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.

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.

Threshold Effects of Sovereign Debt
Threshold Effects of Sovereign Debt

Author: Kevin Greenidge

Publisher: International Monetary Fund

Published: 2012-06-01

Total Pages: 23

ISBN-13: 1475514298

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This paper addresses the issue of threshold effects between public debt and economic growth in the Caribbean. The main finding is that there exists a threshold debt to gross domestic product (GDP) ratio of 55–56 percent. Moreover, the debt dynamics begin changing well before this threshold is reached. Specifically, at debt levels lower than 30 percent of GDP, increases in the debt-to-GDP ratio are associated with faster economic growth. However, as debt rises beyond 30 percent, the effects on economic growth diminishes rapidly and at debt levels reaching 55-56 percent of GDP, the growth impacts switch from positive to negative. Thus, beyond this threshold, debt becomes a drag on growth.

Debt Accumulation in the Caribbean
Debt Accumulation in the Caribbean

Author: Esteban Pérez

Publisher: UN

Published: 2007

Total Pages: 64

ISBN-13: 9789211216394

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The aim of this document is to present an analysis of debt by using a consistent stock-flow model and to apply it to the Caribbean case. The document is divided into four sections presenting the facts, setting out a standard stock-flow model, testing the conditions to the Caribbean case and addressing the consequences of debt accumulation and debt reduction strategies. Publishing Agency: United Nations (UN).

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.

Stabilization, Debt, and Fiscal Policy in the Caribbean
Stabilization, Debt, and Fiscal Policy in the Caribbean

Author: Ratna Sahay

Publisher:

Published: 2005-02-01

Total Pages: 38

ISBN-13: 9781462331680

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Although Caribbean countries have been largely successful in bringing annual inflation down to single digits in recent years-regardless of their exchange rate regime-their growth rates have been disappointing and their public debt has risen rapidly. By 2003, 14 of 15 Caribbean countries ranked in the top 30 of the world's highly indebted emerging market countries. Most of the increase in their public debt is accounted for by a deterioration in primary fiscal balances that has been largely due to a sharp increase in expenditures rather than a fall in revenues. with the countries of the region now increasingly facing unsustainable debt positions, innovative ways need to be found to raise their economic growth rates and generate fiscal savings to reverse the debt buildup, and to maintain or raise their current living standards.

Debt, Growth and Natural Disasters A Caribbean Trilogy
Debt, Growth and Natural Disasters A Caribbean Trilogy

Author: Sebastian Acevedo Mejia

Publisher: International Monetary Fund

Published: 2014-07-16

Total Pages: 47

ISBN-13: 1498337600

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This paper seeks to determine the effects that natural disasters have on per capita GDP and on the debt to GDP ratio in the Caribbean. Two types of natural disasters are studied –storms and floods– given their prevalence in the region, while considering the effects of both moderate and severe disasters. I use a vector autoregressive model with exogenous natural disasters shocks, in a panel of 12 Caribbean countries over a period of 40 years. The results show that both storms and floods have a negative effect on growth, and that debt increases with floods but not with storms. However, in a subsample I find that storms significantly increase debt in the short and long run. I also find weak evidence that debt relief contributes to ease the negative effects of storms on debt.