ECCU countries still in recession despite an easing in economic contraction

ECCB Headquarters

BASSETERRE,ST. KITTS, FEBRUARY 24TH 2012 (CUOPM) – Although the performance of the Eastern Caribbean Currency Union (ECCU) economies over the past year has seen an easing in economic contraction, the fact remains that these economies have remained in recession over the last three (3) years.

This has been disclosed by Governor of the Eastern Caribbean Central Bank (ECCB) Sir K. Dwight Venner, who disclosed that economic activity contracted by 5.7 and 2.2 percent in 2009 and 2010 respectively, followed by a decline of 0.6 percent in 2011.

“Clearly, unemployment rates and poverty levels would have been negatively affected. The tourism sector performed slightly better than in the previous year with growth of 4.6 percent being recorded but still remaining below pre-crisis levels. Construction activity remained low, contracting by 5.6percent, as public sector capital projects and private sector activity slowed. Output in the banana industry was severely impacted by unfavourable weather conditions which resulted in a fall of 76.6 percent in banana receipts in 2011,”said Sir Dwight.

He said that the performance of the manufacturing sector was also poor with a 1.0 percent contraction in growth being recorded.

“Financial sector developments were also challenging and in the banking sector, the ECCB, on the directives of the Monetary Council, intervened in the ABI Bank which was experiencing a severe liquidity situation. In the insurance sector the issue of the CLICO and BAICO insurance companies remains. Both have been put under judicial management and solutions are being worked out through the continuing efforts of the ECCU member governments and in discussions with the governments of Trinidad and Tobago and Barbados. The credit union sector also has its issues related to the exposure of several institutions to CLICO and BAICO and governance and financial challenges at others,” said the Central Bank Governor.

With respect to the monetary variables, Sir Dwight said growth in credit remained below historical norms at 1.0 percent, but this was an improvement over the 2.0 percent decline recorded in 2010. Non-performing loans however increased, leading to further tightening in the terms and conditions offered by commercial banks.

Meanwhile, total deposits rose by 3.0 percent, a marginal improvement over the 2.0 percent increase in the previous year.

Currency in circulation increased by 5.0 percent following contractions in the two (2) previous years.

“The consolidated fiscal operations of the central governments were estimated to have incurred an overall deficit of $551m in2011, compared with $336m in 2010, when there was a significant increase in grants and official inflows. The performance of the governments’ revenue in the past three (3) years shows a gradual improvement and in 2011 a 4.4 percent increase was recorded following growth of 1.5 percent in 2010 and a contraction of 8.0 percent in 2009. With respect to governments’ expenditure, there has been an attempt to contain it but this has not been an easy task in light of the crisis. Over the year the debt to GDP ratio remained virtually unchanged at83.4 percent,” said the Central Bank Governor, who stated that the ECCU trade balance widened by 3.0 percent in 2011, while there was a decline in the overall balance of payments. “The response of the ECCU has followed the elements of the Eight Point Stabilisation and Growth Programme. All member governments have adopted international best practices for financial management and three (3)countries have acceded to IMF programmes.”

“ECCU governments, in order to monitor their fiscal performances have set annual targets in relation to the primary balance and the debt to GDP ratio and most countries have adopted the VAT. With respect to debt, countries have approached the Paris Club for rescheduling and some element of improvement in their credit terms. Others have engaged in debt restructuring exercises with their creditors involving difficult discussions and negotiations, which it is hoped will result in an improvement in the situation for both the government and the creditors,” said Sir Dwight.