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Fiscal Sustainability and Policy Issues in the Eastern Caribbean Currency Union

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  • Anthony J. Pellechio
  • Saqib Rizavi
  • Phebby Kufa
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    Abstract

    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.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/162.

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    Length: 17
    Date of creation: 01 Aug 2003
    Date of revision:
    Handle: RePEc:imf:imfwpa:03/162

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    Related research

    Keywords: Fiscal sustainability; Fiscal reforms; Eastern Caribbean Currency Union;

    References

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    1. Eichengreen, Barry, 1993. "European Monetary Unification," Journal of Economic Literature, American Economic Association, vol. 31(3), pages 1321-57, September.
    2. Agell, Jonas & Calmfors, Lars & Jonsson, Gunnar, 1996. "Fiscal policy when monetary policy is tied to the mast," European Economic Review, Elsevier, vol. 40(7), pages 1413-1440, August.
    3. Paul Masson & Catherine Pattillo, 2002. "Monetary Union in West Africa: An Agency of Restraint for Fiscal Policies?," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 11(3), pages 387-412, September.
    4. Hélène Poirson & Luca Antonio Ricci & Catherine A. Pattillo, 2002. "External Debt and Growth," IMF Working Papers 02/69, International Monetary Fund.
    5. McKinnon, Ronald I, 1997. "EMU as a Device for Collective Fiscal Retrenchment," American Economic Review, American Economic Association, vol. 87(2), pages 227-29, May.
    6. Samir Jahjah, 2001. "Financial Stability and Fiscal Crises in a Monetary Union," IMF Working Papers 01/201, International Monetary Fund.
    7. V. V. Chari & Patrick J. Kehoe, 1998. "On the need for fiscal constraints in a monetary union," Working Papers 589, Federal Reserve Bank of Minneapolis.
    8. Wyplosz, Charles, 1991. "Monetary Union and Fiscal Policy Discipline," CEPR Discussion Papers 488, C.E.P.R. Discussion Papers.
    9. Reuven Glick & Michael Hutchison, 1993. "Fiscal policy in monetary unions: Implications for Europe," Open Economies Review, Springer, vol. 4(1), pages 39-65, March.
    10. Giovannini, Alberto & Spaventa, Luigi, 1991. "Fiscal Rules in the European Monetary Union: A No-Entry Clause," CEPR Discussion Papers 516, C.E.P.R. Discussion Papers.
    11. George Kopits & Steven A. Symansky, 1998. "Fiscal Policy Rules," IMF Occasional Papers 162, International Monetary Fund.
    12. Tornell, Aaron & Velasco, Andres, 1995. "Fiscal discipline and the choice of exchange rate regime," European Economic Review, Elsevier, vol. 39(3-4), pages 759-770, April.
    13. Xavier Debrun, 2000. "Fiscal Rules in a Monetary Union: A Short-Run Analysis," Open Economies Review, Springer, vol. 11(4), pages 323-358, October.
    14. Benedict J. Clements & Sanjeev Gupta & Emanuele Baldacci & Carlos Mulas-Granados, 2002. "Expenditure Composition, Fiscal Adjustment, and Growth in Low-Income Countries," IMF Working Papers 02/77, International Monetary Fund.
    15. Bayoumi, Tamim & Goldstein, Morris & Woglom, Geoffrey, 1995. "Do Credit Markets Discipline Sovereign Borrowers? Evidence from US States," CEPR Discussion Papers 1088, C.E.P.R. Discussion Papers.
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    Cited by:
    1. Pamela Coke Hamilton & Yvonne Tsikata & Emmanuel Pinto Moreira, 2009. "Accelerating Trade and Integration in the Caribbean : Policy Options for Sustained Growth, Job Creation, and Poverty Reduction," World Bank Publications, The World Bank, number 2652.
    2. Rupa Duttagupta & Guillermo Tolosa, 2006. "Fiscal Discipline and Exchange Rate Regimes: Evidence from the Caribbean," IMF Working Papers 06/119, International Monetary Fund.

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