The countries and territories of the Eastern Caribbean Currency Union (ECCU)[1] are benefiting from growth in numbers of visitors and lower oil prices. However, they will continue to be hampered by structural challenges such as high levels of indebtedness, over-dependence on tourism and vulnerability to natural disasters.
On 11 August[2], the IMF published its evaluation of the common policies of the ECCU. It noted that “the regional recovery is gaining ground, supported by continued low oil prices, strong tourism arrivals, and robust [receipts from Citizenship By Investment Programs – CBIPs]. Three failed banks have been resolved with no spill-overs to the rest of the region and fiscal management has improved.” This assessment followed a number of generally upbeat statements following four Article IV consultations with ECCU governments since April.
However, latest published statistics highlight the risks and challenges facing the ECCU. [1] For the sub region as a whole, economic growth is accelerating, but from a low base. In part because of the fall in oil prices, and in part because of the currency peg managed by the Eastern Caribbean Central Bank (ECCB), which fixes the Eastern Caribbean dollar to the US dollar at a rate of EC$2.70/US$, inflationary pressures have been minimal. Commercial banks have been very cautious, with the result that lending to the private sector has contracted over recent years. Although the details vary from country to country, the region as a whole would be running a fiscal deficit of about 4% of GDP this year if it were not for the revenues from CBIPs (see box). Public debt is moving downwards slowly relative to the overall economy, but is still a long way from the 60% of GDP target for the region in 2030. Tourism remains the key industry, with receipts accounting for nearly a fifth of GDP. Finally, although the region’s current account deficit with the rest of the world is small in absolute terms and relative to many benchmarks, it is still significantly larger than 10% of GDP.
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Chart 1: Eastern Caribbean Currency Union (ECCU)* |
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2015 |
2016 |
2017 |
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Real GDP Growth % |
1.9 |
2.1 |
2.6 |
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CPI Inflation % |
-0.9 |
-0.2 |
1.3 |
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Private Sector Credit Growth % |
-4.3 |
-1.7 |
0.8 |
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Overall Gov't. Balance % GDP |
-2.1 |
-2.0 |
0.0 |
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Excluding CBI Programs |
-4.7 |
-4.0 |
-1.7 |
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Total Public Debt % GDP |
81.7 |
81.7 |
78.1 |
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Travel Receipts % GDP |
18.4 |
18.1 |
18.0 |
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External Current Account Balance % GDP |
-12.8 |
-11.8 |
-12.9 |
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Source: IMF Press Release No. 16/376 of 11 August 2016 |
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*Antigua & Barbuda, Dominica, Grenada, St Kitts & Nevis, St Lucia, St Vincent & the Grenadines, Anguilla and Montserrat |
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2015 figures are preliminary. 2016 and 2017 figures are projections. |
Debt dynamics vary markedly. Six of the ECCU countries have had a major debt restructuring since 2010. Thanks in part to stronger economic growth (which has been boosted by revenues from its CBIP), St Kitts & Nevis has achieved a substantial reduction in its debt/GDP ratio over the last 15 years. For the ECCU as a whole, though, the ratio has risen by 19.5 percentage points to 88.7%. Interest payments equate to about one tenth of government revenues across the ECCU. However, in St Lucia, they equate to nearly one fifth. [2]
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Chart 2: ECCU Debt Dynamics |
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Gov't. Debt / GDP |
Change in Debt Ratio 2000-15 (pp) |
2015 Interest as % Gov't Revenue |
Restructuring Since 2010? |
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Antigua & Barbuda |
106.9 |
-3.9 |
13.7 |
Yes |
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Dominica |
78.5 |
10.2 |
7.2 |
No |
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Grenada |
107.1 |
65.5 |
14.7 |
Yes |
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St Kitts & Nevis |
74.5 |
-22.3 |
5.6 |
Yes |
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St Lucia |
88.0 |
49.0 |
17.6 |
No |
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St Vincent & Grenadines |
77.1 |
18.6 |
6.5 |
No |
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ECCU |
88.7 |
19.5 |
10.9 |
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Source: MIS, IMF, cited by FT Alphaville 23 February 2016 |
The tourism industry has been growing, but slowly and unevenly. [3] Across the ECCU countries, total receipts in Q1 16 amounted to EC$1.27bn, up from EC$1.16bn in Q1 15 and EC$1.12bn in Q1 14. The numbers of tourist arrivals have been growing. However, the more valuable ‘stay over’ visitors, who arrive by air (as opposed to day trippers from cruise liners) continue to account for about one sixth of the total.
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Chart 3: Tourist Arrivals |
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1Q14 |
2Q14 |
3Q14 |
4Q14 |
1Q15 |
2Q15 |
3Q15 |
4Q15 |
1Q16 |
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Anguilla |
51,984 |
44,847 |
38,264 |
41,685 |
58,702 |
45,858 |
41,788 |
39,720 |
52,640 |
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Of which: Stay over by air |
21,538 |
18,888 |
13,543 |
16,958 |
22,836 |
18,519 |
14,759 |
17,118 |
23,348 |
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Antigua & Barbuda |
365,407 |
111,520 |
89,666 |
233,068 |
405,670 |
140,052 |
94,974 |
268,964 |
412,480 |
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Of which: Stay over by air |
79,550 |
58,767 |
49,810 |
61,189 |
74,493 |
58,922 |
50,172 |
66,863 |
84,566 |
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Dominica |
191,746 |
46,418 |
23,061 |
121,337 |
175,886 |
50,618 |
22,286 |
114,518 |
181,732 |
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Of which: Stay over by air |
20,128 |
18,562 |
21,085 |
22,110 |
20,753 |
18,393 |
20,353 |
20,821 |
21,941 |
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Grenada |
171,318 |
58,742 |
46,267 |
118,672 |
180,249 |
59,228 |
43,932 |
160,982 |
232,299 |
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Of which: Stay over by air |
36,280 |
29,050 |
35,469 |
32,750 |
38,023 |
31,390 |
37,770 |
33,552 |
43,271 |
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Montserrat |
3,701 |
2,882 |
2,094 |
3,657 |
4,622 |
2,698 |
3,004 |
4,766 |
7,378 |
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Of which: Stay over by air |
2,355 |
1,831 |
1,597 |
3,021 |
2,272 |
1,756 |
1,906 |
3,010 |
2,880 |
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St Kitts & Nevis |
314,208 |
138,564 |
107,676 |
262,836 |
376,965 |
199,711 |
148,195 |
310,306 |
440,831 |
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Of which: Stay over by air |
32,977 |
28,707 |
24,245 |
27,007 |
35,429 |
29,010 |
23,936 |
28,598 |
34,256 |
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St Lucia |
384,178 |
185,049 |
159,266 |
305,575 |
407,274 |
203,629 |
159,384 |
302,732 |
366,322 |
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Of which: Stay over by air |
92,316 |
83,701 |
78,993 |
83,148 |
98,219 |
87,205 |
77,771 |
81,713 |
97,367 |
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St Vincent & Grenadines |
88,663 |
35,588 |
22,114 |
58,569 |
90,493 |
30,668 |
24,519 |
60,982 |
94,607 |
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Of which: Stay over by air |
19,503 |
16,865 |
16,305 |
18,040 |
20,658 |
16,414 |
17,687 |
20,622 |
21,453 |
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TOTAL |
1,571,205 |
623,610 |
488,408 |
1,145,399 |
1,699,861 |
732,462 |
538,082 |
1,262,970 |
1,788,289 |
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Of which: Stay over by air |
304,647 |
256,371 |
241,047 |
264,223 |
312,683 |
261,609 |
244,354 |
272,297 |
329,082 |
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Visitor Spending (EC$m) |
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1Q14 |
2Q14 |
3Q14 |
4Q14 |
1Q15 |
2Q15 |
3Q15 |
4Q15 |
1Q16 |
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Anguilla |
106 |
84 |
72 |
84 |
113 |
79 |
74 |
80 |
111 |
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Antigua & Barbuda |
289 |
195 |
162 |
215 |
274 |
197 |
164 |
236 |
314 |
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Dominica |
92 |
77 |
81 |
93 |
96 |
78 |
80 |
91 |
100 |
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Grenada |
119 |
87 |
109 |
110 |
117 |
80 |
105 |
96 |
159 |
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Montserrat |
7 |
4 |
4 |
7 |
7 |
4 |
4 |
7 |
9 |
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St Kitts & Nevis |
104 |
83 |
69 |
83 |
114 |
87 |
71 |
90 |
106 |
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St Lucia |
320 |
240 |
217 |
277 |
359 |
253 |
205 |
255 |
377 |
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St Vincent & Grenadines |
84 |
56 |
46 |
63 |
87 |
53 |
49 |
70 |
90 |
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TOTAL |
1,121 |
827 |
759 |
933 |
1,166 |
832 |
752 |
925 |
1,266 |
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NB US$1= EC$2.70 |
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Source: Central Statistics Offices, ECCU and ECCB |
The ECCU countries remain vulnerable to natural catastrophes. The probability of a hurricane striking in any one year ranges from about 9% in Grenada (the southernmost of the ECCU countries) to over 16% in St Lucia, according to the IMF and the EM-DAT database. By these metrics, the ECCU countries are among the 50 most disaster-prone countries globally.
Through 2015 and 2016, the ECCU countries have benefited from three trends. One is fiscal reform, which generally has not boosted growth but has improved the risk profiles of some countries. The second is the fall in the price of imported energy, which appears likely to persist. The third relates to the economic recoveries in the US, Canada and the UK, which has provided a boost to the tourism industry, if not a dramatic (nor necessarily sustainable) one.
Nevertheless, the main structural challenges remain unresolved. The ECCU countries are overly dependent on tourism, and face strong competition from nearby countries with similar offerings that are cheaper for North American and European tourists. Commercial banks are taking a cautious approach to lending, and are vulnerable to a further erosion of correspondent banking relationships.
The ECCU countries generally do not have reserve funds to provide a buffer against the impact of major natural disasters. The small size of the countries (given that their combined population is around 600,000) and geographic situation (essentially an archipelago, but without a single shipping company that serves all destinations) means that commercial costs are relatively high in the sub region. Further, it is not really feasible for the ECCU to consider diversification into high value-added financial services, given that Bermuda, the British Virgin Islands (BVI), The Cayman Islands and, to an extent, The Bahamas, Barbados and Trinidad & Tobago have already made that transition.
In short, 2016 will be a year that, in terms of economic conditions, is better than recent times. However, there has not been a decisive improvement in the fortunes of the ECCU countries, where per capita annual incomes range from around US$7,000 in Grenada to about US$16,000 in St Kitts & Nevis and Antigua & Barbuda.
A possible and partial exception is St Kitts & Nevis, where the burden of public debt is falling quite quickly. However, even that economy depends on continuing revenues from the CBIP – which cannot be taken for granted. Overall, the ECCU countries remain stuck in the economic slow lane.
Recent IMF Article IV Consultations with ECCU governments
In mid-May, the IMF completed its annual Article IV consultation with the government of Grenada, and approved the disbursement of US$2.8m under the Extended Credit Facility (ECF) in place since mid-2014. Resources made available to the government by the IMF through the ECF now amount to about US$14m. At the end of 2013, when the government paid arrears owing to Kuwait and multilateral creditors, debt amounted to about 107% of GDP. Thanks mainly to a successful restructuring in Q3 15 (with a debt exchange, an agreement with Paris Club creditors, restructuring of amounts owing to the National Insurance Scheme (NIS) and clearing of arrears in budgeted spending), the ratio is now around 94% of GDP.
The IMF was upbeat in its assessment of Grenada. It noted that the government had met all the requirements for the ECF to the end of 2015. Thanks to an expansion of agriculture and tourism, as well as a surge in construction, real annual GDP rose by an estimated 4.6% in 2015. The IMF is looking for growth of 3% this year. Fiscal reforms include “strengthened tax administration, improved public finance management, an overhaul of the tax incentives regime, and a new rules-based fiscal policy framework, which now need to be made fully effective”. The government is also taking steps to control the public sector wages bill and to improve the general business environment.
In early July, the IMF concluded its Article IV consultation with the government of St Kitts & Nevis. The Fund noted that the country had successfully completed its Post-Program Monitoring Framework in October 2015. With real GDP growth of 5.0% in 2015 (following increases of 6.1% in 2014 and of 6.2% in 2013), St Kitts & Nevis has had one of the region’s strongest economies. Growth has been boosted by construction, tourism and ‘surging’ receipts from the country’s Citizenship By Investment Program (CBIP). The current account and fiscal balances have been trending downwards. The IMF believes that St Kitts’ & Nevis’ debt/GDP ratio will fall to 60% in 2017, which is the target that the ECCU as a whole is looking to achieve by 2030. The IMF expects GDP growth of 3.5% this year, settling at 3% annually in the medium-term.
Relative to the other countries, the Fund discussed potential reforms in greater detail. For instance, it suggests that CBIP receipts could be channelled into a new fund to provide a contingency buffer for future shocks. It argued that more could be done to improve financial management, including through an improvement to the budget framework of the Nevis Island Administration (among other measures). It also recommended that the government do more to improve oversight of the financial system and to lift the quality of published statistical data.
The IMF’s mid-July statement following its Article IV consultation with the government of Dominica highlighted the impact of Tropical Storm Erika, which contributed to a 3.9% contraction in activity through 2015. The tourism sector is now largely operating normally. However, agriculture is still recovering. Lower fuel prices ensured that the current account deficit fell from 11.2% of GDP in 2014 to 9.4% of GDP in 2015. The IMF expects real annual GDP growth of 1.3% this year, rising to 1.7% annually over the medium-term. The Fund also looked favourably on the Dominican government’s measures to improve its fiscal position and strengthen the financial sector.
In mid-July, the IMF also concluded its Article IV consultation with the government of St Vincent & the Grenadines. As is the case in Dominica, activity was hampered by natural disasters in 2015, and real GDP rose by just 1.6% (having contracted the year before). However, lower oil import costs contributed to a reduction in the current account deficit from 29.6% of GDP in 2014 to 24.8% in 2015.
The IMF highlighted the impact of a new airport to be completed in 2016, and the development of geothermal energy. Thanks to growth in tourism, GDP growth is expected to accelerate to 2.2% this year and to 3.1% annually over the medium-term. It commented favourably on the soundness of the country’s banks and its regional leadership in terms of supervision of credit unions.
The IMF completed its Article IV consultations with the governments of Antigua & Barbuda and St Lucia in late 2015 and early 2016 respectively. According to its World Economic Outlook, the IMF is looking for real GDP growth in Antigua & Barbuda of 2.0% this year, or a little less than the 2.2% posted in 2015. Over the medium-term, annual growth should be about 2.7%. Growth in St Lucia is expected to slow from 1.6% in 2015 to 1.4% in 2016, with medium term growth of about 2%.
Citizenship By Investment Programs (CBIPs)
Four ECCU countries offer High Net Worth Individuals (HNWIs) the opportunity to purchase citizenship.
According to a report published in 2014 by consultants Wealth-X and Arton Capital, citizenship of Antigua & Barbuda is available to anyone who donates at least US$250,000 to an approved charity, invests at least US$400,000 in a government-approved real estate project, or US$1.5m in a business. Antigua & Barbuda’s CBIP was launched in 2012. Antigua & Barbuda’s CBIP is the only one which requires people who buy citizenship to maintain a physical presence in the country, albeit for a minimum of five days over five years.
Citizenship of Dominica is cheaper to acquire. Applicants must donate between US$100,000 and US$500,000 to a charity (depending on the number of family members) or invest US$200,000 in a government-approved real estate project. Dominica’s CBIP commenced in 1993.
Grenada offers citizenship to people who buy an approved property for at least US$1m, or a quarter interest in a property for at least US$250,000. The newest of the four CBIPs, it began in 2014.
Citizenship of St Kitts & Nevis can be purchased for a contribution of US$250,000 (for a single applicant) to the Sugar Industry Diversification Foundation of via investment of at least US$400,000 in a government-approved real estate project. St Kitts & Nevis’ CBIP was introduced in 1984.
Arton Capital assessed the ECCU CBIPs in relation to those offered by governments in other part of the world. Its criteria included: the overall cost of purchasing citizenship; the speed of the process; the number of countries that the holder of the (new) passport can visit with or without a visa; the general quality of life; and simplicity (in terms of not having to learn the local language, not having to be physically present and meeting other requirements). The four ECCU countries were rated more highly than the US, but less highly than certain European Union countries such as Bulgaria and Cyprus.
[1] The Eastern Caribbean Currency Union includes Antigua & Barbuda, Dominica, Grenada, St Kitts & Nevis, St Lucia and St Vincent & the Grenadines, as well as the British Overseas Territories of Anguilla and Montserrat.
[2] IMF Press Release 16/376, ‘IMF Executive Board Concludes 2016 Discusion on Common Policies of Member Countries of the Eastern Caribbean Currency Union.’