WASHINGTON, United States, January 29, 2009 – The International Monetary Fund (IMF) says that the global financial crisis has so far had little impact on markets of the Eastern Caribbean Currency Union (ECCU).
But an IMF report said that growth decelerated about 2.5 per cent last year, reflecting sluggish activity in tourism and construction.
“Growth in the region is expected to remain flat in 2009, with risks tilted to the downside,” said Paul Cashin, head of an IMF staff mission visiting members of the ECCU to conduct the Fund’s 2009 discussions on the union’s policies.
“Navigating through the turbulent environment requires carefully managing risks arising from the global financial crisis and economic downturn, while continuing to address fundamental issues facing the ECCU, particularly fiscal and debt sustainability.”
Cashin said the key risks include a deep and protracted global downturn weighing heavily on the ECCU growth prospects, and sharp falls of capital flows to the region – particularly foreign direct investment -, further dampening economic activity and threatening external stability.
The IMF said the ECCU’s high vulnerability to shocks, exacerbated by its elevated public debt level, highlights the importance of further enhancing crisis preparedness. It said that additional and sustained efforts to push through structural reforms, such as tax reform, improving the business climate, and deepening regional integration, are key to enhance competitiveness and underpin the currency union.
“Despite recent progress in financial sector reforms, the long-enjoyed financial stability in the region cannot be taken for granted going forward,” Cashin said. “Waning economic growth after a period of rapid private credit expansion poses a major risk to the stability of the banking system, through the deterioration of banks’ asset quality.”
The IMF official said there is therefore an urgent need to intensify oversight on banks and bring the nonbank financial sector under effective supervision.