Caribbean & Central America - February 2011 (ISSN 1741-4458)

The Eastern Caribbean Central Bank (ECCB), which brings together Antigua & Barbuda, Grenada, Saint Kitts & Nevis, Dominica, Saint Lucia, Saint Vincent & the Grenadines, and the two British overseas territories of Anguilla and Montserrat, is projecting a modest return to growth for the region during 2011.

The ECCB is forecasting growth of 1.9% for 2011, increasing to 2.8% in 2012.  The main drag on a return to growth is agriculture, which is the only sector not projected to make a positive contribution in 2011.  However, private capital inflows and tourism are both expected to remain below pre-crisis levels.

The outcome for 2010 looks as if it was well below the projections made by the ECCD in July, when it was projecting a contraction of 2.4% after the disastrous contraction of 7.4% in 2009.  At its meeting on 11 February, the ECCB reported a year-on-year contraction of 4.0% for the January-September 2010 period. 

On the positive side, the European Union (EU) has provided a record amount of support of US$162.7m to Barbados and the Eastern Caribbean during the past year.  The purpose of the EU funding is to contribute to the social development and economic stability of the small islands at a time when they lack “fiscal space" due to rising debt.  For its part, the United Kingdom is keen to emphasize that it is not reducing its commitment to the region despite the Royal Navy's withdrawal of a permanent destroyer patrol from the Caribbean.  The UK's Department for International Development (DfID) is to contribute US$120m over the 2011-2015 period.  Its focus is the creation of 10,000 jobs and cutting crime.

Not surprisingly, debt continues to be a major worry, with total public debt pressing 100% of GDP.  The ECCB's stated aim is to get this ratio down to 60% by 2020, in part with the help of a debt-management project funded by the Canadian International Development Agency (CIDA).

One of the most-indebted of the Eastern Caribbean economies is that of St Kitts & Nevis, where total public debt is approaching 200% of GDP.  Prescriptions for SKN suggested at a conference in early February at the UK's Heriot-Watt University are therefore instructive.  A presentation co-authored by Paul Hare of Heriot-Watt University and Richard Stoneman, an independent consultant from Oxford, could do little to hide the difficulties that SKN, and to a lesser extent other indebted Eastern Caribbean islands, face.

Essentially, there were three main conclusions.  Firstly, SKN needs to refinance its debt obligations to longer maturities with the help of the ECCB and IMF.  Secondly, with or without the above, the country needs to undergo a period of severe fiscal pain in order to generate primary surpluses that might need to be as high as 20% of GDP.  However, the report accepts that as this would amount to about 50% of government revenues, achieving such a level is likely to be politically unacceptable.  The third element in the mix would have to be the sale of public assets, including land sales and the privatization of publicly owned entities.

The report recommends “the immediate corporatization of such entities as the Electricity Department", and it says that “for all entities providing a marketable service_economically sensible prices should be charged to all customers" and that “wherever possible_these public entities should be privatized at the earliest opportunity".   Finally, it adds that growth of 5% or better needs to be targeted.