Fiscal Sustainability and Debt in Small Open Economies – An Application to the Caribbean

by

DeLisle Worrell (Team Leader), Denisa Applewhaite, Rumile Arana, Elmelynn Croes, Harry Dorinnie, Kari Grenade, Julia Jhinkoo, Jason LaCorbiniere,

Brian Langrin, Edwina Matos-Pereira, Sidonia McKenzie, Ankie Scott-Joseph, Lylia Roberts,

Latoya Smith, Rasheeda Smith and Allan Wright

Caribbean Centre for Money and Finance, 2015

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Copyright © 2015 by Caribbean Centre for Money and Finance Distributed by the Central Bank of Barbados by permission of the Caribbean Centre for Money and Finance

All rights reserved. Published 2015.

Fiscal sustainability and debt in small open economies: An application to the Caribbean / edited by DeLisle Worrell.

p. cm.

“A collection of research papers produced by a team of regional economists under the auspices of the Caribbean Centre for Money and Finance.”

Printed in Barbados

First Printing, 2015

ISBN: 978-976-602-077-4 paperback ISBN: 978-976-602-078-1 ebook

Central Bank of Barbados Tom Adams Financial Centre Church Village, Bridgetown, St. Michael Barbados BB11126 www.centralbank.org.bb

P a g e  |   iii 

Preface This little volume is remarkable, even before it is read, because it is a model for the future of Caribbean integration. My co-authors are from across the region, from Suriname in the east to Belize in the west, and from The Bahamas in the north to Trinidad and Tobago in the south. Everyone joined the project out of a conviction of the importance of the issue of fiscal sustainability, and for the opportunity to enrich our understanding of this controversial topic. We all worked together enthusiastically, and the experience has been richly rewarding for us all. I would therefore like to say a heartfelt thanks to everyone who participated in the analysis and writing of this book, and to offer congratulations to everyone for helping to produce a study which breaks new ground and makes a persuasive case for a novel and improved way of assessing fiscal sustainability.

Our thanks go also to the Caribbean Centre for Money and Finance, its interim Executive Director, Dr Compton Bourne, and the staff of the Centre, for sponsoring the study, funding the participation of some authors, arranging and hosting conferences for the team, and assuming responsibility for editing and publishing our book. Collaborations of this kind have been among the most enduring outputs of the Centre over the years, and with the effective use of telecommunications they can be undertaken more efficiently than ever before. In this regard we hope our study will set the template for much of the future activity of the CCMF.

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Our thanks go also to the Governors and presidents of participating central banks, for their endorsement and support of this project, to the staffs of the banks who provided our support, and to our reviewers, Dr Tarron Khemraj, Dr Shelton Nicholls, Dr Winston Moore, and an anonymous referee from the Centro de Estudios Monetarios Latinoamericanos (CEMLA), who all provided comments that helped to improve the book. As always with reviewers, they do not bear any responsibility for the views expressed in this book, and as with all publications of the CCMF, the opinions expressed are not intended to be representative of the views of any participating institution.

DeLisle Worrell November 15, 2014

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List of Contributors

Dr. DeLisle Worrell is Governor of the Central Bank of Barbados, a post he has held since 2009. He was previously Executive Director of the Caribbean Centre for Money and Finance, and spent a decade on the staff of the International Monetary Fund. Dr Worrell is the author of Policies for Stabilization and Growth in Small Very Open Economies (Group of Thirty, Washington, DC, 2012) and Small Island Economies (Praeger, 1987). Dr Worrell’s experience includes fellowships at the Peterson Institute (Washington, D C), the Smithsonian Institute (Washington, D C), Yale University, Princeton University, the Federal Reserve Board and the University of the West Indies. Dr Worrell is a graduate of McGill University (Montreal, Canada), where he obtained his PhD in Economics and the University of the West Indies (BSc Economics). Denisa Applewhaite is a Banking Officer at the Central Bank of Barbados. Rumile Arana is an Economist at the Central Bank of Belize. He holds a BSc and MSc in Economics from the University of the West Indies. He was an awardee of the Thomas de la Rue Scholarship, 2008-2010. Elmelynn Croes is an Economist with the Central Bank of Aruba. She holds an MSc in Finance and BA in Economics from the Florida International University. Harry Dorinnie is an Economist at the Central Bank of Suriname. Dr. Kari Grenade is an Economist at the Caribbean Development Bank. She holds a PhD from Walden University

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(USA), a Masters in Financial Economics from the University of Toronto, and a BSc from the University of the West Indies. She worked previously at the Eastern Caribbean Central Bank. Her publications on growth, finance and fiscal policy have appeared in international and regional journals. Julia Jhinkoo is Junior Research Fellow with the Caribbean Centre for Money and Finance. She holds an MSc and BSc in Economics from the University of the West Indies. Jason LaCorbiniere is an Economist at the Central Bank of Barbados. He holds an MSc from the University of Nottingham, and a BSc in Economics from the University of the West Indies. His publications are in the area of debt and fiscal policy. Dr. Brian Langrin is Senior Director and Head of the Financial Stability Department of the Bank of Jamaica. He holds a PhD in Economics from Pennsylvania State University (USA), and an MSc and BSc from the University of the West Indies. His publications on finance have appeared in regional and international journals. Edwina Matos-Pereira is Deputy Manager of the Research Department of the Central Bank of Aruba. She holds a Master’s Degree in Economics from the University of Tilburg, the Netherlands. Her work experience includes banking, finance and statistics. She is a PhD candidate of the University of Groningen, the Netherlands. Sidonia McKenzie is an Economist with the Bank of Jamaica. She holds an MSc and BSc in Economics and Statistics from the University of the West Indies.

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Lylia Roberts is an Economist with the Central Bank of Belize. She holds an MSc in International Trade from the Instituto Politecnico Nacional (Mexico City) and a BSc from San Carlos University, Guatemala City. Dr. Ankie Scott-Joseph is an Economist and Statistician whose work experience includes the Canadian-funded Debt Management Advisory Services to the Eastern Caribbean Central Bank and the St Vincent and the Grenadines Ministry of Finance and Economic Planning. She holds a PhD in Economics from the University of the West Indies, where she earned her BSc. She also holds an MSc from Manchester University. Latoya Smith is a Senior Research Officer with the Central Bank of The Bahamas. She holds an MA in Economics from York University, Toronto, and a BA in Economics from Queens University, Ontario. Rasheeda Smith is an Economist with the International Monetary Fund, Washington, DC. She was previously with the Bank of Jamaica. Dr. Allan Wright is a Senior Economist at the Central Bank of Barbados, on sabbatical with CEMLA, 2012-2014. He holds a PhD, MSc and BSc in Economics from the University of the West Indies. His experience includes Lecturer at the University of the West Indies and pricing, forecasting and research for regional companies in the Caribbean. Dr Wright’s publications on growth, investment and tourism have appeared in regional and international journals.

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Table of Contents

Preface …………………………………………………. iii

List of Contributors ……………………………………. v

List of Figures …………………………………………. ix

List of Tables ………………………………………….. xii

Introduction ………………….………………………… 1

Chapter 1. Fiscal Sustainability in the Small Open Economy ………………………..………... 11

Chapter 2. A Review of the Literature on Debt and Fiscal Sustainability ………………………. 37

Chapter 3. Fiscal Deficits and Debt in the Caribbean … 63

Chapter 4. A Test of Fiscal Sustainability in the Caribbean ………………………………….. 123

Chapter 5. Fiscal Sustainability in the Caribbean .……. 141

Bibliography …………………………………………… 155

Appendix ………………………………………………. 167

Index …………………………………..……………….. 180

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List of Figures

Figure 1. Foreign Exchange Market Determined Fiscal Unsustainability …………………………………….. 27

Figure 2. Aruba: Real GDP and Inflation Rate (percentage change) ………………………………… 72

Figure 3. Aruba: Financial Deficit on a Cash Basis ….. 74

Figure 4. Aruba: Government Debt …………………… 75

Figure 5. Overall Balance of the Balance of Payments (BOP) of Aruba ……………………………………. 76

Figure 6. Aruba: Net Foreign Assets (1986-2013)….… 77

Figure 7. The Bahamas: Real GDP Growth (2002-2012) 79

Figure 8. The Bahamas: Debt-to-GDP Ratios (2002-2012) ……………………………………………….. 80

Figure 9. Barbados: Government Revenue, Expenditure and Deficit …………………………………………... 82

Figure 10. Barbados: External Debt to GDP Regional Comparisons ………………………………………… 82

Figure 11. Economic Growth in Suriname …………… 86

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Figure 12. Suriname: Net Official Development Assistance in % of GDP ………….…………….….. 87

Figure 13. Average Inflation in Suriname ……………. 88

Figure 14. Suriname: Imports, Exports & FDI ………. 89

Figure 15. Suriname: Foreign Exchange Reserves & Import Coverages …………………………………...

90

Figure 16. Suriname: Official Exchange Rate ……….. 90

Figure 17. Suriname: Expenditures & Revenues …….. 92

Figure 18. Suriname: Overall Balance …….…………. 92

Figure 19. Government Debt in Suriname …………… 93

Figure 20. Suriname: CBVS Lending to Government in % of GDP ………………………………….……….. 93

Figure 21. Suriname: Interest & Inflation ……………. 94

Figure 22. Belize: Real GDP Growth versus Fiscal Balance (% of GDP) ……………………………….. 96

Figure 23. Belize: Import Cover (months).………….... 98

Figure 24. Belize: Real GDP Growth versus External Current Account Balance (% of GDP) …………….. 98

Figure 25. Belize: Debt Service Projections ………….. 101

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Figure 26. Belize: Public Sector Debt-to-GDP Ratio (%) …………………………………………………. 103

Figure 27. Belize: Comparative Debt Service Payment of 2007 vs 2038 Bonds …………………………… 105

Figure 28. Evolution of Jamaica’s Sovereign Credit Ratings …………………………………….………. 113

Figure 29. Foreign Reserves to GDP ………………… 132

Figure 30. Money Creation to GDP ………………….. 133

Figure 31. Impact of Money Creation on Reserves ….. 137

Figure 32. Impact of Monetary Authority Credit on Foreign Reserves …………………………………... 138

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List of Tables Table 1. The Bahamas: Selected Macroeconomic

Indicators …………………………………………… 79

Table 2. Belize: Evolution of Total External Public Sector Debt (US$Mn)……………..………………..

99

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Introduction

The adverse impact of sovereign debt defaults on the international financial system has occasioned intense interest in methodologies for assessing sovereign debt risks. This is manifest in an outpouring of studies, research which has uncovered the fact that the riskiness of sovereign debt is determined in each case by a complex interaction of factors, including Government tax, expenditure and financing policies over time, and the state of domestic and international financial markets. The large number of factors, many of them unique to individual cases, and the fact that social and political considerations enter into the mix, all serve to complicate the task of arriving at generalisations that are robust in application across countries.

The most comprehensive approach to the problem, by the World Bank and the International Monetary Fund (IMF), attempts to address this problem by placing countries in categories, and developing guidelines specific to advanced countries on the one hand, and emerging market and developing countries on the other. They also classify countries by the strength of institutions and other factors that bear on a country's ability to finance high levels of debt. However, the Fund-Bank analysis is flawed in at least two critical dimensions, which may call into question the conclusions drawn from their analysis of sovereign debt: they concern themselves exclusively with the question of sustainability, and they use the same tools for small countries and large.

The fact that a country's fiscal strategy is sustainable, and that debt obligations are serviced fully and on time, is not the only consideration in deciding whether that strategy should be continued. Other considerations relate to the efficiency with

FIS

2 |  P a g

which GoGovernmedegree of activity, ato the ovenot easily

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CAL SUSTA

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overnment dent involvem

f domestic maamong otherserall developm

y generalised.

therefore athat are not

into crisis if cn the interestsugh they are

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mains a risk thmay nonetheleebt in full. Thhe best long ress may be doormed discussr a solution t

ances – or it mwever, lendes from rene

n, among themrkets in the fu

INABILITY A

delivers publiment in commarket distortios. Some of thment of the e

a need to dt sustainable continued – as of economi

perfectly suAgents in fire interested he credit they y will drive vernment wil

committed it min this study.

o provide an he structure oy in which the

hat a sovereigess decide to

hey may do thrun interests oone in a way sion among that is the bemay be done ers have powging, even

m the ability tuture. Soverei

AND DEBT IN

ic services, tmercial servons caused byhese factors meconomy, in

distinguish be– those tha

and those whc and social

ustainable in nancial markin sustainabilprovide to sothe budget tll be unable might be to d. The major cobjective me

f the econome deficit is fina

gn with a sustrenege on its

his for good reof the countrythat is desiraall parties, aest for everyoin an arbitrarwerful weapwhen the bto shut the boign borrowers

N SOEs

the extent oices, and they Governmen

may be relatedways that are

etween fiscaat will fail ohich should be

developmentany practica

kets, whethelity above all

overeign stateto a crisis, ato service it

do so. That icontribution oeasure of thi

my, the size oanced.

tainable fiscas obligation toeason – that iy – or for badable – throughand a genuineone under thery or coercive

pons to deteorrower is a

orrower out os are aware o

of e

nt d e

al or e t, al er l. s a ts s

of is of

al o it d. h e e e

er a

of of

this, and with onlythe Caribb

The focusCaribbeansituation wservice thstatementterm horizexpect, sustainabiparticipanshould takeach counto discusscase of anarrive at ais in the bare issuespursued e

A major cthe discumeasure fiscal straGovernmedebt obligsustainabibecause tby finaninfluencedcalculatiomay judgthe risks

I

have avoidedy a handful ofbean, as we w

s of our studyn sovereigns hwhere, with thheir debt. Ths can be mazon, both in and under

ility in thints need to beke a case-byntry’s circums changes in tn individual ma mutually agbest interests s that are clalsewhere.

contribution oussion of susof sustainabiategy becoment does not hgations. It is ility to a conhe fiscal sustcial marketsd by arbitns, market p

ge sound credin other cre

INTRODUCT

d arbitrary def ill-advised

will show in C

y is fiscal susthave a strategheir best efforhis is a mattade for most

circumstancer worst-cass sense is e concerned ay-case approamstances when

the structure mortgage, the greed maturity

of the countrarified in Ch

of our study istainability. Wility, based o

mes unsustainhave the wherimportant to

ncept that cantainability ins. If the intrary judgmparticipants mdits to be risedits which

TION

efaults in whoexceptions. T

Chapter 3.

tainability, thgy in place tharts, they are uter about wh

countries oves that we mase assumpti

what finanabout. Beyondach, taking funever they arof existing dappropriate p

y and interestry and of the hapter 3, and

s to bring greWe develop on the abilitynable at the rewithal to fu

o limit the non be objectivedicator is clo

ndicator usedments and may be misinky, while unappear soun

P a g e  |   3

ole or in partThis is true o

hat is, whetheat will avoid aunable to fullyhich definitivever a mediumay reasonablyions. Fiscancial marked this, lenderull account ore approached

debt. As in theprocedure is tot structure thalender. These

d that will be

eater clarity toan objective

y to pay: thepoint where

ully service itotion of fiscaely measuredosely watchedd is heavilyinappropriate

nformed, andnderestimatingnd. Our study

3 

t, of

er a y e

m y al et rs of d e o at e e

o e e e ts al d, d y e d g y

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4 |  P a g

therefore sustainabimade, con

Long befomay be dfrom the pThe way inhibit dwealthy bworseningthere maGovernmeintrusive.

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Our secoeconomieCaribbeanexport of attain sufcompetitivproducer economy generating

CAL SUSTA

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focuses on thility, about wnditional on th

ore this pointdiverting finapoint of view

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ortant to distinategy, which

circumstancd, which cannmate the conGovernment dalculation of adivert financ

lement of judn objective fa

ond innovaties and smaln. A small ecf a limited nufficient produve. Compareand consume

is very larg sufficient

INABILITY A

he objective "which unambhe state of the

t is reached, ancing from

of acceleratinhe fiscal def

by transferrom relativelyution of inco

ons to alter ved to be to

nguish betwemay be obje

es, and the not be determ

nditional probdoes not havea limit on the e from develo

dgment, and tashion.

ion is to dll economiesonomy is obl

umber of comuction size ted to this eer commoditierge. The smt foreign e

AND DEBT IN

"ability to paybiguous stateme world.

the burden oactivities thang economic

ficit is financrring funds y poorer taxpome. Apart f

fiscal strato large, inef

en the sustainectively deteother consid

mined in the sbability of a e the wherewi

size of Goveopment priorthe computati

distinguish bs such as tliged to concmmodities in to become iexport list, tes required bymall economexchange in

N SOEs

y" criterion oments can be

f debt serviceat are prioritydevelopment

ced may alsoto relatively

ayers, therebyfrom all thistegy becausefficient or too

nability of thermined undederations jusame way. Wedefault even

ithal to pay; aernment, or itities, involveion cannot be

etween largethose of theentrate on thewhich it can

internationallythe range oy the growing

my grows bynflows from

of e

e y t. o y y s, e o

e er st e

nt a ts s e

e e e n y

of g y

m

the interincreasinglarge couimport subdomestic assumes alarge coun

Our studobjective of Caribbspecialiseon foreigservice anexcess detime, exhservice thmanner, foreign demethodoloof the poCaribbean

Our studyeconomieimpossiblobligationjudgmentsrates, sociratio of assumptioapplied wor the mac

I

rnationally cg import needuntries have bstitution andconsumption

an importancentries.

dy employs measure of t

bean countried in internatign currency dnd the wealthemand for fohaust the counhe debt. If co

Governmentebt at that poogy which enoint of unsusn countries us

y provides aes, of the rile for Govns. The methos about a foreial stability, pdebt to GD

ons of the cowithout regard

croeconomic

INTRODUCT

competitive ds of the grow

additional d the growth n. The balane for small co

this structurthe sustainabiies, which aonal commerdemand of Gh effects of doreign exchanntry's foreignrrective actiot will be oint. In the cunables us to mstainability, asing this tool.

an objective isk that fiscernment to

odology we decast growth rpolitical will,

DP or any oonventional ad to product omodel prefer

TION

sectors, to wing economy

growth optiof domestic pnce of externountries that i

al reality toility of the fisare all smallrce. If the comGovernment domestic debtnge, Governmn reserves in on is not take

unable to urrent study

make a conditand we do e

measure, focal policy m

fully servidevelop does nrate, interest rinstitutional

of the usual analysis. Theor factor markrred for the an

P a g e  |   5

supply they. By contrastions, throughproduction fonal paymentit does not fo

o develop anscal strategiel and highly

mbined impacexternal deb

t results in anment will, inits efforts to

en in a timelyservice the

we develop ational forecasevaluations o

r small openmay render i

ice its debnot depend onrates, discounresilience, the

caveats ande test may beket structuresnalysis.

5 

e t, h

or ts or

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nt e d e s,

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6 |  P a g

Chapter 1economy"corresponof financunsustainasufficient the debt. Odo not spfocus on t

Our studybe considsustainabibe the opmany nonin decidinof what sustainabiunderstanunsustainacontinue aterm in thChapter 2collapses;slows groidentify adebt are beyond th

Chapter developedunsustainaexchange These cotraded go

CAL SUSTA

g e

1, entitled "F" uses an intnds to the imacial market able when to meet its o

Our concept opeculate on the ability to p

y distinguishedered the opility, and we ptimum fiscan-quantifiableng what is the

is written uility is in fact

nd that word.able at the palong that pathis study. In c2 does not ide; instead, theyowth beyond aa point at whi

optimal, buthat point, and

2 explains d to pinpoable in the plays an ess

ountries expoods and servi

INABILITY A

Fiscal sustaintuitive concep

age in the popagents: the Government

obligations in of sustainabilGovernmentspay.

es between suptimum fiscahave nothing

l strategy, ote factors that me optimum. Wunder the het not about su In normal u

point when yth. That is thecontrast, mucntify a point y argue that a certain threich, in their vt the strategyfor many yea

the logic beoint when

small open sential role inort a limitedices in which

AND DEBT IN

nability in thpt of sustainular mind andfiscal stratedoes not

full and in thlity is an objes' willingness

ustainability aal strategy. Wg to say abouther than to must be taken

We also point eading of fi

ustainability ausage, a stratyou are no loe sense in which of the literat which the the fiscal or

eshold. In othview, the fiscy may be suars.

ehind the tofiscal strateeconomy (Sn the growth

d range of ih they are com

N SOEs

he small opennability whichd in the mindegy becomehave finance

he currency oective one; wes to pay, bu

and what mayWe focus onut what mighpoint out the

n into accounout that muchiscal or deb

as most peopletegy becomeonger able toich we use therature cited infiscal strategydebt strategy

her words theycal deficit andustained wel

ool we haveegy becomeOE). Foreign

h of the SOEinternationallympetitive, and

n h

ds s e

of e

ut

y n

ht e

nt h

bt e s o e n y y y d ll

e s n

E. y d

employ thconsumereconomiescale of pand thersubstitutiodemand fosupply cathe metho

In Chaptethe impaGovernmeGovernme4. The principallyservicing expansionand imposeveral reGovernmefiscal strato achieveservices, of Govern

Chapter sustainabiempirical methodoloare inconsunambiguindicator, offering involve ju

I

he foreign exr and produces do not havproduction forefore there on. It followsfor foreign exannot be sustodology used

er 1 we introdact on the ent debt seent deficit. Thchannels thry affect theof the exte

n and domestorts. In Chapeasons why fent operation

ategy is sustaie greater effiand/or a nati

nment activiti

2 reviews ility, illustrat

approachesogies are all sistent with e

uous concept suite of indicthe most reudgments, so

INTRODUCT

change earnincer goods thve the capacir more than

is virtuallys that a fiscachange that isained. That iin this study.

duce a forecabalance of

ervicing andhe model is frough whiche balance oernal debt, atic financing pter 1 we exfiscal consolins may be winable. Theseiciency of thonal consensies are inappro

the literatuting the divs to the flawed in oneeach other. Aof fiscal sust

ces, or methoeliable guidaometimes abo

TION

ngs to imporhe economy ity to achieva handful of y no scopeal strategy thas in excess ofis the princip

asting model f external d the finanfully articulath the fiscal f paymentsand the impon aggregat

xplain that tidation and twarranted, ev reasons inclu

he delivery ofsus that the siopriate.

ure on debtversity of th

subject. The way or ano

At the end of ttainability emdology can b

ance. The apout things wh

P a g e  |   7

rt the range oneeds. Smale an efficiencommodities

e for imporat provokes af the availableple underlying

which showpayments o

ncing of theted in Chapte

deficit wilare via the

pact of fiscae expenditurethere may bethe reform oven when theude the desiref Governmenize and scope

t and fiscaheoretical andhe availablether, and theythe review no

merges, and noe identified approaches alhich are non

7 

of ll nt s, rt a e g

ws of e

er ll e

al e e

of e e

nt e

al d e y o o

as ll

n-

FIS

8 |  P a g

economicmeet its prequire intergenerparameterobligation

Chapter 3countries on the cothe study on the ineconomicconsolidathis study(CARICOour studiesince 200

Chapter 4methodoloopen econseveral Cunsustainasituation, the curreunsustaina

Our studymarkets aability toGovernmethe overdevelopmGovernme

CAL SUSTA

g e

c in nature, spayment oblig

conceptuallyrational equirs such as rns.

3 reviews the in the last on

ountry. The fihave weaken

ncrease, relatc recession tion is under

y. Four of 15 OM) and the Des) had excha8.

4 is the coreogy for deternomy, and u

Caribbean coability for eand conduct

ent fiscal sability.

y aims to prabout the objeo service theents' willingn

rall fiscal sment of cou

ents that

INABILITY A

such as a gogations. In add troubling ity, and arbirates of disc

fiscal experine and a half tinances of all

ned over time,tive to GDPaggravated

rway in all thcountries in

Dutch Caribbanged or rest

e of the studmining fiscal

use it to evaluountries. We ach country, stress tests t

situation fro

ovide reliablective limits teir debt. Weness to servicetrategy in

untries. Whathave not

AND DEBT IN

overnment's wdition some m

assumptionitrary choicecount of futu

ience of seveto four decadl the countrie, and debt lev

P. The 2008 the situation

he economiesthe Caribbean

bean (the groutructured gov

dy, where wel sustainabilituate the fiscidentify perassess the

to show howom the poi

e informationto Caribbean e have no oe debt, or theterms of tht we do sreached th

N SOEs

willingness tomethodologiens, such a of sensitiveure payment

eral Caribbeandes, dependinges included invels have been

internationan, and fiscas analysed fon Communityup covered byvernment deb

e describe thety in the smalal strategy oriods of pascurrent fisca

w far distant int of fisca

n to financiaGovernments

opinion aboue optimality ohe economicshow is thahe point o

o s

as e ts

n g n n al al or y y

bt

e ll

of st al is al

al s' ut of c

at of

unsustainaobligationGovernme

I

ability do hns. We are aents may lose

INTRODUCT

ave the abilalso able to e the ability to

TION

lity to servicassess the w

o pay.

P a g e  |   9

ce their debway in which

9 

bt h

FIS

10 |  P a

CAL SUSTA

g e

INABILITY A

AND DEBT INN SOEs

FISCAL

Fiscal

The aim ofinancing what impapproach fiscal strasuccessiveexhausts iin this wafiscal strafuture definances tmet in ful

At bottoacceptablygrowth theconomy through fearn foreihigh, and imports reSOEs is lpolicy coincentivestradables.to reduce pushes abeyond tdevaluatioclimate fo

L SUSTAINABI

Sustainabi

of the projecof governme

plications thilends clarity

ategy. The fise deficits drivits ability to ay, the conceategy is unsueficits over to the point wll; the fiscal st

om, economiy low, and hat may be

(SOE), govfiscal expansiign exchange

additional foequired by thled by the trontributes to s and infrast On the distagrowth rates ggregate expthe amount on drives up or investors. T

ILITY IN THE

Chapte

lity in the

t is to measuent deficits ins may have to the discu

scal strategy bve the governfully service ept of sustainustainable if the medium

where debt strategy is sust

ic policy isachieving thsustained overnment canion, because ; in the SOEoreign earnin

he growing ecradable sector

growth to tructure to aaff side, fisca

and generatependiture an

of foreign inflation rat

The key to fis

E SMALL OPE

er 1

Small Ope

ure the practicn small open

for governmssion of the becomes unsunment to the its debt oblig

nability is unthe conditio

m term pushervice obligatainable other

s about kehe highest ratver time. In not drive ecgovernment import prope

ngs are needeconomy. Sustrs of their ecthe extent t

accelerate thel expansion h

e inflation to td the deman

inflows. Thtes and creatscal sustainab

EN ECONOM

P a g e  |  

en Econom

cal limits to economies, a

ment debt. Tsustainabilityustainable whupper limit tgations. Viewnambiguous: onal forecast hes governmations cannot rwise.

eping inflatte of economthe small op

conomic growservices do

ensities are vd to finance tained growthconomies; fisthat it provide production has the potenthe extent thand for impohe ensuing tes an uncertbility is theref

MY

 11 

my

the and

This y of hen that wed the of

ment be

tion mic pen wth not

very the

h of scal des

of ntial at it orts

22 tain fore

FI

12 |  P a

to ensure and that foreign ex

An essentlarge, relafor SOEsgrowth anthe case ooutput agovernmedomestic proportionexpansiontoo has ingovernmethat is almin fact bemultiplierexpansionpaymentsstimulatedcreate a ddirect imaddition tof moneyimbalanceexchange

Followingdeficit of additionalexceeds threserves demand a

SCAL SUSTA

g e

that fiscal pgovernment

xchange abov

tial differenceatively self-cos the impact nd inflation isof large econnd inflation

ent spendingincome strea

n leaks abron to finance tnflationary effent expansionmost as large e larger thanr effects. Furtn also has its : direct effecd for non-trademand for pact of monto aggregate creation is the of external rate.

g this logic wan SOE beco

l foreign exchhe supply to become depland imports

AINABILITY

policy facilitaactivity does

ve the supply.

e between theontained econof fiscal def

s indirect, vianomies, the im is direct: , whether laam, for the moad via impthe additionafects that are n in the SOE c

as the expann the governmthermore, monlargest poten

cts are limiteddable commoimports. Mor

ney creation spending powherefore modpayments re

we may definomes unsustahange demandsuch an exteleted. The fcomes princ

Y AND DEBT

ates the grows not drive t

e SOEs of thenomies such aficits and deba the balance mpact of fisc

the multiparge or smamost part, anports. If theral governmenmostly domecreates a dem

nsion in most ment expansiney creationtial effects vid to such demodities, but thre important,on imports,

wer. The infldest, until the sults in a dev

ne the point winable, as thed resulting frent that the fofiscal stimulucipally from

IN SOEs

wth of tradablthe demand

e Caribbean aas Brazil, is tbt on economof payments.al expansion lier effects all, add to nd only a smre is monet

nt spending, testic. In contramand for impo

cases, and mion, if there to finance fisia the balancemand as may hey in turn w, though, is because of

lationary imppoint where valuation of

where the fise point when om fiscal poloreign exchanus to aggreg

the impact

les, for

and that mic . In on of

the mall tary that ast, orts may

are scal e of y be will the the

pact the the

scal the

licy nge gate

of

FISCAL

money crecharge to funded enis an impbondholdeand this epaymentsexhaustedoften provand a deep

"Sustainabin this weconomy inevitablebetween tsuch as threached, tpayments do not mthresholdschange at

In order tneed to dbalance oon foreigusing anyOur study2010) uspaymentseconomy estimate paymentsservice. T

L SUSTAINABI

eated to fund service any

ntirely by credpact on the ers have a loeffect will re. At some po

d, the market vokes capital p devaluation

bility" has a way. If fiscal

away from te. It is worthis sustainabhe debt-to-GDthere is a vicrisis ensues

mark any marks are academthe point the

to assess fiscadetermine theof external acn exchange

y appropriate y which introses a simple, but in practis preferabl

the impact ; to this is adThe resulting

ILITY IN THE

the deficit, annew externa

dit from the dforeign balan

ower spendinduce pressurint before forcomes to expflight, the ex

n which amou

clear and spepolicy does

this point, a brth pointing bility indicatoDP ratio: wheniolent markets. In contrastket-driven tramic, because

presumed thr

al sustainabile impact of dcounts, and mreserves. Thimacroecono

oduced this me monetary tice a more fule, if availabof fiscal va

dded the cost g foreign exc

E SMALL OPE

nd there will l debt. If fiscdomestic privnce only to g propensity e on the balareign reservespect a large dexhaustion of funts to overkil

ecific meaninnot succeed

balance of paout the cri

or and convenn the foreign t reaction, ant, the conventansition, and

market agereshold is rea

ity in the opedeficits and fmeasure the ris impact ma

omic model omethodology (

model of tfully articulateble. The moariables on of governme

change surplu

EN ECONOM

P a g e  |  

be an additiocal expansionvate sector, th

the extent tthan taxpaye

ance of exters are completevaluation. Tforeign reservll.

ng when viewin steering

ayments crisistical differen

ntional measureserves limi

nd a balance tional indicattheir purpor

ents observe ached.

en economy, financing on resulting impay be estimaof the econom(Belgrave et the balance ed model of

odel is used the balance

ent external dus or deficit

MY

 13 

onal n is here that ers, rnal tely

That ves,

wed the s is nce

ures it is of tors rted

no

we the

pact ated my. al., of

the to of

debt t is

FI

14 |  P a

applied toperiod. Iflevel by tunsustainato 12 weelevel withcomfortabmethodoloin the fore

The approis simpleconventiousually athresholdsdefinitionbecomes u

In the SOshould haopinion ntarget a raSuccessfumaintain aand whenmaintainecurrent anFiscal polaggregateit drives exhaust forate targetis the popoint may

SCAL SUSTA

g e

o the level of f, as a result, the end of theable. In Belgeks of imporh which the ble. This is ogy permits ueign exchange

oach to fiscal, intuitive an

onal approachadmitted, soms that are arb

n of sustainaunsustainable

OE, theory anave an exchannowadays is aate or to min

ul exchange raadequate fore

n necessary. Ted, and that nd capital aclicy affects th

e demand. Fisforeign curre

foreign exchat becomes unint where fisy be clearly

AINABILITY

foreign exchathe reserves

e period, the fgrave et al. (2rts is used, b

Barbadian a commonl

us to employe market in ea

sustainabilitynd empiricallh, which is metimes coubitrary. Our aability whiche when failure

nd experiencnge rate objecabout whethenimise the voate targeting reign reserves

That in turn imthe inflows

ccounts are shose outflowscal strategy bency demand

ange reservesobtainable anscal policy bidentified, an

Y AND DEBT

ange reserveslevel falls befiscal deficit2010), a thresbecause that iforeign exchly used thre

y whatever thach country.

y recommendly based, in

more compunter-intuitiveapproach provh is intuitive occurs.

e dictate thatctive. The oner the objectiolatility of therequires that to intervene

mplies that extof foreign ex

sufficient to s, by virtue obecomes unsud to exceed . At this poin

nd there is polbecomes unsund scenarios

IN SOEs

s in the previoelow a threshis deemed to

shold equivalis the minim

hange marketeshold, but

hreshold preva

ded in this stucontrast to

plicated than e, and impovides a clear-ve: the syst

t policy maknly differenceve should bee exchange rathe central baappropriatelyternal balancexchange on cover outflowof its impact ustainable whinflows, andnt the exchanlicy failure. Tustainable. Tand conditio

ous hold o be lent

mum t is the ails

udy the

n is oses -cut tem

kers e of e to ate. ank y as e is the ws. on

hen d to nge

This This onal

FISCAL

forecasts clear of th

Our appmechanismfailure. Tobserve economy Fiscal exeventuallyessential aforeign ecapture parameterMore sopthat incocredibilityexaminatidiscussionthrough th

This apppressure exchange are right inflows anrates whic"A large ait difficuldecreasescontracts linked to (especiallywith negaoutput." T

L SUSTAINABI

can be analyshe point of fai

proach explms by which

The proposedthe economand to obse

pansion geney grows largeammunition fexchange resthe transmi

rs: the fiscal phistication morporate weay, as well as ion of the tran of policy he system.

proach incor(EMP), the reserves; in to do so. Blnd outflows mch can resultappreciation mlt for it to gr. Also, whis denomina

its movementy depreciatioative consequThis paper, c

ILITY IN THE

sed, as to whilure.

licitly incorh the fiscal sd methodolog

mic behaviouerve how it rerates a foree enough to dfor foreign exerves. In thission mechmultiplier an

may be introdalth effects

feedback anansmission me

options, wh

rporates indiexchange ratSOEs people

lanchard et amay cause lat in big disrumay squeeze row back if aen a signif

ated in foreigts), sharp flucns) can causeuences for f

co-authored b

E SMALL OPE

ether they ste

rporates thetrategy drive

gy allows usur which chreaches the peign exchangdeprive the auxchange manahe simplest mhanism thrond the prope

duced with strand indicat

nd second rouechanism len

hose effects

icators of ete and the le care about al. (2010) adarge fluctuatiouptions in ecothe tradable sand when theficant portiongn currency (ctuations in the severe balanfinancial stabby the Econo

EN ECONOM

P a g e  |  

eer the econo

e transmisses the systems to model aharacterises point of failue deficit whuthorities of agement, thatmodel, we cugh just tnsity to impoructured modtors of polund effects.

nds clarity to may be trac

external marlevel of foreEMP, and th

dmit that capons in exchanonomic activsector and mae exchange rn of domes(or is somehhe exchange rnce sheet effebility, and thomic Counsel

MY

 15 

omy

ion m to

and the

ure. hich

the t is, can two ort.

dels licy An the ced

rket eign hey

pital nge ity. ake rate stic

how rate ects hus, llor

FI

16 |  P a

and head the guidanpolicies, gdecades bsuperior tpeg or a ris highly aware of tthe externlevels gaiwhen they

This apprrespects constraintthe transexchange a foreign above, thdrives thimbalancebalance ois no corrthe conveexpensivetoo fast, default enfailure, beand the prohibitivrelies on rcost of revenue. practical pis not focu

SCAL SUSTA

g e

of the IMF'snce of Fund sgives that insbeen standardtrack record. ate that moveprized in S

the adverse conal account in traction iny involve a co

roach is thethe structur

t. The implicsmission mec

constrained, exchange con

he transmissie economy es, and theref payments cresponding deentional storye it becomes the cost of d

nsues. Howevecause what point at wh

ve cannot berules of thumgovernment These rules policy guidanused on the b

AINABILITY

s Research Dstaff in their astitution's offid practice in s

The exchanges in a predictOEs preciselonsequences and preserv

n these econoontraction in r

appropriate ral nature oations may bchanism in with large ec

nstraint on groon channels to a point is a defined

risis. In a largefined point oy is that the to finance itdebt service ver, there is is “prohibitiv

hich the cosuniquely pa

mb, for exampdebt, as a

of thumb havnce. More seribalance of pay

Y AND DEBT

Department, aanalysis of meicial sanction small open ecge rate target,table way witly because thof failure. Po

ve adequate omies becausreal output.

one for SOof their forbe appreciated

SOEs, whicconomies, whowth. In the Sby which f

of failure ad failure poinge diversifiedof failure andlarger the d

; if the debt becomes prono clearly d

ve” is a mattt of debt searameterised.le with respepercentage

ve proven toiously, becauyments, if app

IN SOEs

and intended ember countrto what has

conomies wit, whether it ith low volatilhey are acutlicies to balanforeign rese

se of that, ev

OEs, becausereign exchand by comparch are forehich do not haSOE, as outlinfiscal expansare via externt, marked byd economy thd crisis. Insteeficit, the mkeeps on ris

ohibitive, anddefined pointter of judgmeervice becom

This approact to the interof governm

oo imprecise use this approaplied to SOE

for ries' for

th a is a ity, tely nce

erve ven

e it nge ring eign ave ned sion rnal y a

here ead,

more sing d a t of ent, mes ach rest

ment for ach

Es it

FISCAL

may suggbalance oBarbados interest/reprecedingthe econo(2010) munsustainabalance oconventio

Converselstrategies balance othe case, relationshThere is nCaribbeanpractical oholds gooon the faeconomicborrowinggrowth-enlevels ofgovernmehigh leveinvestmenproduced therefore the purpothat there IMF has rdebt to Gcountries

L SUSTAINABI

gest that fiscof payments

in 1991, whevenue ratiosg years was clmy to a balan

methodology able in thoseof payments

onal methodol

ly, conventioare unsustai

f payments fain particular

hip between no convincinn or elsewheobservation thod across manact that gov

c infrastructurg to finance nhancing. Hof debt, borrents finance els of debt. nt is in appro

at fair markno surprise t

orted relationsis an optimal

recently uncoGDP and econ

so far tested

ILITY IN THE

cal policy iscrisis is immhen even thos were low, learly unsustance of paymenclearly show

e years, whes crisis cannlogy.

onal analysisinable even tailure even inr, with studigovernment

ng evidence oere, and therehat leads us tony countries. ernment borrre clearly procurrent spend

owever, it dorowing is focurrent spenNor is it thpriate social

ket prices forthat there is ship between l level of deb

overed no relanomic growthd (Pescatori e

E SMALL OPE

sustainable minent. This wough debt-to-

the fiscal ainable, and unts crisis. Thews the fiscaereas the fiscnot be dete

s may suggthough they w

n worst case scies which pudebt and eco

of such a rele is no reasoo expect any The intuitive rowing to b

omotes economding may nooes not follo

for infrastrucnding by borhe case that

and economir products anlittle empiricdebt and gro

t. A test by ecationship betwh, across the t al. 2014). T

EN ECONOM

P a g e  |  

even thoughwas the case-GDP and tostrategy of ultimately droe Belgrave et

al policy to cal roots of cted using

est SOE fiswill not leadcenarios. Thi

urport to findonomic growationship in on in theory relationship targument rel

uild social amic growth, t necessarily ow that at lcture, and trrowing onlyall governm

ic infrastructund finance. Itcal evidence owth, much lconomists at

ween the ratiowidest range

The exposure

MY

 17 

h a e in otal the ove t al.

be the the

scal d to s is d a

wth. the or that lies and but be

low that

y at ment ure, t is for

less the

o of e of e of

FI

18 |  P a

the flaws cited in economicthe evidepublishedonly six ssince 180definitionfor the Cdiscussed

The convpaper to countries,the net prfor compaforward finterest rBecause pparametergrowth ofachievemthe calculevolution)maturing

The IMFsustainabi2004). It of the deband in thsustainabithresholdsinstitutionstrategy th

SCAL SUSTA

g e

in the Reinhevidence has

cs profession nce is scant

d in 2012, Reitudies globall

00. They all ns, and their rCaribbean app

in Box 1 on p

entional apprIMF staff o

, the suggesteresent valuearison with thfor a decaderates, exchanparameterisatrs are advisedf the economyent of the solation says n), and that thdebt will not

F-World Bankility in low iinvolves "(i)

bt and debt-sehe face of pility guided bs related to ns; and (iii) hat contains t

AINABILITY

hart-Rogoff as been an ac(Herndon, Aand inconsi

inhart, Reinhly that tested

used differeresults are notpears in Greepage 34.

roach is compon debt sustaed methodolog(NPV) of fut

he NPV of thee (IMF, 2008nge rates, gion is largelyd, as well as y. With all th

olvency criternothing abouthe methodolobe rolled ove

k guidance income coun) a standardizervice dynamlausible shoc

by indicative the quality an appropriathe risk of de

Y AND DEBT

analysis that cute embarrash and Pollinstent; in an

hart and Rogothe relationsh

ent methodolt comparableenidge et al.,

plicated. In a ainability forgy involved tture primary e public debt,8). This invogrowth rates y arbitrary, str

a range of shat, the paperria may not bt the level oogy is blind er.

for the assentries is also zed forward-l

mics under a bcks; (ii) assecountry-specof a country

ate borrowingebt distress."

IN SOEs

was previouassment for n, 2013). In faoverview pa

off (2012) fouhip in the perlogies and d. A recent stu, (2013), and

recent guidanr market accthe estimation

fiscal balanc, and forecastolves choice

and deflatoress tests on cenarios for r admits that be feasible, tf debt (only to the risk t

ssment of dcomplex (IM

looking analybaseline scenaessment of dific debt-burdy's policies ag (and lendinSustainability

usly the

fact, aper und riod data udy d is

nce cess n of ces, ting

of ors. the the the

that its

that

debt MF, ysis ario debt den and ng) y is

FISCAL

based onprojected governmerevenue. Tcountries are judged

The convrecently cprofile ofwhereas tpolicy is sustainablto avoid imposes oratios are and Barbinternatioof investmcomparabbe of inve

The convIn the peaccepted mbe a debt-more thadecade, wthe aftermthere wer60 per cefinancial just as arb

L SUSTAINABI

n notional thdebt, the NP

ent revenue, dThe thresholddepending o

d to be poor, m

ventional appcited examplef the UK is there is a geunsustainabl

le by the finathe punitive

on Spain. It isof the same m

bados' policnal comparisoment grade,

ble debt levelsestment grade

entional appreriod before tmaximum lim-to-GDP ratio

an twice the was thought tomath of massre few industrent. A new nmarkets, at le

bitrary as its p

ILITY IN THE

hresholds forPV of debt to debt service tods are differenon whether thmedium or st

proach is some of this is the

currently sieneral percepe, the UK fi

ancial markete debt servics also the casemagnitude as y making on, yet Barbawhereas mo

s and institute.

roach uses ththe recent fin

mit for fiscal o of about 60

maximum, o be the excepsive financialrial countriesnorm of 100 east for develpredecessor.

E SMALL OPE

r the net prexports, the

o exports, andntiated in eveheir institutiotrong.

metimes coune fact that theimilar to thaption that thescal policy is. As a resultce costs whe that Barbadthose of induinstitutions ados' debt is jost industrial tional strength

resholds whicnancial crisesustainability

0 per cent. Japwhich had

ption that prol rescue packs left with rat

per cent haloping countr

EN ECONOM

P a g e  |  

resent value NPV of debt

d debt serviceery case betweons and polic

nter-intuitive.e fiscal and dt of Spain, e Spanish fiss deemed to t the UK is a

hich the maros' debt-to-Gustrial countriare strong judged not to

countries wh are deemed

ch are arbitras, the genera

y was thoughtpan, with a rapersisted for

oved the rule.kages, howevtios of less th

as taken holdry debt, but i

MY

 19 

of t to e to een cies

. A debt but

scal be

able rket

GDP ies, by

o be with d to

ary. ally t to atio r a . In ver, han

d in it is

FI

20 |  P a

The susta

There is aand whatsustainabiHowever,sustained cause a deGreenidgedebt or fcountries that of coAll other is more, fwell be tocircumstaand certaibenefit offuture.

We have tgrowth rapolicy chpresumedhypotheticoffers no presumedfiscal policarries a term conunderminmarket ac

SCAL SUSTA

g e

inable and th

a considerablt is optimalility these t, it is obviindefinitely,

eviation. Thee et al. (2013)fiscal policy;with a debt-t

ountries with economic cir

for countries wo allow the raances where din contractionf a lower deb

the paradoxicate (by reduc

hange involved benefit fromcal and poorl

useful guidad relationship icy. Using thrisk of impl

nsequences foe domestic fi

ccess.

AINABILITY

e optimal

le difference l. In the reerms have bious that suif there are

e recent study) offers no op their claim to-GDP ratiolower ratios, cumstances awith higher r

atio to remaindebt reductionn of income, wbt-to-GDP rat

cal conclusioncing the debtes a reductionm a reductioly grounded ance for fiscoffers no gui

he ratio as a tlementing po

for growth, inancial mark

Y AND DEBT

between whaecent discussbeen used i

uboptimal pono market fo

y on Caribbeapinion on the

is that the above 56 peall other thin

are not equal, ratios, their ben high, or even would requiwhereas the ptio is hypothe

n that in ordet-to-GDP ratin in growth. on in debt-toin theory and

cal policy. Indance on the trigger for poolicies with dsuch as deb

kets and dama

IN SOEs

at is sustainasions on fisinterchangeabolicies may orces at workan economies sustainabilitygrowth rate

er cent, is belngs being equof course. West policy min to increasere an immediresumed growetical and in

er to enhance io) the requiIn general,

o-GDP ratiosd evidence, an particular, sustainability

olicy adjustmdeleterious lobt haircuts tage internatio

able scal bly.

be k to by

y of in low ual.

What ight , in iate wth the

the ired the

s is and the

y of ment ong that onal

FISCAL

A useful given in th

Is Fisca(Bottom

It is vital the countrtailored tsituation suboptimaunsustainatendenciea point at service thpolicy isalternativeabsence ofrom counthe countrto bear ipresumingstrategies of tax sysfinancial finance, tmarket ddevelopm

L SUSTAINABI

way of reprhe matrix bel

al Policy Optim Answer)

to assess whry’s circumstato the circum

demands a al one. Whaability are cls and under wwhich the au

he national ds hypotheticae fiscal policof a counterfantries and epiry that is the in mind is tg that countriwill have simtems, preferestructures, pr

technology, ledevelopment,

ment, developm

ILITY IN THE

resenting posow:

Is

imal? YES YESYES NO

hich element iance, becausemstances. In

more urgeat is more, wlear, and thatwhat assumptuthorities will debt. In contral: it requircy which profactual, the prsodes which focus of atte

the range ofies are sufficimilar outcomeences for publroduction sysevel of econo

labour marment of the

E SMALL OPE

ssible states

Fiscal Policy (Top answ

S

S

N

YS N

N

in this matrixe the policy ren general, anent responsewe argue that one may deions fiscal polack the whe

rast, the opties a counte

oduces faster ractice is to are presumed

ention. What f assumptioniently alike thes. These inclic provision stems, openneomic developrket flexibiliinstitutions o

EN ECONOM

P a g e  |  

of the world

y Sustainable?wer) NO

YES NO

NO

x best represeesponse mustn unsustainae than doesat the signs emonstrate wolicy will leaderewithal to fumality of fis

erfactual of growth. In

draw inferend to be similarwe need alwa

ns we make hat similar fislude similaritof public gooess to trade apment, financty, institutioof civil socie

MY

 21 

d is

?

ents t be able s a

of what d to ully scal

an the

nces r to ays

in scal ties ods, and cial

onal ety,

FI

22 |  P a

size of poassumptiowhich is change.

Our studyis unsustaproblem, may be drwaterfall arriving abecause iyour stepsthe literatthe choiceas is the unable to write as th

Sustainab

The appropaper, to where exderived frof expositof insolvethey fall "technicalliabilities technical practical inability ohas harmf

SCAL SUSTA

g e

opulation, lanon that econo

counterintui

y focuses on mainable, for thand the one rawn with canup ahead is

at a fork in tf you chooses. As we shalture ignore the of tributary avoidance ofdistinguish th

hough they ar

bility limits at

oach to fiscaldefine the po

xchange markrom conventiotion, let us cency, i.e. inabdue (Webstel" insolvencexceeds the

government iinterest and

or failure to mful economic

AINABILITY

nd area, etc. omic episodeitive in an

methods of dehe reasons justhat is most rnoeists on an s a signal othe river pos

e the wrong fll see in Chaphe roar of theis a problem f the waterfahe unsustainare the same.

the point of i

l sustainabilitoint of unsustket pressure onal notions oonsider separbility or failur's definitiony, where thvalue of its

insolvency is having no e

meet repaymeconsequence

Y AND DEBT

Most studiess are comparage of rapi

etermining thast cited: it is readily detectunknown riv

of unsustainases a questionfork you willpter 2, not one waterfall, thof the same o

all. Indeed, mable from the

insolvency

ty which is atainability viabecomes expof solvency. Frately a dictio

ure to pay debn), and what he value oassets. We wan academic

economic coent obligations, in contrast.

IN SOEs

s also make rable over timd technologi

at fiscal stratethe most urgted. An analoer. The roar oability, whern of optimal need to retra

nly does mosthey imagine torder of urgen

many writers suboptimal, a

advanced in ta the flash poplosive, may For convenienonary definitbt obligationswe may termf governmen

will show thacuriosum, ofnsequence. T

ns most certai.

the me, ical

egy gent ogy of a reas ity, ace t of that ncy are and

this oint

be nce tion s as m a nt's at a f no The inly

FISCAL

Suppose governmerepay prindomestic of new market intcountry rito GDP, m

Some diffcountry rcapital fliwhere coupast two costs on dthe point that in th(domestictaxes andearners aspayments Naturally,bondholdeaverage) revenue. domestic of incomedistributioa maximudefined in

This logigovernmeproportiontransfer f

L SUSTAINABI

we determent is unable ncipal amouncurrency, repdebt at the terest rate. (Tisk premium.may be refinan

ficulty may emrisk premiumght or for anyuntry risk prdecades. How

domestic debtof unsustainahe aggregatec income earn

benefits froms a group rec

that go tow, within the ers receivingthan the taxThis is the debt are, at be. One cannoon of income um sustainabn this way.

ic applies toent services bn of revenufrom those

ILITY IN THE

mine the poto meet its obnts when thepayment is a

appropriate That is, the rat

) Extremely nced in this w

merge, in them becomes v

y other reasoremiums havew can we deft trigger an ecability? The re, the recipieners) are the m governmenceive the entir

ward interest pgroup of n

g interest arexpayers who

nub of the bottom, a matot observe a becomes too

le debt and d

o concerns aby interest payue. The inte

who would

E SMALL OPE

oint of insobligations to ey fall due. Issured, throuinternationa

te that includelarge stocks

way.

e case of domery large, asn. Jamaica ise been high fine a point aconomic reactreason no sucents of the same collect

nt services. Jare amount copayments onational income fewer (and

contribute tissue: the s

tter affectingdefined poin

o unequal, andebt service

about the cryments whichrest paymen

have benef

EN ECONOM

P a g e  |  

olvency whpay interest aIf all debt isugh the issuanally competites the prevailof debt, relat

mestic debt, if s a deterrent a case in pofor most of

at which intertion that defin

ch point existsinterest incotive which paamaican incoontributed in n domestic deme earners, d wealthier, to governmenservice costs

the distributnt at which d it follows tlevel cannot

rowding out h absorb a la

nts constitutefitted from

MY

 23 

here and s in nce tive ling tive

the t to int, the rest nes s is

ome ays

ome tax

ebt. the on

nt's of

tion the

that be

of arge e a the

FI

24 |  P a

governmemay not bpoint or ra

In sum, wprivate dointerest oprincipal cannot telpay in fuHowever,willingnes

The circudebt. In obligationexchangeby way oprivate dofinancial wdemand aseriously model, ondeficits anand receipinternatiobalance dpressure difficulty the privat

SCAL SUSTA

g e

ent services be welfare-enange of value

with respect toomestic sourcor principal w

and/or interell whether govfull, at any , sustainabilitss to pay.

umstances arethis case, go

ns because . There is alsof credit proviomestic sourwealth, whichand a demadeplete the

ne may prodnd their imppts, conditionnal economyeteriorates tobecomes exin meeting e

e sector.

AINABILITY

foregone, to nhancing, bu

es at which it b

o domestic debces, there is nowhere governest obligationvernment migpoint, even ty is about th

e quite differovernment mof an inad

o a major proided by the ceces. In this h may be exp

and for foreiforeign rese

uce a forecaact on the bnal on altern. If the foreca the point whxplosive, goexternal debt

Y AND DEBT

bondholdersut there is no becomes unsu

bt raised at mo point or ran

nment is unabns as they beght be unwillwith relativ

he ability to

rent with respmay not be adequate suppblem if domeentral bank, rcase there ispected to stimign exchangerves. Using st of the trajalance of ext

native expectaast indicates there foreign eovernment wt service obli

IN SOEs

s. That transclearly defin

ustainable.

market rates frnge of values ble to pay decome due. Wing to pay, or

vely low ratipay, not ab

pect to exterable to meet ply of foreestic financingrather than frs an additionmulate aggrege, sufficient an appropri

jectory of fisternal paymeations about that the exter

exchange marwill experienigations, as w

sfer ned

rom for

debt We r to ios.

bout

rnal its

eign g is rom n to gate

to iate scal ents the

rnal rket nce will

FISCAL

If we empthe abilityonly unaforecastinpayments which forexternal dno correimbalanceloss of cGovernmethe fiscalexternal mand the emotive tobondholderates. Incpayments they do governmemay chooor externbehaviourlasting effinance fu

The technof liabilittotal of ameasuredof magnidynamicsreal rate ois definedthan the e

L SUSTAINABI

ploy the dictiy to fully seambiguous

ng the impactover the pol

reign exchangdebt service iesponding mes that do notconfidence ient is always policy is crmarket pressuexchange rateo switch ouers are happ

creasing levemay adversenot trigge

ent’s ability toose not to honal, even thour is both unpffects of debtuture investme

nical definitioties over assessets owned , but it will aitude. The f, which com

of interest, is d by the excexcess of natio

ILITY IN THE

ionary definitrvice its extemeasure of t of the fiscalicy horizon, ge market preis likely to bemarket-determt spill over to in economic able to roll o

redible, and ure. If foreige is not exce

ut of domestpy to roll ovels of domesely affect ther any marko service its

nour its debt ough it has thpredictable ant default on ent.

on of governmets – is a theby governme

always exceedflaw in the

mpares the ecothat is assumess of nationonal wealth o

E SMALL OPE

tion of insolvernal debt ob

f fiscal susal strategy on

one may deressure builds tecome problemined limit

the external policy and

over domesticcredibility is

gn reserves ressively volatic assets, a

ver maturing stic debt ande distributionket event tdebt. Of cour

obligations, whe ability to nd irrational, the governm

ment insolveneoretical curient in any cod the nationatextbook aponomic grow

mes, incorrectlnal income oover debt, whi

EN ECONOM

P a g e  |  

vency, therefobligations is stainability. n the balancerive the pointto an extent tematic. There

to domesbalance throu

d capital fligc debt so longs determined remain adequatile there is and governm

debt at mard rising inter of income, bthat prejudirse, governm

whether domesdo so, but tbecause of

ment’s ability

ncy – the excosum. The s

ountry is seldal debt by ordproach to d

wth rate and ly, that solvenver debt, ratich is the corr

MY

 25 

ore, the By

e of t at that e is stic ugh ght. g as

by uate

no ment rket rest but

ices ment

stic this the

y to

cess sum dom ders debt the ncy ther rect

FI

26 |  P a

measure. rest of thewhich is which it c

Fiscal sus

We build strategy ofrom theexchange authoritietarget is adegree ofFigure 1, the indicainitial levtrajectory not. In thminimumcapital flimarket prpoint at wstudies unforecasts and/or othalternativesustainabi

SCAL SUSTA

g e

A country bee world exceedifficult to

can be valued

stainability an

a methodoloon the basis ofe strategy. T

market pres' exchange

an exchange rf volatility. Twhich uses t

ator of exchvel of reserve

labelled A ihe case of fo

m level Rmin

ight is likelyressure. The which the fiscndertaken foand project thher indices oe scenarios ility.

AINABILITY

ecomes insolveds the total vcalculate bec.

nd the foreign

ogy for testinf the exchangThe fiscal sessure buildsrate target cate anchor orThe procedurthe level of f

hange markets of R0, a fiss sustainable

orecast B, whwith which

y, and an intpoint C may

cal strategy bor the currenheir estimatef external mato stress t

Y AND DEBT

vent only whevalue of the ccause there i

n exchange co

ng the sustainge market pres

trategy is us to the po

cannot be mer achieving anre is shown foreign exchat pressure. Sscal forecast , whereas the

hen foreign rthe market

tensification y therefore beecomes unsu

nt project wed impact on arket pressurthe outer li

IN SOEs

en its debt to ountry’s weais no market

onstraint

nability of fisssure that resuunsustainable oint where et, whether tn acceptably lconceptually

ange reservesStarting with

that follows e trajectory Breserves reachis comfortabof the exter

e considered stainable. In e prepare fisforeign reserve, and we wrimits of fis

the alth, t in

scal ults

if the

that low

y in s as

an the

B is h a ble, rnal the the

scal ves rite scal

FISCAL

Figure 1

Sudden st Small coua "suddeninstitutionmarket prcause thedeterioratgovernmenecessarilof the cumay be re First, if tinvestmenexchange for smal

FXRs

R0

Rmin

L SUSTAINABI

1. Foreign Unsustaina

tops when deb

untries that ben stop", an ns and the privrices, even the balance of e. The fina

ent affected ly within the rrency union

esolved. Let u

the previous nts outside thconstraint ki

ll countries

ILITY IN THE

Exchange Mability

bt is sustainab

elong to a curunwillingnes

vate sector tohough the cou

payments once previous

remains wcountry. The

n will determus consider the

holders of ghe currency ucks in and thethat have

E SMALL OPE

Market Dete

ble

rrency unionss on the pa

o roll over govuntry's fiscal of the union sly made av

within the ue actions of tine how thise possibilities

government punion altogete analysis is ntheir own

F

A

B

C

EN ECONOM

P a g e  |  

ermined Fis

may experienart of financvernment debstance does as a whole

vailable to union, but the central ba fiscal situats.

paper switchther, the foreno different th

currency. O

Fiscal Deficit

MY

 27 

scal

nce cial

bt at not to the not ank tion

h to eign han Our

FI

28 |  P a

methodolocountry inas a wholunsustainacapital flinvestmenproceeds banking sbank incrrepair govto governreal effect

A shortagwhere thewhich hasof additiofor exampappropriaon centralmay reverby the pconditionastrategy bconfidenc

In circuminvest thewith the central bfinancing the union small, thethe foreigmight be

SCAL SUSTA

g e

ogy will pickn question the. The fiscal able, not beclight. Let usnt stays withfrom maturin

system, the brease by an evernment finanment at markts.

ge of financee central banks accumulatedonal lending tple, the centrate response inl bank lendingrse financial t

private sectoral on the im

by the governce of domestic

mstances wher proceeds in pgovernmentsank would ngap, with imas a whole. I

e fiscal deficign exchange

financial tr

AINABILITY

k up the fact threatens the estance strategcause of “funs consider ohin the uniong governmebanks' treasurequivalent amancing by advket interest ra

e for governk does not redd in banks’ trto governmenal bank does nn this case mig to governmtransfers withr. This centrmplementationment in quesc investors in

re holders of private sectors of other cuneed to crea

mplications fof the impact oit would be c

sustainabilitansfers withi

Y AND DEBT

that the fiscaexternal balangy will in effendamentals”, nly those ca

on. If investoent bonds wiry accounts w

mount. The cevancing this liates. In this c

nment does odirect the addreasury account. In the casnot lend to goight be to relaent; in effect

hin the union tral bank supon of an apstion, designeits sustainabi

maturing govr projects withurrency unionate new mor the balanceon the balanceconsidered suty criterion. in the curren

IN SOEs

al strategy of nce of the unect have beco

but becauseases where ors deposit th the domeswith the cententral bank miquidity increase there are

occur, howevditional liquidunts, in the foe of the ECC

overnments. Tax the restrictthe central bathat are initia

pport would ppropriate fised to restore ility

vernment bonhin the unionn members, ney to fill

e of paymentse of payment

ustainable, usHowever, thncy union as

the nion ome e of

the the stic tral

may ease

no

ver, dity orm CU, The tion ank ated

be scal the

nds , or the the

s of ts is sing here s a

FISCAL

result, witthe countunion.

The reasosharp incfinancing,persistent correctionissued by the extentunion as a

The sustacurrency foreign reis subjectcriterion wmay denystrategy threaching tThe probla strictly countries institutionunion are certain popoint maythe three members be practicthe breach

The Eurobank of th

L SUSTAINABI

th some privtry affected b

on for the locrease in the, or it may be

trend of risn is indicatedthis governmt that investoa whole.

ainability of union like

eserve adequat to the forewill not alert y financing athey lose confthe minimumlem is similar

economic pmay be e

ns, the centranot prepared

oint. Howevey be uniquely

per cent fisof the EU an

cal. In both reh.

pean Centralhe currency u

ILITY IN THE

ate sector funby the sudde

oss of confidee fiscal defie that investorsing fiscal ded. Were the

ment, it might ors lose confi

the aggregatthe ECCU m

acy criterion, beign exchangus to the posst market ratesfidence, even

m foreign reser to that facinerspective theasily financal bank or md to provide fer, no methody determined, scal deficit-tond ECCU havegions this lim

Bank (ECB)union may re

E SMALL OPE

nding being ten stop, to ot

ence by inveicit and the rs have becomeficits. In eitcentral bankbe financing

idence in the

te fiscal stratmay be assebecause the u

ge constraint.sibility that ps to countriesthough there

erve thresholdng the Europehe deficits ofced, but prmember govefinance or tradology existsalthough it i

o-GDP limit ve agreed is tmit is most of

) has shown elieve the fina

EN ECONOM

P a g e  |  

transferred frthers within

estors may beneed for n

me alarmed bther case, fisk to buy boncapital flight

e stability of

tegy of a smessed using union as a wh However, trivate financi in whose fis

e is no dangerd for the uni

ean Union. Frf small membrivate financernments of ansfers beyons by which ts now clear tto which b

too restrictiveften observed

how the centancial constra

MY

 29 

rom the

e a new by a scal nds t, to the

mall the

hole this iers scal r of ion. rom

mber cial the

nd a that that

both e to d in

tral aint

FI

30 |  P a

on an indcommercifor fiscal small verfinancial impact ofof the unifiscal adjuwould be market pr

Debt mark

The relatinfluencedmeasure differenceinflation. profitablythe funds year. Whrate will the real rawhich thebias towafunding fois severely

Countriesoften finaccounts induced exchange towards tfinance f

SCAL SUSTA

g e

ividual goverial banks, coconsolidation

ry open econaccommodat

f this money cion. The accoustment to blimited so tha

ressure for the

ket structures

tionship betwd by the effiof market e

e between thA high real r

y for the long in ways that yat is more, afind themselvate decrease ae funds are inrds short term

for fixed capity inhibited.

s that experiend themselvehave stabiliseinflation hasrate crisis the

the short endfor fixed inv

AINABILITY

rnment by offonditional on n. In the case nomies like tion would becreation on thommodation we implementeat it does not e union as a w

s and econom

ween fiscal piciency of theefficiency is he nominal inrate of interesterm: the boryield very hig

anyone who bves at a comat any time dunvested. In thm funding emtal formation

ence deep deves in this sied after the ds subsided. e financial m

d of the markvestment drie

Y AND DEBT

fering financethe achievemof central ba

the OECS, ae guided by he foreign exwould be to bed and to takcreate unsust

whole.

mic growth

policy, debt e financial m

the real innterest rate at makes it difrrower wouldgh nominal reborrows at to

mpetitive disaduring the life hese circums

merges, and thn and employm

valuation of ituation, onc

devaluation, aDuring the

markets restrucket: the suppes up, and f

IN SOEs

e, directly or ments of targnk of a union

a limit for suthe prospect

xchange reservbuy time for ke effect, andtainable exter

and growthmarket. A usenterest rate, and the rate fficult to borr

d need to empeturns, year afoday’s high rdvantage shoof the projecttances, a stro

he availabilityment generat

their currencce the exterand devaluatio

period of cture themselvly of long te

funds reposit

via gets n of uch tive ves the d it rnal

h is eful the of

row ploy fter real

ould t in ong y of tion

cies rnal on-the ves erm tion

FISCAL

themselveavailable redress threturns toexchange

It is unlikshort termreal ratesprojects thMoreoverdevaluatioinvests foshort horistuck in ageneratingare no forpath of lo

However,which maincentive attained bcloser to tachieve acontractioHowever,cost of sehigh intetowards tattempts tbring the tight fiscabsorbed that starve

L SUSTAINABI

es to take aat short term

his bias towo the externrate is contai

kely that the m of its own of return ohat are compar, there is theon, an additioor the long teizon offers. Inpath of insuf

g projects. Thrces which drw potential g

, there existsay be stimul

system towby reducing tthe social opta reduction on, supporte, that strategyervicing the erest cost. Bthe short terto reduce therate down p

cal policy. Tmore than haed the country

ILITY IN THE

advantage ofm. However,

wards short-tnal accountsined, and infla

market will accord, becan long term arable to the e ever-presenonal source oferm, thereby n these circumfficient supplyhis is an equrive the econorowth.

s an alternatlated by a reards the lonthe real rate timum. For min the real

ed by convy was repeatgovernment

Because of thrm and unce rate througast a relativeThat in turnalf of all govey of long term

E SMALL OPE

f the high n, there is noterm finances, the depreation rates co

correct this bause it is diff

investment short term re

nt danger of f uncertainty losing the f

mstances the y of finance fuilibrium pathomy away fro

tive path of estructuring ong term. Tha

of interest tomany years, Ja

interest rateventional mtedly frustratdebt, largely he establisheertainty abou

gh monetary ely high thresn meant thaternment reven

m investment

EN ECONOM

P a g e  |  

nominal retuo mechanism , once balaneciation of me down.

bias towards ficult to achiein fixed cap

eal interest rata new roundfor anyone w

flexibility thacountry may

for employmeh, because thom it, but it i

higher growof the financat path may o a level thatamaica sought

through fismonetary tooted by the h

because of ed market but future ratpolicy failed

shold, even wt interest conues, a situatfinancing.

MY

 31 

urns m to

nce the

the eve

pital tes.

d of who at a y be ent-here is a

wth, cial be

t is t to scal ols.

high the

bias tes,

d to with osts tion

FI

32 |  P a

The two Jamaican interest eequilibriuimminencother eveservice itsustainablalteration,drive it optimal, blong termstrategy ibe continuby which might be to correctformation

Structural

Other reachange threduce theven in clow, by ifiscal deftaxation, believe thinform puare too ngenerally political awith respvariety o

SCAL SUSTA

g e

Jamaica debfinancial m

equilibrium, tum. The moce of a financnt that wouldts debt obligle, in the sen, it would nooff-course. Hbecause it inh

m stagnation os sustainable ued. Fiscal suthe fiscal strto reduce exct a bias aga

n.

l issues of the

asons to makhe scope and/ohe size of govircumstancesinternational ficits and coin circumsta

hat it is alreublic perceptinumerous and

applicable gand psycholo

pect to the chof services

AINABILITY

t exchanges markets fromto a higher otive for thcial or balancd render it imgations in funse that, wereot trigger anyHowever, thhibited investof economic o

does not necustainability irategy shouldcessively hig

ainst long ter

e medium term

ke changes inor efficiency overnment. Th where fiscalcomparison.

ontain debt mances when eady too higion of the appd complex toguidelines. T

ogical featurehoice of pubsuch as ele

Y AND DEBT

were designm a low-gro

growth, lowe exchanges

ce of paymenmpossible forull. The fiscae it to be co

y market reace strategy wtment and cooutput. The fcessarily meais only one of

d be judged. Agh real interesrm funding o

m fiscal strate

n fiscal strateof governmenhese motivesl deficits andMoreover, emay add to the electorat

ghly taxed. Tpropriate sizeo admit of e

These factors s of the soci

blic or privatectricity, tran

IN SOEs

ed to move owth, high-rewer-interest ras was not nts crisis, or ar governmental strategy wntinued with

ction that wowas clearly ontributed to fact that a fisan that it shof several criteA second reasst rates, in orof fixed cap

egy

egy might bent services, or may be stro

d debt levels fforts to reduthe burden

te has come The factors te of governmeasy analysis

include socety; preferente delivery onsportation a

the eal-ate-the any t to was hout ould

not the

scal ould eria son rder pital

e to r to ong are uce

of to

that ment

or cial, nces of a and

FISCAL

sanitationlevels of Perhaps taccepted currently which pubeverywheat the sama much hi

Summary

Our studymanagemobjective fully servmeasure elarge elemIn additioassess thesubjectiveA tool wthe abilitwillingnesoverall ris

L SUSTAINABI

n; cultural traefficiency i

the only genthroughout tget value forblic services

ere should aimme time deliveigher quality.

y provides finment of sovere

way, the provice its debtexists. The b

ment of indivion to the abile borrower's we matter, abou

which allows ty to pay, ss to pay, grsk.

ILITY IN THE

aditions and in the deliveneralisation wthe Caribbear money, in are delivered

m to reduce tering addition

nancial markeign risk of SO

obability that t obligations.est of the avidual judgmenlity to pay, fiwillingness tout which no gfinancial marthe more t

reatly facilita

E SMALL OPE

history; andery of governwhich wouldan is that taxterms of the

d. Over time, the burden ofnal services an

ets with a toOEs, one thatthe governm

. At the movailable indicant, and is theinancial lende pay, but thatgeneralisationrkets to distitractable eleates the bette

EN ECONOM

P a g e  |  

d the perceivnment servic

d be universaxpayers do efficiency wfiscal strateg

f taxation, whnd/or services

ol for improvt measures, in

ment is unableoment, no suators involve

erefore not ideers also needt is an inherenns can be mainguish betweement, and r assessment

MY

 33 

ved ces. ally not

with gies hile s of

ved n an e to uch es a eal.

d to ntly ade. een the

t of

FI

34 |  P a

Box. Gre

A recent countries,economic55-56 perto negativon growthsustainabithe optimdrawn froany level.

The resulstudy are explain hoa maximuTo the na200 per cfurther exlarge and all the reand exchestimation

                   1 GreenidgDrakes, “TCaribbean,

SCAL SUSTA

g e

enidge et al.,

IMF workin, “as debt ric growth dimrcent of GDPve. Thus, beyh.” The title ility of fiscal

mal level of deom the results

lts raise a nuplotted in theow they are aum value debaked eye, no pcent. Other q

xploration incdiverse enoulevant variab

hange rate ren.

                      ge, Kevin, RolaThreshold Effe,” IMF Workin

AINABILITY

, 2012

ng paper 1 coses beyond

minish rapidly, the growth iyond this thre

of the paperpolicy or deb

ebt. It followsof this study

umber of quee figure belowable to conclut at 55-56 pepattern is discqualifications

clude whethergh to yield re

bles (for examegimes) were

                   and Craigwell, ects of Sovereigng Paper No. 1

Y AND DEBT

oncludes that,30 per cent, and at debt impacts switceshold, debt br makes no rbt levels. It iss that no concabout the risk

stions. The rw. The paper’de from this dr cent on the

cernible for ds to the resur the sample oeliable estimatmple, exchane taken into

Chrystol Thomgn Debt: Evide12/157, June 20

IN SOEs

, for Caribbe the effects levels reach

ch from positbecomes a dreference to

s concerned wclusions maykiness of deb

raw data for s authors do data that therehorizontal ax

debt ratios belults that deseof countries wtes, and whetge rate changaccount in

mas and Lisa ence from the 012.

ean on

hing tive

drag the

with y be bt at

the not e is xis. low erve was ther ges the

FISCAL

Box (cont

L SUSTAINABI

tinued)

ILITY IN THE

E SMALL OPEEN ECONOM

P a g e  |  

MY

 35 

FI

36 |  P a

SCAL SUSTA

g e

AINABILITYY AND DEBT IN SOEs

A Rev

IntroductIn this sesustainabiempirical the theorevarious fexaminedliterature sustainabiCaribbean

TheoreticSustainab

Theoretic

The termsappear in inconsisteestablishesustainablfinanced expenditumonetizatproblems.economic

REVIEW

view of the

tion ection, the maility is revieliterature as

etical literaturframeworks td. In the em

that usesility is undertn studies on fi

cal and Empbility

al Literature

s “sustainabilthe literature

ently from ones two conditile: (i) the gwithout larg

ure or withtion; and (ii) . The IMF’s g

cally, socially

W OF THE LI

Chapter

e LiteratureSustainabi

ain literature ewed. First, sociated withre, the concepthat have em

mpirical literaeconometr

taken. Finallyfiscal and debt

pirical Litera

lity”, “solvence are used in mne study to ions such thatgovernment’s

ge future adjhout resortin

external shoguidance was, and politica

ITERATURE

r 2

e on Debt aility

regarding dethe main th

h the topic ispt of sustainamerged to eature, an anric models y, a review ot sustainabilit

ature on Deb

cy” and “liqumany differenanother. The

t fiscal policys budget canjustments in ng to defaocks do not s that fiscal aally feasible. H

P a g e  |   37

and Fiscal

ebt and fiscaheoretical ands explored. Inability and theexplain it arealysis of the

to explainof the relevanty is provided

bt and Fisca

uidity” as theynt senses, ande IMF (2002y is consideredn be readilyrevenue and

ault or debresult in debdjustments beHowever, thi

7 

al d n e e e n

nt d.

al

y d

2) d y d

bt bt e is

FIS

38 |  P a

involves jobjectivelpolicy as maintaineensuring its initial between sstatic sustcan be sustainabinot causeargues thacurrent ancurrent anEconomicencounterthe functibe an und

The variediversity definitionvariables The frammay lead different fiscal limModel-Baconstraintapproach solvency. analyzed

The IBC(PVBC) a

CAL SUSTA

g e

judgments ably. Blanchard

one in whiced without a that the debtlevel. Adam

static and dyntainability refeasily finan

ility refers toe a long-termat the presentnd future expnd future inc Research (2r temporary foning of finan

derlying liquid

ety of definitiof theoreti

ns, and possirelevant to theworks may to different capproaches

mits and debt ased Sustainat (IBC) and

is widely The strength

and are comp

, also calledapproach, foc

INABILITY A

bout things wd et al. (1990)ch tax and expersistent inc

t-to-GDP ratis, Ferrarini anamic sustainfers to the situnced between

the situationm explosion t discounted

penditures shocome, net of2010) maintafunding problncial marketsdity problem.

ions for fiscacal framewoible inter-relhe determinatnot be consi

conclusions. Sfor analyzingceilings, (ii)

ability, (iv)(v) generatio

used whenhs and weaknpared in what

d the presentcuses on equ

AND DEBT IN

which cannot ) define a sustxpenditure pocrease in pubio eventually and Pak (201nability. Theyuation in whin periods a

n in which theof debt. Wyvalue of the ould not be gf the initial

ains that Govlems due to as even where

al sustainabilorks providiations betwetion of fiscal stent with eaSarvi (2011) g fiscal sust) summary inthe inter-temonal accountin assessing esses of eachfollows.

t value budguality betwee

N SOEs

be measuredtainable fiscaolicies can beblic debt, thu

converges to0) distinguishy explain thaich the budgeand dynamice budget doeypolsz (2007government’

greater that itdebt. Natixi

vernment mayan anomaly inthere may no

lity leads to ang concepts

een economicsustainability

ach other, andexamines fivetainability: (indicators, (iii

mporal budgeing. The IBC

governmenh approach are

get constrainen the presen

d al e

us o h at et c

es 7) s

ts is y n

ot

a s, c

y. d e i) i) et C nt e

nt nt

value of tnet debt. Brestrictivedebt-to-Gimposed models, aobserved.flexible, slarge defisurpluses credibilityconsidereis non-incfiscal susratio to a The condrate greate

Recently, estimate tdetermineapproach past fiscalthe maxiaccommoof a counfuture levpolicy spalimit by economy Laffer cufiscal spahas in its examiningFiscal spa

REVIEW

he flow of prBagnai (2004e, because it

GDP ratio. Heon debtors

and therefore Roubini (20since accordiicits for a len

in the long y. He sugged sustainable creasing. Anostainability is

finite value,ition requireser than the gr

some innovathe public dee the fiscal

estimates thl policy. Bi (imum level date with fis

ntry and comvels of debt giace a governconstructing in which f

urves. Ostry eace, based on

spending chg the historicace is defined

W OF THE LI

rimary balanc4) argues that allows for exe argues thain defined iunsustainabl01) argues th

ing to it, a gngthy period

run, which ests instead t

as long as thother commos the converg also called

s that eventuaowth rate of t

ative approachebt ceiling folimit for a e debt ceilin2011) defines

of debt thcal policy. D

mparing it to ive an indicat

nment has. Bian infinite-h

fiscal limits et al. (2010)the degree o

oices. This flal record of td as the diffe

ITERATURE

ces and the prthe IBC is n

xplosive trajeat the IBC isinter-temporae debt paths

hat the IBC covernment coas long as it would affec

that governmhe public debton and simplegence of the the boundednally, debt canthe economy

hes have beenor a country.country, and

ng for a couns fiscal spacehat the gov

Determining ththe present tion as to howi attempts to

horizon modearise endoge introduce th

of flexibility flexibility is dthe country’serence betwee

P a g e  |   39

resent stock oot sufficiently

ectories of thes a constrainal equilibrium

will never becriterion is tooould run veryruns primary

t governmenment debt bet-to-GDP ratioe criterion fo

debt-to-GDPness criterion

nnot grow at a

n developed to. One tries tod the secondntry based one, which givevernment canhe fiscal limiand projectedw much fisca

estimate thiel of a closedenously fromhe concept oa governmen

determined by fiscal policyen the curren

9 

of y e

nt m e o y y

nt e o

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o o d n s n it d al s d

m of nt y y. nt

FIS

40 |  P a

level of country’s

Summaryanalyze sufrom the bdebt as a primary bindicator, gap, and tdescribes specific tiachieved condition dividing thorizon taadjustmensatisfy thehorizon. TThe finanbalances measuringrelative toprimary balance thorizon su

A perennsustainabiindicatorsterm predto the pa2010). Admodified,nothing e

CAL SUSTA

g e

public debt historical rec

y indicators arustainability ibudget constrfunction of inbalances. Thethe infinite h

the primary gthe evolutio

ime horizon at the end for adjustme

the burden eqax gap indicnt to the prime inter-tempoThis indicatorncing gap takand compareg the adjustmo output. Thebalances, an

that would sustainability c

nial issue ility is whets. Infinite hodictions but fiarticular debtdditionally, t causing chan

else changes.

INABILITY A

and the decord of fiscal

re perhaps thein practice. Traint, which dnterest rates, ey include thhorizon tax g

gap. The finiteon of net deand a debt toof the timent to primary

qually betweecator measuremary balance-oral budget cor is used by t

kes the flow oes it with thement requiree primary gapnd determinesatisfy the rconditions.

with summather to use rizon indicat

inite horizon t target that the time horinges in the vOther issues

AND DEBT IN

ebt limit imadjustments.

e most utilizehese indicato

determines thethe growth rahe finite hor

gap indicator, e horizon tax ebt per outpuo output targ horizon. Th

y balance relaten generationses the perma-to-output ratonstraint in anthe European of predicted f

current leved in present

ap assumes coes the consrequired infin

ary indicatoinfinite or f

tors require eanalyses are is establishezon has to b

value of the ins with summa

N SOEs

mplied by the

ed approach toors are derivede evolution oate, and futurerizon tax gapthe financinggap indicato

ut, defining aget level to behis gives thetive to outputs. The infinite

anent constanio required ton infinite timeCommission

future primaryel of net debtt value termonstant futurestant primarynite or finite

ors of fiscafinite horizonextreme longvery sensitive

ed (Andersenbe continuallyndicator whenary indicator

e

o d

of e p g r a e e t, e

nt o e

n. y t,

ms e y e

al n

g-e

n, y n rs

are that tvariables,interest raconsider ureports thGiammaripresent to

Bohn (20(MBS) ccredit agethe long includes The MBSrates of fusurpluses

Generatio1991, assamong gefuture gendisaggreggenerationdeterminepayments net paymsimilar toaccount fo

Wright anratio as oreduce prisocial wedebt mustwould ev

REVIEW

they do not such as the ates. Additionuncertainty inherefore incluioli et al. (20

o account for u

005) introducriterion. He ents, a governrun, and coma stochastic

S criterion diuture surpluseacross the sta

onal accountinsumes that thenerations. If nerations the

gates the surpns and the ed through

to be made bments to be m

o the summor uncertainty

nd Grenade (one that maxivate investmlfare is also mt also be sus

ventually decr

W OF THE LI

account for interactions bnally, these inn their estimude scenario

007) extend suncertainty.

uces the Massumes in

nment that domplete financdiscount fac

iffers from thes depend on ates of nature

ng, first introdhe fiscal bur

f most of the policy is un

plus of contrisustainabilit

a comparisoby the new gmade by futu

mary indicatory and interacti

(2013) defineximizes economent nor incre

maximized. Itainable, otherease the cou

ITERATURE

interactions between the dndicators do ations. Most

and sensitivome of the in

odel-Based nfinitely-livines not run ne

cial markets. tor for contihe IBC sincethe distributi.

duced by Auerden is distrifiscal burden

nsustainable. ibutions madety of publicon of the pgeneration to ure generatiors, the methions between

e an optimal omic growth ase credit cosIn order to beerwise that puntry´s GDP

P a g e  |   41

between thedebt level andnot explicitlysustainability

vity analysesndicators they

Sustainabilityng optimizingegative debt in

He explicitlyingent claimse the discounion of primary

erbach et al. inibuted evenlyn is shifted toThe approache by differenc finances iprojected nethe calculatedns. However

hod does nothe variables

debt-to-GDPbut does no

sts. Thereforee optimal, the

persistent deb growth rate

1 

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y g n y s. nt y

n y o h

nt is et d r, ot s.

P ot e, e

bt e.

FIS

42 |  P a

However,optimal. maximizinwelfare, iratio may

Empirical

Time Seri

Various investigatbeen pro(2012) exand deficiHe definedebt-to-Gin other wto zero. Regressivtest fiscalFuller, anassess whThe resultsince the troot procexpected zero. Thethe increarate, budg

Mahmoodexamine 1971-201time serie

CAL SUSTA

g e

, a sustainabA debt mayng the counimplying thatbe optimal.

l Literature

ies Models

theoretical tions includinoposed to texamines long-its of Sri Lanes fiscally su

GDP ratio to evwords, the disThe debt ser

ve Integrated Ml sustainabili

nd the Phillip hether the dets indicate thatests indicateess, which indiscounted va study determ

ase in net debget deficit and

d and Raoudebt sustain1. They use t

es tests: unit r

INABILITY A

ble debt-to-Gy be sustainntry’s econot either a hig

frameworng unit root anst fiscal susrun fiscal sus

nka using thestainable polventually conscounted valuries is modeMoving Averty, Dickey FPerron unit

ebt series follat current fisca non-station

ndicate that alue of future

mined that thebt in 1950-20d political inst

f (2012) usability in Pathe theoreticaroot tests for

AND DEBT IN

GDP ratio able, but it omic growthgher or lower

rks and nd co-integratstainability. stainability of

theoretical Iicy as one th

nverge to its inue of future deled as a storage (ARIMAFuller, Augmroot tests arelows a statiocal policy is unary process rwith current

e debt does noe main factor010 were thetability.

e a similar akistan durinal PVBC appr

the discount

N SOEs

need not bemay not be

h and sociar debt-to-GDP

econometriction tests haveDeyshappriya

f both the debBC approachhat causes thenitial level, oebt convergeochastic AutoA) process. To

mented Dickeye employed toonary processunsustainablereflecting unit policies, theot converge tors to influence GDP growth

approach tong the periodroach and twoed debt serie

e e

al P

c e a

bt h. e

or s o o y o s. e, it e o e h

o d o s

(exactly lbetween where theBoth testsAugmentepresence hypothesizero. Thenco-integrastructural consistentunsustaina

Bohn (200by GDP fcredible edeficit-GDbe stationsince therto fluctuat

One of thmethodoloThey carrdiscountethe data ffind that i

A limitatiare retrospcan be suwill affecthresholds

REVIEW

like Deyshappthe governm

e presence os are carried oed Dickey Fuof a unit rootis and implyinn tests are emation vector b

breaks, whit in the senseable in Pakist

05) applies ufor the periodevidence of DP ratios. Thnary. He findre is a robust tions in the de

he first attempogy was carriried out Dickd public debtfor the U.S. dit does hold.

ion with thesepective; they

ustained, but ct the debt s.

W OF THE LI

priya), but alment expendiof co-integratout in the preuller and Philt, therefore alng that public

mployed to debetween expeich was alsoe that they imtan during tha

nit root testsd 1972 to 200

unit root tehat is, all defids evidence i

positive respebt-to-GDP r

pts to test susied out by Haey-Fuller unit to determineduring the pe

e econometrictell us whethnot how shostock, and t

ITERATURE

lso use co-intiture and retion implies esence of strullips Perron tlso rejecting c debt does noetermine the senditure and ro rejected. Bmply that fiscat period.

for real varia03 in the U.S.sts in the dcit measures in favour of ponse of primatio.

stainability wamilton and Fit root tests toe whether theeriod 1960-19

c solvency tesher the historicks to impor

they do not

P a g e  |   43

tegration testvenue seriessustainability

uctural breaksests reject thethe stationary

ot converge tostability of therevenue unde

Both tests arecal policy wa

ables unscaled, and finds no

debt-GDP andare proven tosustainability

mary surpluse

with the PVBCFlavin (1986)o the series oe IBC holds in984, and they

sts is that theyical fiscal datartant variableprovide deb

3 

ts s, y. s. e y o e

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bt

FIS

44 |  P a

Marini antests can governmeand tax gprovide intests relylooking. Iprovide thindicatorsadvocate determinethat fiscalfound, bereflecting

Other moways thatechniqueand Rogosimple deand Rogowith bivaspecify anneoclassicnonfinancal. (2012relationshIBC to cowhich is equation. not alwaybetween tcountry idevelopedless devel

CAL SUSTA

g e

nd Piergallini be integrated

ent solvency gap indicatornformation o

y on historicIndicators anhe same resuls may signal testing for s

e a break in l indicators secause othercurrent cycli

odels try to eat include eses, and even off (2010) imescriptive statoff data set toariate threshnd estimate a cal growth mcial debt to as2) combine hip between onstruct a “basubsequently A limitation

ys explicitly cthese countriincome for ad financial mloped, and th

INABILITY A

(2007) propod to provide issues. Indicas, are in a s

on current ancal data andd tests reinfolts. In the case

a change instructural brethe fiscal pohould be accwise the indical factors.

estimate debt stimated grosimple desc

mposed a 90 tistics. Égert o endogenou

hold models. growth equat

model but adssess their imtheory stemdebt and gro

ad” and “goodused to specof some of thonsider the dies. Debt threa variety of

markets, their hey have diffe

AND DEBT IN

ose that both iadditional in

ators, such asense forwardd future con

d are therefoorce each othe of conflictin

n the policy eaks via the olicy regime, cepted only ifdicators coul

thresholds inowth equatiocriptive statis

per cent thr(2013) used

sly identify tCecchetti e

tion, derived dding variousmpact on growmming from owth of the d” equilibriumcify and estimhese studies iifferences of esholds vary

f reasons: thinstitutions a

erent degrees

N SOEs

indicators andnformation onas the primaryd-looking andditions, whileore backwardher when theyng results, theregime. TheyChow test toand establish

f this break ild simply be

n a variety oons, thresholdtics. Reinharreshold using

d the Reinharthe thresholdet al. (2011from Solow’

s measures owth. Padoan e

the negativegovernment’m frameworkmate a growthis that they doincome levelaccording to

hey have lesare frequentlys of openness

d n y d e d y e y o h is e

of d rt g rt

ds ) s

of et e s

k, h o ls o s y s.

Caner et regressiondebt-to-Gcountries,such as differentia

Multiple E

Multiple variables several reassumptio

Tanner anpolicy uncontrast tsustainabidata) wiprospectivwith Monretrospect

García anBrazil froaccumulatvariables,of GDP, pand the inthe correimplemendetermine75 per cenin the absunsustaina

REVIEW

al. (2010) n model to e

GDP ratios , taking into

initial GDPate between th

Equation Mod

equation modare determin

elationships, ons and each o

nd Samake (2nder uncertainto other stuility both retith the Vevely (what pnte Carlo Simutive approach

nd Rigobon (om a risk mantion equation such as the primary deficnflation rate. Telation patternt Monte Care that the debnt. They also sence of riskable.

W OF THE LI

consider thestimate the of 101 devaccount init

P, inflation, hem.

dels

dels are thosned by the sior equations,one can be co

008) examinenty in Brazil

udies, they mtrospectively ctor Autore

policies shoululations, whe

h.

(2004) assessnagement pern that inclustochastic reacit, debt shocThey proposern of macro rlo Simulatiot-to-GDP ratifind that eve

k, there are p

ITERATURE

his and use long term avveloped andtial country c

and trade

se in which timultaneous , which obeyorrectly estim

e the sustainabl, Mexico, anmake an eff

(based on egression apld be implemen most emph

the debt susrspective. Th

udes stochastal interest ratecks, the real ee a VAR mod

variables aons, which aio exceeds then if the debt aths in which

P a g e  |   45

a thresholdverage publicd developingcharacteristicopenness to

the dependeninteraction o

y the classicaated by OLS.

bility of fiscand Turkey. Infort to assesthe historica

pproach, andmented todayhasize only the

stainability ohey use a debtic correlatede, growth rateexchange ratedel to estimateand use it toallow them toe threshold ois sustainableh it is clearly

5 

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al n s

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of e y

FIS

46 |  P a

Other stuRamón (2(1990). Tnecessaryassume fuhistorical variables without csimple veaccount exchange the historpolicy, thcertain shMonte Csustainabirise above

Dynamic

This sectithat use gtheoreticaestimates,The DSGeconomicdetailed m

Veld et asustainabiDSGE mratios, sovand tax bathe comp

CAL SUSTA

g e

dies that use 2003), Talvi These authorsy to ensure ull knowledgedata. That is,can be pro

considering tector autoregindustrial prrate, and the

rical decomphat is, whethehocks had notCarlo Simulaility, by detee their current

Stochastic Ge

ion analyzes general equilially accurate, since they m

GE allows onc variables. Tmodels of econ

al. (2012) proility assessm

model, which vereign spreaases, and therposition of G

INABILITY A

these approaand Vegh (2s have estim

fiscal sustae of certain k, they assumeojected utilizthe possibilitgression (VAroduction, pre real interestositions of ter or not thet occurred. Foations are eermining the t levels for a c

eneral Equilib

studies of pubrium model

e way to model the econe to capturehe level of enomies is trem

opose a framment for Spai

accounts forads and fiscarefore captureGDP during

AND DEBT IN

aches are Cro2000) and Blamated the priainability. Hokey variablese that the futuzing only hity of extern

AR) model thrimary surpl

t rate, is emplthe sustainab debt would

or the prospecemployed to

probability tcertain period

brium Models

ublic finance ls. Using thes

implement onomic struc

e interactionseffort needed mendous.

mework for soin based on r feedback efal policies ones the impact fiscal conso

N SOEs

oce and Juananchard et alimary surpluowever, they based on the

ure path of keyistorical dataal shocks. A

hat takes intolus, the realoyed to yieldility of fiscahave risen i

ctive analysisassess deb

that debt wild of time.

s (DSGE)

sustainabilityse models is asustainability

cture in details between the

to build such

overeign deban estimated

ffects of debn growth rate

of changes inolidation. The

n-l.

us y e y a, A o al d al if s, bt ll

y a y l. e h

bt d

bt s n e

model is 2011, usparameterHastings Parameteraggregaterebalancinestimates,variables projectionfiscal conterm costhigher int

Sakuragawsustainabiintermedimodel wenvironmthey are aand GDP interest rafind that average rpresence GDP ratiosustainabl

Furceri anpolicy on a DSGE rates. Thitrade-offsinterest rain interes

REVIEW

estimated onsing Bayesirs and shock

chains to rs are calib

es for the ng scenarios , in order tfrom 2012 o

ns can negatinsolidation efs in terms ofterest rates.

wa and Hoility of Japanation costs. Sith financial ent. With the

able to explaingrowth rates

ate and hencewhen the reareal interest of significan

o gradually inle, the primar

nd MourougaGDP and debFiscal Mode

s study fills a between ec

ates when evast rates may

W OF THE LI

n quarterly daan inferencks. They thestimate th

rated to maperiod 1995is undertak

o produce ponwards. It isively impact fforts to reduf growth, but

osono (2010n with a DSGSpecifically, t

intermediatie introduction the relations, since interm the return of

al GDP growtrate becom

nt intermediatncreases to bery surplus mu

ane (2009) anbt sustainabilel with endoa gap in the lconomic actialuating fiscay crowd ou

ITERATURE

ata for the pee methods

hen run fourhe posterior atch the ma5-1999. An ken based oprojections fs shown that

debt projectuce debt mayt would avoid

0) investigatGE model thathey extend Bion costs to n of interme

nship betweenmediation cosf a governmenth rate is 2.5

mes 2.57 per tion costs andecome unsustast be 0.2 per c

nalyze the effity in the Eur

ogenous goveliterature by eivity and thel policy, sinc

ut public inv

P a g e  |   47

eriod 1995 toto estimate

r Metropolisdistribution

ain economicanalysis o

on the modefor all modelower growthions, but thay have shortd the costs o

te the fiscaat incorporateBohn’s (1999

a stochasticediation costsn interest ratests reduce thent bond. They

5 per cent, thecent in the

d the debt-toainable. To becent of GDP.

ffects of fiscaro Zone, usingernment bondexamining thee increase in

ce the increasevestment and

7 

o e

s-n. c

of el el h at t-of

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o-e

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FIS

48 |  P a

consumptone of thegovernmepolicy. Thterm outp

Three othEwijk et Moraga aapplied generationpublic ficonstructiof public they find long run, significanAndersen computabto study Denmark.to an unpolicies. expendituaround 2sustainabimodel witformationeffect onendogenoEuropean change istheoreticathe impac

CAL SUSTA

g e

tion and leade key featureent debt is exhe simulationut, without af

her useful stual. (2006) an

and Vidal (20general equ

ns of househfinance sustaing a baselinefinances undthat Dutch pudue primaril

nt increases inand Pederse

ble general eqthe long-ru

. They calculachanged poliThey show t

ure increases 020. Moragaility in a geneth endogenou

n. Interest ratn long-run

ously in the mUnion data

not sustainabal specificatioct of various s

INABILITY A

d to unsustaines of their moxplicitly modens show that ffecting long-

udies that havnd Andersen 004). Van Ewuilibrium m

holds to studyainability ine projection tder current poublic financely to populatn pension anden (2006) usuilibrium ove

un sustainabate sustainabiicy scenario that in the unfaster than r

a and Vidal eral equilibriuus growth reste and growt

sustainabilitmodel. They a. They shoble unless fis

on of the econshocks and of

AND DEBT IN

nable debt leodel is that ineled as a funcfiscal policy

-term debt sus

ve applied theand Pedersen

wijk et al. usemodel with y ageing andn The Neththat forecasts olicies from 2s are not susttion ageing wd health care se a large serlapping genility of fiscility indicator

which reprenchanged porevenues, ex(2004) inve

um overlappisulting from hth rates havety and arecalibrate the

ow that the scal policies nomy allows f fiscal rules.

N SOEs

evels. In factnterest rate onction of fiscaboosts short

stainability.

e DSGE. Vann (2006), and

e a large scaleoverlapping

d its effect onherlands. Bythe evolution

2006 onwardstainable in the

which leads toexpenditurescale dynamic

neration modecal policy inrs with respecesents currenolicy scenarioceeding themestigate fiscaing generationhuman capita a significan

e determinedmodel to thedemographic

change. Theithem to study

t, n al t-

n d e g n y n s, e o s. c

el n ct nt o, m al n al nt d e c ir y

Standard D

The threSustainabconstraintframewortotal publcurrent depolicy frstabilizingIt defines needed toscenarios debt is cowith prese

The frammacroecoand then scenario, debt pathsunder strevulnerabilassessed circumstadesigned, with accelow-incomimproves scrutiny identificatof macro-level of aggregate

REVIEW

DSA Analyti

ee main buility Analysit, forecasts, ark consists olic debt and ebt structure,ramework, ag policy pathspublic debt a

o at least stais economic

onsistent witherving healthy

mework estimnomic projecsensitivity

which provids. These debtess tests allowlity to a cri

in the coances. Theref

those for mess to intername countries.

DSA for through motion of risks a-fiscal risks, apublic debt,

es.

W OF THE LI

cal Approach

uilding blockis (DSA) arand stress scf the analysiof total exte

, vulnerabilitiand the imps in cases wheas sustainableabilize debt cally and polh an acceptay growth.

mates a basctions, intendanalyses are des a probabit paths under

w policymakerisis. Howeveontext of fore, two tymarket-accessational capita A Staff Gumarket accere realism

associated witanalysis of vu, and covera

ITERATURE

h

ks of the e the one p

cenarios (IMFis of the susernal debt. It ies in the str

pact of alterere difficultiee when the priunder baselinitically feasib

ably low roll

seline scenarded policies,

applied to ilistic upper bthe baseline rs to determiner, DSA resrelevant co

ypes of frams countries (al markets) aidance Note

ess countriesof baseline th the debt prulnerabilities age of fisca

P a g e  |   49

IMF’s Debperiod budgeF, 2002). Thestainability o

analyzes theructure of thernative debt

es can emergeimary balancene and stresble, such thaover risk and

rio based onassumptionsthis baseline

bound for thescenarios andne a country’ults must beuntry-specific

meworks were(i.e. countrieand those foin May 2013

s under highassumptions

rofile, analysirelated to the

al and public

9 

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FIS

50 |  P a

To increagrowth ashistorical boom whconsecutivin credit markets agrowth raacceptableestablishedeterioratinterest rathe interatests invoprofile indfinancing liquidity,

The revisliabilities,other entifollows ththat thesethrough cincome inThe DSAcountries’funding nthe framcircumstaconcessiodonors arefiscal sust

CAL SUSTA

g e

ase the realissumptions of

experience ohen the outpve years or wto GDP rati

and 30 per ceate that is not e. The mai

es are shoion, real Gates increase, actions betweolve the impadicators, such

needs to Grespectively.

sed framewo, such as expities. The DSAhe same gener countries ob

concessions. nclude DominA for low-in’ borrowing

needs so that tmework is ances. The frnal resourcee provided intainability.

INABILITY A

ism of the bf booming couof boom-busput gap has when the threio exceeds 1ent for advanabove this thn macro-fisc

ocks that GDP growth

real exchangeen these variact of these mh as the debt-t

GDP ratio, wh

rk also takesplicit or impliA frameworkral principles,

btain external Caribbean conica, Grenad

ncome countrdecisions in

they can serviapplied to

ramework atts that are p

n a way that is

AND DEBT IN

baseline assuuntries are cot cases. They

been positiee-year cumu15 per cent nced countrie

hreshold may cal risks thcause primrate reduct

ge rate overvaiables. Somemacro-fiscal to-GDP ratiohich reflect

s into accouicit guaranteek for low-inco, but also confinancial reso

ountries classda, Guyana, aries aims toa way that

ice their debt.the countr

tempts to enprovided by s consistent w

N SOEs

umptions, theompared to they define as aive for three

ulative changefor emerging

es. A positivebe considered

hat the Notemary balancetion, nominaaluations, and

e of the stresrisks on deband the grossolvency and

unt contingenes to banks oome countrie

nsiders the facources mostlysified as lowand St. Luciao guide thesematches thei. In each casery’s specific

nsure that thecreditors and

with long term

e e a e e g e d e e

al d s

bt s d

nt or s

ct y

w-a. e ir e, c e d

m

However,elaborate between tdefine rolhow long Additionathe metho

Within thIMF has cGrenada, their latesthe Grenatrajectory remains mcent by consolidadeterminebaseline ppresent vadebt servisurplus ofachieve thGDP ratiimprovemreverse thof 60 per remains mfiscal confacilitate baseline sthe mediudisasters occurs, wGDP in th

REVIEW

, the DSA doon what is po

the ability andllover risk, anthe historica

ally, no sensiodology itself

he Eastern Cacontinually cSt. Lucia, an

st assessmentadines (2011)

over the memoderate, wit

2021, due tion measur

es that Grenadprojections, talue of externice to exports f around two he ECCU beno to 60 per

ment in publihe upward deb

cent by 2020moderate, sinnsolidation aa stronger g

scenario indicum term, unoccur and as

which requireshe medium ter

W OF THE LI

oes have somolitically feasid willingness nd provides nl period shouitivity analysf.

aribbean Curarried out DSnd St. Vincets, they deter) public debtedium term th a public de

the authorires. For Grda’s debt distthat Grenadanal debt to GDratio. Grenadper cent of G

nchmark of recent by 202

ic spending mbt trajectory t0. For Guyannce authoritiand structuragrowth rate. cates that debtnless externassuming succs a primary rm.

ITERATURE

me weaknesseible, it does nto pay, does

no criteria fould be to prodis has been

rrency Union SA analyses fnt and the G

rmine that Stt remains on and external ebt-to-GDP raities’ adoptirenada (201tress risk is h

a exceeds theDP and to exda has to achi

GDP in the meeducing the p20. For Dommanagement to achieve thea (2011), debes are still al reforms, wFor St. Lucit will remain

al shocks successful fiscal surplus of 2.

P a g e  |   51

es. It does nonot distinguish

not explicitlyor establishingduce forecastsconducted on

(ECCU), thefor Dominica

Grenadines. In. Vincent anda sustainabledebt distres

atio of 52 peon of fisca0) the IMF

high under thee ratio of thexports, and theieve a primaryedium-term topublic debt-tominica (2012)

is needed toe ECCU targebt distress riskcommitted towhich wouldia (2010) thesustainable inch as naturaconsolidation0 per cent o

1 

ot h y g s. n

e a, n d e s

er al F e e e y o

o-), o et k o d e n al n

of

FIS

52 |  P a

Kawakamforecastinfiscal posecond-robalance isand otherestimated function simulate macroecoestimated simulateduncertaintare impor

Hadjenberto expliciprojectionresulting inaccuracyapplied tocountry-spspecificatof debt peconomicdelivers aanalysis.

Frank andmodel foMonte-Cadistributiodistributioobviate thdestabiliz

CAL SUSTA

g e

mi and Romeung algorithm licy in its f

ound effects s modeled asr fundamenta

to producecoefficients. economic s

nomic coeffVAR coeffic

d that linksty. The evidertant.

rg and Rometly consider p

n algorithm,from the voy of parameto Uruguay, bpecific fiscaion of the ec

projections, anc variables a more accu

d Ley (2009) or macroeconarlo simulation of shockson, which ahe need for ing balances

INABILITY A

u (2011) extefor Brazil t

forecasting pof fiscal p

s a function als, and a fe the distribSecond, a r

scenarios byficients withcients. Third,

the two ence suggests

eu (2010) extparameter est, which illolatility of dter estimates. by employingal reaction conometric mnd therefore and fiscal

urate debt fo

allow for strnomic variabions they ds instead of llows for as

a reaction when produ

AND DEBT IN

end a basic stto capture feprojections, c

policy. First, of past debt-

fiscal reactionbution of fiestricted VA

y combiningh the distrib, a debt motioblocks and

s that second-

tend the probtimation errolustrates thedebt determin

The revised g a restrictedfunction. Th

model reducesmore precisepolicy react

forecast and

ructural breakbles. Additiodraw from tf drawing frosymmetries. function by

ucing baselin

N SOEs

tochastic debeedback fromcapturing the

the primary-to-GPD ration function iiscal reaction

AR is used tog the laggedution of theon equation i

incorporate-round effect

babilistic DSAors in the debe uncertaintynants and theframework i

d VAR and ahe improveds the variancee estimates otion functionsustainability

ks in the VARonally, in thethe empiricaom a normaFinally, theyfocusing on

e projections

bt m e y o is n o d e is es ts

A bt y e is a d e

of n y

R e

al al y n s.

This speexamining

Focus Stu

Wright anratio for against themploys ordinary ldebt-to-GeconomicdetermineIt was deNevis haAntigua optimal ledebt negaregion aftweakness debt servare substaindividualcent for ause for po

Greenidgewhich is threshold CARICOM                  2 Includes ADominica, Lucia, St. VTobago.

REVIEW

cification seg debt and fis

udies for the

nd Grenade (2selected C

he actual raa debt-grow

least squares,GDP ratio abc growth, ane the optimal etermined thaave debt leveand Barbudaevel after the atively affectter a debt-to-G

of the studyice payments

antial. Additiol countries are

all the Caribbolicymakers.

e et al. (2012)modified to ieffects betw

M2 countries                       Antigua and BGrenada, Guy

Vincent and th

W OF THE LI

erves as a scal sustainab

Caribbean

2013) estimataribbean couatios through

wth model b a threshold

bove which nd a modifidebt levels fo

at Grenada, Jels above tha and Barbafinancial cris

ts economic GDP ratio ofy is that it ds, which in monally, since e estimated, t

bean countries

) use a threshinclude a dumween public from 1980 to                   

Barbuda, The Byana, Jamaica, he Grenadines,

ITERATURE

sensible refility.

te the optimaluntries, comh calibrationby using padebt model todebt negati

fied Blancharor the individJamaica, and he optimal, ados increasesis of 2008. Tgrowth for t

f 61 per cent does not explmany Caribbthe optimal d

the debt threshs may not be

hold least sqummy variable

debt and go 2010. They

ahamas, BarbaSt. Kitts and NSuriname, Trin

P a g e  |   53

ference when

l debt-to-GDPmparing thosen. The studyanel dynamico estimate theively impactrd model to

dual countriesSt. Kitts and

and those oed above theThey find thathe Caribbeanis reached. A

licitly includebean countriedebt levels fohold of 61 pe of that much

are regressione to study the

growth in they determine a

ados, Nevis, St. nidad and

3 

n

P e y c e ts o s. d

of e

at n A e s

or er h

n e e

at

FIS

54 |  P a

a threshonegativelydynamics below 30 more gropositive eper cent limitationapply to tnot be trexample, 55-56 peconclusioAdditionaare not spossible ewhen stud

The findincountries They finsignificanfind evidcent reducnegativelycrowding decreased

Grenade Barbados,public debend of 20scale of fThis was simplicity

CAL SUSTA

g e

ld debt-to-Gy affect econchange belowper cent, an

owth. Howevffects on growof GDP, it

n of this studthe average oue for any ithe threshold

er cent, so ns for indiv

ally, when chsignificant, aeffects of debdying the debt

ngs of Aceveare in line w

nd that debtntly constraineence that shoce growth, any impact gr

out, as god private inves

(2011) exa, Jamaica, anbt-to-GDP ra010. She buifiscal adjustmdone with the

y and manage

INABILITY A

DP of 55-56nomic growthw this threshoincrease in t

ver, at ratioswth rapidly daffects grow

dy is that the of the CARICindividual cod for Grenadit is not ea

vidual countrhanging debt/Gand the studbt servicing ant-growth relat

edo and Thacwith those oft increases ed economic ows debt-to-

nd debt-to-GDrowth. Theyovernment sstment.

amines the nd St. Kitts anatios that exclds on Sahay

ment requirede accounting eability, lend

AND DEBT IN

6 per cent, dh. However, told. At debt-tthe ratio is cos above 30 decrease, and wth in a neg

thresholds thCOM countrieountry of theda may be abasy to extrapies based onGDP threshol

dy does not nd total factotionship.

cker (2010) ff Greenidge in these cogrowth. Spe

GDP ratios aDP ratios abovy also find spending see

fiscal sustnd Nevis, all ceeded 100 py (2005) by d to achieve

approach, whds itself easily

N SOEs

debt increasethey find thato-GDP ratioorrelated withper cent, thebeyond 55-56ative way. Ahat are foundes, but it maye sample. Fobove or belowpolate policyn the resultslds the resultconsider the

or productivity

for the ECCUet al. (2012)

ountries havecifically, theyabove 30 peve 60 per cen

evidence oems to have

tainability oof which hader cent at theexploring thesustainabilityhich, given ity to use. The

s at s h e 6 A d y

or w y s. ts e y

U ). e y

er nt of e

of d e e

y. ts e

accountindebt-stabidebt-redufiscal sustbased on GDP ratassumptioconstruct main findrisk in theand Nevisneeded tothe accoundoes havecan grow role that policies. Sapproach,unrealisticestimate oprobabilisestimate fof achievprobabilit

Craigwellintegratiofiscal sustcontrast tintegratioAugmenteunit root tratios andseries areJohansen

REVIEW

ng approach uilizing primarcing primarytainability or each countr

tio at the ons of macroebaseline, opt

ding is that mese countries,s, and therefo

o put these conting approac

e some weaknat the rate ocreditors c

Second, in on, the primaryc medium teof the requirstic approachfuture sustainving a sustaty of success i

l, Wright, ann and primarytainability conto previous sn analysis wed Dickey Ftests are appl

d revenue to e stationary a

unrestricted

W OF THE LI

underpins the ry surplus ratiy surplus und

convergencery’s debt ratiend of 201economic aggtimistic, and

medium-term , but more so

fore large-scaountries on a ch is simple anesses. First, if GDP, therecan play in ne of the ind

y gap indicatoerm assumptired fiscal adjh can sometnability, sinceainable debt in fiscal adjus

nd Ramjeesiny gap indicatnditions for tstudies, this

with primary Fuller (ADF) lied to governGDP ratios, and have a d co-integra

ITERATURE

primary gap io under finit

der finite hore indicator. To and primar

10 and the gregates, whicpessimistic sfiscal sustain

o in Barbadosle fiscal adjusustainable p

and intuitivelyit is assumed

efore ignoringdetermining

dicators that uor, cyclical vons can easiustment. In times be moe it projects t

ratio and stment.

ngh (2009) ors to determhe period 199one complemgap indicatoand Phillips

nment expendwhich indicalong run tre

ation test w

P a g e  |   55

indicator, thete horizon, therizon, and the

The analysis iry balance to

medium-runch are used toscenarios. Thenability was as and St. Kittustments wereath. Althoughy appealing, ithat liabilitie

g the potentiag sustainableunderlines thevariations andily distort thethis regard, aore useful tothe likelihoodtherefore the

use both comine Jamaica’

99 to 2008. Inments the coors. First, thes-Perron (PPditure to GDPated that bothnd. Then thewas applied

5 

e e e is o n o e

at ts e h it s

al e e d e a o d e

o-s n

o-e

P) P h e

d,

FIS

56 |  P a

supplemenanalyze thintegratioGDP ratitowards adebt posisupport thprimary gGrenade sensitive projectionare retrospsustainablnecessarilremain onintegratiobe valid. sufficientlsample siz

Branch anstatic eqsustainablfiscal-to-Gbank finanto-GDP r2005, andcent of Gcompute tthe perioBlanchardthat Frasechange inreal intereto-GDP r

CAL SUSTA

g e

nted with thehe residuals fn, finding thaios are co-ina long term eqtion is sustaihis conclusio

gap indicator(2011) studyto cyclical

ns. Additionapective, they le during thely offer any gn a sustainabln tests freque

According ly robust, Joze of about 30

nd Adderley quations to le ratios for GDP ratio, tncing, the for

ratio, and thed the results in

GDP is necessthe sustainabod 1984-200d and Fischeer (1999) intrn central bankest rate, and thatio at that ti

INABILITY A

e Engle-Granfor unit rootsat both the re

ntegrated andquilibrium, ininable, and thon. The fact exposes it toy: the prima

variations, ally, the co-i

tell us that J period 1999

guidance as toe path in the ently require to Kennedy

ohansen co-in00, and this st

(2009) use thcompute boThe Bahama

they calibraterecasted nome inflation randicate that asary to achievle debt-to-GD

05 in the mer (1993) moroduced, usink financing ohe nominal Gime is sustain

AND DEBT IN

nger two-steps and possibleevenue and ed therefore trndicating that he primary g

that this st the same we

ary gap indiwhich can ntegration te

Jamaica’s fisc9 to 2008, buo whether fiscnear future. Mlong data se

y (2008), in ntegration tetudy uses 37

he calibrationoth the fiscas. To find the the variabl

minal growth rate for the pea primary defve fiscal sustDP ratio, theymodified ver

odel with theng the primarof Governmen

GDP, and findnable. A wea

N SOEs

p approach toe variable coexpenditure torend togethethe country’

gap indicatortudy uses theeakness of thecator is veryaffect future

ests employedcal policy wasut they do nocal policy wilMoreover, coets in order to

order to beests require aobservations.

n technique oncal and debhe sustainableles of centrarate, the debteriod 1985 toficit of 3.2 petainability. Toy use data forsion of the modificationry deficit, thent deficit, the

d that the debtakness of thi

o o-o

er s

rs e e y e d s

ot ll

o-o e a .

n bt e

al t-o

er o

or e n e e t-is

study is thow the Wheneverregarding be undertpast studintuitive nstudy: thejustified, parameter

Scott-Joseapproach She finddetermininprimary gargument signal thethey are governmeeconometAugmentetests, persupport mintegratioDominicathe GrenRamjeesinsustainabluses the pthe gap bindicator approach,Another w

REVIEW

that no sensitresults cha

r calibration the paramet

taken to justidies in whichnature. This e use of thesince the u

rs is not expla

eph (2008) for assessing

ds that theng fiscal su

gap indicatorsstems from

e timing and not complex

ents when tric approach,ed Dickey Furmits the utimacroeconomn and PVBC

a, Jamaica, Stnadines. Singh (2009), le only in Jamprimary gap ibetween the p

has been u, to estimateweakness is t

W OF THE LI

tivity analysisange when

is utilized, ers used, andify their valuh they are brings us to

e parameter use of certaiained.

aims to deteg debt sustai

e most suitustainability is and the eco

m the fact thasize of the adand thereforimplementin

, which consuller, Phillips-ilization of q

mic theory. Scapproaches t

t. Kitts and Nmilar to Cshe conclud

maica. A weakin a retrospecperiods of stuused with ae medium tthat by defin

ITERATURE

s is undertakvarying thethere is grea

d significant ues, frequentlyused and ju

o another weavalues is noin values w

ermine the minability in thtable methoin the Caribonometric appat primary gdjustment neere may be ung fiscal ists of unit r-Perron) and quantitative tcott-Joseph uto analyze suNevis and StCraigwell, Wdes that pubkness of this sctive approachudy. In anotha more forwterm fiscal

nition, the PV

P a g e  |   57

en to observee parametersat uncertaintyanalysis musy referring to

ustifying theiakness of theot thoroughly

when defining

most suitablehe Caribbean

odologies fobbean are theproaches. Thegap indicatoreded, and tha

used easily bypolicy. Theoot tests (e.gco-integratingtechniques toused both coustainability in. Vincent andWright, and

blic debt wastudy is that ih; to calculateher study, thiward lookingsustainability

VBC approach

7 

e s. y st o ir e y g

e n. or e e

rs at y e

g. g o

o-n d d

as it e is g

y. h

FIS

58 |  P a

assumes tnecessaril

Sahay (2accountincountries:Jamaica, debt-to-GSpecificalprimary bcent of GDGDP willsurpluses per cent consolidalevels. Ththe 60 perany empir

ArchibaldBarbadosexpendituindependeaccountinlatter theyroot tests expenditucoefficienpolicy inpolicies. (2011), wsustainablin debt-tofeature ofPVBC a

CAL SUSTA

g e

that parametely be true.

2005) examng approach: Antigua andand St. Kitts

GDP ratio abolly, she aimsbalance needeDP in five yel be in 2008. were require

to four ption is critica

he main weakr cent debt-torical test.

d and Greenid’ policies

ure and debence, the p

ng approach ay carry out and the Johan

ure and revennts. Archibaldn Barbados This conclus

who find that le path since

o-GDP ratios f this study iapproach th

INABILITY A

ers are fixed

ines fiscal in the m

d Barbuda, Bs and Nevis, ove 90 per s to determi

ed to reduce pears and whatThe main fin

ed for debt reper cent of al to reduce

kness of this p-GDP ratio is

dge (2003) exregarding th

bt managemperiod 1976-and the PVBAugmented Dnsen and Joha

nues, using bod and Greeniis sustainabl

sion was supBarbados’ fi1993, and reafter the finas that it addr

hat assumes

AND DEBT IN

over time, w

sustainabilitymost indebteBelize, Domin

all of which cent at the ine the magnpublic debt rat the ratio of pnding is that eduction rangi

GDP. Therpublic debt t

paper is its ass optimal, in t

xamine the suhe financing

ment after t-2001. They

BC approach, Dickey-Fulleansen co-inteoth fixed andidge concludle due to p

pported by Biscal deficit hemained so deancial crisis. Aresses the we

fixed par

N SOEs

which may no

y using theed Caribbeannica, Grenada

had a publicend of 2003nitude of theatios to 60 pepublic debt tolarge primarying from 23.refore, fiscato sustainable

ssumption thathe absence o

ustainability og of publiche country’

y follow theand with the

er (ADF) unigration test o

d time varyingded that fiscaprudent fiscaelgrave et al

had been on aespite the riseAn interestingeakness of therameters, by

ot

e n a, c

3. e

er o y 1 al e

at of

of c s e e it

of g al al l. a e g e y

remodelinCoefficiensimilar tofeature thvariations

Kufa, Pelof public derive thesustained balance, irate. Accand debt iNevis appstability oratios in found to b

Summary

The literaand empirFirst, the by distinliquidity, define theIMF definliquidity. presented summary Temporalexplainingmay not breviewed used to s

REVIEW

ng co-integrant Model. Ao the fixed chat may be us when the fix

lechio and Rdebt using

e maximum based on a c

interest rateording to thiin Antigua anpeared unsusof the CurrencGrenada andbe concerning

y

ature review grical studies rmain theoret

nguishing betelaborating

ese interrelatenes sustainabi

Afterwards,and explaiindicators,

l Budget Cong their main tbe consistent w

different ectudy fiscal su

W OF THE LI

ation equatioAlthough in t

coefficient mused in studiexed parameter

Rizavi (2003) the public sepublic debt-

country´s projon public deis frameworknd Barbuda, Dstainable and cy Union. Th

d St. Vincent g but did not p

gathered the related to debical literaturetween the con how the

ed concepts. Wility and its re, five theorned: fiscal

Model-Basnstraint, and theoretical unwith each othonometric apustainability.

ITERATURE

on as a Tthis case the model, it is aes to see if r assumption

examine the ector budget to-GDP ratiojected steady-ebt, and econk, the governDominica, and

represented he high public

and the Grepose a great th

most importabt and fiscal e was discussoncepts of s

e IMF and oWe then explaelationship toretical framelimits and ded SustainaGenerational

nderpinnings her. The empirpproaches th

The Time S

P a g e  |   59

ime Varyingresults were

an innovativethere are anyis relaxed.

sustainabilityconstraint to

o that can be-state primarynomic growthnment deficitd St. Kitts anda risk to the

c debt-to-GDPenadines werehreat.

ant theoreticasustainabilityed. We begansolvency andother sourceained how the

o solvency andeworks weredebt ceilingsability, Interl Accountingand why theyrical literatureat have been

Series Model

9 

g e e y

y o e y h ts d e P e

al y. n d s e d e s, r-g, y e n ls

FIS

60 |  P a

section exunit rootsustainabiexaminedused. Thesection exused to assovereigngovernmehouseholdand empirexaminedFinally, sustainabidebt growsummary used.

The litersustainabiand poliincluding not distinnone of thmeasure obecome uvariety ofnumber ofor the aspolicy ondepend oothers sucobjectiveltastes and

CAL SUSTA

g e

xamined studts, and threility. The

d Vector Aute Dynamic Sxamined variassess sustaina

n spreads, finaent bond rads. The DSArical underpin

d other studiea section

ility studies uwth models,

indicators,

rature reviewility resultingicy implicatithe IMF’s in

nguish betwehe establisheof a thresholdunsustainablef incompatibf assumptionsessment, the

n growth. Thn ill-defined ch as the outly in economi

d technology a

INABILITY A

dies that haveeshold regreMultiple Eto Regression

Stochastic Geations of DSGability, whichancial intermetes, and ov

A section analnnings of thees that havewas includ

undertaken fothreshold moand calibrati

w uncoveredg in seeminglyions. Some

nfluential debteen sustainabd methodolod beyond wh

e. The availale approache

ns, including te rate of discohe studies rev

concepts, sutput gap whicies which areare among the

AND DEBT IN

e used co-inteession modequation Mon models th

eneral EquilibGE models thh includes theediation costs

verlapping gelyzed the mae IMF framewe applied thided to analor the Caribbodels, co-inteion technique

d varying dey contradictin

commonly t sustainabilitbility and opgies provides

hich fiscal poable methodoes, and depenthe choice ofount, and the viewed incluuch as “fiscach are difficue growing in ae main drivers

N SOEs

egration testsls to asses

odels mainlyat have beenbrium Modelhat have beene inclusion os, endogenouenerations oain theoreticawork and alsos frameworklyze specificean, in whichegration testses have been

efinitions fong conclusion

used toolsty analysis, doptimality, ands an objectiveolicy and debologies use and on a largef time horizon

effects of taxude those thaal space”, andult to measurea world wheres.

s, s y n ls n

of us of al o

k. c h s, n

or ns s, o d e

bt a e n x at d e e

In

This apprin real ter

We iteratinterest becomes:

∑

Assumingindefinite second terPonzi schdebt mustThe assumscheme iswould allobligationbudget co

∑

REVIEW

nter-tempora

roach starts wms P, as follo

te 1 forwardrates, so th

∑

g that the prefuture conv

rm in 2 is to zheme), so that equal the prmption that s feasible sinlow a governns through inonstraint there

∑

W OF THE LI

al Budget Con

with the goverows:

d N periods he inter-tem

esent value overges to zerzero (i.e. the

at at any poinesent value othe governmnce it is har

nment to indencreased borroefore becomes

ITERATURE

nstraint App

rnment’s bud

and assume mporal budg

of governmenro, then in tgovernment d

nt in time, thof future primment will notrd to believeefinitely pay aowing. The is:

P a g e  |   61

proach

dget constrain

(1)

constant reaet constrain

(2)

nt debt in thethe limit, thedoes not run ae governmen

mary surplusest run a Ponze that lenderall its interesinter-tempora

(3)

1 

nt

)

al nt

)

e e a

nt s. zi rs st al

)

FIS

62 |  P a

CAL SUSTA

g e

INABILITY A

AND DEBT INN SOEs

TEST O

Fisc

Introduct

The publiDutch Caall weakepredated tmagnitudeof all coufinancial period, wTogether 3.24 per CaribbeangovernmeIn additioa crisis, order to outstandinlower (buoccasionswith interon principand the Doperationsregional Jamaican

OF FISCAL SU

cal Deficits

tion

ic finances oribbean (the c

ened over thethe 2008 globe of that evenuntries. Howeor balance ofith the exceptthese crisis-hcent of tota

n. Both Stent debt as pan, there werebut neverthecontain pub

ng local bonut still mark, and Belize r

rest and maturpal. The prop

Dutch Caribbes amounts todomestic dedebt is about

USTAINABILI

Chapter

s and Debt

of the countricountries cove past decadbal recession,nt severely wever, the counf payments ction of St Kithit countries

al GDP of Ct Kitts an

art of an overatwo countrie

eless negotiablic expendi

nds for obligaket-competitivrestructured itrity adjustmenportion of exean that has bo 6.67 per ceebt represent one third.

ITY IN THE C

r 3

t in the Car

ies of CARICvered in this re or more. T, but the perv

worsened the cntries have e

crises in the ptts and Nevisaccount for

CARICOM and Grenada all adjustmen

es which did nted debt resiture. Jamaications at lonve) interest ts largest forent, but with a

xternal debt obeen affected ent, and the nted by the

CARIBBEAN

P a g e  |   63

ribbean

COM and theresearch) haveThis tendencyvasiveness andcircumstance

escaped fiscalpost-recessionand Grenadano more thannd the Dutch

reschedulednt programmenot experiencestructuring, inca exchangednger term andrates on twoeign debt, alsoa small haircuof CARICOM

by these fouproportion o restructured

3 

e e y d s l, n a. n h d e. e n d d o o

ut M ur of d

FIS

64 |  P a

The trajec

Governmestruggled or more. coverage utilities, aservices. manifestecountries.demand fothe burden

A third fGovernmeInvestmenfor improinitiativesway of tcommerceincentivesthere is nothe cost ooffering from any employedpace of ecpromotionThese havinstitutionnow been

Tax revenwith perceemergenc

CAL SUSTA

g e

ctory of publi

ents of the coto contain fiThis is parand quality

and the deliveThis helps

ed in the huma Additional p

for job creation of stubborn

factor animaents' initiativnt in infrastruoved compets are less cletax concessioe, so all cous. However, bo marginal adof not havingincentives, pcountry that

d a wide variconomic deven, and equityve usually bns and compn liquidated.

nues have streived governme of fiscal an

INABILITY A

c debt prior t

ountries covescal deficits rtly a reflect

of physical ery of health, to accounan developmepressure on s

on in the publnly high levels

ating public ves to spuructure (roadstitiveness, bu

ear. Many of ons; they aruntries are cbecause thesedvantage to thg them is propotential inve

doesn't offeriety of direcelopment, via

y participationbeen controveanies created

ruggled, and ment spendind balance of p

AND DEBT IN

to 2008.

ered by this sover the pasttion of expainfrastructur

education annt for the ent index sincspending has lic sector, to hs of unemploy

sector financeconomic

, ports and aut the bene

f these incentre a fact of constrained te incentives hem, at the s

ohibitive. (If estors simplyr them.) All ct efforts to aa financing, mn in commerersial, and md for these p

largely failedng priorities. Tpayments cris

N SOEs

study have alt four decadeansion in there and publicd other publicimprovemen

ce 1980 for alderived from

help to relieveyment.

ces has beendevelopment

airports) madeefits of othetives were by

f internationato offer suchare universalame time thaall others are

y walk awaycountries haveaccelerate themarketing andrcial ventures

many financiapurposes have

d, to keep upThis led to theses in Jamaica

ll s e c c

nt ll m e

n t. e

er y al h l, at e y e e d s. al e

p e a

TEST O

and GuyaSuriname ECCU coavoid threthe Dutchconcessiothe US, thmultinatioclosing th

In the las1980s, theBarbados vigorous because tpressure wexpansionJamaica sso far witnno noticeathe real ec

Over timexternal sreduce debeen ongore-introduthe introdNonethelerestructurrecession.debt in 2

                  3 And, in thdown the d

OF FISCAL SU

ana in the 19in the early

ountries conteat of crisis ah Caribbeannal finance fhe CDB, IDBonal sourceshe gap betwee

st three decae Caribbean h

averted a crfiscal contra

the proximatwas a loss onary fiscal desuffered the lanessed in the able effect ofconomy or the

me the fiscalources has dieficits and seoing efforts tuction of the iduction of vess, there ings in the . Dominica n2004; Grena

                      he case of Arubdebt-to-GDP ra

USTAINABILI

970s, and in y 1980s. Bartained fiscal

at that time. Cbenefitted fr

from Canada,B, World Ba, which con

en revenues an

ades, since thhas avoided brisis in the eaction strategte cause of of investor coficits financeargest financisecond half o

f the financiae balance of p

l support foiminished, andecure adequato boost goveincome tax invalue-added

were seveECCU befor

negotiated a rada secured

                   ba, debt forgivatio.

ITY IN THE C

Trinidad andrbados, Beliz

pressures sCountries of thfrom grants, , the UK, theank and otherntributed signd expenditur

he difficultiesbalance of payearly 1990s bgy. This wasthe balance

onfidence afteed by central ial crisis the Cof the 1990s,

al crisis or its payments.

or ECCU cod it has been ate financingernment revenn Antigua and

taxes in somral debt dre the onset restructuring a restructure

veness in 2003

CARIBBEAN

P a g e  |   65

d Tobago andze, and somesufficiently tohe ECCU andtransfers and

e Netherlandsr national andgnificantly tores.3

s of the earlyyments crisesby pursuing as appropriate

of paymenter a series obank lendingCaribbean habut there waresolution on

ountries froma challenge to

g. There havenues, with theBarbuda, and

me countriesdefaults and

of the 2008of US dolla

ed settlemen

helped to bring

5 

d e o d d s, d o

y s. a e, ts of g. as as n

m o e e d s. d 8

ar nt

g

FIS

66 |  P a

through thBarbuda rItalian banan unsuccof these cthe ECCU

In Guyan1970s prewhich theby fiscal eexchange Guyana, compensataken intoand bauxtriggered exchange After morexchange exchange

Of the twdebt couldthe IMF-WIndebted external dthe excepexchange US cent, nations, inthe councomparedECCU.

CAL SUSTA

g e

he agency ofrescheduled enk wrote off cessful yacht caused financU as a whole.

na and Jamaecipitated ba

e countries strexpansion, th

inflows, anthe foreign

ation paid to o state ownerxite. The r

large capitaon the forma

re than a deregimes, botrate anchor in

wo countries, Gd not be fullyWorld Bank Poor Countr

debt obligatioptionally higrate depreciaGuyana is n

n relation to ntry's economd with The

INABILITY A

f the Paris Cexternal debta loan to the servicing fac

cial or balanc

aica, burgeonalance of payruggled for mhe demand fornd foreign reexchange ouoverseas ow

rship, includinrelentless exal flight, anal financial mcade of expeth Jamaica ann the 1990s.

Guyana was ty serviced. Gu

programme ries (HIPC). ons under thegh inflation ated from abonow among t

GDP. Howemic developmBahamas, B

AND DEBT IN

Club in 2005;t in 2006, anSt Vincent gocility at Ottlece of paymen

ning fiscal dyments diseq

more than a der imports exceserves were utflow was a

wners of commng the produc

xchange marnd the supplmarkets largeleriments withnd Guyana a

the one wheruyana was a bfor debt reliAs a resul

e HIPC arranlevels in Gu

out 50 US centhe region's lever, over thement has la

Barbados, Be

N SOEs

; Antigua andnd in 2007 anovernment foey Hall. Nonents distress fo

deficits in thequilibria withcade. Boosted

ceeded foreigndepleted. In

aggravated bymercial assetction of sugarket pressurely of foreignly evaporatedh a variety oabandoned the

re the externabeneficiary oef for Highlylt of freezingngements, anduyana as thents to 1/2 of aleast indebtede same periodagged badlyelize and the

d n

or e

or

e h d n n y ts ar e n

d. of e

al of y g d e a d d

y, e

TEST O

In all, theGreat Recand the containme2013 the a98 per cdemonstraof externawas apprcurrency rCaribbean

Comparisglobal rec

The onsecountries was becaturned outfiscal stimthe foreigresult frotourism dinvestmenin the UKhomes infinance afinancial initiating struggled countries

                  4 Data for a5 Removincover was

OF FISCAL SU

ese fiscal currcession of 20

Dutch Carient that was aggregate debent; that figates. What doal debt servicoximately 16reserve covern as a whole d

sons among cession.

et of the glowith little sc

ause avenues t to be limited

mulus has to bn exchange n

om the stimudemand, andnt in tourism.K and elsewhn the eastern associated winstitutions projects in to find al

lacked acces

                      all countries wg Trinidad and13.3 weeks at

USTAINABILI

rents over the08 had left thibbean with serious but m

bt-to-GDP ratgure is not ioes matter foce to foreign 6 4 per cent. r was about 1does have a su

countries sin

obal recessiocope for cou

for attractind for several rbe funded by needed to buyulus.) The gd consequen The collapse

here depressedCaribbean, a

with those pfell into inthe Caribbea

lternative souss to internat

                   was only availabd Tobago, the fthe end of 201

ITY IN THE C

e decades leadhe countries o

a challengmanageable. Atio for the gronformative, r sustainabiliexchange eaThe fact tha

165 weeks sugustainable fis

nce the onset

on found mountercyclical ng foreign careasons. (In tforeign finanthe additiona

lobal recessintly the attrae of the real ed the demandand the inflopurchases. S

nsolvency onan, and the urces of futional capital

ble for 2010. foreign currenc3.

CARIBBEAN

P a g e  |   67

ding up to theof CARICOMge for fiscaAt the end ooup was abouas this studyity is the ratioarnings, whichat the foreignggests that thecal strategy.

t of the 2008

ost Caribbeanpolicies. Thiapital inflowthe Caribbeannce to provideal imports thaion depressedactiveness oestate bubbled for vacationow of foreignSome foreignn the eve oprojects have

unding. Somemarkets, and

cy reserve

7 

e M al of ut y o h n e

8

n is

ws n, e

at d

of s n n n

of e e d

FIS

68 |  P a

those thatoften proacceleratealready be

Deliberateadditionalaccount, cCaribbeaninflows fcauses serThe fact sustained of the absof the glob

Maintenanprotected crises in tbeen somfinances. countries profitabilitaxes on expendituprices of compensasharply w

The situatof an inhdesigned productivto tax polservices.

CAL SUSTA

g e

t did have accohibitive. Ine Governmenteen secured.

e countercycl inflows oncauses a deten country. Anfrom exportsrious erosion

that foreignacross the re

sence of counbal recession

nce of adeqCaribbean

the wake of thme scares,

Governmentbecause of

ity and loweincome and

ures proved afuels and oth

ation and socwider fiscal de

tion was espeherited overhprojects, veryity in the publicy and the o

INABILITY A

cess found thn addition, t projects for

clical fiscal pn the long teerioration of ny such attems, tourism an

of levels of n exchange rgion since 20

ntercyclical fi.

quate foreigncountries frohe 2008 recesbecause of

t revenues f worsening er consumer spending. Coa challenge,

her supplies, iial support, aficit.

ecially acute hang of expy high real inblic service, aorganisation a

AND DEBT IN

he costs of boit proved imwhich foreig

policy, in therm capital aexternal paym

mpt, in the facnd internatioforeign exchareserve level

008 is prima fiscal policy si

n exchangeom balance ssion. Howevf weakening have weaken

unemploymspending, w

ontainment ofbecause of ncreases in u

and the cost o

in many counpensively-finanterest rates,

and structural and managem

N SOEs

orrowing werempossible ton funding had

he absence oand financingments for anye of declining

onal businessange reservesls have beenfacie evidenceince the onse

reserves haof payment

ver, there havegovernmen

ned in mosment, reducedwhich affectedf Governmenrising impor

unemploymenof servicing a

ntries becauseanced, poorlylow levels oissues related

ment of public

e o d

of g y g s, s. n e

et

as ts e

nt st d d

nt rt nt a

e y

of d c

TEST O

In all couadjustmenwas fiscalIn the casprogrammThe IMF exchangeswith negoon which clarified Fund prorestructurtheir obligfailed to initiative i

Fiscal pol

It is notCaribbeanexcess ofsupply, ancentral babalance othe early terms of Caribbeanfiscal act1991/2, avits developayments successfueconomicpath of outstandin

OF FISCAL SU

untries excepnt strategy in l consolidatioes of Jamaica

me was suppoassisted the as and the Funotiations with

the country that, while togrammes we debt, the Fugations in ful

secure Fundin 2012.

licy and the b

eworthy thatn were alwayf demand fornd exhaustionank. In Guyanf payments di1990s, causeconomic de

n (UNDP, 20tion to restovoided a bala

opment advanwas not af

lly with mc changes, w

economic dng example o

USTAINABILI

pt Aruba thethe wake of

on and a redua and St Kittsorted by an IMauthorities in nd continues th its creditors

has defaultedthere may be

will respect und always al (IMF, 2014d support fo

balance of pay

t full blownys associated r foreign excn of the foreigna, Surinameifficulties, lased their econevelopment r

013). Barbadoore balance ance of paymntage. So longffected, coun

major fiscal,ith only min

development. of this, with a

ITY IN THE C

e centrepiece f the 2008 glouction in the s and Nevis, thMF financingJamaica with

to assist St Ks for the resod. However, e circumstanauthorities'

advises countr). The Belize

or their debt

yments.

n economic with externa

change over gn exchange rand Jamaicasting from thenomies to lorelative to thos, which tooof payments

ments crisis, ang as the balanntries were

financial annor pauses on

Jamaica wa financial re

CARIBBEAN

P a g e  |   69

of economicobal recessionfiscal deficit

he adjustmeng programmeh the two deb

Kitts and Nevilution of debthe Fund ha

nces in whichdecisions to

ries to honouean authoritie

restructuring

crises in theal imbalances

the availablereserves of thethe prolonged

e late 1970s toose ground inhe rest of theok appropriates stability innd maintained

nce of externaable to copend structuran the upward

was the mosescue package

9 

c n t.

nt e. bt s

bt as h o

ur es g

e s, e e d o n e e n d al e

al d st e

FIS

70 |  P a

in the latsome estbalance oexample adverse eTobago Gfinancial c

The Caribtransformwithout inpressure OECS coagriculturforeign exand Barbu

Countriesin the challengethe fact thopen econlong as th

The Cardevaluatioand Tobagtime withpercentagcomes froexchange,balance i

                  6 IMF, 'JamRev 1, Oct

CAL SUSTA

g e

te 1990s thatimates 6 . Hof payments oof seamless

effects on thGovernment conglomerate

bbean offers,mation of ec

nterrupting gron foreign eountries haveral export baxchange earneuda, and conti

s that avoideddevelopmen

s and rising hat foreign exnomy, and th

hey respect tha

ibbean expeon in the servgo dollar has h a substantige of Trinidaom energy-ba, a devaluatin Trinidad a

                      maica - selectedt 29, 1998.

INABILITY A

t amounted toowever, therer the growth

s financial rhe real econoresolution pr

e.

, in additionconomic prorowth, becauexchange mae been largease to focus er, beginning inuing throug

d balance of nt rankings,

debt levels. xchange is thhat economicat constraint.

erience also vice of fiscalbeen devalue

ial fiscal benad and Toba

ased exporterstion immediaand Tobago

                   d issues,' Coun

AND DEBT IN

o 30 per cene was no imof the econom

restructuring omy is the rogramme fo

, examples ooduction ba

use there was arkets. The eely transform

on tourismin the 1970s

gh the 1980s a

payments crinotwithsta

This is a mahe binding conc strategies ar

offers an l adjustment. ed on three ocnefit. Becausago Governms and is receivately improvin the prop

ntry Report no.

N SOEs

nt of GDP bympact on themy. A currenthat has no

Trinidad andr a dominan

of remarkableses, effectedno excessive

economies omed from an

as the main with Antiguaand 1990s.

ises advancedanding fiscaanifestation onstraint in there feasible so

example oThe Trinidad

ccasions, eachse the largesment revenueved in foreign

ves the fiscaortion of the

SM/98/166,

y e

nt o d

nt

e d e

of n n a

d al of e o

of d h st e n al e

TEST O

devaluatioother courevenue fTrinidad abe weigheand the cdeficit by

The Caribobserved crises. Thlimited diimport suand econoup againsrestraint isuccessfu

Country restructu

Aruba In recent deficits amoderate internatiocent of GD

In Januaryand obtainthe Kingdthe main operationsemerged investmen

OF FISCAL SU

on. In this resuntry derivesfrom a singleand Tobago'sed against theost-benefit ofan equivalen

bbean providcoincidence

his is a reflectiversification

ubstitutes. In eomic policies t the balance s respected, vlly, both in th

experiences –ured debt

years Arubaand the grow

debt-to-GDonal recessionDP in 2013.

y 1986, Arubaned an autonodom of the Neconomic pils in early 19as the new

nt boom in th

USTAINABILI

spect Trinidads the overwhe foreign exs case, the appe inflation indf alternative

nt amount.

des evidence of financial

tion of the sm possibilitieseconomies ofbecome unsuof payments

very large prohe real and fin

– countries t

a has strugglwth of debt.DP ratios at n, but the rat

a seceded froomous status etherlands. Tllar for close 85. Aided by

backbone ohe late 1980s

ITY IN THE C

d and Tobagohelming percchange earniparent fiscal duced by the action to red

in support oand balance

mall domestics, and lack of this kind, fiustainable whconstraint. S

ogrammes manancial econo

that have nev

led to containThe country

the onset io has increa

m the Nether(i.e., Status A

The oil refinerto 60 years,

y fiscal incenof Aruba’s e

and the early

CARIBBEAN

P a g e  |   71

o is unique; nocentage of iting sector. Inbenefit has todevaluations

duce the fisca

of the widely of paymentc market size

of competitivescal, financia

hen they comeSo long as thaay be effectedmies.

ver

n governmeny started with

of the 2008ased to 74 pe

rlands AntilleAparte) withinry, which waterminated it

ntives, tourismeconomy. Any 1990s more

1 

o ts n o s, al

y ts e, e

al e

at d

nt h 8

er

s n

as ts m n e

FIS

72 |  P a

than doubdigit growinflation r1990s (se1990, its due to thethe second

Figure 2. A

Source: Cen Followingby 1991, while thebelow foexperiencthan 15 yfrom this per cent inrate in thiintroductiprices. In

‐20

‐10

0

10

20

30

1986

In percent

CAL SUSTA

g e

bled the hotewth rates in thrates to someee Chart 1). economic im

e smaller scaled economic p

Aruba: Real G

ntral Bank of Aru

g a leveling oeconomic gr

e average anour per cenced its first eyears. In 2003

economic don the years 2s period edgeion of a turnon 2008, the

1986

1988

1990

1992

Inflat

INABILITY A

el room invenhe real GDP, aewhat above Although the

mpact was mue of its operat

pillar in Aruba

GDP and Infla

uba.

off of the inveowth subside

nnual inflationt. In the yeconomic rec3, Aruba’s ecownturn, exp003-2008. Th

ed up to 4.7 pver tax in 200e repercussio

1994

1996

1998

2000

tion Re

AND DEBT IN

ntory, resultinaccompanied five per cen

e oil refineryuch less than tions; this inda (after touris

ation Rate (pe

estments in thed in the yearon fell back years 2001-

cession after conomy start

panding by onhe average aner cent, assoc07, and higheons of the

2002

2004

2006

2008

eal GDP growt

N SOEs

ng in doubleby increasing

nt in the earlyy reopened inprior to 1985

dustry becamem).

rcent change)

he hotel sectors 1992-2000to somewha2002, Arubaslightly more

ted to recoven average 2.4

nnual inflationciated with theer oil and food

internationa

2008

2010

2012

th

e-g y n 5 e

)

or 0, at a e

er 4 n e d al

TEST O

economicalmost tooperationsagain in 2Between 2per cent. Ilevel of 2in the peri

Fiscal per Since 198deficits, wrevenues. governmestimulate level of cainterest eintroductito persistturnover revenues rfurther dfinancial the periodhealth car

Until the governmeshare has2013, refcompositi2013, govcent of GD

OF FISCAL SU

c and financiao a standstills between m2011, and ter2008 and 201In 2013, real

2008. The anniod 2009-201

rformance

86, the governwith some ex

In the latent of Aruba

the economapital expend

expenses, a rion of a genertent fiscal detax rate in related to the eterioration deficits rose d 2011-2013 re and the pen

mid-1990s, sent debt was decreased oflecting the ion of debt tovernment debDP).

USTAINABILI

al crisis broul. In addition

mid-July 2009rminating its 13, real outpuoutput was st

nual inflation 3.

nment of Aruxceptions relte 1980s ana used expa

my and maintditure. In the frising public ral health insueficits. In add

2010 as weconomic sloin governmeto on average(see Chart 2

nsion systems

somewhat lesfinanced exte

over the yearaim of the

o domesticallt amounted to

ITY IN THE C

ught the Arun, the oil re9 and end-20

activities in ut fell by a cutill nine per crate averaged

uba has generlated largely nd the earlyansionary fisctained a histfollowing yeasector wage

urance in 200dition, the hell as lowerowdown afterent finances.e eight per ce2), despite re.

ss than 60 perernally (see Crs to about 4

governmently financed. Ao US$ 1.9 bil

CARIBBEAN

P a g e  |   73

uban economyfinery ceased

010, resumingMarch 2012

umulative 12.4cent below thed 0.5 per cen

rally recordedto incidenta

y 1990s, thecal policy totorically highars, increasinge bill and the01 contributedhalving of ther governmenr 2008 led to a

Governmenent of GDP ineforms in the

r cent of totaChart 3). Thi48 per cent int to shift itAt the end ollion (73.6 pe

3 

y d g 2. 4 e

nt

d al e o h g e d e

nt a

nt n e

al is n ts of er

FIS

74 |  P a

Figure 3. A

Source: Cenreports. 1) The finanreports of IMdebt assumpand 2003) re1980s.

‐12

‐10

‐8

‐6

‐4

‐2

0

2

4

6

In per

cent

CAL SUSTA

g e

Aruba: Finan

ntral Bank of Aru

ncial deficits of tMF Article IV Cption in 1992 (anelated to the hot

2

0

8

6

4

2

0

2

4

6

1986

1989

Governmepercent of

INABILITY A

cial Deficit on

uba and author’s

the period 1986-Consultation and nd related interesel guarantees iss

1992

1995

1998

ent financiaf GDP)

AND DEBT IN

n a Cash Basis

s calculations; IM

-1994 are based exclude the (USst accumulation sued by the gove

2001

2004

2007

l  deficit (‐) (

N SOEs

s 1)

MF Article IV

on various S$ 146 million) between 1992

ernment in the

2010

2013

 (in

TEST O

Figure 4.

Source: Cenreports. Balance o Since 19influencedsector. Foexternal surpluses of the shuend-2010 this sectorthe impogovernme

0

10

20

30

40

50

60

70

80

In per

cent 

OF FISCAL SU

Aruba: Gove

ntral Bank of Aru

of payments

86, the balad largely byor the most ptransactions of this sector

utdown of the and since M

r resulted in aorts of oil pent capital

1989

1991

1993

Govern

Governgovernm

USTAINABILI

rnment Debt

uba and author’s

nce of paymy the externaart, the oil seas reflected

r (see Chart 4oil refinery b

March 2012, tha net outflow products forinflow, com

1995

1997

1999

2001

ment debt (in

ment foreign ment debt)

ITY IN THE C

s calculations; IM

ments of Arual transactionector had fina

d by the po4). Neverthelebetween mid-Jhe external trof foreign fu

r domestic umprising mai

2003

2005

2007

2009

n percent of G

 debt (in perce

CARIBBEAN

P a g e  |   75

MF Article IV

uba has beenns of the oianced its ownsitive overaless, as a resulJuly 2009 andransactions o

unds related touse. The neinly externa

2009

2011

2013

DP)

ent of

5 

n il n ll lt d

of o et al

FIS

76 |  P a

borrowingbalance o

Figure 5.

Source: Cen Current a Aruba expover the ysector. In surpluses 2009-201contrast, taccount d

‐10

‐5

0

5

10

15

In percent of GDP

CAL SUSTA

g e

gs, contributf payments.

. Overall BalaAruba

ntral Bank of Aru

account balan

perienced largyears, related general, the oprior to the s2, reflecting tthe nonoil sec

deficits over th

1986

1988

1990

1992

Othe

Net 

Ove

Ove

INABILITY A

ted to the o

ance of the Ba

uba.

nce

ge swings in imostly to devoil sector posthutdown of itthe net exportctor had registhe years in sp

1994

1996

1998

2000

er transactions

inflow of gove

rall BOP balanc

rall BOP balanc

AND DEBT IN

overall surpl

alance of Paym

its current accvelopments inted current acts operations t receipts of thtered persiste

pite of the stro

2002

2004

2006

2008

s

ernment capita

ce oil sector

ce

N SOEs

luses on the

ments (BOP) o

count balancen the oil ccount in the period his sector. In

ent current ong tourism

2008

2010

2012

l

e

of

e

TEST O

sector, pardependenproductio Net intern The net iper cent o5). In 20markedly from the performanpressure aimport cocoverage taking intalmost sev3.5 month

Figure 6.

Source: Cen

20

40

60

80

1,00

In US$. m

illion

OF FISCAL SU

rtly because At on merchann of goods.

national reser

nternational rof GDP in 19008, the levas a result osale of the

nce. Since 2as reflected inoverage ratioratio. Howev

to account theven months ahs at end-2013

Aruba: Net F

ntral Bank of Aru

0

00

00

00

00

00

1986

1989

1992

Foreign rese

Foreign rese

USTAINABILI

Aruba is a smdise imports d

rves position

reserves of A986 to 26.2 pvel of net inof an incidente Plant Hote2010, these rn a downwardo and the cver, the resere merchandis

and the curren3.

Foreign Assets

uba.

1992

1995

1998

2001

erves (includin

erves (in perce

ITY IN THE C

mall open econdue to its lim

Aruba increasper cent in 20nternational tal receipt ofl and a buoreserves haved trend in thecurrent accourve level is sse import covnt account cov

(1986-2013)20

04

2007

2010

ng gold)

ent of GDP, rig

CARIBBEAN

P a g e  |   77

nomy largely ited domestic

sed from 17.6013 (see Charreserves rose

f the proceedoyant tourisme been undee merchandiseunt paymentstill adequate

verage ratio overage ratio o

0.0

10.0

20.0

30.0

40.0

2013

In percent

ght axis)

7 

c

6 rt e

ds m er e ts e, of of

FIS

78 |  P a

The Baha

The Baharevenue However in the woper cent. The Baharecent yexpansionin 2008, tprovide svulnerableThe Baha2.3 per cethe next 2010, grocent in 20continuedan improHowever,from the stable av(Table 1)

Governmeunemployspending creation. Ogrew by 2The Gove2008 to 6

CAL SUSTA

g e

amas

amas fiscal weakened athe deficit re

orst year, and

amas, like maears encoun

n of its officiax revenues fsome stimule groups affeamas, which ent in 2008, ayear. Althou

owth remaine011 and 2012d to be elevatovement from, with the mUnited Stateseraging 2.6 .

ent increasedyed or und

on infrastruOver the 200820 per cent, wernment defic.9 per cent in

INABILITY A

deficit wideand expenditemained belowd debt-to-GD

any countriesntered challeal debt. Follofell, while Gous to the eected by the is mainly sus

and contractedugh the econd lethargic a

2 respectivelyted at 14.7 pem the 15.9 majority of gs, inflation haper cent ov

d social spenderemployed, cture project8-2012 period

while revenue cit rose from2012.

AND DEBT IN

ened after 2ture was now 7 per cent

DP ratios rem

s within the renges in coowing the gloovernment speeconomy and

recession. Rstained by toud further by 4

nomy began at 1.7 per ceny (chart 1). Uer cent duringper cent no

goods consumas been relati

ver the 2008

nding to offeand broad

ts that wouldd, Governmencontracted by

m 2.3 per cen

N SOEs

2008 becauseot containedof GDP even

main below 60

region, has inontaining theobal recessionending rose tod support to

Real output inurism, fell by

4.2 per cent into recover in

nt and 1.8 peUnemploymen

g 2012, albeioted in 2011med importedively low and

8-2012 period

fer aid to thedened capitad support jobnt expenditurey 2.8 per centnt of GDP in

e d. n 0

n e n o o n y n n

er nt it 1. d d d

e al b e t. n

TEST O

‐6.0%

‐4.0%

‐2.0%

0.0%

2.0%

4.0%

6.0%

  

Nominal GDP Growth RatReal GDP Growth Unemployment Rate Inflation Rate

Direct Charge/ GDP National Debt/GDP External Debt/GDP Domestic Debt/GDP Primary Balance/GDP Tax Revenue/GDP Fiscal Deficit/GDP

Debt Service Ratio

  

Source: The Central Bank *Census Year P: Provisional

Table 1. T

Source: The

Figure 7. T

OF FISCAL SU

2002 2003 te 6.8% -0.1%

2.7% -1.3%9.1% 10.8% 1.5% 2.7%

25.9% 27.9%32.0% 34.6%1.3% 4.2%

24.6% 23.7% -0.5% -1.5%

11.5% 11.8% -1.9% -3.0%

4.9% 12.1%

     

of the Bahamas

The Bahamas:

e Central Bank o

The Bahamas

USTAINABILI

Selecte2004 2005 202.1% 8.6% 3.0.9% 3.4% 2.

10.2% 10.2% 7.1.4% 2.1% 2.

S

29.6% 29.0% 30.35.8% 35.5% 36.4.0% 3.7% 3.

25.6% 25.3% 26.-1.2% -0.5% 0.

12.0% 12.8% 14.-2.8% -2.1% -1.

3.1% 3.0% 2.

       

Selected Mac

of The Bahamas

: Real GDP G

ITY IN THE C

Table 1

ed Macroeconomic Indicators006 2007 2008 .4% 4.4% -0.9%.5% 1.5% -2.3%.6% 7.9% 8.7% .1% 2.5% 4.7%

Selected Debt Indicators

.0% 31.7% 33.5%

.2% 36.9% 39.0%

.6% 3.3% 4.7%

.3% 28.4% 28.9%

.3% -0.5% 0.3%

.5% 14.4% 15.5%

.2% -2.7% -2.3%

.4% 5.7% 2.8%

       

croeconomic In

Growth (2002-2

CARIBBEAN

P a g e  |   79

2009 2010 2011-5.2% 0.9% -0.2%-4.2% 1.0% 1.7%14.2% N/A* 15.9%2.0% 1.3% 3.2%

42.5% 47.2% 48.3%50.0% 54.3% 55.3%9.0% 9.2% 10.1%33.5% 37.9% 38.2%-1.0% -0.4% -3.1%13.6% 14.2% 17.8%-5.2% -4.8% -4.1%

20.2% 7.4% 5.4%

     

ndicators

2012)

9 

1 2012 % 3.5%p % 1.8%p % 14.7%p

% 2.0%

% 53.9%p % 61.2%p % 12.7%p % 41.2%p % -2.4%p % 15.2%p % -6.8%p

%p 5.1%p

  

FIS

80 |  P a

Figure 8. T

The Bahafor the dbonds, Tdomestic borrowed financing sourced dan externfinancing external s

The Naticlimbed texternal a(with exteIncluding $5.0 billio($1.8 bill

CAL SUSTA

g e

The Bahamas

amas has histodeficit domestTreasury bills

banking syexternally hamounted t

domestically anal bond issu

was $343.5 ources.

ional Debt, to $4.4 billionand 76.4 per cernal of 13.9

Governmenton in 2012, reion) over 20

INABILITY A

: Debt-to-GDP

orically sourctically througs and loans ystem. In rehas increasedo $763.3 mi

and 32.8 per ce. This compmillion, wit

not includin in 2012 (23cent internal)9 per cent, ant’s contingenepresenting a08. As a per

AND DEBT IN

P Ratios (2002

ced the majorgh long-term

and advancecent years, d notably. In illion, with 6cent obtained pared to 200th only 4.0 p

ing continge3.6 per cent , from $2.8 bnd internal 8nt liabilities, an increase ofrcentage of G

N SOEs

2-2012)

ity of fundingm Governmen

ces from thethe fraction2012, defici

67.2 per cenexternally via8, when totaper cent from

ent liabilitiesof which wa

billion in 20086.1 per cent)the debt wa

f 55.3 per cenGDP, the deb

g nt e n it nt a

al m

s, as 8 ).

as nt bt

TEST O

(not inclu2012 from

Barbados Fiscal porecession foreign exthe econoAggregatesufficientlequivalencoverage governmeexchange to-GDP wlarge oveRecessionrevenues s

The ratio from the madjustmenGovernmechanged umore thanmid-1990cent in threduced oupwards o

OF FISCAL SU

uding contingm 33.5 per cen

s

olicy in Barhas been exp

xchange reseromy, and the demand mly, and foreigt of 16 weekas in Decem

ent debt in 2earnings. Ho

was relativelyerhang of pron, and econsince 2008.

of Governmmid-30s per cnt programment, but that until the 199n five percen

0s the ratio rohe early 200

over the yearsonce more.

USTAINABILI

gent liabilitiesnt five years e

rbados sincexplicitly targerves by contaihrough judicmanagement gn reserves aks of importsmber 2008.

2013 absorbeHowever, over

y high at 67oject financinnomic stagna

ment expenditcent at the timme undertakratio rose in

91-3 crisis, wntage points se aggressive00s. The exp2002-7, but a

ITY IN THE C

s) rose to 53earlier. (Table

e the onset eted to sustaiining aggrega

cious externahas dampe

at end-April 2s, about the sThe servicing

ed 7.6 per cerall net public7 per cent, thng from befoation and d

ture to GDP me of the 198ken by th

n 1985 and rewhen the rati

of GDP. Hoely, to peak atpenditure ratafter that the

CARIBBEAN

P a g e  |   81

.9 per cent ine 1)

of the 2008in the level ofate demand inal borrowingened imports2014 were thesame level ofg of externaent of foreignc sector debthe result of aore the Greadeclining tax

was reduced81-2 economiche Barbadoemained littleo was cut byowever, fromt about 35 peio was againratio spiralled

1 

n

8 of n

g. ts e

of al n t-a

at x

d c s e y

m er n d

FIS

82 |  P a

Figure 9. B

Figure 10. B

CAL SUSTA

g e

Barbados: Gover

Barbados: Exte

INABILITY A

rnment Revenu

ernal Debt to G

AND DEBT IN

ue, Expenditure

DP Regional Co

N SOEs

e and Deficit

omparisons

TEST O

Revenuesresulting iabout eigover that With the budget wathe revenexpenditupercentagdepressedgrowth ounprecede

The econothrough throll over demand fcurrency excessive rolled ovecurrency.

The mainperiod hatwo to thrabout fivepersistent decades. services das a ratiocontractiospending when renethe capita

OF FISCAL SU

have typicin overall fisc

ght percentagdecade, as tcontraction

as in balance nue ratio thure, and thege points of d, and a balanf expenditurented levels, a

omic crisis thhe balance ofmaturing fo

for imports hreserves. That about 60

er without di

n driver of gs been governree percentage points in th

source of pOn the oth

declined in reo to GDP inon during threcovered in ewed efforts

al account.

USTAINABILI

cally been cal deficits. Te points in tthe revenue in expendituby the mid-1

hereafter wase gap widef GDP. Oncnce was achiee since thenas a ratio to G

hreat in Barbaf payments. G

oreign debt aad depleted t

he overall deper cent, and

ifficulty, sinc

overnment exnment's wagege points of Ghe 2000s. Interessure on sp

her hand, exeal terms. Ca

the 1980s, he 1991-3 adthe late 1990to close the d

ITY IN THE C

lower than The revenue-tothe early 19ratio increase

ure in the ear1990s. Howevs much slowned to more more expeved, briefly, n has taken tGDP.

ados in 1991 Government wat a time whthe Central Bebt-to-GDP rd most dome

ce it remained

xpenditure oves bill. Wage GDP in the 1erest paymentpending throu

xpenditure onapital expendwith an espedjustment pes and the 200deficit fell mo

CARIBBEAN

P a g e  |   83

expenditureo-GDP gap o80s narroweded over timerly 1990s thever, growth inwer than fore than five

penditure wain 2007. The

the deficit to

was triggeredwas unable to

hen an excesBank's foreignratio was noestic debt wad in domestic

ver the entirecosts rose by

1980s, and byts were also augh the threen goods anditure declinedecially severeeriod. Capita00s until 2007ost heavily on

3 

e, of d e. e n

or e

as e o

d o s n

ot as c

e y y a e d d e

al 7, n

FIS

84 |  P a

Governmecomparisoalternativecountries (Mexico).occasion wThe choicexternal bexternal d

Suriname The Surinface of diversificadependenand gold.financing its supporprovidingoverwhelmmarket, imon the pdevalued a stabilissubsequenaccumulawere resassistance Introducti This analy1957-201

CAL SUSTA

g e

ent revenue bon, with buoe methods. Ibuoyancies q

. The adjustmwhen Govern

ce was made tbalance, so

debt.

e

namese econoexternal ec

ation of the ce on bauxite Dutch develfiscal deficits

rt in 1982. Intg finance, buming demandmport scarcityparallel markand market dsation progrntly devalue

ated during thsolved with e in 2000.

ion

ysis reviews 2. There were

INABILITY A

buoyancy has oyancy estimn a small sa

quoted rangedment programmnment had a pto cut aggregaas to regain

omy has beconomic shoccountry's exp

e, to rely morlopment finans, until the Duto the lacuna

ut with the id pressure oy, and steep dket. The offdistortions reramme in 1ed in 200

he period of mthe resump

economic gre two episode

AND DEBT IN

been high byated at 2.46

ample of emed from 0.16 (me of 1991-3problem in fiate expenditun the capaci

ome more recks, largely port base, frre on exportsnce played a utch Governm stepped the inevitable coon the foreidevaluation official exchanemoved in ass1994. The c00 and 20market distortption of Du

rowth data oves of rapid gr

N SOEs

y internationaand 2.34 by

erging marke(Brazil) to 2.43 was the onlyinancing debture and restorety to service

esilient in thebecause of

rom excessives of petroleummajor role in

ment withdrewCentral Bank

onsequence ofign exchangef the currency

nge rate wassociation withcurrency was011. Arrearstions, but theytch financia

ver the periodrowth (1957 –

al y et 4 y t. e e

e of e

m n w k, of e y s h s

rs y

al

d –

TEST O

1971 and marked by

Economic The first of 6.9 pestandard processingthe bauxitbauxite mimportantrevenue. earnings merchandWar untilin the grobauxite pr

The seconuntil the pcent and mining abauxite as

The pericharacterifluctuatioaffected tgrowth w

Official de Official dthe econo

OF FISCAL SU

2001 – 2012y rapid fluctu

c growth

growth perioer cent per of living. Lg facilities ante sector contmining and t contributorThe contribufluctuated be

dise exports frl the end of thowth rate reflrice.

nd growth tapresent. Averwas fueled b

activities, whs the major en

iod of stagized by ns in macro vthe overall pas a disappoin

evelopment a

development omic developm

USTAINABILI

2) and one ofuations in the

d lasted 15 yyear and ste

Large-scale innd in infrastrutributed to thprocessing b

r to GDP, ution of the etween 70-80rom the beginhe 20th centulected the vo

ake-off starterage growth

by robust perhich have nngines of grow

gnation (strmacroeconom

variables and performance onting 0.9 per

assistance

assistance hament of Suri

ITY IN THE C

f stagnation (economy.

years, with aveady improvnvestment inuctural workshe take – off ibecame by export earni

sector to o0 per cent ofnning of the Sury. Substantilatility in the

ed in 2001 ain this period

rformances innow expandewth.

etching 29 mic imbalapolitical diffof the econocent.

as played a cname in the

CARIBBEAN

P a g e  |   85

(1972 – 2000

verage growthement in the

n mining ands in support oin this periodfar the mosings and taxoverall exporf the value oSecond Worldial fluctuatione internationa

nd has lastedd was 4.4 pen oil and golded to exceed

years) waances, wideficulties whichomy. Average

crucial role inlast 55 years

5 

0)

h e d

of d; st x rt of d n al

d er d d

as e h e

n s.

FIS

86 |  P a

Dutch offimportantto financdeficits aexchange

Figure 11.

During thdevelopmand this rsuspensioearnings distortioneconomicof living. Dutch aidto the buirestructurforeign deaverage in

CAL SUSTA

g e

ficial financiat source of goce the balancand a cushioearnings from

.: Economic G

he first periment assistance

ose to 10.5 pn of Dutch from the

ary macroecc performance

d during the sildup of the ding of goverebt and the finflow during

INABILITY A

al assistance overnment cace of paymeon in times m the bauxite

Growth in Suri

iod of growe to Surinameer cent duringaid in 1982 bauxite sectconomic poe, with negat

second growtdepleted foreirnment domeinancing of inthis period w

AND DEBT IN

to Suriname apital expendients and cur

of decrease sector.

iname

wth take–off, e was 7.2 perg 1972 – 198combined w

tor and acclicies, resulttive effect on

th period wasign exchangestic debt, thenfrastructural

was 2.6 per cen

N SOEs

was the mositure, a sourcerrent accounes in foreign

the averager cent of GDP82 period. Thewith decliningcentuated byted in poo

n the standard

s instrumentae reserves, thee servicing o

projects. Thent of GDP.

st e

nt n

e P, e g y

or d

al e

of e

TEST O

Figure 12.

Inflation The first paveragingindependeaverage inof the intpressures.during 1implemenexchange spike in pperiod waperiod wameasures domestic

OF FISCAL SU

. Net Official

period of grog 2.3 per ence in 1975 nflation was 9ternational oi. Despite the1983 – 19ntation of sta

rate unificatiprices. The thras 250 per ceas 13.3 per ceat the beginndemand press

USTAINABILI

Development

owth was acccent. Durin

and the suspe9.7 per cent wil crisis in 19e distortionary993, inflatioabilisation meion was a keyree-year averaent. Inflation ent, reflectingning of the psures.

ITY IN THE C

Assistance in

ompanied byng the perension of the Dwhich was pa973 and domy macroecon

on remainedeasures in 19y policy measage inflation pduring the s

g the impact oeriod, import

CARIBBEAN

P a g e  |   87

n % of GDP

y low inflationriod towardDutch aid, theartly the resul

mestic demandnomic policied low. The994 in whichsure, caused apeak in in thiecond growth

of stabilisationt inflation and

7 

n ds e lt d s e h a is h n d

FIS

88 |  P a

Figure 13.

Balance o The overabauxite sassistancefollowed, activity.

The full rincreased effects ofthe second

CAL SUSTA

g e

. Average Infl

of Payments

all balance osector, and e. A long p

affecting imp

resumption oexports from

f stabilisation d growth peri

INABILITY A

ation in Surin

of paymentsthe suspens

period of foports and the

of aid during m the gold a

measures, reiod.

AND DEBT IN

name

reflects the ssion of Du

oreign exchae overall level

the second gand oil indusestored extern

N SOEs

swings in theutch financiaange shortagel of economic

growth periodstries, and thenal balance in

e al e c

d e n

TEST O

Figure 14.

Exchange Suriname by that timdistortiontransactiothe existsupportingforeign eofficial aexchange official ex2004 whilocal curre Governme During toutstrippeexpansionwhen larmonetisat

OF FISCAL SU

. Suriname: I

e rate

maintained me decreased ary macroecns to the par

ting multipleg stabilisatioexchange maand free mar

rate adjustmxchange rate ich eliminateency.

ent Finances

the first gred governmennary fiscal porge fiscal detion. Fiscal a

USTAINABILI

mports, Expo

a fixed exchainflows of fo

conomic porallel foreign e exchange on measures arket. Wide rket rates ne

ment in 2000. adjustment,

ed three zero

rowth periont expenditurolicies duringeficits were adjustment w

ITY IN THE C

orts & FDI

ange regime oreign exchanlicies had exchange marates were brought sta

divergences ecessitated fuIn 2011 thereafter currenc

o’s and intro

od governmeres. This wasg the period financed ma

was part of

CARIBBEAN

P a g e  |   89

till 1994, bunge along with

driven mosarket. In 1994

unified andability in the

between theurther officiae was anothecy reforms in

oduced a new

ent revenues followed byof stagnation

ainly throughan economic

9 

ut h st 4 d e e

al er n w

s y n h c

FIS

90 |  P a

stabilisatifollowed financed o

Figure 15.

Figure 16.

Governmeduring th

CAL SUSTA

g e

on package by a new r

once again by

. Suriname: FCoverages

. Suriname: O

ent revenues he second gr

INABILITY A

during 1994round of expy money creat

Foreign Excha

Official Exchan

benefited frorowth period

AND DEBT IN

4 – 1996, bpansionary ftion.

ange Reserves

nge Rate

om the gold ad, but additio

N SOEs

but this wafiscal policie

& Import

and oil sectoronal revenue

as s

rs e-

TEST O

raising mbetween egovernmesurpluses.

Public De Dutch funnecessaindependeThe Nethexchange of Dutch markets baccumulat1988.

The fall i1996, waadjustmenDutch aidarrears. Inceiling of

OF FISCAL SU

measures wereexpenditure aent finance w.

ebt

financial asary during theence Surinamherlands. Duearnings fromaid, Surinam

because of ited, causing

in the debt-tas because ont period 199d after 2000, n 2000 Surinaf 60 per cent f

USTAINABILI

e necessary tand revenue. Owas character

ssistance me period 1957me enjoyed furing the perm the bauxite

me did not havits low credi

a spike in

o-GDP ratio,of high inflat92 – 1996. W

Suriname wame passed a for the ratio o

ITY IN THE C

to bridge a wOverall durinrised by low

ade foreign7 – 1982, and full debt forgriod of decle sector and thve access to it worthinessthe debt-to-G

, to below 2tion during

With the full rwas able to el

Debt Act whf debt to GDP

CARIBBEAN

P a g e  |   91

widening gapng this periodw deficits and

n borrowingat the time o

giveness fromining foreignhe suspensionforeign credi

s, and arrearGDP ratio in

0 per cent inthe structuraresumption oliminate these

hich imposes aP.

1 

p d, d

g of m n n it rs n

n al of e a

FIS

92 |  P a

Figure 17.

Figure 18.

Monetary Monetarygovernmeperiod of was veryfinancing followed v

CAL SUSTA

g e

. Suriname: E

. Suriname: O

y Developmen

y developmeent finance anstagnation an

y accommodaby the Cen

very closely t

INABILITY A

Expenditures &

Overall Balanc

nts

ent follows nd the balancnd the secondative to fisc

ntral Bank. Ithe pattern of

AND DEBT IN

& Revenues

ce

the same ce of paymentd take–off, mocal policy thnterest rate

f inflation.

N SOEs

pattern ats. During theonetary policyhrough deficidevelopment

as e y it ts

TEST O

Figure 19.

Figure 20.

OF FISCAL SU

. Government

. Suriname: CGDP

USTAINABILI

t Debt in Surin

CBVS Lending

ITY IN THE C

name

g to Governme

CARIBBEAN

P a g e  |   93

ent in % of

3 

FIS

94 |  P a

Figure 21.

Countrie Belize In 2005 BA debt reperilouslyan expectratio of eannual deexchange absorbed to increassecond de

CAL SUSTA

g e

. Suriname: In

s with Debt R

Belize’s externestructuring py low foreign ted bullet payexternal debt ebt service p

inflows on t13.1 per cen

se with a stepebt restructur

INABILITY A

nterest & Infla

Restructurin

nal debt-to-Gprogramme inexchange resyment of US$to GDP wasayments werethe current at of Governm

p- up in negotring brought

AND DEBT IN

ation

ngs and Exch

GDP ratio wan 2007 was oserves, insuffi$157 million. 69 per cent e nine per ce

account. Interment revenues,tiated interestadditional re

N SOEs

hanges

s 84 per centoccasioned byficient to cove. By 2011 theof GDP, and

ent of foreignrest payments, and were set in 2012. Theelief, with the

t. y

er e d n ts et e e

TEST O

ratio of eexternal dcent, andrevenues a

Introducti

Belize haUS$4,863services ton tourisgoods forthe globaaveraged natural diof roads, public utipoverty an

Since 19experiencwith fisinvestmenexpansionGDP wasexport eaworld sugfiscal defexternal cso large tliabilities.

                  7 Ratio at e8 Economic1995,3

OF FISCAL SU

external debt debt service td the ratio at 3.2 per cen

ion

as a small ope3 and a ratioo GDP of 12

sm, primary r export and fal economic

2.5 per censasters, Belizbridges and pilities and rend crime.

981, the datced cyclical fscal expansnt, trends inn in productivs marginal (0arnings fallingar prices8'. Aficit, rising pucurrent accounthat Governm. The ensuin

                      end of June 201c & Legal Adv

USTAINABILI

to GDP at 6to foreign excof interest p

nt.

en economyof exports a

20 per cent. Tcommoditie

foreign exchanrecession the

nt. In additioze has inadequports, high coelatively high

te of its influctuations insion/contraction the internave capacity. A0.9 per cent) g significant

At the same timublic debt annt deficit, wit

ment could nong accumula

                   13 visory Services

ITY IN THE C

63.8 per centchange earninpayments to

with per capand imports The economys and agro-nge, and since annual gron to being suate physical ost of serviceh rates of un

ndependence,n GDP growon, levels ational econoAverage annufrom 1981

tly due to thme, there wasnd a sharp inth a fall in ofot fully servication of arre

s, Commonwea

CARIBBEAN

P a g e  |   95

7, the ratio ofngs at 4.2 pe

Governmen

pita income oof goods and

y is dependen-manufacturedce the onset oowth rate hasusceptible toinfrastructures provided bynemployment

, Belize hawth, associated

of foreignomy and theual growth into 1985 with

he collapse in a spike in the

ncrease in thefficial reservece its externaears required

alth Secretariat

5 

of er nt

of d

nt d

of as o e y t,

as d n e n h n e e s

al d

t

FIS

96 |  P a

central gowith addstabilizatiincreasingagriculturenvironmbetween 1partial salcentral goGDP recoaccount binflows freserves rUS$62.9 1989.

Figure 22.

Although a significexpansionexpenditu

CAL SUSTA

g e

overnment toditional suppion programmg FDI flowre, combineent, underpin1986 and 198le of shares inovernment's porded at the ebalance alsofrom the grorose from Umillion or 3.6

. Belize: Real(% of GDP)

FDI flows sucant rampingn in the wageure by 19.81

INABILITY A

o enter an IMort being re

me. After a twws into toued with nned the ten 89. Official grn the local teleposition with aend of the pe

improved, owing tourismS$0.05 millio6 months of

l GDP Growth)

ubsequently fg up of cape bill that dro1 per cent b

AND DEBT IN

MF stand-byeceived undewo-year adjusurism, consan improvper cent growrants and receephone compa surplus of 8eriod. The exdue mostly

m sector andon at the enimport cover

h versus Fisca

fell, GDP waspital expendove up centrabetween 199

N SOEs

y arrangemener a USAIDstment periodstruction andved externawth in outpueipts from the

pany improved8.5 per cent oxternal curren

to increasedd the officia

nd of 1984 tor at the end o

l Balance

s supported byditure and anal governmen90 and 1993

nt D d, d al ut e d

of nt d al o

of

y n

nt 3.

TEST O

Consequecent of Gincreased as externashorter maccount pGDP in 1an expanpublic ininflows. Omonths of

In order trajectoryand the officers isupport foof China/The fiscathe overalGDP grow1994 and to-GDP raratio stood

                  9 From 7.7FY 1997/1

OF FISCAL SU

ently the fiscaGDP by theits use of the

al commerciamaturity to finposition deteri990 to an 8.7sion in the t

nterest paymeOfficial reserf import cove

to put the f, significant government

in an attempor the balance/Taiwan, whicl contraction ll budget defwth which av1998. At the

atio was 37.7 d at 9.8 per ce

                      % of GDP in F998

USTAINABILI

al position rev end of FY

e Central Banal borrowing nance the deiorated from a7 per cent of Gtrade deficit, ents and therves consequr.

fiscal accouncuts were m

retrenched pt to curtail e of paymentch provided Ucontributed

ficit9 but it haveraged 1.9 pee end of 1998

per cent whient.

                   FY 1993/1994

ITY IN THE C

verted to a defY 1992/1993.nk overdraft faat higher inteficit. The exa surplus of 5GDP deficit iexacerbated

e leveling ofently fell fro

nts on a morade in capita

several huthe wage b

ts came fromUS$26 millioto a sizeable

ad a constrainer cent per an8, the externale the externa

to 1.3% of GD

CARIBBEAN

P a g e  |   97

ficit of 5.5 pe Governmen

facility as welerest rates andxternal curren5.3 per cent on 1993 due toby increased

ff of tourismom 4.2 to 2.0

re sustainableal expenditureundred publicbill. Financia

m the Republicon in fundinge reduction inning effect onnnum betweenal public debtal debt service

DP at the end of

7 

er nt ll d

nt of o d

m 0

e e c

al c

g. n n n t-e

f

FIS

98 |  P a

Figure 23.

Figure 24.

Real GDPand 2006policies i

0.0

1.0

2.0

3.0

4.0

5.0

CAL SUSTA

g e

. Belize: Impo

. Belize: Real Account Bal

P growth acc, underpinnedimplemented

Imp

INABILITY A

ort Cover (mon

GDP Growthlance (% of G

celerated to 6d by expansi

by the ne

ort Cover

AND DEBT IN

nths)

h versus ExterGDP)

6.5 per cent bonary fiscal wly elected

Benchmark

N SOEs

rnal Current

between 1999and monetary

government

k

9 y t.

TEST O

During thpublic exttwo intercommerciexpanded financed increase iof the extper cent o2001, thedepleted ainternatioexchange programmbond issurates as th

Table 2: B

Total

Bilateral

Commercial

Export Credit

Multilateral

Economic Ind

Debt to GDP

Debt service R

Inflation (%)

Real GDP Gro

OF FISCAL SU

he year 2000,ternal commernational bonial sources. to an unprec

by internatioin import demternal current of GDP in the Central Baand it was nenal obligatio

rate. Sinceme of fiscal ues became anhe country's ri

Belize: Evolut

1981

56.5

14.0

1.8

12.6

28.1

dicators

29.3

Ratio n.a.

n.a.

owth (%) 1.4

USTAINABILI

there was a ercial borrowinds and fun

The overacedented 9.7 onal borrowinmand, led to a

account withhe period fro

ank's foreign ecessary to boons and avoide the gover

expansion, nnual necessiisk profile det

tion of Total E(US$mn)

1 1984 1990

70.6 132.9

20.2 54.1

1.8 14.2

12.4 2.0

36.2 62.6

33.5 32.2

6.7 7.2

n.a. n.a.

4.9 11.5

ITY IN THE C

283.1 per ceing through thnds obtainedall fiscal de

per cent of Gng which, alan immediateh the deficit aom 2000 to 2

reserves weorrow from abd a collapse nment did international

ities at ever rteriorated.

External Publi

0 1993 199

9 167.9 260

66.2 87.7

17.8 47.4

21.8 8.1

62.1 117

29.9 37.7

5.3 9.8

1.5 0.9

0.2 8.8

CARIBBEAN

P a g e  |   99

ent increase inhe issuance od from otheeficit rapidlyGDP in 2001long with thee deteriorationaveraging 19.62002. By midere essentiallybroad to mee

of the fixednot alter itl commerciarising interes

ic Sector Debt

8 2003 20

.8 749.8 98

7 121.0 21

4 452.0 56

4.4 0.1

.6 172.4 21

7 75.9 81

15.7 17

2.6 4.2

9.2 4.7

9 

n of er y

1, e n 6 d y et d ts al st

t

006

85.2

12.6

60.9

1

11.6

1.3

7.0

2

7

FIS

100 |  P a

Debt Rest By the en83.6 per payments eight-yearhad almoobligationtotal. Mat(2005-201payments Matters caservicing payment their intenBank's exthreshold governmeflow andobligationthe first fo

In mid-20National Acommercisought anbilateral swas formtemporariaccrued iexchange By the enbeen tendaffected period on

CAL SUSTA

a g e

tructuring 200

nd of 2005, thcent and cenaccounted fo

r period (199st quadrupled

ns accountingturities were 15) with sh

for designaame to a headcosts, the autof US$157 ntion to exerxternal asset several time

ent to rely on d enable it ns. The goverormal debt res

006, the goveAssembly to ial external nd received fsources. On Dmally launcheily suspendedinterest paymoffer as a "f

nd of 2007, 9dered. The tedebt out to

n principal re

INABILITY A

06-2007

he ratio of extntral governmor a quarter of98-2006) the ed to US$985g for approxitightly bunchharp spikes ated internatid in 2006, as thorities weremillion as bcise a put opratio fell be

s in 2006 anbilateral disbto meet its

rnment thus hstructuring pr

ernment obtairestructure soobligation (s

financial suppDecember 18ed and debt

d with the Goments up to fee" to the pa99 per cent orms extended2029, incor

epayment, an

AND DEBT IN

ternal debt to ment spendinf its current reexternal publ

5 million withmately 57 pehed over a te

occurring ional bonds in addition to

e facing an upbond holders ption in 2007elow its legand it was necebursements tos external dhad no choice rocess.

ined a resoluome US$565 see table II)port from mu, the Debt Ext service paovernment of

the closingarticipating c

of participatind the final mrporating a 1nd lowering

N SOEs

GDP stood ang on interesevenue. In thelic sector debh commerciaer cent of theen-year period

when bullebecame due

o already highpcoming bulle

had signaled7. The Centraally mandatedessary for theo ease its cashebt servicingbut to initiate

ution from themillion of it

), while theyultilateral andxchange offe

ayments wereffering to pay date of the

creditors onlyng claims had

maturity of the12-year graceinterest rates

at st e

bt al e d et e. h et d al d e h g e

e ts y d

er e y e

y. d e e s,

TEST O

from 11.restructurper cent o75.4 per c

Why the S There wasglobal ectrade, travaffected th

Figure 25.

020406080

100120140160180200

US$mn

020406080

100120140160180200

US$mn

OF FISCAL SU

.0 per centing the levelof GDP, withcent.

Second Restru

s a variety of conomic crisivel and finanhrough decrea

. Belize: Debt

Be

Interest Paym

A

Interest Paym

USTAINABILI

t to 8.5 pel of public deh the ratio o

ucturing?

f challenges afis caused a ncial marketsasing tourism

t Service Proje

efore Restruct

ments

After Restructu

ments P

ITY IN THE C

P

er cent. Hoebt remainedf external de

fter the restrudownturn ins. Belize wa

m arrivals and

ections

turing 

Principal Repa

uring

rincipal Repay

CARIBBEAN

P a g e  |   101

owever, afted high at 87.8ebt to GDP a

ucturing as theinternationa

as particularlyrevenues,

ayments

ments

1 

er 8 at

e al y

FIS

102 |  P a

merchandinvestmenbetween 2to 2.1 per

The imponegative governmesince its pof tax revthe signirestructur6.0 per c2011, the cent and were onlyrestructurprimary sto restore cover the health andthe securiencroachmwage freefiscal targprimary sfollowingwith grantaveraged the fiscal the grant f

The case after the f

CAL SUSTA

a g e

dise exportsnts. After gro2001 and 200cent over the

ortant issues impact of

ent revenues, peak in 2010 venues, the sigificant increed bond as thent to 8.5 peratio of the annual debt

y 10.7 per cening. Meanwhurplus, the gothe nation's dcost of impr

d education. Iity challengesments. Moreeze, governmgets of 3.5 peurplus and bu

g the restructuts was 3.0 perapproximateldeficit was

funding it wo

for a second rfirst restructu

INABILITY A

s, remittancowing by an07, the average 2008-2011 p

of concern the global the downtur

when it had agnificant reduease in the he interest raer cent in Auexternal debtservice paym

nt lower than thile, due to thovernment wadeteriorating roving the funIt also faced as of rising crimeover, despit

ment was unaber cent and 2.udget deficit during. On avr cent, howevly 1.4 per cen1.9 per cent

ould have aver

restructuring uring, debt se

AND DEBT IN

es and fon average of ge growth inperiod.

at the time recession o

rn in domestaccounted foruction in gran

cost of sate was slatedugust 2012. At to GDP stooments of USthey were pri

he necessity oas constrainedphysical infrandamental soa shortage of me and Guatee imposing ble to meet t.5 per cent ofduring the fiverage the pri

ver excluding nt of GDP. Simof GDP; howraged 3.0 per

was based onervice paymen

N SOEs

oreign direc4.7 per cen

n GDP slowed

included theon GDP andtic productionr 10.9 per cennt receipts andservicing thed to rise fromAt the end ood at 68.6 pe$81.4 millionor to the 2007f generating ad in its effortastructure and

ocial pillars ofunds to mee

emalan bordea temporary

the respectivef GDP for theve-year periodimary balancethese flows i

multaneouslywever withour cent.

n the fact thatnts (at 20 pe

ct nt d

e d n

nt d e

m of er n 7 a ts d

of et er y e e d e it y, ut

t, er

TEST O

cent of GWorld Bacent threescalatingmake prosome of compensaand Belizutilities th

Figure 26. Debt Rest

In MarchGovernmehired expeto help gumade a paUS$23 mthe bondhor supporprinciple 21 Decemdiscount,

OF FISCAL SU

Government rank-IMF's Deshold for lo

g pressures oovision for thwhich were

ating the prevze Electricity hat were respe

. Belize: Publ

tructuring 201

h 2012, the Pent's intentioerts in the fieuide the negoartial paymen

million, to pavholders. On thrt from any agreement w

mber, with ba coupon of

USTAINABILI

revenues) weebt Sustainabow income cn the public he governmeunder litigat

vious ownersLimited, the

ectively natio

lic Sector Debt

13

Prime Ministeons to restruceld to provideotiations. In Snt of US$11.6ve the way fohis occasion Binternational as announcedoth sides setf 5 per cent

ITY IN THE C

P

ere in excessbility Framewcountries. Afinances wa

ent's contingetion, and thes of Belize Te telephone analized in 20

t-to-GDP rati

er formally acture the 20

e financial andSeptember, th6 million on or more cord

Belize failed tfinancial ag

d by the Primttling upon afor 4.5 year

CARIBBEAN

P a g e  |   103

s of the Joinwork’s 18 pe

Adding to theas the need toent liabilitiese necessity oTelemedia Ltdand electricity09 and 2011.

o (%)

announced the029 bond andd legal advice

he governmenobligations o

dial talks withto obtain inpugency. An in

me Minister ona 10 per cenrs that would

3 

nt er e o s, of d y

e d e

nt of h

ut n-n

nt d

FIS

104 |  P a

increase principal 25 years. on Marchbondholdesavings oten years terms wheand 2029,is 65.1 pethe ratio oratio of ethe balanc

ComparisRestructu The first expansionnecessitatrates. ThiAs the cunable toexchange restructurfiscal andeconomy.activity dusharp incpayments

Belize is relief ovedifferenceof the b

CAL SUSTA

a g e

to 6.788 pegrace period Agreement o

h 20, 2013, wiers. The new

of US$247.0mwith 43.3 p

en compared , the mean aner cent or US$of external d

external debt ce of payment

son of 2007 anring

restructuringn financed byted repeated s ultimately r

country's foreo service the

rate system wing was a pd debt sustai It was instue to the glob

crease in debon the super

projected to er the comine in interest pbond has be

INABILITY A

er cent for tof six years,

of these finanith the participdebt instrum

mn on coupoper cent reduto the 2029 's

nnual reductio$85 million pebt to GDP wservice to cuts is 5.8 per c

nd 2013 Com

g was the ry short-term c

re-financingresulted in a beign reserves

external debwithout exterpre-emptive minability and tigated by thbal crisis, decbt service dubond.

receive US$ng decade. Tpayments to 2een lengthen

AND DEBT IN

the remaininwith the bond

ncial terms wpation of 86 p

ment is projectn payments ction in net super-bond'. B

on in debt server year. Afterwas 62.5 per urrent accouncent.

mmercial Debt

result of exccommercial logs at ever hbalance of pas deterioratebt and main

rnal assistancemeasure to

maintain sthe downturn clining oil revue to the ste

$247 million These amount2023. Becausened, savings

N SOEs

ng life and ad to mature in

was announcedper cent of theted to provideover the nexpresent value

Between 2013vice paymentr restructuringcent, and the

nt earnings on

t

cessive fiscaoans that thenigher interes

ayments crisisd, it became

ntain its fixede. The secondensure futureability in thein economic

venues and theep-up coupon

in cash flowts signify thee the maturity

need to be

a n d e e

xt e 3 ts g e n

al n st s. e d d e e c e n

w e y e

TEST O

accumulatIn order tobe maintabudget premains vGovernmemanagemprogrammDebt MaManagemManagemAct, and among oth

Figure 27.

Jamaica

Jamaica’seconomic services f(GFC). Aservice ab

OF FISCAL SU

ted to preparo achieve thisained, new rereparation an

vulnerable to ent has mad

ment capacitmed includinganagement Stment Commiment Act and

modernizatioher initiatives

. Belize: Com2038 Bonds

s public sectogrowth an

for many yeaAt the onset bsorbed clos

USTAINABILI

e for paymens objective, exvenue measund monitorinexternal shoc

de a commitmty. Various g the formultrategy, the ittee, enactm

a new Secuon of the procs.

mparative Debt

or debt had bnd the proviars before thof the GFC e to half of

ITY IN THE C

P

nts to 2038 (sxpenditure co

ures may be rng is streamcks, and in ligment to imp

measures ation of a Mestablishmen

ment of a urities and Ccess for secu

t Service Paym

been recognizision of ess

he Global Finthe interest

all Governm

CARIBBEAN

P a g e  |   105

see chart VII)ontrols need torequired while

mlined. Belizeght of this, theprove its deb

have beenMedium Termnt of a DebPublic Debapital Marke

urities trading

ment 2007 vs

zed as limitingsential socianancial Crisi

cost of debment revenues

5 

). o e e e

bt n

m bt bt et g,

g al is bt s.

FIS

106 |  P a

The impaalready uassistancenegotiatedadjustmendebt exchasecured arranged February

Introducti

Over theexceeded costs conareas sucontributiMillenniuthe GFC, cent to beJamaica, significan

The declinsectors otourism, wJamaica’s2008, wh2009, relatime remicent in 2context, Jcent for Fgrowth de0.9 per ce

CAL SUSTA

a g e

act of the Guntenable sie with their ad a debt exnt programmeange soon weagreement oa new adjust2013.

ion and back

e past decad100 per cent

nstrained the uch as healing to low ecoum Developm

world growthelow negative

given its ntly impacted

ne in world dof the Jamaiwhich depends largest expoile tourism eative to growittance inflow

2008 from 15Jamaica’s currFY2007/8 froeclined to neent in FY2007

INABILITY A

GFC on wortuation. As

adjustment prxchange in ee which was ent off track. Con a secondtment program

kground

de, Jamaica’t of GDP. ThGovernmentlth, educatioonomic growt

ment Goals (Mh declined froe five per cen

size and by the crisis.

demand resulteican economd on demand

ort, declined bexpenditure dwth 3.4 per cws declined s5.2 per cent rent account d

om 9.8 per cegative 1.8 pe7/8. Addition

AND DEBT IN

rld growth wa preconditogramme, the

early 2010. Hundertaken f

Consequentlyd debt exchmme with IMF

’s total pubhe associated’s ability to on and socth and slow p

MGDs). Withom approxim

nt between 20relative op

ed in major dmy including d from overseby more than declined by 2cent in 2008.harply, fallinof GDP in

deficit widenent for FY20er cent for FYnally, impacte

N SOEs

worsened thistion for IMFe GovernmenHowever, thefollowing this

y, Governmenhange – andF support – in

blic debt had high interes

spend in keycial welfare

progress in thethe advent o

mately five pe007 and 2009penness, wa

declines in keymining and

eas. Alumina60 per cent in.5 per cent in At the same

ng to 13.8 pe2007. In thied to 17.1 pe

006/7 and reaY2008/9 fromed by the GFC

is F nt e is nt d n

as st y e, e

of er 9. as

y d a, n n e

er is er al m C

TEST O

and worldof investliquidity ifor countelevating countries,programm

At the timunable to already lresulting iwhich depbetween tan effort tCentral Bthe rate opoints to 2rate envieconomicfiscal acco

The impaexpendituGovernmecontributecurrency debt at enFY2007/8risk assocof which wthan 16 peincrease ina 23.2 pe17.3 per c

OF FISCAL SU

dwide recessior confidencin the internatries to accesthe risk of so

, including Jmes.

me of the Guse fiscal po

limited fiscain added prespreciated by the last quarteto slow the d

Bank tightenedon its 90-day20 per cent oironment, thc growth, resuounts.

ct on the fiscure side, and ent. The shaed to an incrdenominated

nd-FY2008/9 8. Additionalciated with Jamwas contracteer cent was scn the interest r cent increascent of GDP,

USTAINABILI

on, private cace and increaational capitass capital at overeign debtJamaica, to

GFC, the Govlicy to stimul

al room. Invssure on the v

18.0 per cener in 2008 an

depreciation id its monetaryy Certificate

on 01 Decembe high leveulted in signi

al accounts win particular

arp depreciatrease in the v

debt to just from 50.6 pely, there wasmaica’s domeed at a variabcheduled to mrate on Gove

se in interest , relative to 1

ITY IN THE C

P

apital dwindlased risk avl markets macompetitive t default and pursue debt

vernment of late the econovestor confidvalue of the lont vis-à-vis tnd first quarten the Jamaicay policy stanof Deposit

ber 2008. Theel of debt, ificant deterio

was more signr the interesttion in the evalue of Jamaunder 55 per

er cent of totas considerablestic debt, ovle rate of inte

mature within ernment debt

payments in12.4 per cent

CARIBBEAN

P a g e  |   107

ed with a losversion. Tighade it difficulinterest ratesforcing somerestructuring

Jamaica waomy given thedence wanedocal currencythe US dollaer of 2009. Inan Dollar, the

nce, increasingby 500 basi

e high interesand slowing

oration in the

nificant on thet costs of theexchange rateaica’s foreignr cent of totaal debt at endle refinancing

ver 40 per cenerest and moreone year. Thecontributed to

n FY2008/9 toin FY2007/8

7 

s ht lt s, e g

as e d y, ar n e g is st g e

e e e n al d-g

nt e e o o

8.

FIS

108 |  P a

On the relower revGDP, andrelative trelative tJamaica’s7.4 per cFY2007/8steadily pof GDP FY2007/8

Debt restr

By the lathat Jamaiwould adeconomy.highlighteshocks anthis conte(SBA) wiSBA incissues on sector. Grecognizefiscal roounsustainapayments

The JamaGovernmecondition public secdesigned

CAL SUSTA

a g e

evenue side, senue from cod contributedo tax revenuto approxim

s fiscal deficicent at end-F8, while debrior to the criat end-FY20

8.

ructuring and

st quarter of ica needed a cddress the f. This is parted real and nd exacerbateext, Jamaica ith the Internorporated strthe fiscal sid

Given the exed that some om to conduable level omore in line

aica Debt Exent of Jamaicto a 27-mon

ctor securitiesto reduce the

INABILITY A

slower growtnsumption an

d to an increue to 51.0 p

mately 46.0 it as a proporFY2009/10 fbt-to-GDP, wisis, rose rapi009/10 from

d reform agen

2009, it had comprehensivfundamental ticularly in th

financial ved internal an

entered intonational Monructural refo

de, as well as xtremely tigh

action had tuct the necesof public deb

with the Gov

xchange (JDca (GOJ) on nth SBA. It s issued in thee amount of m

AND DEBT IN

th in tax revend income taxease in interper cent of

per cent inrtion of GDPfrom 4.6 per

which had bedly to about 1

m 109.2 per

nda

become incrve fiscal polic

challenges he context whvulnerabilitiesnd external imo a Standby netary Fund orms aimed strengthening

ht fiscal situto be taken tssary reformbt, and to b

vernment’s res

DX) was laun14 January 2involved the

e domestic mmaturing debt

N SOEs

enue reflectedxes, relative torest paymenttax revenuesn FY2007/8

P increased tor cent at endeen declining130.0 per cencent at end

easingly cleacy change thaaffecting thehere the GFCs to externambalances. InArrangemen

in 2010. Theat correcting

g the financiaation, it wao provide thes, reverse anbring interessources.

nched by the2010 as a pree exchange o

market and waover the nex

d o ts s, 8. o d g

nt d-

ar at e C al n

nt e g al as e n st

e e-of as xt

TEST O

three yeasavings ofinancial known as‘worst casparticipatidomestic expense wwithin twsignificanlowering constitutioobligationvoluntary

The transarate of 9altered Jadomestic variable rThere wacurrency-pricing ribonds forfixed rateon the neaverage o

A key imdebt portf

                  10 The weiyears from11 There wcentral sec

OF FISCAL SU

ars by 65.0 of 3.5 per cen

system, the ms the Financise’ liquidity sing in the dedebt accoun

with 40.0 perwo years. The nt extension

the interest onally mandns, the transa

exchange.

action, which99.2 per centamaica’s debtdebt increase

rate proportioas also a decldenominated isk, investorsr longer dated bonds for vaew bonds avf 19.0 per cen

mprovement wfolio into a s

                      ighted average

m 4.7 years priowere 23 new bcurities deposi

USTAINABILI

per cent as nt of GDP. Imultilateral aial Sector Susupport faciliebt exchange.nted for over r cent (27.0 pobjectives ofin the deb

costs. In orddated obligataction was st

h closed with at on 24 Febt profile. Theed by 18.8 peon declined bline of 6.4 pe

domestic des were only d new bonds1

ariable rate boveraged 12.5 nt before the e

was the concsmaller numb

                   e age of dom

or to the exchanbenchmark boitory: nine fix

ITY IN THE C

P

well as genn order to enagencies fundupport Fund ty for financi. At the time

75.0 per ceper cent of Gf the swap webt maturity pder to maintation to hontructured as

a near-perfecbruary 2010,e fixed rate ercentage poiby 15.5 perceercentage poibt. In order tallowed to

10, and could onds. Interestper cent, we

exchange.

centration of ber of benchm

estic bonds innge. onds in the BOed rate bonds

CARIBBEAN

P a g e  |   109

nerate interesnsure a stableded what wa(FSSF), as a

ial institutione of the swapent of interesDP) maturingere to achieveprofile whileain Jamaica’

nour its deba par-for-pa

t participation significantlyproportion o

ints, while theentage pointsnts in foreignto manage reexchange oldnot exchange

t rates offeredell below the

the domesticmark bonds11

ncreased to 8.3

OJ’s electroni; nine variabl

9 

st e

as a

ns p, st g e e s

bt ar

n y

of e s. n

e-d e d e

c 1.

3

c e

FIS

110 |  P a

Prior to thwith overtraded wiliquidity rthe introdderivationfacilitate Bank of rate, remowith tencompressialso decliagainst thIMF and dynamics confidencthis was appreciaticontrast to

Notably, and Standterm forei(RD) and ‘distressedreversed tthe succesrating upparticipatirisks, signposition, accompan

                  rate; three bonds.

CAL SUSTA

a g e

he exchange, r 350 bonds.ith much higrisk for partiduction of bn of a reliaba smooth estJamaica, in

oved its openors over 3ion, interest rined. The red

he backgroundthe projectepost-JDX. G

ce in the econreflected in

ing by appro the deprecia

when the JDdard & Poor’sign and local‘Selected De

d exchange’.their action, fssful completpgrades wereion rate for thnificant impro

and the nied the econo

                      United States

INABILITY A

the market w. The smallegher liquidityicipants in th

benchmark seble domestic tablishment oaddition to r

n market oper0 days. Co

rates on the Gduction in Bd of the Staff d improveme

Given these dnomy was ren the value oximately 4.ation of 10.0 p

DX was launcs downgraded currency bonefault’ (SD), . However, tfollowing thetion of the exe predicatedhe debt exchovement in tsubstantial omic program

                       s Dollar (USD

AND DEBT IN

was illiquid aner set of bony and thus he exchange. ecurities also

yield curveof the new yiereducing its rations (OMOonsequent on

GOJ Treasury BOJ’s signal f Level Agreeent in the fisdevelopmentsestored to som

of the Jam.4 per cent per cent for 2

ched, rating ad Jamaica’s sonds to ‘Restrrespectively,

the agencies e approval of change (see F

d on the 99ange, a reduche Governmemultilateral

mme.

                        ) bonds; and t

N SOEs

nd fragmentednds would beimproved theFurthermore

o enabled the. In order toeld curve, the30-day signa

O) instrumentn the fiscaBills (TBillsrate occurredment with thescal and debs, the level ome extent andmaican Dolla

for 2010 in2009.

agencies Fitchovereign longicted Default, labelling it a

subsequentlyf the SBA andFigure 1). The9.2 per cenction in credient’s liquidity

inflow tha

                       two CPI-linked

d e e

e, e o e

al ts al s) d e

bt of d

ar n

h g-t’ a y d e

nt it y at

   d

TEST O

Notwithsteconomy growth ccontinuedpolicy warates werechanging markets. WGDP, deperformandiminishinled JamaiExtended downgradpremised agreemengiven the

A second was launcpre-condidesigned GDP or Jof the debsimilar tomaturity pcent of GDwere alsoinvolved instrumen

With a pawas compdomesticawas a ‘pri

OF FISCAL SU

tanding the swas faced wontinued to

d low growthas limited to se relatively loits debt trajecWith public delays in strnces and the ng, the SBA ica to re-engFund Facilit

de by Fitch Raon protrac

nt and the riskdeteriorating

debt exchangched on 12 Ftion to an agexplicitly to a

J$17.0 billionbt ratio to 95.0o the JDX, profile of debDP annually oo broadly sithe voluntary

nts with lower

articipation rapleted in twoally issued anivate exchang

USTAINABILI

successful cowith critical c

affect Jamaih and rising some extent i

ow, and Jamaictory and accdebt-to-GDP ructural refo

temporary rostalled in Ja

gage the IMFty (EFF), whatings. In partcted delay k that the profiscal and mo

ge, the NationFebruary 2013greement withachieve fiscal

n annually, an0 per cent of the NDX wbt and achievon interest eximilar to thoy exchange or coupons and

ate of virtuallyo phases. Thend held bondge,’ whereby t

ITY IN THE C

P

ompletion of challenges. Slica’s earningunemployme

in a context wica was still g

cessing credit close to 150

orms, deteriooom provided

anuary 2011.F in 2013, foich triggered ticular, the doin concludin

ogramme couonetary perfo

nal Debt Exch3 and was, likh the IMF. Tl savings of 8

nd contribute GDP by 2020as meant to

ve cost savingxpense. The alose under thof GOJ securd extended ma

y 100.0 per ce first phase ds, while the the GOJ exch

CARIBBEAN

P a g e  |   111

the JDX, theluggish world

gs, leading toent. Monetarywhere interesgrappling withfrom externa.0 per cent o

orating fiscad by the JDXThese factor

or a four-yeaa subsequen

owngrade wang the IMFld be derailed

ormances.

hange (NDX)ke the JDX, a

The NDX wa8.5 per cent oto a lowering0. In addition

improve thegs of 1.25 pellocation rulehe JDX, andrities for newaturities.

cent, the NDXincluded onlysecond phase

hanged mainly

1 

e d o y st h al of al X rs ar nt as F d

), a

as of g n, e

er s d w

X y e y

FIS

112 |  P a

foreign laverage racurrency bper cent previous eof the domthe variab11 percenreduced ita contextdemand aThese devTBills of Jamaica’sfollowingpre-NDX

                  12 For an exPolicy LesExchanges

CAL SUSTA

a g e

aw bonds wates on bondsbonds, from for USD bonexchange. Afmestic debt inble rate propontage pointsts signal rate t of projecteas well as thvelopments i

f over 100 bs sovereign g the success

ratings12 .

                      xtensive reviewsons from Post

s. (Bank of Jam

INABILITY A

with large fs were reduce12.5 per cent nds, relative fter the NDX,ncreased by f

ortion of dome. Subsequentby 50 basis ped near-term

he onset of stnfluenced a ps. It is imp

ratings weof NDX, this

                   w of the JDX atmortems of Ja

maica: Jamaica)

AND DEBT IN

financial insted to 8.4 per under the JDto 7.0 per c, the weightefive years to estic debt dect to the NDpoints in Febr

m weakening trong fiscal cfall in yields

portant to noere upgradeds rating was s

and NDX see Lamaica’s two R).

N SOEs

titutions. Thecent for loca

DX, and to 5.0ent under thed average age12 years, and

clined by oveDX, the BOruary 2013, in

in domesticconsolidations on the GOote that whiled to ‘CCCstill below the

Langrin (2013) Recent Debt

e al 0 e e d

er J n c

n. J e

C’ e

TEST O

Figure 28.

Comments Jamaica’sbut evolvinternal ffailure anchallengesound marules, wisustainablof crisis.

The recenwere succbroad confundamen

OF FISCAL SU

. Evolution o

s and conclus

s problems wved overtimefactors, includnd the 200s with consisacroeconomicth adequate le while allow

nt debt exchacessful for a nsensus amonntal change,

USTAINABILI

of Jamaica’s S

sion

with debt did e, consequending natural 8-2009 glob

stently high dc policy sup

flexibility, wing the Gov

ange exercisenumber of reng all stakeh

as well as

ITY IN THE C

P

overeign Cred

not materialnt on both disasters, ba

bal crisis. Tdebt highlightpported by bto ensure th

vernment to r

es undertakeneasons. They holders for ims burden sh

CARIBBEAN

P a g e  |   113

dit Ratings

lize overnighexternal and

anking systemThe country’s the need fobinding fiscahat policy ireact in time

n by Jamaicarepresented a

mmediate andharing of the

3 

ht d

m s

or al is s

a a d e

FIS

114 |  P a

adjustmendesign oparticipatinature. Adrisks animportantprogrammincluded FrameworManagemrevampedtransformcontinuingas furtherintroducinstrong fisreduce thehindered J

Followingdeclines temporaryJamaica’snot suffieconomicmust be ensures ththe case public ficollectionreforms topolicy muand finaensuring and a redu

CAL SUSTA

a g e

nt process towof the exchion, as they dditionally, p

nd employedtly, supporteme of reforms

the introdrk, the est

ment System d tax adminis

mation. For g outstandingr strengthening a fiscal ruscal consolidae debt overhaJamaica for tw

g both the JDin Jamaica’s

y lowering os experience ticient conditc sustainabilit

accompaniehat the benefof Jamaica

financial man and use ofo ensure that dust be gearedancial stabilian environmuction in pove

INABILITY A

wards fiscal ahanges promwere simple

policymakers d risk mited the trans. In the case

duction of tablishment

as well as stration progthe NDX,

g reforms agring public fiule. Both debation, were rang by reversiwo decades.

DX and the s interest coof refinancinthat debt restrtion of lonty. Importantd by an ec

fits of restructhis must in

nagement ref public funddebt is managd towards maity, improvi

ment for growerty.

AND DEBT IN

and debt sustamoted transe, clear, andsought to protigation stra

nsaction withe of the JDXa Fiscal Rof a Centthe impleme

gramme and the reforms eed under the

financial mant exchanges, ecognized asing the fiscal

NDX there sts and a si

ng risk. It iructuring is a ng-term fiscatly, restructurconomic procturing are lonclude followeforms to ds and debt ged prudentlyaintaining ming competi

wth, increased

N SOEs

ainability. Theparency and

d equitable inoperly identifyategies, andh a broade

X, the reformResponsibilitytral Treasuryentation of apublic secto

focused one JDX as welnagement and

supported bys necessary todynamics tha

were markedignificant buis clear fromnecessary bu

al, debt andring exerciseogramme thaong-lasting. Inw-through onimprove themanagemen

y. Importantlyacroeconomictiveness and

d employmen

e d n

fy d, er

ms y y a

or n ll d y o at

d ut m ut d s

at n n e

nt y, c d

nt

TEST O

The ECC(Dollars totherwise There waacross thThree coVincent aexpendituGDP ratioper cent ihigh debtforgivenesThe curreto negativ5.1 per ccountries fiscal per2010-201Grenada, period.

The ECCexternallywhich meconomicECCU hstability. been in plUnion’s fBank (ECcontinuedthe enactestablishm

OF FISCAL SU

CU throughout are stated.)

as a generahe ECCU countries (Antiand the Grenure reform pro for the ECCin 2008. Fout burdens thss prior to th

ency union’s cve 4.2 per cencent in 2008widened to

rformance sh2, although sought to re

CU countries y dependent

makes them vc conditions. has experienc

The quasi-culace since 198financial stab

CCB) has purd resilience oftment of an

ment of finan

USTAINABILI

re Eastern Ca

l improvemeuntries durinigua and Banadines) improgrammes. CU fell from r ECCU cou

hrough debt e onset of theconsolidated nt when the r8, and avera5.2 per cent howed improtwo countries

estructure Go

have small mainly on

vulnerable toOn financi

ced a sustaiurrency board83, has providbility. The Ersued a coorf the system.nti-money lancial intelligen

ITY IN THE C

P

aribbean dolla

ent in fiscal ng the 2002-arbuda, Domplemented reThe Governm84 per cent intries attemprestructuringe Great Recesreal GDP gr

recession hit age fiscal dof GDP. On

ovement oves, St Kitts an

overnment deb

open economtourism and o the vagariial sector soined period d arrangemended a critical Eastern Caribrdinated strate

The strategyaundering legnce units and

CARIBBEAN

P a g e  |   115

ars unless

performance-2008 period

minica and Sevenue and/oment debt-toin 2002, to 74pted to reduceg and/or debssion in 2008

rowth slumpedin 2009, from

deficits of then average, theer the periodnd Nevis andbt during this

mies that areinvestments

ies of globaoundness, the

of financiant, which haanchor for the

bbean Centraegy to ensure

y has includedgislation, thed the issuance

5 

e d. St r

o-4 e

bt 8. d m e e d d is

e s, al e

al as e

al e d e e

FIS

116 |  P a

of anti-mois in comp

ECCU coaggregateimports toperiod, raAntigua Grenada. 4.5 per ceexports.

Debt accuassociatedshocks, neconomicthe followthe 2009 c

Pre-Crisis

The ECCgrowth regrowth ininfluencedrestaurant

There waacross thedeficit narcent of Gsurpluses performanparticularduring th

CAL SUSTA

a g e

oney launderpliance with i

ountries are e level, the trao GDP) averanging from aand BarbudaThe average ent, compare

umulation witd with high enatural disastc growth. Thewing three pecrisis; and the

s: 2002-2008

CU’s averageeached a highn the earlied by value t and agricultu

as a generale countries durrowed from

GDP in 2008that averag

nce varied acly marked ie period 200

INABILITY A

ing guidelineinternational s

heavily depade openness aged 100.6 pa high of 114a to an avergrowth of imd with the av

thin the currenexposure to eters, fiscal i

e ECCU expereriods: the 20e 2010-2012 p

8

real Gross h of 10.7 pe

er part of thadded in thural sectors.

l improvemeuring the pre7.4 per cent

8, resulting inged 0.3 pecross countriin Antigua a05-2007, in D

AND DEBT IN

es to ensure thstandards.

pendent on tratio (ratio o

per cent durin4.2 per cent orage of 79.0mports over thverage of 3.0

ncy union haeconomic shombalances arience may b

002-2008 pre-post-crisis per

Domestic Prr cent in 200he pre-crisise constructio

ent in fiscal e-crisis periodof GDP in 20n sustained ser cent of ies with the and BarbudaDominica, an

N SOEs

hat the region

trade. At theof exports andng the sampleon average in

0 per cent inhe period wa0 per cent fo

s largely beenocks, externa

and depressede divided into-crisis periodriod.

roduct (GDP07. Economics period waon, hotel and

performanced. The overal002 to 2.5 pesmall primaryGDP. Fiscaimprovemen

a - especiallynd to a lesse

n

e d e n n

as or

n al d o

d;

P) c

as d

e ll er y al nt y

er

TEST O

extent, inimprovemactivity a2007 andexpenditu

Three ECSt Vincenand expenimplemen(The NatiPlan, 200reintroducthe marke2007. DintroductiVincent a

The ECCdefined acorporatio2012 fromper cent. Aaccountedcountries’highest ra2004), St.(110.0 pereliant onproportionhas narrow2002. NewGovernmefactor in payments

OF FISCAL SU

n St. Vincement was undssociated witd the imple

ure reforms.

CCU countriesnt and the Grnditure refor

nted its ownional Econom05). As part ced in 2005, et-based propominica ref

ion of the Vand the Grena

CU region’s as debt incurrons, trended um $8.1 billionA 17.5 per ced for most o’ debt-to-GDatios were for. Kitts and Neer cent in 20n foreign sourn of external wed to 50.5 w issues of trents Securitie

the growth have consum

USTAINABILI

ent and the derpinned by th the buildupementation

s (Antigua anrenadines) imrm programmn home-growmic and Socia

of the NESa sales tax wperty tax sysforms includValue-added dines introdu

total outstanred by centraupwards to $n at end of 2ent growth in of the increa

DP ratios excr Antigua andevis (153 per 012). The Erces of financ

borrowings per cent in 2reasury bills aes Market (R

of domesticmed a signific

ITY IN THE C

P

Grenadinesconstruction

p to Cricket Wof several

nd Barbuda, Dmplemented remes. Antigua wn adjustmen

al TransformST Plan, inc

was introducedstem was imded, among Tax (VAT)

uced the VAT

nding publical governmen$13.2 billion 002, an expathe stock of

ase. All depeceeded 70 pd Barbuda (13cent in 2005CCU has re

cing than domto total publ

2012 from 59and bonds on

RGSM) were c debt. Domcant portion o

CARIBBEAN

P a g e  |   117

s. The fiscan and tourismWorld Cup inrevenue and

Dominica andevenue and/oand Barbuda

nt programmemation [NEST

ome tax wad in 2006 and

mplemented inothers, the

in 2006. Stin 2007.

sector debtnts and public

at the end oansion of 60.domestic deb

endent ECCUper cent. The35 per cent in; and Grenada

emained moremestic, but theic sector deb.1 per cent in

n the Regionaan importan

mestic interesof debt service

7 

al m n d

d or a e

T] as d n e t.

t, c

of 1

bt U e n a e e

bt n al nt st e

FIS

118 |  P a

paymentsinterest) ofrom $447

Four ECCburdens th2004 thedomestic swapping interest rareschedulParis Clubto meet pinstrumenuntouchednegotiatiorestructur2007 an Vincent aloan had perceived

The ECCUshocks sudeclining price riseeconomicand intenspreferentiexporting Grenadinebeen the mKitts and debt owed(SSMC)

CAL SUSTA

a g e

. Total debt of the ECCU7 million in 2

CU countrieshrough debt r Governmen

and externbonds and c

ates. In 2005 ing of its ofb. The subseqpayment of innts which lefd. In 2006 on under thee approximatagreement w

and the Grenabeen service

d malfeasance

U countries huch as the de

foreign aid, es and high c and financisity of hurricaial access m

countries - Des and St. Kimain foreign Nevis’ sugar

d by the St. Kto the St.

INABILITY A

service payU increased t2002.

s have attemrestructuring nt of Dominnal loans tcredits for loGrenada unde

fficial bilateraquent 2012 denstruments frft the princip

Antigua ane auspices otely 80 per c

was reached wadines’ Ottleyed by the Ital by the privat

have been affeecline in pref

recessions inglobal intere

ial crisis, andanes and trop

mainly affecteDominica, St. itts and Neviexchange earr factory wasKitts Sugar M

Kitts-Nevis-

AND DEBT IN

yments (i.e. to $1,052 mi

mpted to tackand/or debt fo

nica restructuthrough debtonger-term boertook compral external default resultedrom the 2005pal amounts nd Barbudaof an IMF cent of its puwith Italy toy Hall debt oblian export agte builder-ope

ected by a serferential accen developed est rates, thed the increaspical storms. Ted the bananLucia, St. Vi

is, where thesner. On July closed. At th

Manufacturing-Anguilla N

N SOEs

principal andillion in 2012

kle high debforgiveness. Inured both itt exchangesonds at lowerehensive debebt under thed from failure5 restructuredof the debtentered into

agreement toublic debt. In write-off Stbligation. Thegency, due toerator.

ries of adverseess to Europe

countries, oie 2009 globased frequencyThe decline inna and sugaincent and these crops have30th 2005, Sthat point totag Corporationational Bank

d 2

bt n ts s, er bt e e d ts o o n t. e o

e e, il al y n

ar e e t. al n k

TEST O

Limited amillion. Tof tropicaIvan (200large propattributed while a attributed disasters. economicparticular

The Crisis

The curreto negativThe crisisall ECCUgrew marof the coufiscal chaand debt sas such, n

Post-Cris

On averagthe periodacross tharrangemeECCU asdecade, wpoint oveaverage lewith 11.5

OF FISCAL SU

and the CaribThe ECCU coal storms and4), Emily (20portion of Gto the destru

large proporto the de

These shockc growth anly through su

s Year: 2009

ency union’s cve 4.2 per ces period was mU countries wrginally by 0.untries widen

allenge prompsustainability

necessitated fi

is: 2010-2012

ge, the fiscal pd 2010-2012. he countries ent. The wes a whole wewith an averer the period.ending rate in5 per cent at

USTAINABILI

bbean Develountries have bd hurricanes 005), Dean (2Grenada’s pubction caused b

rtion of St. estruction caks caused co

nd increased ubsidies to spu

consolidated ent in 2009 frmarked by newith the exce36 per cent.

ned to 5.2 pepted concerns

and heighteniscal adjustme

2

performance There is littlin the EC

eighted averaere on a steaage annual dAt end-Dece

n the ECCU wthe start of

ITY IN THE C

P

opment Bank been devastatinclusive of

2007) and Tomblic sector dby HurricaneKitts and N

aused by seountries to r

public sectur economic g

real GDP grofrom 5.1 per egative economeption of St. The average

er cent of GD about mediu

ned fiscal distent.

showed impre variation inCU given tage lending ady downtrendecline of 0ember 2012, was 9.4 per cthe decade. T

CARIBBEAN

P a g e  |   119

was US$129ted by a serieLilly (2002)

mas (2010). Adebt has been Ivan in 2004

Nevis’ debt ieveral naturarecord slowetor spendinggrowth.

owth slumpedcent in 2008mic growth inLucia, whichfiscal deficit

DP. The acuteum-term fiscatress risks and

rovement oven interest ratethe monetaryrates of the

nd in the pas.2 percentagethe weighted

cent comparedThe weighted

9 

9 s ), A n 4, is al er g,

d 8. n h ts e

al d

er s y e st e d d d

FIS

120 |  P a

average ddeclining an annuaAccordingnarrowed percentag

Measuredsystem (MMonetarythe pruderespectivecorresponcurrency s

On the Eexchange of 0.6 perto 93.5 acurrent acat end-20decade.

The St Kto restructMarch 20were:

1. Bonds cent hairc

2. Domesbeen pledamount eq

CAL SUSTA

a g e

deposit rates efrom 4.1 per

al average rgly, the weig

from 7.4 ge points in 20

d as ratios of tM2) as wel

y Authority (Bential limits ely, averaginnding over stability there

ECCU’s exterrate (REER)

r cent over that end-2012 ccount deficit012, virtually

Kitts and Neviture US$150 012. The ele

were exchangcut in the net p

stic banks acdged as securquivalent to 3

INABILITY A

exhibited a simcent in 2002

reduction of ghted averag

percentage 012.

total monetarll as total dBacking ratio

of 25 perng 47.2 per the sample

efore remain w

rnal competit) depreciated he sample perfrom 99.9 a

t was estimatey the same le

is authorities million of de

ements of th

ged on termspresent value

cquired Goverity for their

31 per cent of

AND DEBT IN

milar trend ov2 to 3.2 per ce

0.09 percee interest ratpoints in 2

ry liabilities odemand liabio), reserves hr cent and

cent and 9period. Exp

well anchored

tiveness, the at an annual

riod, with theat end-2002. ed at 16.3 perevel as at the

announced tbt totalling U

he debt reduc

that amounteof the bonds

ernment proploans to Go

f total debt; an

N SOEs

ver the periodent in 2012, antage pointste spread ha2002 to 6.2

of the bankingilities of the

have exceeded80 per cen

97.6 per cenpectations od.

real effectivel average rate

e index fallingThe externa

r cent of GDPe start of the

their intentionUS$1 billion inction strategy

ed to a 65 pe;

perty that hadovernment, annd

d, at s. as 2

g e d

nt nt of

e e g al P e

n n y

er

d n

TEST O

3. Externaon a bilate

Treasury obligationnot affectwas to redper cent iland swap

A newly-2013 thaGovernmeborrowingDiscussioThe motimagnitudethe ratio longer ter

OF FISCAL SU

al debt was reral basis.

bills, debt to ns to other inted by the resduce the ratioin 2010 to 62p for the bank

elected Grenaat it intendedent-guaranteegs from ns with credivation for e of the fiscaof debt to G

rm program en

USTAINABILI

estructured th

the Caribbeanternational structuring. To of debt to G2 per cent 20ks.

ada administrd to restructed debt, exceinternational

ditors began ithe restructu

al effort that wGDP (See IMF

ngagement,"

ITY IN THE C

P

hrough the Pa

an Developmefinancial insthe reason forGDP, which

013, mainly b

ration announture all Govept for Treas

financial in earnest in uring was towould be neeF, "Ex post aJanuary 2014

CARIBBEAN

P a g e  |   121

aris Club, and

ent Bank, andtitutions werer restructuringfell from 114

because of the

nced in Marchvernment andsury bills and

institutionsMarch 2014

o reduce theeded to reduceassessment o4, page 34).

1 

d

d e g 4 e

h d d s. 4. e e

of

FIS

122 |  P a

CAL SUSTA

a g e

INABILITY AAND DEBT INN SOEs

TEST O

A Test o

In this cdefinitionmodel onunsustainacan no lovery openexchange comes muthere is repre-emptiexplore tmeasure ton aggregShould thenough tothere is cexchange

Using thifiscal poldeficit findeficit finnot impaccreation. Iusing thedoes not c

OF FISCAL SU

of Fiscal S

chapter we bn of sustainabin Caribbeanable when go

onger meet itn economies

reserves areuch earlier, ieal danger thive action, lethe limits tothe impact of gate spendinghe fiscal stio threaten to capital flight,to service the

s frameworklicy by analynancing. The

nancing via thct reserves inIf governmen

e existing docreate additio

USTAINABILI

Chapter

Sustainabili

build a modility as set ou

n countries.overnment hats debt servic that invaria

e exhausted.if market ag

hat this point eading to capo fiscal sus

f the fiscal defg and the balaimulus to eexhaust the

, and, as a re foreign debt

, we can exayzing the come reason forhe existing don the same want sources funmestic suppl

onal demands

ITY IN THE C

P

r 4

ity in the C

del that accout in Chapter

Fiscal strateas run out ofce commitmeably occurs w

In fact, the ents come towill be reac

pital outflowstainability, tficit and howance of externxpenditure bstock of fore

result, insufft.

amine the susmposition of r this is thatomestic moneay as financinds from domely of loanablon reserves a

CARIBBEAN

P a g e  |   123

Caribbean

ords with the1, and test theegy becomef options, andents; in smallwhen foreigntrigger poin

o believe thahed, and takes. In order totherefore, we

w it is financednal paymentsbecome largeeign reserves

ficient foreign

stainability ogovernment’t governmeny supply doeng via moneyestic investorle funds, thias these fund

3 

e e s d l, n

nt at e o e d s. e s, n

of s

nt s y rs is ds

FIS

124 |  P a

might othactivity. increases governmecrowding foreign rultimately

We therefsustainabiimpact ofto financeand extecompromif the defilender of to fuel gothe reservimbalanceexchange debt.

This ChapmethodoloexaminatiIn the secmethodoloperiods inunsustainacountry cohow far da default c

CAL SUSTA

a g e

herwise have Conversely,

the supplyent to financ

out of privatreserves to ty spent on imp

fore develop ility of fiscaf money create its deficit sernal borrowised, whethericit becomes last resort, m

overnment’s ves can createes to the exremaining to

pter is divideogy, its compion of fiscal scond part we aogy, asking thn the recentable pressureome close to

distant are Carcurrently?

INABILITY A

been investfinancing vi of domestce its deficite sector activthe extent thports, goods a

a model thatal policy fromtion on reservsolely by thewing, the rr that policy iso large that

must expand thunfinanced e

e or exacerbatxtent that theo fully servic

ed into two paponents and hsustainabilityanalyse Caribhe following t past when e on the fohaving unsusribbean count

AND DEBT IN

ed in other pia the monettic money wit with no cvity, but leadhat additionaand services.

t allows us tom the perspves. If gover

e existing domreserve posis optimal or nthe monetaryhe domestic m

expenditure, tte external cuere is insuffice the govern

arts: the first how it can be

in small, opebbean economquestions: hafiscal expan

oreign reservstainable fiscatries from the

N SOEs

private sectotary authoritywhich allowcorrespondingds to a loss oal finance i

o examine theective of the

rnment is ablemestic moneyition is nonot. Howevery authority, amoney supplythe impact onurrent accounficient foreignnment externa

describes theapplied to the

en economiesmies using thiave there beennsion has puves? Has anyal policy? Ande possibility o

or y

ws g

of s

e e e y

ot r, as y n

nt n al

e e s. is n

ut y d

of

TEST O

Model Su

The theorapproach articulatessupply – aavailable MABP imemploymeclose to areserves results in mechanism(2002) in supply ofpayments supply, a which floinvestmenresult is authority.

The MABbetween t

Where

And is is domestithe markewith respe

OF FISCAL SU

ummary

retical construto the ba

s the relatioand by extenforeign exch

mplies that unent and less tha unitary relasuch that nea correspon

m for this, atheir study o

f money. Whioccurs whedeficit is ind

ows out of nt. In the aba fall in th

BP frameworkthe supply of

the money mic credit, P iset rate of inect to time, yi

USTAINABILI

uct of the modlance of pa

onships betwsion, money

hange reservender a fixed han full sterilationship betwew domestic

nding fall in tas articulated on Barbados, ile a surplus n the demandicative of an

the countrybsence of anhe level of r

k begins fromand demand f

. ,

multiplier, R i the price levterest. Takinields:

ITY IN THE C

P

del builds onayments (Meen the domcreation – ans. Generally exchange ratlisation of resween money

money, cetthe level of by Howard relates to theon the extern

nd for moneyn excess suppy on importny additionalreserves of

m a position ofor money; th

is internationel, Y is real in

ng logs and d

CARIBBEAN

P a g e  |   125

n the monetaryMABP) whichmestic moneynd the level o

speaking, thee regime, ful

serves, there iy creation andterus paribusreserves. Theand Maminge demand andnal balance oy exceeds theply of moneyts or foreign inflows, thethe monetary

of equilibriumhat is:

(1

(2

(3

al reserves, Dncome and i idifferentiating

5 

y h y

of e ll s d s, e

gi d

of e

y, n e y

m

)

2)

)

D is g

FIS

126 |  P a

log

Rearrangifirst diffeequation o

This testdynamics principallyimpact ofsupply ona priori coefficienconducted(Howard Molana, MABP anTobago an

This undformulatioadditionalposition badditionalsizeable reserves.

CAL SUSTA

a g e

ing the aboveerence operatoof the form:

∆ log

table equatioof the MABP

y with the a5

f increasing tn the level of

value of thnt, is close tod on this r& Mamingi1988), all ond an offset nd Jamaica of

derlying relaon of our ml domestic mbetween the sl money incrproportion i

INABILITY A

log

log

e and replacior (Δ) provid

∆ log ∆

∆ log

on provides P. In particulacoefficient, wthe domestic foreign reseris variable, o -1. A numrelationship ii, 2002, Copf which foucoefficient fof close to -1.

ationship fomodel, which money creatiosupply of andreases aggregis expended

AND DEBT IN

log

ing the differdes a testable

∆ log ∆

∆ log

a basis to ar, the MABP

which measurcomponent

ves. Under threferred to

mber of studiin the Carib

ppin, 1994 anund some supor Barbados,

orms the barelies on th

n disrupts thd demand forgate spending

on imports

N SOEs

log

(4

rential by thee reserve flow

∆ log

g

(5

examine theP is concernedres the relativeof the moneyhe MABP, theas the offsees have beenbbean regionnd Leon andpport for theTrinidad and

asis for thehe notion thahe equilibriumr money. Tha power and as, decreasing

4)

e w

5)

e d e y e

et n n d e d

e at m at a g

TEST O

In the spithe macroWe beginpower (A)

where Y iwealth.

where FXto governmbanks.

where I between rcurrent vreserves f

which impchanges ipower varcentral bathe influetherefore form:

OF FISCAL SU

irit of this moo-level impacn with a defi) of the form:

is national in

XR are foreignment and CB

refers to retreserves and value of impfrom the previ

plies that chan imports, arriable definedank lending tence of CBCabstract from

USTAINABILI

odel, we deplct of central bnition of dom

ncome, and W

n reserves, CBCB is central

ained importimports in w

ports is equiious period, w

anges in reserre a function d in Equation to commerciaCG on the r

m (1) and (2)

ITY IN THE C

P

loy a tractablbank credit tomestic aggreg

W is a measur

BCG is centrbank credit t

ts. Given thewhich, ceterusivalent to thwe obtain

rves, through of our aggre6. In the cont

al banks, we reserve positan empirical

CARIBBEAN

P a g e  |   127

le indicator oo governmentgate spending

(6)

re of financia

(7)

ral bank credito commercia

(8)

e relationships paribus, thehe change in

(9)

the impact ogate spendingtext of limitedcan focus on

tion. We canl model of the

7 

of t. g

al

it al

p e n

of g d n n e

FIS

128 |  P a

Foreign e

We can afiscal polreserve poCaribbeanconfirm thCaribbeanrequired averaged Figure 29recorded intermittetotal GDPper cent surprisingdollarizedJamaica’shave beencountries 12-week i

The largeGDP, werIn Belize,result of restructur

CAL SUSTA

a g e

exchange rese

apply this applicy in the Cositions and mn territories hat given then countries ito sustain tharound 10 p

9, it is also overall grow

ent periods ofP, the ECCU

of GDP dgly, the leveld economy, as reserve leven halved since

but Jamaica,international t

st foreign excre recorded in, foreign resereduced exteing in 2007 a

INABILITY A

∆

∆

erves

proach to exaCaribbean. Wemoney creatio

over the lae high importin the samphe 12-week per cent. Fromclear that mth in their ref decline. Exphas by far th

during the ls in The Bahre the lowestels, relative toe 2006. It is u, internationathreshold at th

change increan Aruba, Belirves increase

ernal interest as well as im

AND DEBT IN

amine the suse begin by eon dynamics oast 25 yearst dependence

ple, the levebenchmark m the charts

most of the ceserves since pressed as a

he highest levast decade. hamas, an oft among the so the size of useful to note al reserves whe end of 201

ases, measureize, Jamaica aed steadily sin

payments dumproved contr

N SOEs

(10)

(11)

stainability oexamining theof a sample os. The charte of all of thel of reserveof cover ha

s presented inountries have2000, despiteproportion o

vels at over 30Perhaps no

fficially semisample groupf its economy

that in all theere above the12.

ed as a ratio toand Barbadosnce 2006, as aue to the debribution of the

0)

1)

of e

of ts e s

as n e e

of 0

ot i-p. y, e e

o s. a

bt e

TEST O

petroleumreserves hincreased to over 20receipts, investmenthese flowcent by benchmarAruba, as2006, moof GDP. above thelarge incrissues dur

In Belize,the benchwhich poiperiods inthreshold.above thethough thwhere im100 per cimpacted clear that

                  13 Calculatimports. Ttime it waown foreiga result of consistentl

OF FISCAL SU

m sector to had exceededfrom the equ

0 per cent insizeable pr

nt and externws resulted in2012, thoug

rk. An even s the level oving from arAs a result,

e 12-week theases in reserring the mid-2

, the levels ohmark import int there was n which reser. In Belize ine threshold sihe volatility o

mports have flcent of GDP the observedthe level of r

                      tions of reserhe reason is th

as operational, gn reserves (thrf this calculatioly above the 12

USTAINABILI

foreign exchd the threshouivalent of 10n 2004, occasrivate inflownal public bon a decline in gh reserves r

more substaf reserves exound 15 per Aruba main

hreshold throrves reflected 2000s.

f reserves remrequirement a consistent

rve holdings n particular, ince 2009. Thf its imports luctuated from

to over 200d reserve adereserve adequ

                   rve cover in hat the oil refinmeaning that rough its expoon, the import 2-week import

ITY IN THE C

P

hange inflowold. In Barba0 per cent of sioned by grows related orrowing. A this ratio to a

remained weantial increasexpanded signcent to almo

ntained reservough 2012 13

a number of

mained consiup until the ebuild-up whiexceeded thereserves hav

he Aruban caover the last m the equiva0 per cent - hequacy. Neveuacy has incre

Aruba excludnery was self-sthe oil refinerrts) to finance coverage ratiocoverage ratio

CARIBBEAN

P a g e  |   129

ws. By 2008ados, reserveGDP in 2000

owing tourismto property

slowdown inaround 15 peell above thee occurred inificantly aftest 30 per cen

ve levels wel. In Jamaicaexternal bond

istently belowearly 2000s, aich resulted ine three-monthve been at oase is similarhalf-decade –

alent of belowhas adverselyertheless, it ieased in these

ded oil-relatedsufficient at thry generated itits imports. A

o of Aruba wa.

9 

8, s 0

m y n

er e n

er nt ll a, d

w at n h

or r, – w y is e

d he ts

As as

FIS

130 |  P a

economiepolicies.

Sustainab

Next, weeconomiemost of tlittle or nslightly hperiod(s).increases averaged Belize, thsignificanoutput. Thhave occufinancing 2000. Nevaverage ocountry increation s

Next, wesample gmoney crimport, Gcountries money creGDP to

                  14 In the cacreation, imimports rel

CAL SUSTA

a g e

es, both of

bility in the re

e review thees and how it the sample arno central banhigher borrow In The Bahain central bthe equivale

he central bant, generally he largest levurred in Suriin excess of

vertheless, thover the past n the sample ince the 1990

e apply our group. First, reation on resGDP and mo

on an annualeation equivaobserve wha

                      ase of Aruba, wmport elasticitilative to chang

INABILITY A

which maint

ecent past

e extent of has evolved ore not dissimnk financingwing and repamas, Barbadobank credit tnt of two peank financinequivalent to

vels of moneyiname, which10 per cent o

he levels havedecade. Aruthat has reco

0s.

financing suwe examineserves by appney creation basis14. We t

alent to two pat the retrosp

                   where there wasies were calcules in GDP.

AND DEBT IN

tain fixed e

money creatover time. Th

milar: extensivpunctuated b

payment in tos, the ECCUto the publicer cent of GDg has been

o 3.5 per ceny creation, relh recorded twof domestic oe converged uba stands ouorded no per

ustainability me the historicplying Equatdata from t

then simulateer cent and fipective effect

s no history of ated based on t

N SOEs

exchange rate

tion in thesehe patterns fove periods oby periods othe following

U and Jamaicac sector haveDP or less. In

frequent andnt of domesticlative to GDPwo periods ooutput prior toto the sample

ut as the onlyriod of money

model to thecal impact otion 10 to thethe respective the impact oive per cent ot on reserve

f money the change in

e

e or of of g a, e n d c

P, of o e y y

e of e e

of of s

TEST O

would likinto the subinding cothe respegovernmeweek thre

OF FISCAL SU

kely have beeustainability onstraint of r

ective centralent financing eshold.

USTAINABILI

en. This giveof past fiscaleserves by idl banks wouwithout push

ITY IN THE C

P

es us a meanl policy with dentifying howuld have hadhing reserves

CARIBBEAN

P a g e  |   131

ningful insighrespect to the

w much scoped to facilitatebelow the 12

1 

ht e e e

2-

FIS

132 |  P a

Figure 29.

Aruba

Belize

Surinam

All Count

CAL SUSTA

a g e

. Foreign Rese

a

e

me

tries

INABILITY A

erves to GDP

Bahama

ECCU

AND DEBT IN

s

N SOEs

Barbados

Jamaica

TEST O

Figure 30.

Aruba

Belize

Surinam

All Coun

OF FISCAL SU

. Money Creat

a

e

me

ntries

USTAINABILI

tion to GDP

Bahamas

ECCU

ITY IN THE C

P

s

CARIBBEAN

P a g e  |   133

Barbados

Jamaica

3 

FIS

134 |  P a

The charton reservcountries.foreign excreation. above thecreation eabove thethe high olevel of rnon-reliansimulationsubstantiathe bencexchange would hamuch as tcredit to GDP, the twelve pe

In Surinareserves, exceeded guard agaGDP. Thcreation athe period

The simulexchange fiscal shofinancingsusceptibiincreased.

CAL SUSTA

a g e

s in Figure 31ves and reve The ECCUxchange persSimulations

e three-monthequivalent toe average of of 4.7 per centreserves relatnce on credns show that al levels of mhmark levelholdings ha

ave remainedtwo per cent government threshold wo

riods.

ame, there hawhich were the 12-week

ainst money cis suggests a

at these levelsd is approxim

lations suggeposition appe

ocks that w. However, aility to fisc.

INABILITY A

1 simulate theeal significan

U has been thspective, to ashow that res

h threshold ev five per cen0.02 per centt in 2004. Simive to the thrdit from thpost-2006, A

money creatiol of reserveve been wellso in the cof GDP. Ho

were in the ould have be

as been a dipreviously bbenchmark a

creation of asa very low les is unlikely gately 0.7 per

est that up unteared to have

would requireas reserves hacally-induced

AND DEBT IN

e impact of mnt differencehe most resi

additional levserve levels wven in the evnt of GDP, wt for the Uni

milarly, givenreshold and the monetary

Aruba could hon while stil

es. In Barbal above the tase of mone

owever, if netregion of fiven breached

stinct shift sbelow the thand have bees much as fivevel of risk, given that thecent.

til 2010, Jame been relativee additional ave declined,

reserve ch

N SOEs

money creations among theilient, from a

vels of moneywould remain

vent of moneywhich is welon and above

n the increasedthe history oy authoritiesave withstoodll maintainingados, foreignthreshold and

ey creation at central bank

ve per cent oin four of the

since 2007 ahreshold, haveen adequate tove per cent o

since moneye average ove

maica’s foreignely resilient tocentral bankthe country’

hallenges ha

n e a y n y ll e d

of s, d g n d

as k

of e

as e o

of y

er

n o k s

as

TEST O

As expecrelative tBelize havbe unablwithout phowever, dollarizedtransactioexecuted reducing creation.

Sustainab

We then money cr10, we usyear averaunitary vanote that because itmakers inwhich proexchange

The resulcategoriespush themmoderate risk groupsustain, aGDP befo

It is impanalysis s

OF FISCAL SU

cted, given thto the three-ve the highesle to interveputting furth

there are d nature of thns that requwithout rel

the potential

bility at end 20

apply the moreation for thse estimates fage import elalue for . Thwhile the 12t happens to

n every countrovokes uncermarket of tha

ts suggest thas based on thm to this 12and high risk

p. Aruba, Barat a minimumore reaching th

ortant to notshould be exa

USTAINABILI

heir historica-month thresst risks underene to finanher pressure some mitigae Bahamian euire foreign iance on thl fall-out from

013

odel to projehe period 201for current pelasticity for e

he results are d2-week thresh

have wide cury must take artainty and caat country.

at the samplehe extent of 2-week internk. Most of therbados, the ECm, money crehe threshold.

te, however, amined in the

ITY IN THE C

P

lly low levelshold, The Br the framewonce Governm

on reservesating factorseconomy meaexchange c

e Central Bm brief perio

ect the expect13. Again, useriod nomina

each country displayed in Fhold is arbitraurrency. In paccount of theapital flight i

e can be dividmoney creatinational bene countries falCCU and Sureation of fiv

that for thee context of

CARIBBEAN

P a g e  |   135

ls of reserveBahamas andork and wouldment’s deficis. As noteds. The semians that manyan (and are

Bank, therebyods of money

ted impact osing Equational GDP, a 10and retain theFigure 32. Weary, we use i

practice policye trigger poinin the foreign

ded into threeion needed tochmark: lowll into the lowriname can ale per cent o

e ECCU, thia region with

5 

s d d it d, i-y

e) y y

of n

0-e e it y

nt n

e o

w, w ll

of

s h

FIS

136 |  P a

governmevery differules. Givits entiretycountries

Belize anIn these financing 1.5 per cepush reserreduced, aby a longgovernme

Within thhigh risk is below creation is

CAL SUSTA

a g e

ents that exerferent fiscal ven the availaby and is not awithin the Un

d The Bahamcountries, anof under fou

ent in the casrves to the thas noted abovg-term historent’s operatin

he sample, onof foreign ex

the threshos applied.

INABILITY A

rcise differenrisks, despiteble data, the a

able to identifynion.

mas fall into tny fiscal shour per cent - ises of The Breshold. The ve, either by ry of zero mg deficit.

nly one counxchange distreold even bef

AND DEBT IN

nt fiscal police the suprananalysis takesfy vulnerabilit

he moderate ck requiring in the case ofahamas and Brisks in thesetheir dollariz

money creatio

ntry – Jamaicess, as its stocfore the iter

N SOEs

cies and havenational fiscas the ECCU inties in specific

risk categorycentral bank

f Aruba – andBelize, woulde countries areed regimes oon to finance

ca – was at ack of reserverative money

e al n c

y. k d d e

or e

a s y

TEST O

Figure 31.

B

S

OF FISCAL SU

. Impact of M

Aruba

Barbados

ECCU

Suriname

USTAINABILI

oney Creation

ITY IN THE C

P

n on Reserves

B

B

Ja

CARIBBEAN

P a g e  |   137

ahamas

Belize

amaica

7 

FIS

138 |  P a

Figure 32

Ar

Barb

EC

Suri

CAL SUSTA

a g e

. Impact of MReserves

ruba

bados

CCU

iname

INABILITY A

Monetary Au

AND DEBT IN

uthority Cred

Ba

B

Ja

N SOEs

dit on Foreign

ahamas

Belize

amaica

n

TEST O

OF FISCAL SUUSTAINABILI

ITY IN THE C

P

CARIBBEAN

P a g e  |   1399 

FIS

140 |  P a

CAL SUSTA

a g e

INABILITY A

AND DEBT INN SOEs

TEST O

Fi

Although Caribbeanfinancial has been nsix years.deficits anstructural deficits asovereigncountries per cent feconomieclosest neavoided thrate deprecharacteriexternal sevidence sustainablopen andwhen it p

                  15 WEO daCosta Rica

OF FISCAL SU

iscal Susta

sovereign n in the wasystems haveno financial cHowever, th

nd to sustain fimbalances

and slow gron debt to GDP

covered by tfor industrial es and 37 pereighbour15. Hohe extreme foeciation and ised the Cashock in the that the fiscale everywher

d import depputs too muc

                      ata base, April a, Guatemala, H

USTAINABILI

Chapter

ainability in

debt levels ake of the Ge displayed gcrisis anywhehe region has fiscal consoli

in Governowth meant P rose to 98 pthis study in countries, 34

r cent for Cenowever, every

oreign exchanbalance of p

aribbean durpast four dec

al strategy pue. Because ou

pendent, fiscach pressure

                   2014. Central A

Honduras, Nica

ITY IN THE C

P

r 5

n the Carib

have risenGreat Recessgreat resilienere in the regi

struggled to dation strateg

nment financthat the ov

per cent for t2014, compa

4.47 per cent ntral Americay country in t

nge losses, sevpayments criring similar cades. That iursued until nur small econal policy wilon the exter

America is thearagua and Pan

CARIBBEAN

P a g e  |   141

bbean

n across theion of 2008

nce, and thereion in the pascontain fisca

gies to addresce. Wideningerall ratio othe Caribbeanared with 106for emerging

a, the region'the region havere exchangeses that haveepisodes o

is prima facienow has beennomies are soll always fairnal accounts

e average for nama.

1 

e 8, e st al s g

of n 6 g s

as e e

of e n o il s,

FIS

142 |  P a

however four econofiscal sustfiscal unsu

A charactthe Caribinputs anthrough thfinanced foreign exbuilds, thinflation retards grthe improbuild-up oexchange that our strategies whenever

Can we salways suof paymincluding can be saifiscal suspayments to-GDP rawithout folarge or sm

The prevfiscal sucorrelation

CAL SUSTA

a g e

fiscal deficitsomies allows utainability to ustainability g

teristic of all sbean is the fd outcomes he balance oby inflows axchange. If pehe exchangerather than g

rowth and usuovement in thof foreign res

rate. This ecstudy uses in the Carib

r it leads to a b

say that the ustainable wh

ments crisis? among the a

id with certainstainability is

crisis. In paratio in excessoundation, in mall, at any le

vailing use oustainabilityn of the debt

INABILITY A

s are financedus to make undate, as well

going forward

small very opfact that the in terms of f payments.

always producersisted with, rate deprecgrowth. Convually has no ehe balance of erves, rather conomic relato assess th

bbean. Fiscalbalance of pa

converse is hen there is lit

Opinions rauthors of thnty is that thes linked to rticular, the ps of 100 per ctheory or in t

evel of econo

f debt-to-GDis perniciou

t-to-GDP rati

AND DEBT IN

d. This structunambiguous jl as to evaluad.

pen economielink betweengrowth and Fiscal stimulces an exces exchange mciates, and versely, fiscaeffect on inflapayments is than an appre

ationship provhe sustainabil strategy is ayments crisis

true, that fisttle or no riskremain divid

he present stue only objectivthe threat ofpopular notiocent cannot bthe experienc

omic developm

DP ratios as us because io with the ri

N SOEs

ural reality ojudgements oate the risk o

s like those on fiscal policyinflation runlus that is nos demand foarket pressurethe result ial contractionation, becausereflected in a

eciation of thevides the toolity of fiscaunsustainable

s.

scal policy ik of a balanceded on thisudy, but whave measure of an externa

on that a debtbe sustained ice of countriement.

indicators othere is no

isk of balance

of of of

of y

ns ot or e is n e a e

ol al e

is e s, at of al t-is s

of o e

TEST O

of paymenand highcountries,ratios for crisis. WhGDP ratipayments is most evof existingcapital flig

The debt-the literaappeal. Inratings agfinancial qualitativeto-GDP raand comphad the pethe debt-tapproache

Over-empinducing about the the interncountries quickly ainflation. permit rareduction the repudlong beenlong term

OF FISCAL SU

nts crisis. Such debt-to-GD, large and smmany years, what is more, pio may in f

crisis, if thevident in caseg debt. The loght and a loss

-to-GDP ratioature offers nn efforts to gencies, the I

institutions e and quantitatio, in their

plexity of thiserverse effectto-GDP ratio,es - except ou

phasis on the policy errorextent of com

national capitthat have

are those thThe obvious

apid inflationhas also fueliation of debt

n recognised m damage to

USTAINABILI

ch crises haveDP ratios. Onmall, have suwithout suffepolicies aimefact increaseey underminees of default ooss of investos of foreign re

o continues ino other meextract bette

IMF and othehave devisedative indicatoanalyses of s plethora of mt of over-emp, because it isur own - have

debt-to-GDP, and misinf

mparable risktal market. W

reduced dhat have exps policy impn, makes nolled advocacyt obligations,that renegingthe reputati

ITY IN THE C

P

e occurred at n the other ustained highring a balanc

ed at reducinge the risk o investor con

or contentiousor confidence eserves.

in widespreadeasure that her signals froer internationd a bewilderors to accompsovereign debmethods and phasizing the s the only vain common.

P ratio has theforming finanamong sover

With respect tdebt-to-GDP perienced raplication, to po sense. Fo

y of policies t in whole or

g on debt oblion of the so

CARIBBEAN

P a g e  |   143

low, mediumhand, many

h debt-to-GDPe of paymentg the debt-to

of balance onfidence. This restructuringis manifest in

d use becausehas universaom the ratio

nal bodies andring menu opany the debtbt. The varietyindicators haimportance o

ariable that al

e potential foncial marketreign issues into policy, the

ratios mospid bouts oprovoke or toocus on debthat amount toin part. It haligations doeovereign, and

3 

m y P ts o-of is g n

e al o, d

of t-y

as of ll

or ts n e st of o

bt o

as es d

FIS

144 |  P a

inhibits itthe growtsome quaentirely m

The focuinternatioinstabilitymore riskyof balanceis clearly internatio

The methto make confidencthe foreigbalance oof the defthe exchanimpact onexchangethat may this comppayments rate the sohappens t

The absesustainabiinternatiobegan. InfundamenGDP ratiolow ratio

CAL SUSTA

a g e

ts ability to atth of the opearters on de

misplaced.

s on the debnal markets a

y. Countries wy, even whene of paymenta mispercep

nal investor.

hodology we an objective

ce. That is becgn debt, we af payments oficit. We captnge rate of aln aggregate e. Our approaprecipitate daprehensive a

crisis is lowovereign favoo be.

nce of any ility is a majnal financialnvestors are

ntals and appos have risen,s, even whe

INABILITY A

ttract the infloen economy.

ebt relief is

bt-to-GDP raand contributewith relativelyn financial indts crisis. For tion of the so

introduce in e assessmentcause in additalso take accf fiscal stimuture the impall the elementexpenditure anch also allowamaging capiassessment, tw, the rationaourably, what

reliable, objeor factor in l markets sie scared ofropriate polic, and they areen there is l

AND DEBT IN

ow of capital The currenttherefore su

atio confuses es to internatiy high ratios adicators showsmall open eovereign risk

this paper ent of sovereition to the cosount of the ilus and dome

act on foreignts of fiscal pond the deman

ws us to anticital flight. If, the risk of al foreign intever the debt

ective indicathe very highnce the Gre

ff countries cies because

e attracted to cittle apprecia

N SOEs

necessary fot emphasis inurprising, and

sentiment inional financiaare considered

w very low riskconomies thi

k faced by the

nables anyoneign risk withst of servicingimpact on theestic financingn reserves andlicy, and theind for foreigncipate trigger

at the end oa balance o

nvestor shouldt-to-GDP ratio

ators of fiscah volatility oeat Recession

with soundtheir debt-to

countries withation of thei

or n d

n al d k is e

e h g e g d ir n rs of of d o

al of n d

o-h ir

TEST O

structurespayments currency and create

Fiscal sus

In reviewBarbados,early 199the foreigBelize fro1990s, anthe level othe informfor the cBarbados major caBarbados in the latBelize the1993-5 anBelize in the earlier

We confirfiscal sustof the forto fiscal etest indicatested courisked exprecipitaticonclude Belize up

OF FISCAL SU

and policiescrisis that mdebt. This d

es perverse in

stainability in

wing the ex, Belize, the E

90s, there is egn exchangesom the late 1nd in Surinamof foreign excmal benchmaountry conceand Belize d

ause of the had witnesse

te 1980s to ere were twond 2001-6. Ef

1995-6 and r expansion.

rmed that thetainability wareign exchangexpansion funates that, sinuntries wherexhausting thing a balancthat there w to the late 2

USTAINABILI

s, and the pomay affect thedistorts internnvestment ince

n the Caribbea

xperiences oECCU, Jamaievidence of ss in Barbado1990s onwar

me up until 20change reservrk, equivalenerned. Howevdoes it appeabalance of

ed an extendedfinance largeo extended pfforts to contr1999-2000 w

se were the cas in questionge markets ofnded by additce 2000, Bel

e additional fhe stock oce of paymeas some risk000s, but tha

ITY IN THE C

P

otential risk e ability to senational markentives.

an

f Aruba, Thica and Surinsevere markeos in the eards, in Jamaic

007. In all of ves was signifnt to 12 weekver, only in ar that fiscal payments d

d period of me public defieriods of mo

ract the supplywere insuffici

countries and n by testing tf all the selectional money lize is the onfiscal pressurof foreign rents crisis. W

k of fiscal susat fiscal strate

CARIBBEAN

P a g e  |   145

of balance oervice foreignket allocation

he Bahamasname since theet pressure onrly 1990s, inca in the latethose period

ficantly belowks of imports

the cases opolicy was a

isequilibriummoney creation

cits, while inoney creationy of money inent to reverse

periods whenthe sensitivitycted countriecreation. The

nly one of thee would havereserves andWe thereforestainability in

egies appeared

5 

of n n

s, e n n e

ds w s, of a

m. n n

n, n e

n y

es e e e d e n d

FIS

146 |  P a

to be sustimpact of

Looking unsustainaJamaica. expansionwhich wabenchmarECCU anexpansionstill mainThe Bahabenchmarso the risk

The inferepossible eGreat Repolicy in ECCU as creation inin 2011. Tthere is expansion

The impac

As we sawor the Dubalance odid howeincreased consolidaemerged

CAL SUSTA

a g e

tainable everyf the internatio

ahead from ability appeaFor Jamaica

n threatens toas already hovrk. We estimnd Surinamen equivalent tntain reserve lamas there irk, but the couk of unsustain

ence we may exception of ecession has

any of the ca whole. In

n 2009-2010,Therefore, wh

evidence nary pressure.

ct of the Grea

w in Chapter utch-speaking of payments cever worsen g

the alreadtion. The Bwith the str

INABILITY A

ywhere else inonal recession

December ars to be lo

any addition depress forevering aroun

mate that Arucan all sust

to five per celevels above is moderate untry has no

nable fiscal po

draw from thJamaica, theimpaired th

countries we Jamaica's cas

, but a sharp rhile there doeof determin.

at Recession o

3, none of thAntilles has

crisis since 2government rdy formidabBahamas, Arrongest fisca

AND DEBT IN

n the region, n since 2008.

2013, the row everywhenal money-fi

eign reserves d the 12-wee

uba, Barbadoain money-fient of GDP othe 12-weekrisk of fallinhistory of mo

olicy is low.

his analysis isere is no evidhe sustainabihave researchse, there wasreversal was pes appear to

nation to c

on the Caribb

he countries oexperienced

2008. The Grrevenues eve

ble challengeruba and Sual performanc

N SOEs

even with the

risk of fiscaere except ininanced fiscabelow a leve

eks-of-imports, Belize, theinanced fiscaor greater, andk threshold. Inng below theoney creation

s that, with thedence that thelity of fiscahed, or in thes some moneyput into effecbe some riskontain fisca

bean

of CARICOMa financial oeat Recession

erywhere, andes of fiscauriname havece indicators

e

al n al el ts e

al d n e

n,

e e

al e y ct k, al

M or n d al e s,

TEST O

because thtime wheSurinameto the relcountries authoritiewhile fuldomestic.

Four coungroup) anfive per restructurnone of thhave analan inabilithe impaJamaica ftake care cover beloof foreignJamaica dcurrency o

What is eno case compulsoRather, inthat the lothe cost necessary

It is in thNetherlanhave at a

OF FISCAL SU

hey had the len the intern, Dutch finanlatively favouof the ECCUs persisted wlly servicing

ntries, Jamaicnd Belize, St K

cent of gre debt as parhese cases dolysed, that thety to meet sect of the G

foreign currenof projected ow levels thatn debt servicedebt exchangobligations.

vident from twas the gory default on

n each of thesong term cosof additiona

y in order to fu

his sense thands Antilles caall times had

USTAINABILI

lowest debt rnational recesncial assistancurable positioU, where fiscwith strategieg debt oblig

ca (the seconKitts and Nevroup GDP brt of their fiscoes it appear, e decision to ervice obligat

Global Recessncy reserves wdebt service, t markets view capacity did ges, which w

the four restruovernment inn the obligatiose cases, govest of restructual adjustmenully service th

at fiscal polican be assessed a choice o

ITY IN THE C

P

ratios to begission hit. In

ce prior to 200on. In Barbadal indicators

es for fiscal cations, both

nd largest ecovis and Grenbetween themcal adjustmenfrom the evirestructure w

tions in full, sion. In all were more tha

without deprwed as adequnot arise in t

were limited

ucturing epison imminent ons it chose ternment madeuring would bnt that woulhe outstanding

cy in CARICed as sustainabof options, in

CARIBBEAN

P a g e  |   147

in with, at then the case o08 contributeddos and moswere weakerconsolidation

foreign and

onomy in theada (less thanm) opted tont strategy. Indence that wewas driven byas a result ocases excep

an adequate toressing imporuate. The issuethe case of the

d to domestic

odes is that indanger of a

to restructuree a judgemenbe lower thand have beeng debt.

COM and theble. Countriencluding deb

7 

e of d st r, n, d

e n o n e y

of pt o rt e e c

n a

e. nt n n

e s

bt

FIS

148 |  P a

restructurdefault wrestructurchosen tadjustmencould havbut goverthe additconsistentwhether tdevelopmsustainabiconcludin

An object

Based on our test ochanges ithere is liunsustainabalance owaterfall of the aquestion: spending,foreign rintegratiowe are abbalance ohow muchtolerated bbecome cimminentnot go so

CAL SUSTA

a g e

ing, and thewas imminent

ing was unto fully servnts to the suitve been sustanment chose tional fiscal t with full dthat choice

ment. It is thaility, to whi

ng remarks wi

ive measure o

the use of oof the sensitivin fiscal poliittle chance table pressureof paymentsahead on the

actual economthe impact

the propensreserve adeqn with the w

ble to measurof payments ch additional mbefore agentsconvinced th, and seek to

o far in our st

INABILITY A

ere has not t. In all of thdertaken, thevice the dete of policy mained and theto restructureadjustments

ebt service. Tis in the beat question, ich priority ill offer some

of fiscal susta

our methodolovity of the foicy, and conthat current f on the foreig

crisis. Ther river. Our temic relationt of moneysity to impoquacy and

wider world. re how far discrisis under cmoney-financs in the foreighat a balance

exit with thetudy, it is als

AND DEBT IN

been an exhe four casee authoritiesebt, and to measures. The

servicing coe the debt raths that wouldThe importanest interest orather than fshould be a observations

ainability

ogy, anyone oreign exchannfirm our confiscal policiegn exchange re is no indest is based o

nships in they creation oort, market p

the extent Given these stant is the cocurrent fiscal ced fiscal stimn exchange m

e of paymeneir capital. Also possible to

N SOEs

xample wherees where debs could have

make othee fiscal policyosts fully mether than maked have beennt question iof long termfiscal or debattached. Ous on this issue

may replicatenge market tonclusion: thas will lead tomarket, and adication of aon observatione country inon aggregate

perceptions oof financiarelationships

ountry from apolicies, and

mulus could bemarket were tonts crisis walthough we doo estimate the

e bt e

er y t, e n is m bt ur e.

e o at o a a n n e

of al s, a d e o

as o e

TEST O

probabilitthe applic

We knowof the ditheory fismay be fthat leads 2 illustrastatement suffer frointerpretatrequires vtime preftheoreticainsight as 2 we notefor debt ameasure oOther thewith infinare too abthe absenresearcherthumb.

Empiricalapproacheapproacheactual behsuch as promisingprobabilitThis apprHowever,

OF FISCAL SU

ty of a crisis, cable paramet

w of no other astance to decal policy is

financed withto high infla

ates the mana useable me

om insurmotion. The Pre

value judgemeference and

al model hasto the path o

e studies thatand deficits, aof "fiscal spacoretical appro

nitely lived inbstract to yielnce of anythinrs are forced

l studies thates suffer froes, as well ashaviour, and ithe apparent

g approach emty of defaultroach is com, the approac

USTAINABILI

with the helpers.

approach thatefault of fisc

sustainable whout default ation. The liteny efforts toeasure of the dountable diffesent Value Bents about th

the potentis an infinitef debt and det have attempand others thce", but noneoaches, such

ndividuals, anld useful guidng better, pod to rely on

t use the PVom the inhers the fact thainferences mut convergencmployed in sfrom foreca

mpatible withch does not h

ITY IN THE C

P

p of stochasti

t provides an al and debt

when Governmor excessive rature reviewo derive frodistance to deficulties of

Budget Constre starting poiial rate of e horizon, anficits over tim

pted to find ahat have triede appears to b

as those basnd intergeneradance in the licy makers n indicators

VBC and othrent weaknesat the tests doust be drawn ce of variabsome countrieasts of a struh our own have a clear

CARIBBEAN

P a g e  |   149

c estimates o

objective tesstrategies. Inment's budgemonetisation

wed in Chapteom this baldefault; they alconcept and

raint approachint, the rate ogrowth. Thend offers no

me. In Chaptean upper limid to develop abe convincinged on modelational equityreal world. Inand empiricaand rules o

her theoreticasses of thoseo not measurefrom feature

bles. A morees estimates auctural modelmethodologytrigger poin

9 

of

st n et n

er d ll d h

of e o

er it a

g. ls y, n al of

al e e s e a l. y. nt

FIS

150 |  P a

similar toDSGE msustainabiparameter

In the einternatiorisk, and ratio, whiits accuraalways hjudgemenany infercountries radically conventioAnalysis m

The implic

Fiscal polaccount. Twith leveconsider tof paymecrisis, theof capitalcompulsofinancial space, goprivate se

1. Gre

CAL SUSTA

a g e

o the minimumodels haveility, but trisation and fa

nd, the evidnal financial the one indic

ich assumes aacy in measuedged about

nts, so numerorence from with similar different so

onal analyses methodology

cations for po

licy should beThe achievemels of foreignto be adequatnts crisis. In

e risk of defaul flight. Whenry default onresources re

vernment mactor.

Governments estructuring a

INABILITY A

m foreign ree also beenthey suffer ar-fetched ass

dence from markets depecator they allan importancuring distance

with other ous and influethe debt-to-Gdebt-to-GDP overeign risksuch as the

.

olicy in the Ca

e consistent wment of balancn reserves whe, minimises the absence

ult on foreignn there is no

n domestic deemain withinay compete o

should be and debt relief

AND DEBT IN

serve cover in used to

problems sumptions.

Chapter 2end on simplel share is thece that bears e to default. indicators anential that theGDP ratio. ratios are ass

k profiles, IMF’s Debt

aribbean

with balance oce on the extehich the finathe likelihoodof a balance

n debt is low,o capital flighebt is also lown the dome

or tax them a

extremely wf.

N SOEs

in our modelassess fiscaof arbitrary

suggests thae indicators oe debt-to-GDPno relation toThis ratio i

nd qualitativeey overwhelmAs a result

sessed to haveaccording toSustainability

on the externaernal account

ancial marketd of a balancee of payment, as is the riskht, the risk ow. So long astic currencyway from the

wary of deb

l. al y

at of P o is e

m t, e o y

al t, ts e ts k

of as y e

bt

TEST O

Any modidamage mborrower.borrowingin open ecapital foupon as aclearly ou

2. Mde

Excessivereserves, unambigudemand foto exchanare largelyin these conly politherefore credibility

To date, thof financiexchangea rapid infinancial market pr

It is potendebt or toratio. Thefunction, reduce gro

OF FISCAL SU

ification of somarket percep That immg, and therefoeconomies whormation. Dea last resort,

utweigh the co

Measures of exebt-to-GDP r

e exchange munexpected d

uous signal offor foreign excnge rate chany imported, acircumstancescy tool that the demand

y that can arre

here is no creial distress if . In particularncrease in thdifficulty, i

ressure.

ntially damago seek debt ree lowering owhereas atte

owth potentia

USTAINABILI

overeign obligptions of the

mediately raiore reduces thhere FDI is aebt modificat

and only inost, in terms o

xchange markatios as the tr

market pressudepreciation of a need for achange. That

nges in econoand monetarys by capital fwill containfor foreign e

est the flight.

edible way of f there is no er, neither a hhat ratio, is an the absen

ging to growelief in order f the ratio pe

empts to modal.

ITY IN THE C

P

gations has the credit wortises the cohe potential ra significant tion should

n cases whereof future grow

ket pressure srigger for fisc

ure (rapid loof the exchanaction to corrdemand is ve

omies where y policy is maflight. Fiscal

n aggregate dexchange - an

f establishing excess demanigh debt-to-Ga dependable

nce of exces

wth prospects to reduce theer se serves dify outstand

CARIBBEAN

P a g e  |   151

he potential tothiness of thest of futurerate of growthproportion obe embarkede the benefitwth.

should replaceal correction.

oss of foreignnge rate) is anect the excesery insensitivefood and fueade powerles

policy is thedemand - andnd restore the

the likelihoodnd for foreign

GDP ratio, noe indicator ossive externa

to restructuree debt-to-GDP

no economicing debt may

1 

o e e h

of d ts

e .

n n s e

el s e d e

d n

or of al

e P c y

FIS

152 |  P a

A focus oexchange inflationainflation wratio.

3. Uco

There are necessaryproductivinefficientgovernmemay be toaddressedIn contrasthe externwhy it is not sustaisustainabi

Fiscal sus

The risk thome andprobabilitmakes it iobligationthere is amethodolounsustainafor invest

CAL SUSTA

a g e

on reducing market pres

ry. As we obwill have the

Unsustainabiliorrection, but

many reasony: governmene, the delivt, the scope

ent may be croo high. The

d in a plannedst, where evinal accounts, vital to distininable, and tility is at issu

stainability an

that concernsd abroad, is tty that fiscalimpossible fons. In other wan unacceptaogy providability, and thors than any t

INABILITY A

the debt-to-Gssure, may enbserved earliee most power

ty is not tht it is the most

ns why a channts may be tery of govee of governrowding out tese are all strd fashion, anidence of unsimmediate a

nguish betweethose that me, time is of t

nd financial m

s investors onthe distance fl policy will or the borrowwords, investoably high riskdes an oherefore it is to be found in

AND DEBT IN

GDP ratio, rancourage poler, a high ratrful impact in

he only reast urgent.

nge of fiscal ptoo large, noernment servnment activitthe private seructural issuend implementsustainability action is calleen fiscal stratay not be opthe essence.

market intellig

n the financiafrom default,

have an ouwer to fully mors want to kk of unsustaiobjective ma more reliab

n the literature

N SOEs

ather than onlicies that aree of domestic

n reducing the

on for fisca

policy may beot sufficientlyvices may bety too wide

ector, tax ratees that can beted over time

shows up oned for. That itegies that areptimal. When

gence

al markets, a, which is theutcome which

meet their debknow whetheinability. Oumeasure oble alarm bele.

n e c e

al

e y e e, s e

e. n is e n

at e h

bt er ur of ll

TEST O

It is a stroa debt-to-indicator strategy. Uto treat thrisk, for wOur sustasmall opassessing similar siz

Concludin

CountriesAntilles faconsolidastudy. Hois not amcases the when judfinancing market pris not esptwo counexceptionnothing abJamaica aneither cano other ocountries options.

OF FISCAL SU

ong point of o-GDP ratio, bof the dista

Unfortunatelyhe debt-to-GDwant of an alainability test,pen economi

default riskze and structu

ng observatio

s of the Caribface a variety tion in all th

owever, unsusmong these ch

distance fromdged by the

on the exterressure. The opecially high bntries, St K

nally high ratbout the risk and St Kitts aase were theyoptions. In alof our sampl

USTAINABILI

our approach because that ance to defauy, the investm

DP ratio as thelternative that, based on thes, provides

k for the Caure.

on

bbean Commof fiscal chalhe countries stainability ofhallenges in am debt defaul

impact of thrnal balance overall debt-tby internation

Kitts and Nios, but in anof default in

and Nevis chcompelled to

ll four cases ole since 2008

ITY IN THE C

P

that it does nratio proves ult implicit

ment commune main indicat is of genera

he external vus an alternaaribbean and

munity and thelenges whichwe have ana

f the fiscal orany of the colt is long, andhe fiscal straand the foreo-GDP rational standards

Nevis and Jany event the the region. A

hose to restruo do so becauof debt restru8, the authori

CARIBBEAN

P a g e  |   153

not depend onto be a poo

in any fiscanity continueator of defaulal applicationulnerability oative way o

countries o

e Netherlandh call for fiscaalysed in thir debt strategyuntries. In al

d the risk lowategy and it

eign exchangefor the region, even thoughamaica, have

ratio tells uAlthough bothucture debt, inuse there wereucturing in theties had othe

3 

n or al es lt n. of of of

ds al is y ll

w, ts e n h e

us h n e e

er

FIS

154 |  P a

CAL SUSTA

a g e

INABILITY A

AND DEBT INN SOEs

TEST O

Acevedo,EconomicWashingt

Adams, C2010. “FiWorking P

AndersenFinancial 110.

AndersenSustainabat the BEuropean

ArchibaldSustainabResearch

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OF FISCAL SU

B

Sebastian c Outlook on, DC: Inter

Charles, Beniscal SustainaPaper Series N

n, T. 2010. “FCrisis”, Nord

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d, X. and Kility in BarDepartment.

h, A.J., J. ional AccounAccounting”, f Economic R

USTAINABILI

Bibliogra

and Nina TWestern H

rnational Mon

nno Ferrariability in DevNo. 205, Asia

Fiscal Sustaindic Economic

L.H. PederseConsequence

Implications n, Brussels, pp

K. Greenidgerbados”, Cen

Gokhale ants – A M

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ITY IN THE C

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aphy

Thacker. 20Hemisphere, netary Fund

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of Structurp. 4-47.

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ment Bank.

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ssessing Fiscams,” Presentedral Reforms

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Belgrave,ApplewhEconomy Options fConferenc

Bi, H. 20and FiscaAnalysis D

BlancharSartor. 1Answers No.15, 7-

BlancharMacroeco

BlanchardMauro. Staff Posi

Bohn, H.Puzzle: OWhen ReCredit, an

Bohn, H.United SCESifo G

CAL SUSTA

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INABILITY A

“Keynesian ors with Applonomics No.

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hange Rate Pbean After th

wn, Barbados,

gn Default Rank of Canad

Chouraqui, SustainabilityQuestion,” O

d S. Fischmbridge, MA:

Giovanni Dhinking Macrmf.org

cal Policy anlfare ImplicaRates Are L

Vol. 31, pp. 1-

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and Neoclalications to E0411005. Eco

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assical FiscaEMU MembeonWPA.

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omic Studies

Lectures on

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tt ts y,

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TEST O

Branch, the AchiGrowth inin Emergi

Caner, M“Finding Bad,” PoBank.

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Coppin, InternatioApproach

Corsetti, Currency 2013.

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S. and S.S. evement of n The Bahaming Economie

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olicy Researc

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INABILITY A

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D n

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TEST O

GovernmAudit (Fis

Governmof Financ

Governmand Accou

GovernmBill, Mini

GovernmRationalizCabinet O

GovernmGreen PaService.

Greenidg“ThresholCaribbeanMonetary

Grenade,Journal oEconomie

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ment of Jamauntability (Am

ment of Jamistry of Finan

ment of Jamzation Plan,

Office.

ment of Jamaper No.1-20

ge, K.R., Cld Effects ofn,” IMF Wory Fund.

, K. 2011. “of Business, es, Vol. 6, No

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USTAINABILI

aica. 2011. Finibility Framew

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Public Debtc Service.

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and L. DDebt: EvidenWP /12/157,

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Guerson. 201-001, IMF Wnd.

CARIBBEAN

P a g e  |   159

inistration andations.

aper, Ministry

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Testing Someodel: A Studyo. 1, 1-15.

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Marini, GFiscal SuPaper 75,

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f Alternativeustainability”g Economies

“How to Puy Indicators”Bank.

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United NDevelopm

Van Ewij2006. “AFinances,”Bureau fo

Veld, J., 2012. “SoEstimatedCommissi

Wright, APublic DePaper preStudies XL

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Nations Devment Report 2

jk, C., N. DrAgeing and ” CPB Specia

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raper, H. ter the Sustain

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rogramme. 2ork: UNDP.

Rele and E.nability of Dn No.61. CPBsis.

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es. HEI Wo

CARIBBEAN

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nd I. Szekelys Based on an466, European

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CAL SUSTA

a g e

INABILITY A

AND DEBT INN SOEs

Table A4

Table A4

Table A4 Table A4 Figure A4 Table A4 Table A4

Figure A4

Figure A4 Figure A4 Figure A4

4.1 Belize D

4.2 Belize CRestruc

4.3 ECCU S

4.4 ECCU R

4.1 ECCU’s

4.5 ECCU F

4.6 ECCU Dcalculat

4.2 ECCU WECCU

4.3 Externa

4.4 Internat

4.5 Reserve

APPENDIX

Append

Debt Instrum

Comparison oturing

Stylized Fact

Real GDP Gr

s Inflation

Fiscal Perfor

Debt Decompion)

Weighted Av

al Performan

tional Reserv

e Adequacy I

IX

P

dix

ments Restruc

of 2007 and 2

ts

rowth (per ce

rmance (per c

position (Aut

verage Intere

nce Average:

ves: ECCU

ndicators

P a g e  |   167

ctured

2013 Debt

ent)

cent of GDP)

thors’

est Rates:

2002-2012

7 

)

FIS

168 |  P a

Table A4

Type of CBear StearnBear StearnRBTT 9.50RBTT 9.95Citicorp 9.Bond Citicorp 9.Bond Citicorp 8.Bond The InternMiami YieNote The InternMiami TraThe InternMiami 9.25The InternMiami 10.0Belize SovBelize SovII Venezuela

CAL SUSTA

a g e

4.1: Belize De

laim ns 9.50% Notens 9.75% Note0% Fixed rate B5% Fixed rate B75% Fixed Ra

75% Fixed Ra

95% Fixed Ra

ational Bank oeld compensati

ational Bank oanche Note ational Bank o5% Note ational Bank o0% Note

vereign Investmvereign Investm

INABILITY A

ebt Instrume

Final Matur

e 2012e 2015Bond 2010Bond 2014

ate 2007

ate 2008

ate 2013

of on

2010of

2010of

2011of

2012ment I 2015ment

20102023

AND DEBT IN

ents Restruct

rity Princas of NUS$1US$1US$2US$7

US$1

US$2

US$1

US$0

US$2

US$1

US$1US$6

US$5US$5

N SOEs

tured

cipal Amount Nov. 30, 2006 25.0mn 00.0mn 5.6mn 6.1mn

.4mn

.6mn

7.5mn

.6mn

2.0mn

2.0mn

8.0mn 5.2mn

0.0mn 0.0mn

Table A4.2Restructu

NPV Features ofthe Bond

InternationSupport

Tendered Debt Reduction

Step-up Coupon Structure

Repayment

2: Belize Comring

2007 27.7% R

f

nal

Supportand CD 98.0 peraffectedrestructu Use of CClause ( VariousInstrumsubstituDollar Bbond'. Oremaine

• 4.25 % in thyrs.

• 6.00% in thyrs.

• 8.50% ther

• 20 equal, seannual insta

• beginning A2019, and mFebruary 20

APPENDIX

mparison of 20

Reduction

t from IMF, IDB

r cent of the d debt was ured

Collective Acti(CAC)

s Commercial ments were uted by a singleBond - 'Super-Outstanding Deed the same.

he first 3

he next 2

eafter

emi-allmentsAugust maturing 029

StepCouStru

Rep

IX

P

07 and 2013 D

201343.3%

DB No supinterna 86.2 ppartici

ion Use of

Action

e US

ebt

Exchabond wmaturi10.0 pon thedebt w

• 5A

• 6

p-upupon ucture

• 3a

• b2F

payment

P a g e  |   169

Debt

% Reduction

pport from ational agencie

per cent ipation

f Collective n Clause (CAC

anged the 2029with a new boning 2038. A

per cent haircute outstanding was obtained.

.0000 % thru' August 2017.6780 % thereaft

38 equal, semi-annual installmenbeginning Augus2019, and maturiFebruary 2038

9 

es

C)

9 nd

t

fter

ntsst ing

FIS

170 |  P a

Table A4.3

Indicator

Growth (average rGDP)

Overall FDeficit (consolida

CAL SUSTA

a g e

3: ECCU Styl

Pre-Cr2002-20

real

Peaked

Growthinfluencadded iconstruand restagricult

iscal

ated)

NarrowGDP

AntiguaBarbudDominiand St Vthe Gre(2007) Value A(VAT).was reinAntiguaBarbud

INABILITY A

lized Facts

risis Period: 008

d at 10.7%

h was ced by value n the

uction, hotel taurant and tural sectors.

wed to 2.5% of

a and da (2006), ica (2006) Vincent and

enadines implemented

Added Tax . Income tax ntroduced in a and

da (2005).

AND DEBT IN

Crisis Year: 2009

PP2

Depressed to -4.2%

P

Growth was influenced by value added in the construction.

Ginvthchr

Widened to 5.2% of GDP

N1

VinGK

ABinodeta

N SOEs

Post-Crisis Period: 2010-2012

Peaked at 2.8 %

Growth was nfluenced by

value added in he

construction, hotel and estaurant.

Narrowed to 1.1% of GPD

VAT was ntroduced in

Grenada and St. Kitts and Nevis.

Antigua and Barbuda ncreased fees

on: stamp duties and embarkation ax.

Table A4.3

Indicator

Public De

External Sector

Monetary

Vulnerab

Inflation

3: ECCU Styl

Pre-Cr2002-20

ebt

DominiAntiguaBarbudVincenGrenadhigh dedebt restructforgive

Externathe ECClarge an

y Enactmestablisissuanc

ility High exnatural

Peaked

APPENDIX

lized Facts (Co

risis Period: 008

ica, Grenada, a and

da and St t and the

dines tackled ebt through

turing/debt ness

al current accounCU have been tynd persistent.

ment of anti-monshment of financce of anti-moneyxposure to econodisasters and fis

d at 6.2%

IX

P

ontinued…)

Crisis Year: 2009

PP2

The composition of public debt shifted moderately in favour of domestic debt.

*insG6*Nur

nt deficits in ypically

GinrinthUaThp2

ey laundering lecial intelligence uy laundering guidomic shocks extescal imbalances.

0.01 %

P a g e  |   171

Post-Crisis Period: 2010-2012

* All ndependent tates debt-to-

GDP exceeded 60%. * St Kitts and Nevis undertook debt estructuring.

Gross nternational eserves ncreased more han two-fold to

US$981.0mn at-end 2012. The expansion has been persistent since 2009. egislation, the units and the delines. ernal shocks,

1 

FIS

172 |  P a

Table A4.4

Antigua and Barbuda

Dominica

Grenada

St. Kitts and Nevis

St. Lucia

St. Vincent and the Grenadines

ECCU

Source: Eas

CAL SUSTA

a g e

4: ECCU Rea

2002

2003

2004

2.90

6.58

4.91

(2.1

3)

7.39

3.03

3.65

9.64

(1.0

3)

1.91

(1.4

5)

4.36

0.11

4.45

8.40

6.26

7.58

4.16

2.47

4.45

6.44

stern Caribbean C

INABILITY A

al GDP Growt

2005

2006

2007

6.11

12.9

1

950

(0.8

2)

9.51

596

13.5

2

(4.7

0)

612

9.86

5.78

283

(1.8

9) 8.

57

162

2.46

7.63

330

8.76

10.5

0

1073

Central Bank.

AND DEBT IN

h (per cent)

2007

2008

2009

9.50

0.07

(12.

04)

5.96

7.82

(1.1

3)

6.12

0.95

(6.6

6)

2.83

4.62

(6.0

1)

1.62

5.11

0.36

3.30

1.62

(2.2

9)

10.7

3

5.16

(4.2

3)

N SOEs

2010

2011

2012

(7.1

4)

(2.8

2)

2.33

1.20

1.01

(1.4

5)

(0.3

5)

0.97

(0.8

)

0.23

1.69

(1.0

7)

0.23

1.39

(3.0

4

(3.3

5)

(0.6

7)

1.52

(1.0

7)

1.66

2.76

(

)(

)(

)( )

Figure A4

-

1.75

3.50

5.25

7.00

Per

cen

t

4.5: ECCU’s In

2002

2003

2004

APPENDIX

nflation

2004

2005

2006

2007

Inflation Rate

IX

P

2007

2008

2009

e: ECCU

P a g e  |   173

2010

2011

2012

3 

FIS

174 |  P a

Table A4.6

Cou

ntry

Antigua aBarbuda: 2002-08 2009 2010-12

Dominica2002-08 2009 2010-12

Grenada: 2002-08 2009 2010-12

St. Kitts aNevis: 2002-08 2009 2010-12

Source: Ea

CAL SUSTA

a g e

6: ECCU Fisc

Cur

rent

R

even

ue

and 19.3 18.3 20.3

222

a: 25.3 26.9 27.4

222

20.0 19.3 20.0

122

and 27.0 28.0 30.1

222

astern Caribbea

INABILITY A

cal Performan

Cur

rent

E

xpen

ditu

re

Cap

ital

Exp

endi

ture

22.3 24.0 22.2

4.6 5.5 1.5

24.6 22.2 25.4

7.5 11.613.0

17.9 20.0 20.4

10.95.6 5.5

27.3 28.5 28.0

6.5 5.0 4.7

an Central Ban

AND DEBT IN

nce (per cent o

Exp

endi

ture

Tot

al I

nter

est

Pay

men

ts

Ove

rall

5.7 4.7 3.2

(7(12(1

5.7 18. 3.9

(2(2(9

4.5 3.7 4.5

(4(4(3

8.9 8.6 8.2

(4(13

nk.

N SOEs

f GDP)

Bal

ance

(af

ter

gran

ts)

Pri

mar

y B

alan

ce

(aft

er g

rant

s)

7.6)18.) 1.7)

(3.0) (11.0) 0.7

(((

2.6)2.1)9.1)

1.6 1.0 (2.4)

(((

4.6)4.9)3.7)

(2.7) (3.8) (0.6)

(((

4.6)1.0).1

3.9 5.0 4.1

(((

Fis

cal S

tabi

lity

Rat

io

(1.2) (1.6) (1.1)

(1.1) (1.1) (1.3)

(1.2) (1.3) (1.2)

(1.2) (1.0) (0.9)

Table A4.6(Continue

Cou

ntry

St. Lucia:2002-08 2009 2010-12

St. Vincenand the Grenadine2002-08 2009 2010-12

ECCU-six2002-08 2009 2010-12

Source: Ea

6: ECCU Fisced…)

Cur

rent

R

even

ue

23.4 24.5 24.7

122

nt

es:

24.0 25.6 25.2

222

x: 21.1 21.6 22.6

222

astern Caribbea

APPENDIX

cal Performan

Cur

rent

E

xpen

ditu

re

Cap

ital

Exp

endi

ture

19.7 21.0 23.6

7.7 6.4 6.8

21.5 25.8 25.9

6.0 5.8 3.5

20.4 21.9 22.4

6.6 5.8 4.9

an Central Ban

IX

P

nce (per cent o

Exp

endi

ture

Tot

al I

nter

est

Pay

men

ts

Ove

rall

4.2 4.3 4.6

(3(3(7

3.5 4.0 3.7

(2(1(2

5.0 4.3 4.3

(3(5(3

nk.

P a g e  |   175

f GDP)

Bal

ance

(af

ter

gran

ts)

Pri

mar

y B

alan

ce

(aft

er g

rant

s)

3.0)3.1)7.9)

(0.4) (0.4) (4.6)

(((

2.2)1.7)2.5)

(0.7) (0.5) (3.6)

(((

3.3)5.2)3.6)

0.3 (1.6) (1.1)

(((

5 

Fis

cal S

tabi

lity

Rat

io

(1.1) (1.1) (1.3)

(1.1) (1.1) (1.1)

(1.1) (1.2) (1.1)

FIS

176 |  P a

Table A4.7

Cou

ntry

Iiti

l

Ant

igua

an

d B

arbu

da

Dom

inic

a G

rena

da

CAL SUSTA

a g e

7 ECCU Debt

Initi

al

Deb

t-to

-GD

P

Rat

io (

2002

) E

nd o

f P

erio

d D

ebt-

to-G

DP

127.5 97.8

99.2 72.3

78.5 105.

INABILITY A

t Decompositio

Rat

io (

2012

) C

umul

ativ

e P

erce

ntag

e Po

int C

hang

e (2

002-

2012

)

8 (15.0)

3 (28.6)

4 61.0

AND DEBT IN

on (Authors’ c

()

Mai

n C

ontr

ibut

ing

To Increase in Debt-to-GDP Ratio

Primary deficit [48.1], Interest rate [13.0]

N SOEs

calculation)

Con

trib

utin

g F

acto

rs:

Cum

ulat

ive

(per

ce

nt o

f G

DP

):

To Decrease Debt-to-GDPRatio

Real GDP growth [-15.2Endogenous factors [-8.2]

Primary surpl[-25.3], GDPgrowth [-18.9

in P

2],

lus P 9]

Table A4.7(Continue

Cou

ntry

Init

ial

St.

Kitt

s an

d N

evis

S

t. L

ucia

S

t. V

ince

nt a

nd

the

Gre

nadi

nes

7 ECCU Debted…)

Init

ial

Deb

t-to

-GD

P

Rat

io (

2002

)

End

of

Per

iod

Deb

t-to

-GD

P

120.5 144.9

59.5 78.7

57.2 68.3

APPENDIX

t Decompositio

Rat

io (

2012

) C

umul

ativ

e P

erce

ntag

e Po

int C

hang

e (2

002-

2012

)

9 39.1

7 31.0

12.1

IX

P

on (Authors’ c

Mai

n C

ontr

ibut

ing

Fac

tors

:

To Increase in Debt-to-GDP Ratio

Interest rate [26.8], Growth/ Interest differential [12.9]

Interest rate [26.8], Endogenous factors [13.5]

Interest rate [19.2], Endogenous factors [10.5]

P a g e  |   177

calculation)

Fac

tors

: C

umul

ativ

e (p

er

cent

of

GD

P):

To Decrease in Debt-to-GDP Ratio

7 

FIS

178 |  P a

Figure A4

Figure A4

CAL SUSTA

a g e

4.8: ECCU We

4.9: External P

INABILITY A

eighted Avera

Performance A

AND DEBT IN

ge Interest Ra

Average: 2002

N SOEs

ates: ECCU

2-2012

Figure A4

Figure A4

4.10: Internat

4.11: Reserve A

APPENDIX

ional Reserve

Adequacy Ind

IX

P

s: ECCU

dicators

P a g e  |   1799 

FIS

180 |  P a

I 

ability to paaccounting 58 

agricultureAntigua an59, 65, 66118, 170,

ApplewhaitArana, RumAruba, ix, 6129, 130,

Augmented(ADF), 4

Bahamas, ix79, 80, 12145, 146,

balance of p13, 16, 1764, 65, 6676, 83, 86125, 139,

Barbados, i58, 65, 66126, 128,134, 137,155, 157,

CAL SUSTA

a g e

Index

A 

ay, 3, 4, 6, 9, 24,approach, 54, 5

e, 66, 96 nd Barbuda, 53,6, 70, 115, 116, 1 171, 172, 174, 1e, Denisa, v

mile, v 65, 69, 71‐77, 12  132‐138, 145, 

d Dickey Fuller2, 43, 55, 57, 58

B 

x, xii, 53, 56, 66,28, 130, 132‐138 157 payments, ix, 7,7, 25, 27, 28, 32,6, 68, 69, 70, 71,6, 88, 92, 97, 104 141‐146, 148, 1ix, 17, 19, 53, 546, 69, 81, 82, 83, 129, 130, 132, 1 138, 145, 146, 1 160 

INABILITY A

, 33 55, 

58, 117, 176 

28, 146 

8 

, 78, 8,  

 12, , 63, , 75, 4, 150 4, 55, , 125, 133, 147, 

B

B

c

C

C

c

c

Cc

dd

d

d

AND DEBT IN

Belize, x, xi, xii, 69, 94, 95, 96103, 104, 105132, 133, 135145, 146, 147

Brazil, 12, 45, 5

C

calibration tech57, 60 

CARICOM, 8, 5146, 147 

Central Bank, 165, 69,  72, 7484, 92, 97, 99127, 131, 135161, 170, 172

central bank fin130, 134, 136

co-integration, 157 

Croes, Elmelynncurrency union116, 119 

D

debt ceiling, 38,debt exchange, 106, 109, 110118 

debt forgivenes118, 171 

debt restructur100, 103, 104118, 128, 147162, 167,  169

N SOEs

58, 63, 65, 66, , 98, 99, 101, , 128, 129, 130, , 136, 137, 138, , 167, 168, 169 52, 84, 158, 164 

C 

hnique, 53, 56, 

53, 54, 63, 67, 

14, 24, 29,  30, 4, 75, 76, 77, 83,, 100, 107, 115, , 153, 155, 156, , 173 nancing, 56, 6 42, 43, 55‐60, 

n, v n, 27, 28,  29, 

D 

, 39, 59  32, 69, 100, , 111, 113, 114, 

ss, 65, 91, 115, 

ring, 63, 69, 94, , 107, 114, 115, ,  148, 150, 153,9, 171 

 

, 

, 

Debt Sustai49, 60, 14161, 162 

debt threshdebt-to-GD38, 39, 4156, 58, 5994, 97, 10117, 142,152, 153,

default, 4, 1124, 141,151 

deficit, 2, 4,29, 37, 3965,  68, 682, 83, 8497, 99, 10110, 115,123, 124,147‐150, 

devaluation70, 71, 84

Dominica, 565, 115, 1170, 171,

Dorinnie, HDSA. See  DAnalysis 

DSGE. See DGeneral E

Dutch CariDynamic St

Equilibri161 

inability Analys48, 150, 159, 160

hold, 43, 44, 53, DP ratio, 13, 19, 1, 43, 45, 47, 51,9, 65, 67, 71, 78,03, 108, 111,  11 143, 144, 150, 1 171, 176, 17716, 25, 37, 107, 1 145, 147, 148, 1

, 6, 7, 11‐ 16, 249, 42, 43, 45, 56,69, 71, 73, 74, 784, 86, 89, 91,  9202, 106, 107, 108 116, 118, 119, 1 125, 134, 135, 1152, 153, 174 

n, 11, 12, 13, 30,4 50, 51, 53, 57, 5116, 117, 118, 16 172, 174, 176

Harry, v ebt Sustainabilit

Dynamic StochasEquilibrium Modibbean, 8, 63, 65tochastic Generium Model, 46, 

INDEX

sis, 0, 

158 20, , 53, , 81,  15, 151, 

118, 150, 

4, 28, , 58, 8, 80, 2, 95, 8, 120, 143, 

, 31, 

8, 59, 61,    

ty 

stic del 5, 67 ral 60, 

E

Ee

e

e

f

f

f

f

P

E

ECCU, 28, 29, 5115, 116, 117,128, 130, 132

Euro Zone, 47 exchange mark24, 25, 26,  66153 

exchange rate, 116, 18,  25, 2646, 50, 66, 84,104, 107, 120,142, 144, 149,161, 163 

external market25, 26, 30, 15

F

fiscal deficit, 4, 28, 29, 32, 58,68, 69, 71, 73,95, 99,  102, 1123, 141, 142,

fiscal expansion15, 16, 66, 95145, 146 

fiscal policy,  5,17, 19, 20, 21,37, 39, 42, 43,57, 58, 60, 68,108, 123, 124,141, 142, 144159, 162, 164

fiscal strategy, 111, 14, 15, 17,29, 32, 67, 12

P a g e  |   181

E 

51, 54, 65, 66, 7, 118, 119, 120, ‐138, 167‐177 

ket pressure, 22,6, 142, 151, 152,

11, 12, 14, 15, 6, 30,  31, 34, 45,, 87, 89, 90, 99, 0, 125, 130, 141, 9,  151, 154, 156,

pressure, 15, 1 

F 

6, 7, 12, 14, 24, , 63, 64, 65, 66, , 78, 83, 84, 89, 108, 115, 119, , 170 

n, 7, 11, 12, 13, , 99, 104, 124, 

11, 12, 13, 14, , 25, 30, 31, 34, , 44‐48, 52, 56, , 73, 92, 107, , 128, 130, 139, ‐152, , 156, 158, 1, 2, 3, 6, 7, 8, 7, 22, 25, 26, 28, 3, 141, 142, 153

1 

, , 

5, 

, 

 

, 

3  

FIS

182 |  P a

fiscal sustai14, 19, 2038, 39, 4053‐59, 12144, 145,157, 158,

foreign exc16,  24‐3088, 89, 90123, 124,134, 135,144, 145,

foreign rese25, 26, 66124, 126,142, 143,151  

generationa41, 59 

global econGlobal Fina156 

global reces79, 102, 1

Great Rece141, 144,

Grenada, 5063, 65, 11119, 121,172, 174 

Grenade, DGuyana, 50159, 162 

CAL SUSTA

a g e

inability, 3, 11, 0, 22, 25, 26, 32,0, 42, 46, 47, 48,23, 124, 141, 142 150, 152, 155, 1 162, 163, 164hange, 4, 5, 6, 70, 66‐71, 81, 84,0, 91, 94, 95, 118 125, 128, 129, 1 136, 139, 141, 1 148, 151, 153 erves, 5, 13, 14,6, 81, 99, 104, 12 127, 128, 132, 1 144, 145, 146, 1

G‐H 

al accounting, 3

nomic crisis, 101ancial Crisis, 10

ssion, 63, 67, 68147 ession, 67, 81, 11 146 0, 51, 53, 54, 58,15, 116, 117, 118 147, 161, 170, 1

Dr. Kari, v 0, 51, 53, 65, 66,

INABILITY A

13, , 37, , 50, 2, 156, 

7, 11‐ 86, 8, 133, 142, 

24, 23, 138, 150, 

38, 

1 05, 

8, 69, 

15, 

, 59, 8, 171, 

 69, 

I

i

i

i

J

JLLl

MM

M

MM

AND DEBT IN

IBC. See inter‐teconstraint 

interest costs, 2109, 114 

interest rate, 5, 31, 32, 40, 41,50, 56, 59, 61,99, 100, 102, 110, 111, 118,167, 176, 177,

inter-temporal constraint, 59

J‐K

Jamaica,  23, 3164, 65, 66, 69,126, 128, 129,134, 136, 137,147, 153, 157,162, 165  

Jhinkoo, Julia, LaCorbiniere, JLangrin, Dr. Brleast square reg

M

Matos-Pereira, EMABP. See Moto the Balance

MBS. See Modesustainability

McKenzie, SidonModel-Based Su

38, 41, 59 

N SOEs

I 

emporal budget 

3, 31, 106, 107, 

18, 23, 28, 30, , 45, 46, 47, 48, , 63, 68, 92, 97, 104, 107,  109, 8, 119, 120, 156, 7, 178 

budget 9 

K‐L 

1, 32, 53‐58, 63, , 70, 105‐114,  9, 130, 132, 133, 7, 138, 145, 146, 7, 159, 160, 161, 

vi Jason , vi rian, vi gression, 53 

M 

Edwina, vi netary Approache of Payments el‐based 

nia, vi ustainability,

h 

Monetary ABalance o160 

money crea124, 125,134, 135,148 

Monte Car46 

Multiple Eq60 

NDX, 111, 1net present120 

Netherlands153 

NPV. See nordinary le 

Pakistan, 4present val

constrainPrimary Ga55, 56, 57

public debt45, 49, 5164, 91,  9108, 111,161, 163,

PVBC. See pconstrain

Approach to theof Payments,  1

ation, 12, 30, 90, 126, 128, 130, 1 136, 137, 145, 1

lo Simulations,

quation Model,

N‐O 

112, 114 t value, 18, 19, 1

ds Antilles, 71, 14

et present valueeast squares, 53

P‐Q‐R 

2, 43, 163 ue budget

nt, 38, 149 ap Indicators, 47, 157 t, 18, 38, 39, 40, 1, 53, 54, 57, 58,5, 97, 101, 105,  118, 158, 159, 1 164, 165, 171  present value but 

INDEX

e 25, 

, 123, 133, 146, 

45, 

 45, 

104, 

47, 

e 

40, 

43, , 59, 106, 160, 

udget 

r

R

Ss

SSSs

S

S

s

S

s

P

risk, 1, 2, 3, 5, 145, 49, 50, 51,109, 110, 111,136, 142‐146,156, 158 

Roberts, Lilia, v

S

Scott-Joseph, Dsmall open econ16, 77, 95, 11

Smith, Latoya, vSmith, RasheedaSOE. See small osovereign debt, 141, 143, 157,165 

St Kitts and Nev120, 147, 153,

St Vincent, 66summary indica

41, 59, 60 

Suriname,  53, 686, 88‐94, 130138, 145, 146,

sustainability, 118, 20, 24, 26,40, 41, 42, 43,57‐60, 67, 104124, 128, 130,148, 153  

P a g e  |   183

8, 20, 23, 33, 34, 55, 59, 99, 107, 114, 134, 135, , 150, 152, 153, 

vii 

S 

Dr. Ankie, vii nomy, 6, 8, 11, 5, 144, 153 vii 

da, vii open economy 1, 34, 46, 107, 

7, 158, 159, 162, 

vis, 63, 69, 115, , 171 

ators, 38, 40, 

65, 69, 84, 85, 0, 132‐135, 137,6, 147, 158 1‐8, 11, 13, 14, , 28, 29, 37, 38, , 45‐49, 52, 54, 4, 114, 119, 123,0, 131, 135, 146, 

3 

4, 7, 

 

, 

FIS

184 |  P a

tax gap, 40,tourism, 6778, 95, 96117, 129 

transmissio16, 162 

Trinidad an67, 70, 71

unit root te57, 58, 60

unsustainab23, 27, 14

Uruguay, 5 

V‐

VAR. See vVector Aut52, 60, 16

Worrell, DrWright, Dr.

CAL SUSTA

a g e

T‐U 

, 44 7, 68, 70, 71, 76, 6, 97, 101, 106, 1

on mechanism,

nd Tobago, 53, 1, 126 ests, 42, 43, 55, 50 bility, 5, 8, 9, 2142, 146, 152, 15352 

‐W‐X‐Y‐Z 

vector autoregretoregression, 4564 r. DeLisle, iv, v Allan, vii

INABILITY A

77, 115, 

15, 

65, 

56, 

1, 22, 3

ssion 5, 56, 

AND DEBT INN SOEs