The Challenges of Fiscal Consolidation and Debt Reduction in the Caribbean
The Challenges of Fiscal Consolidation and Debt Reduction in the Caribbean

Author: Charles Amo Yartey

Publisher: International Monetary Fund

Published: 2017-07-08

Total Pages: 48

ISBN-13: 1475536119

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This paper examines debt dynamics in the Caribbean and discusses policy options for reducing the high debt levels. Based on empirical studies of factors underlying global large debt reduction episodes, important policy lessons are drawn for the Caribbean. The analysis shows that major debt reductions are associated with strong growth and decisive and lasting fiscal consolidation efforts. Since growth in the current environment is virtually nonexistent, significant fiscal consolidation is inevitable in the region. Better control of the public wage bill, increasing public sector efficiency and tackling transfers are the obvious targets to reduce spending. On the revenue side, there is ample room to reduce tax expenditures, eliminate distortions while broadening the tax base. Fiscal consolidation needs to be complemented by a comprehensive debt reduction strategy including tax policy reforms and structural reforms to boost competiveness.

Caribbean Renewal
Caribbean Renewal

Author: Charles Amo Yartey

Publisher: International Monetary Fund

Published: 2014-05-06

Total Pages: 397

ISBN-13: 1484321170

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Caribbean economies face high and rising debt-to-GDP ratios that jeopardize prospects for medium-term debt sustainability and growth. This book provides a comprehensive analysis of the challenges of fiscal consolidation and debt reduction in the Caribbean. It examines the problem of high debt in the region and discusses policy options for improving debt sustainability, including fiscal consolidation, robust growth, and structural reforms. The book also examines empirically the factors underlying global large debt reduction episodes to draw important policy lessons for the Caribbean. It also reviews the literature on successful fiscal consolidation experiences and provides an overview of past and current consolidation efforts in the Caribbean. The book concludes that the region needs a broad and sustained package of reforms to reduce debt ratios to more manageable levels and strengthen economic resilience.

Caribbean Small States - Challenges of High Debt and Low Growth
Caribbean Small States - Challenges of High Debt and Low Growth

Author: International Monetary Fund. Western Hemisphere Dept.

Publisher: International Monetary Fund

Published: 2013-02-23

Total Pages: 23

ISBN-13: 1498342264

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This paper presents background on Caribbean small states as context for the main paper, “Macroeconomic Issues in Small States and Implications for Fund Engagement.” It draws on recent analytical work presented at a conference for policy makers in September 2012, in Trinidad and Tobago. Caribbean small states, while sharing many features of other small states (size-related macroeconomic vulnerabilities, lack of economies of scale, and capacity constraints) have specific characteristics which merit attention

A New Action-based Dataset of Fiscal Consolidation in Latin America and the Caribbean
A New Action-based Dataset of Fiscal Consolidation in Latin America and the Caribbean

Author: Mr.Antonio David

Publisher: International Monetary Fund

Published: 2018-04-26

Total Pages: 67

ISBN-13: 1484353056

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This paper presents a new database of fiscal consolidations for 14 Latin American and Caribbean economies during 1989-2016. We focus on discretionary changes in taxes and government spending primarily motivated by a desire to reduce the budget deficit and long-term fiscal health and not by a response to prospective economic conditions. To identify the motivation and budgetary impact of the fiscal policy changes, we examine contemporaneous policy documents, including Budgets, central bank reports, and IMF and OECD reports. The resulting series can be used to estimate the macroeconomic effects of fiscal consolidation for these economies

Issues in Monetary and Fiscal Policy in Small Developing States
Issues in Monetary and Fiscal Policy in Small Developing States

Author: Anthony Birchwood

Publisher: Commonwealth Secretariat

Published: 2011-09-23

Total Pages: 92

ISBN-13: 184929061X

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This study examines how monetary and fiscal policies are implemented in Caribbean small states, tracing the differences and similarities in tax structure, current expenditure and current revenues. It shows the impact of monetary policy on inflation and the importance of exchange rate regimes to the effectiveness of monetary policy in the region. The authors show that fiscal stabilisation in the region is very low and as such countries within the region would benefit from insurance mechanisms and stabilisation funds.

Riding the Storm: Fiscal Sustainability in the Caribbean
Riding the Storm: Fiscal Sustainability in the Caribbean

Author: Mr.Serhan Cevik

Publisher: International Monetary Fund

Published: 2020-01-31

Total Pages: 19

ISBN-13: 1513526367

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Fiscal sustainability remains a paramount challenge for small economies with high debt and greater vulnerability to climate change. This paper applies the model-based sustainability test for fiscal policy in a panel of 16 Caribbean countries during the period 1980–2018. The results indicate that the coefficient on lagged government debt is positive and statistically significant, implying that fiscal policy in the Caribbean takes corrective actions to counteract an increase in the debt-to-GDP ratio. Nonlinear estimations, however, show that the quadratic debt parameter is negative, which indicates that fiscal policy response is not adequate to ensure sustainability at higher levels of debt. We also find that the fiscal stance tends to be countercyclical on average during the sample period. These empirical results confirm that maintaining prudent fiscal policies and implementing growth-enhancing structural reforms are necessary to build fiscal buffers and ensure debt sustainability with high probability even when negative shocks occur over the long term.

Fiscal Sustainability and Policy Issues in the Eastern Caribbean Currency Union
Fiscal Sustainability and Policy Issues in the Eastern Caribbean Currency Union

Author: Phebby Kufa

Publisher: International Monetary Fund

Published: 2003-08-01

Total Pages: 36

ISBN-13: 1451857896

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The fiscal position of the Eastern Caribbean Currency Union (ECCU) has deteriorated significantly in recent years, resulting in sharp increases in public debt. The sustainability of public debt is examined using the public sector budget constraint to derive the maximum public-debt-to-GDP ratio that can be sustained based on a country's projected steady-state primary balance, interest rate on public debt, and economic growth rate. In this context, government deficits and debt in several ECCU member countries appear unsustainable, posing a risk to the stability of the currency union. A critical issue facing member countries is to implement fiscal policies consistent with sustainable public finances and debt to underpin the currency union.

Public Debt Targeting An Application to the Caribbean
Public Debt Targeting An Application to the Caribbean

Author: Mr.Alejandro D. Guerson

Publisher: International Monetary Fund

Published: 2011-08-01

Total Pages: 40

ISBN-13: 146390214X

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This paper proposes a fiscal policy framework we call Public Debt Targeting. The framework seeks to smooth primary spending over the business cycle while remaining consistent with public debt sustainability. Under the proposed framework, a government announces a commitment to a public debt band trajectory over the medium term, while sequentially announcing primary expenditures for the next budget cycle, which are determined recursively based on the history of shocks. Public debt targeting differs from a structural balance rule in that it internalizes the effect of the deterioration in creditworthiness from fiscal deficits and public debt accumulation, which tend to affect sovereign spreads, interest rates, exchange rates, and economic activity. The proposed framework is applied to Caribbean economies, which in general show high levels of public debt and procyclical primary expenditure.

Eastern Caribbean Currency Union
Eastern Caribbean Currency Union

Author: International Monetary Fund. Western Hemisphere Dept.

Publisher: International Monetary Fund

Published: 2019-02-22

Total Pages: 67

ISBN-13: 1498300103

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This Selected Issues paper presents a quantification of the long-term benefits of ex-ante resilient investment and insurance needs against natural disasters (ND) in Eastern Caribbean Currency Union (ECCU). Cost-benefit analysis of resilient investment based on a dynamic stochastic general equilibrium model tailored to small states and calibrated to all ECCU economies is also discussed in the paper. The model’s aggregate production function illustrates the interaction among the participating sectors and their contribution to output, ultimately informing the role of resilient investment. The study also quantifies government insurance coverage needs and costs using an empirical stochastic model that simulates NDs fiscal costs. The insurance needs are framed within the World Bank insurance layering framework. The results in this paper underscore the importance of a shift from ex-post recovery to a focus on ex-ante resilience building. Ex-ante resilient investment and insurance are key to the welfare and financial sustainability of the ECCU, given high intensity and recurrence of NDs.