would lead to the maintenance would lead to the maintenance of investment and social of investment and social spending during the medium-spending during the medium-term, the Fund also contended.term, the Fund also contended.

TRINIDAD&TOBAGO: Selected Economic Indicators

2001 2002 2003 2004 2005

(Annual percentage changes)

Output and pricesReal GDP 4.2 7.9 13.9 9.1 7.9

Energy GDP 5.6 13.5 31.3 8.4 8.2

Unemployment rate (percent of labor force)

10.8 10.4 10.3 8.4 8.0

Consumer prices (end of period)

3.2 4.3 3.0 5.6 7.2

Money and credit 1/Net foreign assets 9.1 2.5 5.7 36.4 42.6

Net domestic assets 3.5 0.2 -3.7 -17.6 -11.0

Public sector credit (net) -7.2 2.1 -9.9 -24.7 -23.6

Private sector credit 3.7 3.1 2.6 18.2 21.6

Broad money (M3) 12.6 2.7 2.0 18.8 31.6

(In percent of GDP, unless otherwise indicated)

Public finances 2/Budgetary revenue 24.8 23.

024.1 24.9 30.

3Budgetary expenditure 24.2 23.

122.3 23.0 24.

7Overall budget balance 0.6 -0.2 1.8 1.9 5.6

Overall nonenergy budget balance

8.1 5.6 7.5 8.4 10.3

Overall nonfinancial public sector balance

-1.6 -3.2 1.8 1.9 3.5

Public sector debt 53.4 54.8

49.9 42.8 36.1

External sectorExternal public debt 17.2 16.

413.4 10.3 8.5

Current account balance 4.7 0.8 8.0 13.3 24.5

Of which: exports 45.3 40.4

43.3 47.3 59.7

Of which: imports 37.7 37.9

32.5 36.1 35.3

Gross official reserves (millions of US$)

1,876 1,924

2,258

2,993 4,787

Terms of trade (percentage change, end of period)

-4.8 0.4 8.0 3.4 10.0

Memorandum item:Nominal GDP (in billions of TT$) 59.2 60.

775.7 85.2 102

.1           

Sources: Trinidad and Tobago authorities; and IMF staff estimates.

1/ Changes in percent of beginning-of-period broad money.2/ Fiscal year October-September. Data refer to fiscal years 2000/2001-2004/05.

SUMMARY:SUMMARY:

The high public debt to GDP The high public debt to GDP ratios of the six Caribbean ratios of the six Caribbean countries mentioned above, countries mentioned above, has led to a paucity of the has led to a paucity of the public sector resources public sector resources needed to improve their needed to improve their infrastructure, human infrastructure, human resources and provision of resources and provision of basic social services such as basic social services such as health, education and national health, education and national security.security.

This has led to a reduction of This has led to a reduction of their absorptive capacities or their absorptive capacities or ability to maximize growth ability to maximize growth from the high levels of foreign from the high levels of foreign direct investment inflows from direct investment inflows from which they have benefited which they have benefited during the last 10 years. during the last 10 years.

The heavy debt burdens of The heavy debt burdens of these countries also constrain these countries also constrain their ability to provide the their ability to provide the most basic social services, most basic social services, while simultaneously paying while simultaneously paying down the debt. down the debt.

This inability to provide This inability to provide adequate levels of adequate levels of basicbasic social services and lack social services and lack luster economic growth luster economic growth have contributed have contributed significantly to the significantly to the migration of skilled migration of skilled personnel from the region, personnel from the region, which also helps to further which also helps to further undermine economic undermine economic growth.growth.

These countries however have These countries however have very little choice but to very little choice but to continue with the process of continue with the process of fiscal consolidation in order to fiscal consolidation in order to generate the higher levels of generate the higher levels of economic growth needed to economic growth needed to reduce their debt burdens. reduce their debt burdens. Simply put, they will have to Simply put, they will have to continue to make certain social continue to make certain social and economic sacrifices in and economic sacrifices in order to consolidate their fiscal order to consolidate their fiscal accounts and grow their way accounts and grow their way out of debt.out of debt.

BIBLIOGRAPHYBIBLIOGRAPHY

(1) (1) CISDE, Caritas International: Putting Life CISDE, Caritas International: Putting Life Before DebtBefore Debt..

(2) (2) Office of the Prime Minister of St.Lucia: The Office of the Prime Minister of St.Lucia: The Business of Public Debt.Business of Public Debt.

(3)Guyana Country Brief, June 2002.(3)Guyana Country Brief, June 2002. (4)International Monetary Fund: Press Release, (4)International Monetary Fund: Press Release,

December 23, 1997.December 23, 1997. (5)Jubilee Research: Profile on Guyana(5)Jubilee Research: Profile on Guyana (6) Office of the Prime Minister of St. Lucia: The (6) Office of the Prime Minister of St. Lucia: The

Business of Public Debt.Business of Public Debt. (7) IMF Article Four Consultations: May 7, 2007.(7) IMF Article Four Consultations: May 7, 2007. (8) ) IMF Article Four Consultations: May 1, 2007(8) ) IMF Article Four Consultations: May 1, 2007 (9) IMF Article Four Consultations: May 9, 2007.(9) IMF Article Four Consultations: May 9, 2007. (10) IMF Article Four Consultations: July 20, (10) IMF Article Four Consultations: July 20,

2007.2007. (11) IMF Article Four Consultations: July20, 2007.(11) IMF Article Four Consultations: July20, 2007. (12) IMF Article Four Consultations: July 23, (12) IMF Article Four Consultations: July 23,

2007.2007. (13) IMF Article Four Consultations: August 24, (13) IMF Article Four Consultations: August 24,

2007.2007.