Download Mr.Ralston Hyman

“THE IMPACT OF HIGH
DEBT
BURDENS ON
SMALL CARIBBEAN
STATES”
PRESENTED BY:
RALSTON HYMAN
DATE:
SEPTEMBER 29, 2007
EVENT:

CONFERENCE ON
“ECONOMIC

GROWTH AND
TRANSFORMATION
REASSESSING THE CHALLENGES
AT THE DAWN OF THE 21ST
CENTURY”

Introduction:

The growth and development
of many small Caribbean
states are being negatively
impacted by their onerous debt
burdens, which force them to
generate high primary
surpluses as a percentage of
Gross Domestic Product (GDP)
thereby preventing them from
spending on infrastructure
development and the provision
of basic social services which
are necessary to attract
investments and improve their
absorptive capacities.

The primary surplus represents
the extent which a government
is prepared to reduce
expenditure on basic social
services such as- health,
education, national security
and infrastructure
development, in order to
service the public debt.
However, in order to properly
assess the impact of the debt
burden on the growth and
development of small
Caribbean states, it is of
paramount importance to take
a contemporary as well as
historical perspective.

While the international
community, particularly the
Washington based
International Monetary Fund
(IMF) and its sister agencies,
the World Bank and the InterAmerican Development Bank
(IDB), as well as the African
Development Bank (ADB), are
focused on the debt problems
of major debtors and highly
indebted poor countries
(HIPC), very little attention is
being paid to the debt
problems of small Caribbean
states, such as Jamaica which
are middle income countries.

Empirical analysis indicate that
since 1990 the debt burdens,
particularly the external debts
of small states have been
growing faster than those of
low income countries, with the
biggest jumps being recorded
by members of the
Organisation of Eastern
Caribbean States (OECS) East
Caribbean Central Bank
(ECCB) and Belize.

The same data also revealed
that since 1999 the rate of
external debt accumulation in
small states has been twice
that as fast as that of
developing countries as a
whole. A further analysis of the
situation also indicate that this
represented a reversal of the
situation which existed in 1990
when the external debts of
developing countries rose twice
as fast as those of small
states.

A deeper analysis of the data
reveals that during the year
2003 small states such as
Belize, Dominica, St Kitts and
Nevis as well as Samoa
recorded external debt to GDP
ratios of more than 100 per
cent. Meanwhile, Grenada, and
Antigua had external debt to
GDP ratios of over 75 per cent
according to data provided by
the Washington based, World
Bank.

Using the net present value of
external debt thresholds, the
Bank posited that St Kitts/
Nevis, Grenada, Jamaica, St
Lucia and St Vincent and the
Grenadines were moderately
indebted. The governments of
these small Caribbean states
do not only have to service
their external debts, but their
total debt burden, which
includes the high cost internal
debt in Jamaica’s case.
Jamaica’s total debt to GDP
ratio currently stands at 134
per cent.
DEBT TO GDP RATIOS OF SMALL CARIBBEAN STATES (%)
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
Country
Genesis of crisis:


The international debt crisis
became apparent in 1982
when Mexico defaulted on its
foreign debt, sending shock
waves through the
international community, as
creditors feared that other
countries would do the same.
The immediate cause of the
crisis occurred in 1973 through
the process of petro dollar
recycling- when the members
of the then Sheik Ahmed Zaki
Yamani–led Organisation of
Petroleum Exporting Countries
(OPEC) quadrupled the price of
crude and invested the excess
liquidity in European and
American Commercial Banks.
• These banks then used these
funds to make loans to developing
countries without conducting
proper sovereign and credit risk
analyses and monitoring of these
loan flows.
• This irresponsible behaviour on
the part of the creditors and many
donor governments resulted in a
lot of these funds being
squandered on non productive
projects such as, the purchase of
armaments, grandiose public
development initiatives and other
private sector ones which only
benefited public officials and the
ruling elites. The jump in oil
prices in 1973 also helped to
spread the inflation virus in the
United States and Europe.
In 1979 OPEC raised the price of
oil- the precious commodity
again and the US Federal
Reserve Board (Fed)- the world’s
most powerful central bank which
was then led by Paul A volckerhiked interest rates in order to
contain the spreading inflation
virus leading to a recession.

The locomotive theory contends
that the American economy is the
locomotive of the international
economy because of its share of
the world’s Gross Domestic
Product (GDP), therefore the
recession in the US and the
combined impact of rising fuel
prices, as well as interest rates
led to a worldwide recession.


Developing countries suffered
the most from this crisis as the
demand for their exports
basically collapsed, while the
cost of production jumped, on
the back of the higher crude
prices- simply put, the terms
of trade or the ratio of export
prices to import prices
deteriorated badly.
The debt burdens of many
Latin American and Caribbean
countries surge in both
absolute and relative terms, as
the cost of servicing their
variable rate debt climbed.

African governments also
reacted to the worldwide
collapse in commodity prices
by borrowing from other
governments and multilateral
agencies at both market and
concessional rates. When
Mexico finally announced that
it could not repay its external
debt the international financial
system appeared to be on the
brink of collapse, forcing the
world’s major creditors to take
coordinated actions to save the
commercial banks and the
world economy.
Impact on the South:

The existence of debt has
social, financial and political
implications for example
heavily indebted poor countries
have higher rates of infant
mortality, disease, illiteracy
and malnutrition than the
developing and developed
ones. Massive debt
repayments preclude them
from dealing with many of
these problems
simultaneously.


From a financial stand point, high
levels of indebtedness is a signal to
the international financial
community that a country is an
investment risk because it is either
unwilling or unable to repay its
debts. This contributes to the
cutting-off of these countries from
the international capital markets,
unless they are willing to pay
extremely high rates.
The United Nations Development
Programme (UNDP) posits that the
interest paid by poor countries were
four times as high as those paid by
developing countries in the 1980s,
due to their inferior credit ratings,
as well as currency deteriorations.
Impact on Small Caribbean
States:

Many small Caribbean states,
including Jamaica, suffered the
same fate as their counterparts
in Africa, Asia and Latin
America. For example, Jamaica
was not able to successfully reenter the international capital
market until 1997and even
then the country had to pay a
high cost.

The high cost of serving this
massive debt and the need the
generate huge primary
surpluses have severely
constrained the abilities of
these countries to invest in
basic social services and
human as well as
infrastructural development.

Let’s use Jamaica as a case
in point, the country
mobilized almost US$5
billion in foreign direct
investment during the last
five years, but despite this
the economy has officially
grown at a weak annual
average rate of only 1 per
cent.

This is mainly because the cost
of servicing the debt as a
percentage of the budget
which climbed to as high as 70
per cent during the year 2000
before falling to 54 per cent
last year, prevented the
government from pumping the
kind of resources needed in
order to facilitate the
development of education solid
waste management, health
care and infrastructure as well
as human resources.

In Jamaica the $210 billion or
33 per cent of GDP needed to
service the debt prevents the
government from funding the
vital area of national security
properly. Data released by the
International Monetary Fund
(IMF) and the World Bank posit
that crime is costing the
country some 4 per cent of
GDP or $40 billion annually.

The cost of crime to the
economy, in combination with
the weak absorptive capacity,
due to the insufficiency of
investments in education,
training and infrastructural
development have severely
constrained the official rate of
growth of the Jamaica
economy during the last 10
years. The private sector’s lack
of Schumpetarian innovative
capacity also played a
significant role in the poor
growth performance of the
economy during the period
under review.
REAL RATE OF GROWTH OF
JAMAICAN 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’s debt burden which
stood at 189 per cent of GDP
in 1999 forced the country to
seek debt relief under the
Highly Indebted Poor Countries
Initiative (HIPC) in 1999 in
order to maintain macro
economic stability. In October
2000 the country also became
eligible for additional debt
relief under the enhanced HIPC
initiative.


Guyana however experienced
some serious set backs in its
quest for debt relief, in
particular, the country went
off-track with its IMF
programme in December 2002
when it refused to reduce its
public sector apparatus and
privatize the Guyana Sugar
Company (GUYSUCO).
The country also narrowly
escaped being sued by Booker
Plc for an old debt, which
should have been cancelled
under the HIPC initiative.

Booker however dropped the
case, on the back of British
based, Jubilee campaigners.
The debt sustainability analysis
for the country which has a per
capita GDP of US$1,040
however indicates that it has
enough resources to service its
debt, while fully funding its
Millennium Development Goals
(MDGS).

The change in ideology, which
followed the 1985 elections,
enabled Guyana to borrow
heavily from western
governments. During the
1970s when the country
pursued an anti-western
stance its total public debt
stood $83 million, or 33 per
cent of its $247 million GDP.
This figure however jumped to
$1.7 billion or 161 per cent of
its $651 million GDP.


This growth in the debt was
not accompanied by growth in
the economy and this
exacerbated the political
instability which characterized
the country for most of the
previous decade. The fall in
commodity prices also led to a
steep reduction in the
country’s revenues from
exports.
Guyana is a very interesting
case because the country went
through the HIPC Initiative
twice-first it was the original
HIPC and then it was the
enhanced HIPC.

The original HIPC was
launched in 1996 and the
admission criteria related to
sustainability of debt. The ratio
between the net present value
of the total public debt and
exports, as well as revenues
was the two eligibility criteria
used. A country’s debt was
considered unsustainable if its
ratio of debt to exports was
more than between 200 to 250
per cent. The debt was also
said to be unsustainable if the
ratio of debt to revenues was
more than 280 per cent.
Guyana’s debt to exports was
only 180 per cent but the NPV
of its debt was 469 per cent of
its revenues therefore its debt
service burden was deemed to
be unsustainable.

The country reached the
decision point under the
original HIPC programme in
1997 and the completion point
in 1999. Meanwhile, the
enhanced HIPC programme
was launched 1999, on the
back of pressures from jubilee
campaigners and the indicators
used for admission were
lowered to a NPV to export
ratio of 150 per cent and a
NPV to revenue ratio of 250
per cent.

The IMF and the World Bank
decided that some of Guyana’s
debt should be cancelled in
1997 because of the
recognition that the country’s
debt burden was onerous and
therefore servicing it meant
that the country had to divert
resources from the provision of
basic social services.


Simply put- the country would
have to generate huge primary
surpluses. The country has
also been running large fiscal
deficits for years.
The country however had to
give a commitment to
implement the neo liberal
policies of the Washington
consensus, which includes
structural reforms,
privatization, public sector
restructuring and debt
management as well as
poverty alleviation measures.

The IMF contended in its latest
Article Four Consultations on
the economy dated May 11,
2007 that the country grew by
5 per cent in 2006, after
declining by 2 per cent during
the year 2005. This recovery
was driven by strong increases
in private sector credit,
remittance flows and foreign
direct investment.


Inflation fell to 4 per cent last
year but the country’s current
account deficit zipped to 28
per cent of GDP from 9 per
cent in 2004 due to a big jump
in imports of capital and
consumer goods. The country’s
fiscal deficit however declined
from 13.6 per cent of GDP in
2005 to 11.2 per cent last
year, despite an ambitious
public sector investment
programme.
The deficit- excluding the cost
of the public sector
modernization programme was
however projected at 5 per
cent of GDP.


Public expenditures were
estimated at 25.5 per cent of
GDP in 2006, while total public
expenditures social services
remained at a high 23 per cent
of GDP.
Public sector wage increases
were also kept in line with
inflation in order to support the
process of fiscal consolidation.
The executive directors of the
Fund also commended the
authorities for implementing
sound macro economic
policies, leading to higher
levels of growth lower levels of
inflation and an improved in
the debt sustainability outlook.
GUYANA SELECTED ECONOMIC
INDICATORS
(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
-4.3
8.9
RER
-5.6
Source: International Monetary Fund

Guyana’s Public Finances
% 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 had the best debt to
GDP ratio of all independent
Caribbean states, apart from
Trinidad & Tobago in December
2004. The country’s public debt
however jumped during the last
14 years because of a steep
reduction in the level of grants
and aid, which it received.
The country was also unable to
generate the levels of budget
surpluses needed to fund
certain public sector projects,
forcing it to borrow more
heavily. The country as also
been running large fiscal
deficits during the last few
years.
IMF ARTICLE FOUR
CONSULTATIONS:


The IMF posited in its most
recent Article Four
Consultation that the St
Lucian economy strengthened
in recent years. Real GDP
growth ran at an annual
average of 4 per cent during
the period 2003-2005 and
about 5 per cent last year.
Economic activity was driven
by the construction and
government services, related
to the hosting of Cricket World
Cup 2007. Inflation remained
low anchored on the country’s
membership in the Eastern
Caribbean Currency Union
(ECCU). The pace of growth is
however expected to
decelerate to 3.5 per cent this
year, on the back of slower


The country’s current account
deficit however rose sharply to
30 per cent of GDP last year,
despite strong capital inflows.
This was mainly due to the
higher levels of imports related
to hotel construction and a
deterioration in the terms of
trade.
This deficit is however
expected to narrow this year
due to a slowing of CWC
related import spending and a
modest rebound in exports of
goods and services. This
current account deficit is
projected to be largely
financed by foreign direct
investment flows.


The country however remains
vulnerable to external shocks,
due to its dependence on oil,
declining European Union (EU)
banana preferences, volatile
tourism receipts and heavy
exposure to natural
catastrophes.
There was however a general
acceptance of the key
challenge related to the
achievement of sound public
finances and ensuring debt
sustainability during the
consultation process.


Although St Lucia’s debt is
the lowest in the ECCU, it is
still high by international
norms. The IMF also pointed
out that the country’s high
debt service costs constrain
the extent of the fiscal room
in which it has to manoeuvre
in order to deal with adverse
economic shocks.
The IMF also supported the St
Lucian Authorities’ mediumterm objective to deepen
fiscal consolidation, reducing
the public debt through
tighter spending and
increasing the efficiency of
tax collections.
St. Lucia: Selected Economic Indicators
2000
2001
2002
2003
Prel. Proj.
2004 2005
(Annual percentage changes, unless otherwise specified)
Output and prices
Real GDP at factor cost
Consumer prices (period
average)
-0.3
3.6
-4.1
2.1
0.1
-0.3
2.9
1.0
4.0
1.5
5.1
3.0
Banana production
7.8 -51.6
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
8.2
0.7
-8.6
-6.4
...
4.7
-1.0
-5.0 -10.9
-0.7
...
Nominal effective
exchange rate (end of
period, depreciation -)
Real effective exchange
rate (end of
period, depreciation -)
41.5 -29.5
-4.2
24.6 -14.7
Money and credit 1/
Domestic assets (net)
Credit to public sector
(net)
Credit to private sector
Money and quasi-money
Velocity of money (M2)
2/
4.7
4.6
3.8
11.3
8.1
2.1
10.1
-2.8
-1.8
-2.0
-2.5
0.6
8.0
7.9
1.6
5.1
4.7
1.5
0.9
3.2
1.5
-4.3
7.6
1.5
11.1
10.1
1.4
9.8
10.8
1.4
(In percent of GDP, unless otherwise specified)
Central government
3/
Current balance
Capital outlays
Overall balance (before
grants)
Overall balance (after
grants)
Total public sector debt
4/
Of which: central
government
External sector
Current account balance
External public debt (end
of period) 5/
Debt-service ratio
5.3
7.3
-2.0
1.6
7.4
-5.6
0.1
10.7
-9.6
1.1
7.0
-5.5
3.7
8.0
-4.2
2.7
9.3
-6.5
-1.4
-4.2
-7.6
-3.8
-4.2
-5.0
44.8
51.1
63.6
62.9
67.9
67.6
31.6
37.7
50.6
51.0
57.3
57.8
14.1
28.4
16.2
33.0
15.2
46.4
20.3
46.9
13.3
48.7
16.4
48.5
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 :


Goohoon Kwon, chief of the
IMF’s mission to Dominica and
his team, recently stressed
that economic activity pickedup in the country last year with
growth projected at 4 per cent
therefore the short-term
outlook is positive.
Kwon and his team also
contended that last year’s
growth, which was the
strongest in 10 years, was
accompanied by a fall in the
inflation rate to 2 per cent.

The current growth trajectory
is however expected to slow
during the short-term mainly
because of the closing down of
a large manufacturing entity.
It is however projected to
continue above trend, on the
back of strong performances
by the tourism and
construction sectors.
Dominica’s public debt to GDP
ratio also continues to fall,
reflecting the country’s strong
fiscal effort and continued
economic expansion.


This expansion was driven by
the availability of more credit
to the private sector, due to
the process of fiscal
consolidation carried out by
the authorities.
There was a surge in grants to
14 per cent of GDP, which
helped the government to
improve the country’s
infrastructure, while
consolidating the fiscal
accounts, leading to an
improvement in the debt
ratios. The IMF team and the
authorities agreed on the need
to target a primary surplus of
3 per cent of GDP under the
growth and social protection
strategy.

The upcoming public sector
wage increases indicate that
the government has very little
fiscal flexibility therefore a
delicate balance must be
struck between tax reductions
as well as exemptions and
higher levels of investment
spending. There is however,
likely to be an increase in
private sector access to credit,
due to the fiscal consolidation
being carried out by the
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
0.9
2.1
1.5
1.2
1.9
1.8
GDP deflator (factor
cost)
2.9
0.8
2.7
2.0
1.6
1.5
Consumer prices (end of
period)
Money and credit 2/
17.3
8.1 -8.0
5.1 17.6
4.4
Net foreign assets of the
banking system
-16.4 -2.1 14.7
2.9 -8.0
1.6
Net domestic assets of
the banking system
Of which
-4.3 -5.1 -1.2 -2.0 -10.8
-3.5
Net credit to the
nonfinancial public sector
-2.3
5.4
4.6
6.1
8.5
5.0
Credit to the private
sector
1.0
5.9
6.7
8.0
9.6
6.0
Liabilities to the private
sector (M2)
Balance of payments
-6.0
4.5
0.4 -1.0 -1.1
3.9
Merchandise exports,
f.o.b.
9.3 14.2 14.2
0.5
0.6
1.3
Merchandise imports,
f.o.b.
Real effective exchange
rate
-1.9 -6.0
1.9
... -2.6
...
(end of period,
depreciation -)
(In percent of GDP, unless otherwise specified)
Central government 3/
Savings (incl. grants)
8.6
7.6
10.6 11.5 12.7
Of which
5.8
7.8
8.5
5.5
6.4
Primary savings (before
grants)
Grants 4/
8.8
5.9
7.6
8.5
8.9
10.1
8.8
9.5 10.1
9.5
Capital expenditure and
net lending
Primary balance 4/
5.4
3.5
7.3
4.0
5.9
Overall balance 4/
-1.3 -0.9
1.2
1.6
3.4
Nonfinancial public
sector debt (gross)5/
Total
130.8 116.0 108.1 101.4 102.5
External
84.6 80.6
74.8 70.8 70.9
Domestic
46.2 35.4
33.3 30.6 31.6
External sector
Current account balance
-13.0 -17.3 -29.5 -21.3 -19.4
19.5 20.7
17.5 13.1 13.0
External public debt
service 6/
Amortization
12.8 14.0
9.1
8.4
8.3
Interest
6.8
6.7
8.4
4.7
4.7
Memorandum items:
Nominal GDP at market
prices (EC$ millions)
Calendar year
696.1 733.7 767.5 809.5 813.6
Net international reserves
37.6 44.2 51.9
(U.S. dollars millions; end- 44.0 33.6
of-period)
9.6
5.4
6.5
8.9
3.0
0.8
95.8
65.2
30.6
-17.0
9.5
5.1
4.4
854.0
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/GRENADINES:

An IMF mission led by Paul
Cashin, deputy chief of the
western hemisphere
department, visited St Vincent
& the Grenadines during the
period July 25 to August 2 of
this year in order to conduct
the annual Article Four
Consultations. The discussions
covered the current and
medium-term economic
outlook.

The team concluded that the
country’s near-term economic
outlook remains favourable,
as the economy is estimated
to have grown by 4 per cent
last year, fuelled by the
construction, tourism and
agricultural sectors. There
was however an up-tick in
inflationary pressures due to
higher international prices but
inflation remained low due to
the country’s membership in
the ECCB.


Looking further ahead, the IMF
posited that the country
remained vulnerable because
of its dependence on imported
oil, the erosion of trade
preferences in bananas and
frequent natural disasters.
The country however, needs to
accelerate economic growth in
order to reduce poverty, foster
greater levels of income
equality and it was therefore
against this background that
the IMF team emphasized the
need to consolidate its fiscal
accounts.

More specifically, on the fiscal
front, the IMF recommended a
prudent fiscal policy stance,
which would balance the
pressures between fiscal
stimulus in times of low
economic growth and debt
sustainability. This -is in order
to prevent fiscal stimuli from
leading to an increase in the
public debt and as a
consequence debt service
charges, as occurred in the
past.

Cashin and his team also
supported the authorities’
plans to replace several
indirect taxes with a value
added tax this year, in order to
place the fiscal accounts on a
solid footing, leading to an
increase in debt sustainability
in the long-run. There was also
agreement on other fiscal and
debt sustainability measures
such as the prioritization of the
capital budget, the challenges
facing the National Insurance
Service (NIS), education and
investments in human capital.

The prudential indicators also
pointed to a strengthening of
the country’s financial sector,
due to steps taken to enhance
the regulatory and supervisory
framework of both the banking
and non-banking financial
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
Nominal GDP (market prices)
Consumer prices, end of
period
Consumer prices, period
average
Banking system
Net foreign assets 1/
Net domestic assets 1/
Of which:
Net credit to the public sector
1/
Credit to private sector 1/
Broad money 1/
Average deposit interest rate
(in percent per annum)
Average lending interest rate
(in percent per annum)
2.0
1.5
1.4
-0.1
3.1
-0.6
3.2
5.8
0.4
3.4
3.9
2.7
4.3
6.4
1.7
4.9
6.0
2.3
0.2
0.8
0.8
0.2
3.0
2.6
11.2
-1.7
-4.1
7.2
2.9
5.4
5.7 16.0
-3.9 -3.6
3.9
2.1
1.9
0.3
4.8
-4.0
3.3
2.0
8.0
9.5
4.6
2.1
3.0
4.5
4.3
8.3
4.5
0.6
0.2
1.9 12.4
4.5
3.3
2.0
6.0
...
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
Stayover arrivals (percentage
change)
Public sector external debt
(end of period)
-6.8 -10.5 -11.3 -19.9 -25.5 -27.6
6.7
-3.0
9.8
1.2 10.4
...
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
Real effective exchange rate (= depreciation, in percent)
5.1
0.5
-6.7
-8.3
-5.0
...
-3.3
2.9
2.1
-4.2
-3.4
-3.2
External terms of trade (- =
deterioration, in percent)
7.4 10.6 11.5
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.
BARBADOS:

An IMF team led by Christina
Daseking, deputy division chief
of its western hemisphere
department conducted the
most recent Article Four
Consultations on the Bajan
economy in July of this year.
The team concluded that
economic growth was very
solid during the year 2006,
with a drop in the
unemployment rate to
historical lows.

The Fund also posited that the
prospects for this year are
favourable because growth is
projected at 4 per cent and
inflation at 5.5 per cent. The
country’s external current
account deficit is however
programmed at 8.5 per cent,
despite the decline in recent
years.

Fiscal consolidation to reduce
the country’s external current
account deficit, and the high
public debt in an effort to
maintain the scope for an
effective policy response and
uphold the credibility of the
country’s exchange rate
regime were also
recommended by the team.
Barbados: Selected Economic Indicators
Prel
2002
2003
2004
2005
2006
Proj.
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
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
Money and credit
(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
Off-budget activities
-5.5
-2.4
-2.5
-1.4
-2.0
-2.2
-1.0
-5.7
-2.9
1.3
-1.9
-1.4
-3.3
-2.2
National Insurance
Scheme balance
Public enterprises
balance
Primary balance
2.4
2.4
3.6
3.6
3.9
3.9
4.0
-1.3
-2.0
-1.0
-4.0
-0.5
-2.3
-2.3
-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
Public sector external
debt 2/
Gross international
reserves (in millions
of U.S. dollars)
-6.8
-6.3
-12.4
-12.5
-8.4
-8.6
-8.5
28.5
27.1
27.1
27.7
26.8
27.9
27.3
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&TOBAGO:


The latest Article Four
Consultation on the Trinidad &
Tobago economy was
conducted by Jose
Fajgenbaum, deputy director
of the western hemisphere
department and Max Alier
mission chief for the country
and their team.
They concluded that the
country has been able to grow
rapidly during the last decade
because of the reforms
implemented in the 1990s by
the George Chambers led
administration.


The Fund also concluded that
T &T’s economic performance
was spectacular when
compared to other countries in
the region, as well as to other
energy producers. Despite the
dip in energy output the
economy is projected to canter
at a rate of 6 per cent this, due
to higher foreign direct
investment inflows.
The conclusion was however
drawn that fiscal policy needs
to be tightened in response to
signs that the economy is
currently operating at full
capacity, in order to contain
the spreading inflation virus.
The country’s external current
account is programmed to
generate another surplus.



The IMF supported the
country’s efforts to contain
expenditures in order to
contain the deficit, while
stressing that the non-energy
deficit widened to 16 per cent
of GDP last year.
The Fund also argued that this
was mainly due to the tax cuts
given to the non-energy
sectors and rapidly rising
capital expenditures.
The mission also
recommended that the
government cut expenditures,
while pointing out that in order
to improve medium-term fiscal
sustainability a tighter fiscal
stance will have to be adopted.

The IMF also posited that a
non-energy sector deficit of 10
per cent is needed to prevent
large policy reversals when
energy income declines. Pacing
the use of energy resources
would lead to the maintenance
of investment and social
spending during the mediumterm, the Fund also contended.
TRINIDAD&TOBAGO: Selected Economic Indicators
2001
2002
2003
2004
2005
(Annual percentage changes)
Output and prices
Real GDP
4.2
7.9
13.9
9.1
7.9
Energy GDP
5.6
13.5
31.3
8.4
8.2
10.8
10.4
10.3
8.4
8.0
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
-7.2
2.1
-9.9
-24.7
23.6
3.7
3.1
2.6
18.2
21.6
12.6
2.7
2.0
18.8
31.6
Unemployment rate (percent
of labor force)
Consumer prices (end of
period)
Public sector credit (net)
Private sector credit
Broad money (M3)
(In percent of GDP, unless otherwise indicated)
Public finances 2/
Budgetary revenue
24.8
Budgetary expenditure
24.2
Overall budget balance
0.6
Overall nonenergy budget
balance
Overall nonfinancial public
sector balance
Public sector debt
8.1
53.4
External sector
External public debt
17.2
Current account balance
-1.6
4.7
Of which: exports
45.3
Of which: imports
37.7
Gross official reserves (millions
of US$)
Terms of trade (percentage
change, end of period)
Memorandum item:
Nominal GDP (in billions of TT$)
1,876
-4.8
59.2
23. 24.1
0
23. 22.3
1
1.8
0.2
5.6
7.5
24.9
1.8
3.2
54. 49.9
8
1.9
23.0
1.9
8.4
30.
3
24.
7
5.6
10.
3
3.5
42.8
36.
1
16. 13.4
4
0.8
8.0
10.3
8.5
13.3
40. 43.3
4
37. 32.5
9
1,9 2,25
24
8
0.4
8.0
47.3
24.
5
59.
7
35.
3
4,7
87
10.
0
60. 75.7
7
85.2
Sources: Trinidad and Tobago authorities; and
IMF staff estimates.
1/ Changes in percent of beginningof-period broad money.
2/ Fiscal year October-September. Data refer to
fiscal years 2000/2001-2004/05.
36.1
2,99
3
3.4
102
.1
SUMMARY:

The high public debt to GDP
ratios of the six Caribbean
countries mentioned above,
has led to a paucity of the
public sector resources
needed to improve their
infrastructure, human
resources and provision of
basic social services such as
health, education and national
security.


This has led to a reduction of
their absorptive capacities or
ability to maximize growth
from the high levels of foreign
direct investment inflows from
which they have benefited
during the last 10 years.
The heavy debt burdens of
these countries also constrain
their ability to provide the
most basic social services,
while simultaneously paying
down the debt.

This inability to provide
adequate levels of basic
social services and lack
luster economic growth
have contributed
significantly to the
migration of skilled
personnel from the region,
which also helps to further
undermine economic
growth.

These countries however have
very little choice but to
continue with the process of
fiscal consolidation in order to
generate the higher levels of
economic growth needed to
reduce their debt burdens.
Simply put, they will have to
continue to make certain social
and economic sacrifices in
order to consolidate their fiscal
accounts and grow their way
out of debt.
BIBLIOGRAPHY













(1) CISDE, Caritas International: Putting Life
Before Debt.
(2) Office of the Prime Minister of St.Lucia: The
Business of Public Debt.
(3)Guyana Country Brief, June 2002.
(4)International Monetary Fund: Press Release,
December 23, 1997.
(5)Jubilee Research: Profile on Guyana
(6) Office of the Prime Minister of St. Lucia: The
Business of Public Debt.
(7) IMF Article Four Consultations: May 7, 2007.
(8) ) IMF Article Four Consultations: May 1,
2007
(9) IMF Article Four Consultations: May 9, 2007.
(10) IMF Article Four Consultations: July 20,
2007.
(11) IMF Article Four Consultations: July20,
2007.
(12) IMF Article Four Consultations: July 23,
2007.
(13) IMF Article Four Consultations: August 24,
2007.