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Riding the storm: fiscal sustainability in the Caribbean

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  • Serhan Cevik
  • Vibha Nanda

Abstract

Fiscal sustainability remains a paramount challenge for small economies with high debt and greater vulnerability to climate change. This paper applies the model-based fiscal sustainability test in 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.

Suggested Citation

  • Serhan Cevik & Vibha Nanda, 2020. "Riding the storm: fiscal sustainability in the Caribbean," International Review of Applied Economics, Taylor & Francis Journals, vol. 34(3), pages 384-399, May.
    • Handle: RePEc:taf:irapec:v:34:y:2020:i:3:p:384-399
    DOI: 10.1080/02692171.2020.1749241
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    Cited by:

    1. María del Carmen Ramos-Herrera & Simón Sosvilla-Rivero, 2020. "Fiscal Sustainability in Aging Societies: Evidence from Euro Area Countries," Sustainability, MDPI, vol. 12(24), pages 1-20, December.
    2. Eleftherios Giovanis & Oznur Ozdamar, 2022. "The impact of climate change on budget balances and debt in the Middle East and North Africa (MENA) region," Climatic Change, Springer, vol. 172(3), pages 1-27, June.
    3. Ameni Mtibaa & Foued Badr Gabsi, 2025. "Fiscal Consolidation and Debt Sustainability in Latin America and the Caribbean: Evidence from a Panel Threshold Logit Model," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 16(5), pages 16870-16900, November.
    4. World Bank, 2024. "Global Economic Prospects, June 2024," World Bank Publications - Books, The World Bank Group, number 41536, April.
    5. Mr. Serhan Cevik, 2019. "Back to the Future: Fiscal Rules for Regaining Sustainability," IMF Working Papers 2019/242, International Monetary Fund.
    6. Rahaman, Akeem & Majid, Michelle, 2025. "Storms and sustainability: Assessing the impact of natural disasters on debt sustainability in the Caribbean," Economic Analysis and Policy, Elsevier, vol. 85(C), pages 579-591.
    7. Arjun & Bibhuti Ranjan Mishra, 2025. "Do Fiscal Regimes Matter for Fiscal Sustainability in India?," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 39(2), pages 74-89, November.
    8. Samuel Christopher Hill & Jeetendra Khadan, 2024. "Fiscal Challenges in Small States : Weathering Storms, Rebuilding Resilience," Policy Research Working Paper Series 10913, The World Bank.

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