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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: 34
    Date of creation: 01 Aug 2003
    Date of revision:
    Handle: RePEc:imf:imfwpa:03/162

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    Keywords: Fiscal sustainability; Fiscal reforms; Eastern Caribbean Currency Union; public debt; debt ratio; fiscal policies; central bank; fiscal performance; government debt; fiscal positions; fiscal policy; government deficit; fiscal constraints; debt service; debt ratios; fiscal position; public sector debt; fiscal deficits; budget constraint; public expenditure; external financing; fiscal adjustment; fiscal indicators; tax revenue; budget deficits; revenue collection; payment arrears; government budget; domestic financing; tax rates; tax administration; external debt; sovereign debt; fiscal rules; capital expenditure; fiscal deficit; debt accumulation; fiscal consolidation; government deficits; central government expenditure; fiscal targets; taxation; debt restructuring; fiscal balance; ratio of debt; government revenue; primary expenditure; government expenditure; debt obligations; fiscal indiscipline; central government fiscal; fiscal agent; fiscal discipline; fiscal convergence; tax base; external payment; public finances; primary deficit; structural fiscal; debt service payments; external public debt; fiscal situations; fiscal policy rules; debt-service; fiscal sustainability analysis; commercial borrowing; debt sustainability; external payments arrears; fiscal imbalances; national debt; fiscal measures; sovereign borrowers; current account; government budget deficit; tax system; reserve bank; government budget constraint; short-term debt; accumulation of arrears; fiscal crises; debt burden; debt-service obligations; fiscal barriers; tax structure; budget deficit; expansionary fiscal; tax reform; domestic debt; currency board; actual debt; fiscal course; expenditure reform; expenditure composition; debt stock; fiscal component; tax policy; current account deficit; expansionary fiscal policies; fiscal developments; national tax systems; expenditure ratio; external payments; debt dynamics; fiscal restraint; budget process; government budget deficits; annual budget; tax systems; fiscal retrenchment;

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    1. George Kopits & Steven A. Symansky, 1998. "Fiscal Policy Rules," IMF Occasional Papers 162, International Monetary Fund.
    2. Reuven Glick & Michael Hutchison, 1992. "Fiscal policy in monetary unions: implications for Europe," Working Papers in Applied Economic Theory, Federal Reserve Bank of San Francisco 92-02, Federal Reserve Bank of San Francisco.
    3. Hélène Poirson & Luca Antonio Ricci & Catherine A. Pattillo, 2002. "External Debt and Growth," IMF Working Papers 02/69, International Monetary Fund.
    4. McKinnon, Ronald I, 1997. "EMU as a Device for Collective Fiscal Retrenchment," American Economic Review, American Economic Association, American Economic Association, vol. 87(2), pages 227-29, May.
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    6. V. V. Chari & Patrick J. Kehoe, 1998. "On the need for fiscal constraints in a monetary union," Working Papers, Federal Reserve Bank of Minneapolis 589, Federal Reserve Bank of Minneapolis.
    7. Giovannini, Alberto & Spaventa, Luigi, 1991. "Fiscal Rules in the European Monetary Union: A No-Entry Clause," CEPR Discussion Papers, C.E.P.R. Discussion Papers 516, C.E.P.R. Discussion Papers.
    8. Paul R. Masson & Xavier Debrun & Catherine A. Pattillo, 2002. "Monetary Union in West Africa," IMF Working Papers 02/226, International Monetary Fund.
    9. Tornell, Aaron & Velasco, Andres, 1995. "Fiscal discipline and the choice of exchange rate regime," European Economic Review, Elsevier, Elsevier, vol. 39(3-4), pages 759-770, April.
    10. Xavier Debrun, 2000. "Fiscal Rules in a Monetary Union: A Short-Run Analysis," Open Economies Review, Springer, Springer, vol. 11(4), pages 323-358, October.
    11. Bayoumi, Tamim & Goldstein, Morris & Woglom, Geoffrey, 1995. "Do Credit Markets Discipline Sovereign Borrowers? Evidence from US States," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1088, C.E.P.R. Discussion Papers.
    12. Agell, Jonas & Calmfors, Lars & Jonsson, Gunnar, 1996. "Fiscal policy when monetary policy is tied to the mast," European Economic Review, Elsevier, Elsevier, vol. 40(7), pages 1413-1440, August.
    13. Frenkel, Jacob A & Razin, Assaf, 1987. "Fiscal Policies and the World Economy; An Intertemporal Approach (Cambridge, Mass.: MIT Press, 1987)," MPRA Paper 20438, University Library of Munich, Germany.
    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. Samir Jahjah, 2001. "Financial Stability and Fiscal Crises in a Monetary Union," IMF Working Papers 01/201, International Monetary Fund.
    16. Wyplosz, Charles, 1991. "Monetary Union and Fiscal Policy Discipline," CEPR Discussion Papers, C.E.P.R. Discussion Papers 488, C.E.P.R. Discussion Papers.
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    Cited by:
    1. Rupa Duttagupta & Guillermo Tolosa, 2006. "Fiscal Discipline and Exchange Rate Regimes," IMF Working Papers 06/119, International Monetary Fund.
    2. 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, August.

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