The International Monetary Fund (IMF) says Caribbean countries, saddled with high debt levels and badly affected by the global economic crisis, need to reduce debt and develop new sources of growth to enhance their prospects.
Alluding to participants at a recent regional conference convened in Barbados to explore the Caribbean’s challenges and policy options, the Washington-based financial institution said the global crisis has had a “big impact” on economies in the Caribbean because of their strong links to the United States and Europe, adding that their recovery has been “sluggish so far.”
“While governments responded appropriately to the drop in tourism, trade, remittances and capital flows, they now face economic and social challenges that call for fresh ideas and a renewed policy resolve if the region is to reach a brighter, more sustainable growth path,” the IMF said.
The conference – entitled “Caribbean Policy Challenges after the Global Crisis” and organized by the University of the West Indies (UWI), the Central Bank of Barbados, and the International Monetary Fund (IMF) – brought together experts from across the Caribbean, Canada, the Seychelles, the United Kingdom, and the United States.
“This conference presented a valuable opportunity to exchange ideas and approaches to common challenges, to search for new solutions, and to develop a shared vision,” said Dr. DeLisle Worrell, Governor of the Central Bank of Barbados.
The IMF said one of the most difficult issues facing the region is the high level of public debt, and its implications for fiscal sustainability and growth, noting that five of the world’s 13 most indebted nations (as a share of Gross Domestic Product – GDP) are now in the Caribbean.
The IMF said debt has accumulated because of successive years of fiscal deficits and, since the mid 1990s, borrowing by public enterprises and off-balance sheet spending, including financial sector bailouts.
“With mounting interest bills, the global financial crisis caused serious problems for debt management,” it said, pointing out that fiscal consolidation is “critical” to ensuring macroeconomic stability, and also to “crowd in” the private sector.
“Conference participants acknowledged that lowering debt would lead to higher growth over time, a finding that is based on considerable research,” the IMF said.
“They accepted also that fiscal adjustment was inevitable since, like households, countries must―over time―live within their means,” it added.
The IMF said the conference looked at the case studies of the Dominican Republic and the Seychelles, where the impact of the crisis was severe, but where governments had responded proactively, relaxing considerably monetary policy in the Dominican Republic, and pushing through fiscal adjustment and debt restructuring, as well as exchange rate adjustment in the Seychelles.
These efforts, supported by the IMF’s assistance, had helped “restore stability, improve confidence, and spur the recovery,” the IMF said.
Participants also discussed innovative ideas about how to manage debt, including the recent experience of the debt exchange by Jamaica and debt restructuring by Antigua and Barbuda.
Some of the important factors behind these successful outcomes included “realistic burden sharing, no haircut on loan principal, social consensus, and a strong communications strategy,” the IMF said.