Fiscal Sustainability and Policy Issues in the Eastern Caribbean Currency Union

35 Pages Posted: 2 Feb 2006

See all articles by Phebby Kufa

Phebby Kufa

International Monetary Fund (IMF)

Anthony J. Pellechio

International Monetary Fund (IMF) - Statistics Department; National Bureau of Economic Research (NBER)

Saqib Rizavi

International Monetary Fund (IMF)

Date Written: August 2003

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.

Keywords: Fiscal Sustainability Currency Union

JEL Classification: E61 E62 E65 H62 H63

Suggested Citation

Kufa, Phebby and Pellechio, Anthony J. and Rizavi, Saqib, Fiscal Sustainability and Policy Issues in the Eastern Caribbean Currency Union (August 2003). IMF Working Paper No. 03/162, Available at SSRN: https://ssrn.com/abstract=880180

Phebby Kufa (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Anthony J. Pellechio

International Monetary Fund (IMF) - Statistics Department ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Saqib Rizavi

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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