Pandemic still hobbling eastern Caribbean economies

The economic recovery in the Eastern Caribbean Currency Union, ECCU, continues to be “hobbled” by new waves of the COVID-19 pandemic, which is also pressuring public finances, according to the subregion’s central bank.

A communiqué issued following the weekend meeting of the Monetary Council of the Eastern Caribbean Central Bank, ECCB, noted that activity in the tourism industry, the mainstay of the ECCU economy, remains sluggish.

“The constrained economic performance of the ECCU in the first nine months of 2021 was exacerbated by losses and destruction due to eruptions of La Soufrière volcano in St Vincent and the Grenadines from April 2021, and to the passage of Hurricane Elsa near St Lucia in July 2021,” the communiqué noted.

The protracted pandemic continues to cause significant hardship, particularly among the most vulnerable groups, such as households and small businesses, leading the ECCU members to reiterate their appeal to the international community for “additional financing to help them provide income support to citizens and small businesses” most affected by fallout from the spread of the COVID-19 coronavirus.

The ECCB’s latest estimates show a more severe contraction in economic activity for 2020 than was initially announced, they said, while the 2021 recovery is also projected to progress at a slow pace, with a growth forecast of 0.9 per cent, but accelerate substantially next year.

“The projected growth rate of 6.9 for the ECCU for 2022 is subject to significant uncertainty and, if realised, would still not be sufficient to return ECCU economies to their pre-pandemic levels. Against this backdrop, the Monetary Council reiterated the urgency for citizens and residents to step forward and be vaccinated,” ECCU said.

“Indeed, this issue is critical to speed up economic recovery and reduce the economic hardship being experienced by many. It is also critical for a safe return to school for many of the region’s children and to reduce the burden on parents and teachers.”

The virtual meeting of the monetary council was chaired by Montserrat’s Premier Joseph Easton Farrell, and also attended by Anguilla’s Premier and Minister for Finance, Dr Ellis Lorenzo Webster; Prime Minister Gaston Browne of Antigua and Barbuda; Prime Minister of Dominica Roosevelt Skerrit; the Finance Minister of Grenada, Gregory Bowen; the recently elected Prime Minister of St Lucia, Phillip J. Pierre; and the Finance Minister of St Vincent & the Grenadines Camillo Gonsalves.

The eastern Caribbean governments expect that the recent spikes in global food and energy prices will place added pressure on their economies and adversely impact already vulnerable households, threatening their food and nutrition security.

The subregional bloc, whose members are also part of Caricom, expect a prolonged pandemic, the occurrence of natural disasters in the region and persistent increases in global commodity prices as to create headwinds for ECCU as it seeks to expedite the economic recovery.

The ECCU governments accepted a recommendation from the ECCB governor to maintain the central bank’s discount rate at two per cent (short-term credit), and 3.5 per cent (long-term credit); and maintain the minimum savings rate at two per cent.

The meeting acknowledged that COVID-19 continues to place pressure on public finances, saying during the period December 2019 to June 2021, ECCU member governments added EC$1.6 billion to their debt load, pushing the total public debt to EC$15.6 billion.

“The rapid accumulation of debt required to meet the needs occasioned by the COVID-19 crisis, coupled with the decline in economic activity, led to a debt to GDP ratio of 87.9 per cent being recorded for 2020. The 2020 ratio represents a 22 percentage point increase over the ratio for 2019,” said the ECCB.

“However, the revised fiscal anchor – the debt to GDP ratio target of 60 per cent by 2035 – should help make a return to a sustainable debt path more manageable after the major setback occasioned by the COVID-19 pandemic,” the communiqué noted.

The six ECCU countries that are members of the International Monetary Fund have been allocated a combined sum of US$127 million to assist with the battle against the coronavirus, the members noted, while welcoming the progress made with the IMF to recognise vulnerability as an essential criterion for determining access to concessional financing after years of advocacy by regional governments and other vulnerable states.

“The IMF’s proposed Resilience and Sustainability Trust could be a useful mechanism for channelling a portion of the SDR allocation to support vulnerable states in their efforts to finance a green, resilient and inclusive recovery,” said the ECCB communiqué. “The council supported member governments’ calls for the IMF to consider a design for the RST that would maximise access for small states such as those in the ECCU.”

The council also endorsed member governments’ advocacy for debt relief and bespoke financing instruments that would create fiscal space for vulnerable states and allow them to enhance their climate resilience, as well as technical assistance to overcome vaccine hesitancy and resistance in the region.

CMC