Eastern Caribbean Currency Union nations register post Beryl recovery: IMF recommends higher institutional provisioning and insurance oversight

 

The International Monetary Fund (IMF) in its concluding statement from its most recent assessment of the Eastern Caribbean Currency Union (ECCU)states that the grouping, “has been providing a strong anchor for macroeconomic stability in a shock-prone region, demonstrated most recently by Hurricane Beryl with its devastating impact on Grenada and Saint Vincent and the Grenadines."

The Eastern Caribbean Currency Union (ECCU) falls under the Organization of Eastern Caribbean States with member countries which have agreed to share the same currency, the Eastern Caribbean dollar (EC dollar).

The ECCU is composed of the nations of Antigua and Barbuda, Domina, Grenada, St. Kitts and Nevis, St. Lucia, St. Vincent, St. Vincent and the Grenadines and and the British territories of Anguilla and Montserrat.

The IMF recommended stepped-up regional coordination for non-bank financial system vulnerabilities. It outlined, “ The continued rapid expansion of credit unions warrants strengthening provisioning standards, monitoring of forbearance measures, and enhancing supervisory capacity, including through greater sharing of best practices.”

It was also noted that Citizenship-by-Investment (CBI) revenues have shown signs of slowing amidst heightened international scrutiny and regulatory tightening.

The international agency said that strengthening of AML/CFT frameworks remains crucial amidst the scrutiny of CBI programs and thin correspondent banking relationships. This includes completing the long-pending designation of the ECCB as the AML/CFT supervisor for banks and centralization of AML/CFT regulatory standards under the ECFSB.

Overall, however, it was noted, “The financial system remains stable, partly due to a prolonged period of cautious bank lending. Despite persistently elevated current account deficits, the ECCB’s reserve position has remained stable and currency backing ratio high, supporting confidence in the currency union.”

The IMF said that recovery from successive external shocks has been strong, driven by a rebound in tourism, with ECCU economies expected to converge to modest pre-pandemic average growth rates over the medium term.”

The IMF recommends that to “ manage downside risks while supporting long-term inclusive growth and the continued robustness of the quasi-currency board, policies should aim to address supply-side bottlenecks, build resilient fiscal frameworks to support fiscal sustainability, and continue to enhance financial system resilience and intermediation.”

The Board also recommended greater leveraging of synergies in regional data collection and processing could help strengthen data provision and thereby evidence-based policymaking.

Tourism

It is the opinion of the IMF that ECCU has achieved a strong rebound from successive adverse shocks. A strong tourism season and continued infrastructure investments supported robust growth in 2024.

Inflation has moderated in tune with global trends from a post-pandemic peak of more than 9 percent to less than 2 percent. Nevertheless, public debt remains high and generally well above the regional 2035 debt ceiling of 60 percent of GDP.

Going forward, GDP growth is set to moderate, and risks remain mostly on the downside. As most parts of the region approach full tourism capacity, average growth in the region is expected to slow from 6½ percent in 2021-24 to around 2½ percent in the medium term amid weak productivity growth and investment, a shrinking labor force, and reduced fiscal space.

Moreover, the IMF states, given the region’s long-standing vulnerabilities of high dependence on energy imports, exposure to natural disasters (NDs), persistently high public debt, and some economies’ heavy reliance on uncertain CBI revenues, the outlook is subject to significant downside risks.

Financing

The IMF stated that the planned common minimum regulatory standards for non-bank financial institutions (NBFIs) under the recently endorsed Eastern Caribbean Financial Standards Board (ECFSB) represent an important opportunity to establish a more level regulatory playing field between credit unions and banks.

“More centralized NBFI supervision would support more efficient and effective region-wide financial stability monitoring and is more acutely needed for consolidated oversight of pan-ECCU insurance companies. The ECCU’s high dependence on global property reinsurance makes it vulnerable to the evolving reassessment of climate liability risks. The risk of more sustained hardening of the reinsurance market could worsen existing underinsurance by driving up costs and reducing capacity. Strengthening monitoring of reinsurance coverage, including through more targeted data collection, would support policy preparedness to manage these risks and narrow protection gaps,” it was stated.

The agency is also calling for a more systematic approach to strengthen financial intermediation and private investment. “Slow bank lending growth, particularly in business credit, has long limited growth-supporting investment. Notwithstanding some recovery in construction and real estate credit, much of the high system liquidity is invested overseas and the unmet credit demand has partly fueled growth of the more risk-tolerant credit unions.”

Notably, region has taken steps to address credit access constraints through the ongoing rollout of the Credit Bureau and more demand-tailored products under the Eastern Caribbean Partial Credit Guarantee Corporation. Closer coordination of these regional initiatives and national MSME development policies would support development of regional best practices in enhancing small businesses’ bankability.

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