IMF recommends decisive action to buttress the region’s financial sector
The International Monetary Fund says Caribbean governments need to act decisively to address financial weakness as it launched its Regional Economic Outlook in Barbados.
BRIDGETOWN, Barbados, Friday October 14, 2011 - The International Monetary Fund (IMF) has called for Caribbean governments to act decisively to address “persistent” weakness in the financial sector while stressing the need for stronger resolve to reduce high public debt.
It said economic recovery remains weak as states continue to struggle to recover from the protracted recession, and warned that a further decline in advanced economies would dampen regional recovery and add pressure to an already heavy public sector burden.
“Fiscal consolidation efforts should, to the extent possible, preserve growth and competitiveness by avoiding step cuts in infrastructure spending,” the IMF’s Regional Economic Outlook launched here Thursday stated.
It cited as “troubling”, the fragilities in the region’s financial sector specifically the Eastern Caribbean Currency Union, where, in July, the Eastern Caribbean Central Bank intervened in the operations of ABI Bank because of liquidity problems.
Reference was also made to the issues involving the failed CLICO and British American Insurance Companies that have still not been resolved.
“In the Eastern Caribbean Currency Union, ECCU, financial sector health indicators have continued to deteriorate, highlighting the importance of steps to further strengthen the sector,” the report explained.
“The authorities need to diagnose the health of the financial system quickly and develop options for strengthening balance sheets, and avoid further compromising public finances.”
The IMF said while countries such as Jamaica, Antigua & Barbuda, and St. Kitts and Nevis have moved to reduce their public debt, greater efforts are needed over the medium term as debt levels across the region have climbed by nine per cent of the Gross Domestic Product since the crisis.
“A strategy to gradually reduce public wage and pension spending – not only in central government but also in autonomous agencies – will be necessary to guarantee public debt sustainability, with the added benefit of improving the region’s competitiveness,” it added.
According to the report, tourism-intensive economies are projected to expand an average of 1 ¼ percent during 2011-2012, almost one percent lower than previously anticipated.
However, it said the mineral-rich countries of Guyana and Suriname would benefit from record gold prices.
Growth in Haiti, it stated, is expected to fall just over two percent percent from the 8 ½ projected in April due to the slow pace of reconstruction efforts.