Report No. 12758 LAC , 4 -'' ;E f f f . .x ECONOMIC POLICIES CGCED CARNBE \GRl BFOC R REATMO\ L\ ECO\OOC DET FLOP\N FOR TRANSITION IN THE ORGANIZATION OF EASTERN CARIBBEAN STATES World Bank Caribbean Division Country Department III Latin America and the Caribbean Caribbean Development Bank Economic Programming Department l Economic Policies For Transition In The Organization Of Eastern Caribbean States May 1994 THE WORLD BANK CARIBBEAN DEVELOPMENT BANK CARIBBEAN DIVISION ECONOMIC PROGRAMMING DEPARTMENT Preface This report is written to assist OECS govemments to make a successful transition to the new world economy. It is one of three reports prepared for the Caribbean Group for Cooperation in Economic Development (CGCED) meetings in June of 1994, the other two being Caribbean Region: Coping with Changes in the Extemal Environment (Report No. 12821 LAC), and Caribbean Countries: Policies for Private Sector Development (Report No. 12617 LAC). Together they provide a vision for the Caribbean for the future. Coping with Changes in the External Environment discusses in detail the impact of global trading trends and what the Region must do to accommodate itself for the transition to a new environment Preferential market access, trade policy, NAFTA and the response to external shocks are examined in detail. Policies for Private Sector Development is an in-depth examination of the legislative, fiscal and regulatory framework in place in the Region, and of the reforms that are required to position the Region to take advantage of private sector development, especially in tourism and in a multitude of viable service sector activities. This report was prepared as part of a collaborative agreement between the Caribbean Development Bank (CDB) and the World Bank. It was prepared under the overall direction of Jose B. Sokol of the World Bank. A Mission Team consisting of Liaqat Ali (consultant), Carlos Holder (CDB) and Alasdair Sinclair (consultant), visited the OECS countries from July 19 to August 7, 1993. The team was accompanied by the country economist from the OECS Economic Affairs Secretariat in each country. Other contributions came from: the Eastern Caribbean Central Bank (ECCB); Raj Nallari, Badrul Haque and others in the World Bank; Nelson Modeste, Patrick Kendall, Michael Tharkur, Orai Williams, Averil Scantlebury-Maynard, Clarence Hinkson, Andrew Gilmour, Dorla Humes and Alan Slusher from the CDB. Richard Bemal, Jamaican Ambassador to the U.S., and Spiros Voyadzis of the World Bank, both made important suggestions. The support staff was headed by Hazel Vargas and included Milagros Divino, Deborah Trent, and Melissa Willams. The layout of the finished volume was done by Wendeline De Zan. iii l Contents PREFACE id ABBREVIATIONS AND ACRONYMS ix DATA NOTES x SUMMARY AND CONCLUSIONS xi CHAPER 1 INTRODUCTION 1 Previous Reports - Selected Issues 2 Economnic Performance 3 Country Response to Policy Recommendations 3 Recent Economnic Perfornance 4 Sectoral Performance 4 Public Finances 6 Money and Credit 8 The Extemal Sector 9 Govemrnent and Govemrnment-Guaranteed Debt 10 Central Govemrnment Domestic Debt 10 Total Public Extemal Debt 11 Social and Environmental Issues 11 The State of the Environment 12 Condusions 12 CHAPTER 2 FRAMEWORK FOR TRANSMON 15 Alternative Scenarios 16 Sources of Growth 17 The Macro Setting for Economic Adjustment 18 Economic Policies for Adjustment: Policy CoordinatioR Factor Mobility, Fiscal Policy, Monetary Policy and Exchange Rate Policy 20 Condusions 26 CHAPTER 3 FACTORS BEARING ON EXPORT PROSPECTS 27 Income Levels in North America and Europe 27 Preferental Trading Relationships 27 CARICOM Polides 29 Quality of Goods and Services 29 Marketing Arrangements 30 Condusions 3 1 v CHAPTER 4 PREFERENTIAL TRADING ARRANGEMENTS 33 Bananas 33 Impact on the Windward Islands 34 A Policy Agenda 35 Sugar 37 Manufactured Products 38 Condusions 40 CHAPTER 5 INCENTIVE FRAMEWORK AND POLICIES 41 Trade Polides 41 Marketing Boards 44 Price Controls 45 One-Stop Shop and Administrative Procedures 46 Assistance and Information Regarding Ucenses, Permits, Registrations, Approvals, Land itle and Land Use 47 Condusions 47 CHAPTER 6 PUBLIC SECTOR INVESTMENT PROGRAMS 49 Public Sector Investment in the OECS Countres 50 Total Finandng Requirements 50 The Size and Composition of the PSIP 50 Country Public Investment Programs 51 Finandng 55 PSIP Planning and Implementation 56 CHAPTER 7 ANTIGUA AND BARBUDA 57 Major Macroeconomnic Issues 57 Medium-Term Economic Prospects 58 Baseline Scenaro 58 Altemative Scenaro 60 CHAPTER 8 DOMINICA 63 Major Economnic Issues 63 Mediumn-Term Economic Prospects 64 Base Case Scenario 64 Altemative Scenaro 66 CHAPTER 9 GRENADA 69 Major Economic Issues 69 Medium-Term Economic Prospects 70 Base Case Scenaro 70 Altemative Scenaro 72 vi CHAPlER 10 MONTSERRAT 75 Major Econonic Issues 75 Medium-Terrn Economic Prospects 77 The High Growth Scenario 78 The Low Growth Scenaro 80 CHAPTER 11 ST. KITTS AND NEVIS 83 Major Macroeconomic Issues 83 Medium-Term Economic Prospects 85 Base Case (Low Growth) Scenario 85 Alternative (High Growth) Scenano 87 CHAPTER 12 ST. LUCIA 91 Major Macroeconomic Issues 91 Mediur-Temn Economic Prospects 92 Base Case Scenario 93 Altemative Scenario 93 CHAPTER 13 ST. VINCENT AND THE GRENADINES 97 Major Macroeconornic Issues 97 Medium-Term Economic Prospects 99 Base Case Scenario 100 Alternative Scenario 100 Prospects 101 ANNEX A: World Trade in Bananas and the New European Union Banana Regime 105 ANNEX B Sources of Growth: Regression Estimates for OECS Countries 125 STATISTICAL APPENDIX 127 vU I Abbreviations and Acronyms ACP Afiican, Canbbean and Padfic IFAD Intematonal Fund for ADCU Agncultural Diversificabon Agricultural Development CoordinaUing Unit IFC Intemabonal Finance CARIBCAN Canada's Preferential Trade Corporation Scheme for the ILO Intemabional Labor Office Commonwealth Caribbean IMF Intemational Monetary Fund CARICOM Caribbean Community LDCs Less Developed Countries CBI Caribbean Basin Inibative MFN Most Favored Nation CD Certificate of Deposit MIGA Mulblateral Investment CDOB Canbbean Development Bank Guarantee Agency CET Common Extemal Tariff MTESP Medium Term Economic CGCID Caribbean Group for Strategy Paper Cooperabton NACO Nabtonal Agrcultural in Econormic Development Corporabon CIDA Canadian International NAFTA North American Free Development Agency Trade Agreement EC Eastern Caribbean NEAP National Environmental Acton ECCB Eastem Caribbean Central Plan Bank ODA Offidal Development ECLAC United Nations Econormic Assistance Comrmission for Labn OECD Organizabon for Econormic America and the Cooperation and Development Caribbean OECS Organizabon of Eastem ECSEDA Eastem Caribbean States Caribbean States Export Development Agency OFA Oils and Fats Agreement EU European Union PPP Purchasing Power Parity FAO Food and Agriculture PSIP Public Sector Investment Organization Program of the United Nabons SAP Structural Adjustment FIA Fiscal Incentives Act Program GATr General Agreement on Tariffs SSMC St. Kitts Manufacturing and Trade Corporabon GDP Gross Domesbc Product UNDP United Nations Development GNP Gross Natonal Product Programme GSP General System of U.S. United States of America Preferences USAID United States Agency for IBRD Intemational Bank for Intemabonal Development Reconstruction and WINBAN Windward Islands Banana Development Growers Associaton IDB InterAmerican Development Bank ix Data Notes Currency Unit = Eastern Caribbean Dollar (EC$) Upon its creation in 1965, the EC dollar was tied to sterling at the rate of £1 - EC$4.8. In July 1976, the link with sterling was broken and the EC dollar was aligned with the US dollar. Exchange Rate since July 1976 US$1 - EC$2.70 EC$1 - US$0.3704 OECS COUNTRIES' FISCAL YEAR January 1 - December 31 Antigua and Barbuda, Grenada, St Kitts and Nevis, and St Vincent and the Grenadines April 1 March 31 St Lucia July 1 - June 30 Dominica x Summary and Conclusions Ov.er i W-- het Organization of eastern Caribbean States (QECS) countries aCe in a stateocf tranit f a dwdf rotd aret cs fo r kproduc andlr e oncession a ows rom bil wch Is going- t be imuch -more n ompetitiver and maret orientehd Glob:lizatio pressures are Causing tarff .siand u-arff banies toS fall world-w 'de, and aid flows are. In dainger -of d!yn up a- th in rniatin ifor Economic dCooperatfon and D eelopment (O D) comie ei : lae fiscal con%trainwts. and nw sand pressing claims for aid emer e U s rop l a -S4u~~t emh - : w-i : - i -- -. -:e I 4' - --y-- subject to a double squeeze involving price and Caribbean over this period. Several factors were quantity over the next few years, followed by the important to this achievement. induding expanding possibility of a shock in the form of the elimination of export markets for traditional export products and quotas in European Union (EU, formerly the European success in the highly competitive tourist industry. Community) markets; (ii) bananas will remain an Among the institutional factors engendering a important product only if the industry is reorganized successful economic performance were sound on commerdal grounds to inrease productivity and economic management by governments, and qualty doser to Latin American standards, implying a relatively high levels of offical aid from multilateral and sarp reduction in employment in the industry; (iii) bilateral donors. A well articulated Public Sector diversification into other agricultural aops will provide Investment Program (PSIP) and increased attention to very limited opportunities for workers displaced from human resource development also contributed to this the banana industry; (iv) the sugar industry in St. Kitts succssful experience. A replication of the latter will and Nevis might be subjen to steady dedines in the be necessary to maintain rapid growth rates in the real retunms to the industry, making its long term 1990s. existence problematic (v) tourism with its direct and indirect impacs on other secors is the key to long Poverty indicators for the m ECS countries suggest that term income and employment growth in the Region; poverty is not a serious problem compared with the (vi) other service industries induding business, lower-middleincome group of countries. However, finandal and information services, repair, and medical pokets of poverty exist inP all cres. ath and activities provide opportunities for significant education are important in themselves, and to sustain expansion; (vii) a maro framework involving a stable progress in tourism and other service sector activities. and competitive exchange rate, liberalized trading Women in the OECS countries are becoming better relationships and fiscal disdpline by goverments will educated relative to men, and progress is being made be required to enhance export prospects for tourism, in integrating women into positions of authority and agriculture, manufacturing and other services, responsibility in both public and private sectors. supported by a public sector wage policy linked to Maintenance and upgrading of the social productivity inreases and by targeted public sector infrastructure will require continued donor support initiatives to remove key constraints; and (viii) environmental and human resource development The environment in the OECS countries remains policies must be consistent with long term sustainable pristine, but the rapid growth of banana production, growth. tourism and other activities is placng an increasing burden on the environment. which is a matter of Current Economic and Sodal Environment concem. Potential environmental problems could arise from inadequate waste management. land use The record of economic growth of the OECS practices and coastal zone management countries from 1983 to 1990 was impressive by world Govenments recognize the importance of pursuing xi ECONOMIC POLICIES FOR TRANSITION sound environmental polides, and each government borrow except on the basis of expensive supphers has finalized a separate National Environmental credit Dominica, with its heavy agrcultural base and Action Plan. limited manufacturing and tourist activity, will have the most difficult adjustment problems. Grenada's situation is improving as it implements its structural A Frameworc for Trarsition adjustment program but there are still impediments to foreign capital inflows perceived by investors. St The OECS countries expenenced rapid growth in the Vincent and the Grenadines, St Kitts and Nevis, and 1980s, but performance in the 1990s has been at a Montserrat have a sound macroeconomic framework, much reduced level. Previous reports have identified but should continue to encourage DFI, especially in many of the key problems in adjusting to the changing the tourst and other services sectors. AlI countries, extemal environment Despite many policy reforms however, will need to develop and implement to date, continuous improvement in the design and economic polides that will support adjustment and implementation of sound measures of economic ease the process of transition to a new economic policy wil be required to acieve growth rates of the environment order of 4 percent. The trend to a more compebtiive extemal environment illustrated dearly by the The OECS countries already recognize that policy completion of the Uruguay Round and the successful coordination and the provision of common services formaton of the North American Free Trade can provide substantal benefits. The Eastem Agreement (NAFTA), means that the OECS countries Caribbean Central Bank (ECCB), the OECS Secretariat will need to ensure that their economic polides are and Windward Islands Banana Assodabon (WINBAN) appropriate for a period of transibion. Official aid are but three of the successes in these areas. flows to the Region wig not maintain their previous However, much remains to be accomplished to levels. In addbon, the banana industry is entering a achieve maximum benefits from joint efforts. In period of uncertainty, engendered by the introduction addition to the need for coordinabon in administrative of a new banana regime in the EU on July 1, 1993. areas, there is an ongoing need for harmonization of polides relating to fiscal incentives, the Common The banana industry must be restructured on External Tariff (CET) and consumption taxes, income commercial grounds so that productivity and quality and property taxes, and similar areas. Moreover, in are enhanced. In the meantime, efforts to promote light of rapidly changing external drcumstances, the export diversification and alternatve sources of OECS countries should consider forming an economic employment must be accelerated. Flexibility in goods union. and factor markets must be increased by trade hiberallzaton and improvements in regulatory Formabon of an economic union would be the logical requirements, and by inaeased effidency in culminabon of the existing Treaty Establishing the implementation of polides (customs administratioR Organization of Eastem Caribbean States and would work perrits, fiscal incentives, etc.). Levels of debt, provide concrete advantages to the member states. inducing domestic debt as well as foreign debt, need Labor mobility would be enhanced, and the flexibility careful monitoring, since these levels are becoming a of the economies in the face of extemal shocks concem in some countries. The PSIP must be focused increased. Bargaining strength would be increased on areas that wil support private sector development, vis-A-vis the EU and NAFTA, with the ability to with priorities established so as to eliminate the negotiate as one bloc. Monetary and exchange rate number of low return projects. issues would be viewed from a larger union perspective. Membership in organizatons such as the St. Luda is in the best position to counter increased Inter-American Development Bank would be easier to intemational competiton and a reducton in aid flows, negotiate. Harmonization of tax and regulatory owing to its strong central government finandal arrangements would be simpler, and many similar position and the high level of private direct foreign benefits would ensure from enhanced coordination investment (DFI). Antigua and Barbuda are the most services. vulnerable, despite its high level of per capita income and strong tourist industry: its central government To increase competitiveness and reduce vulnerability fiscal system is weak, and it has virtually no ability to to external shocks, increased factor mobility among xii SUMMARY AND CONCLUSIONS the OECS needs to be actively encouraged. Despite imports; (iii) strengthen tax administration in all recent initiatives, much needs to be done in this area, countries, focusing initially on areas where a high particularly with respect to labor mobility, where free benefit-cost ratio exists in terms of additonal revenue movement of OECS nationals within the OECS area achieved; and (iv) simplify the tax system in all should be encouraged. Improvements in capital countries by eliminating nuisance taxes, consolidating mobility within the OECS and externally are an the number of different tax rates, and improving tax important means of mitigating the effects of a terms reporting forms. Tax harmonization among the OECS of trade shodc that impinges upon only some member countries should be a priority issue. countries. The ECCB has recognized this and has initiated plans for improving capital mobility. On the expenditure side, govemments should consider the following measures: (i) develop a In the future, the OECS countries will have to rely smaller, leaner dvil service establishment with more on domestically generated savings than in the competitive salary rates to attract able people. Set a past This requires that governments adopt sound target for wages and salaries as a percent of total fiscal management polides which will generate govemment revenues below current levels; (ii) inaeased public sector savings through surpluses on implement user pay charges in cases where effidency central bank's recurrent account and on state gains are large (i.e., user-pay charges for water - or enterprises. Private sector savings need to be metering - can substantially increase effidency and encouraged through improvements in finandal reduce required capital expenditures on water markets, induding development of regional resource development and pressures on fiscal (CARICOM - Caribbean Community) capital flows. In balances). Contract out govemment services where the case of public sector savings, these should be appropriate for private sector delivery; (iii) privatize equivalent to at least 5 percent of GDP, particularly to govemment operated enterprises to increase meet the 40 percent counterpart finandng effidency of operation and reduce the drain on requirement of multilateral donors on which the OECS govemment fiscal budgets (successful privatization countries will inaeasingly depend for development efforts have provided govemments with lump sum finance in the coming years. funds from the sale of assets plus increased taxes and/or dividends from more effident operation of the A sound fiscal policy is necessary to constrain enterprises). Proceeds from the sale of assets should domestic inflationary pressures, to maintain a stable be used to reduce debt or finance investment (iv) real exchange rate, and to enhance competitiveness maintain or improve essential healtlt education and in foreign markets. A critical component of a sound other social sector expenditures, while redudng or fiscal policy is to constrain the growth of public sector eliminating unnecessary programs in other areas; and wage levels and amounts. Publc sector wage levels (v) monitor PSIP estimates and project should be geared to productivity increases. They implementation more effecively in order to attain shoutd therefore allow for suffident differentiaton so priority objectives in human resource development that the public sector can attract welltrained and and infrastructure to support private sector capable civil servants in competiton with the private development, and to reduce waste. sector. General setdements that raise overall public sector wage levels in excess of productivity The OECS countries have a monetary and exchange improvements will generate strong inflafionary rate system that has withstood two oil shocks, two pressures and distort the relative price of tradeable major world recessions and a series of devastating goods, resulting in a less compeUtiive economy. natural disasters in the last 25 years. The system has been well structured and appropriately managed. In On the revenue side, countries should undertake the addition, it has been supported by substantial following: (i) broaden the tax base for indirect taxes concessional flows. However, the oudook is for a (import duties and consumption taxes) by redudng number of shocks to come, induding reductions im exemptons and concessions: typically such banana and sugar prices, reduced aid flows, and a exemptons from import duties run to 50 percent or possible negative impact from NAFrA. In general, a more of total imports; (ii) reduce the CET and more competbve situabon will prevail in the future. integrate it with the consumpibon tax, and abolish Export diversificabon has been taking place. Tourism stamp dutes, customs surcharges ad other taxes on has become the main source of export earnings in xiii ECONOMIC POLICIES FOR TRANSITION most countries, and private capital flows have offset the quality of goods and services offered, and somewhat the recent dedine in concessional aid marketing arrangements. The OECS countries are programs. Thus, banana receipts, while important to subject to increased competitive forces in the wodd individual countries, are and will continue to be as a whole, together with the likely erosion of dwarfed in importance by receipts from tourism, as preferential market arrangements and reductions in tourism represents an increasing component of aid flows. The potential loss assodated with a drop in foreign exchange earnings. However, bananas have a the price of bananas is large. Govemments need to significandy higher ratio of net value added to sales ensure that the banana industry is restructured on revenue, and the employment impact of bananas is commerdal grounds, increase flexibility in goods and considerable. The short-run mobility of labor factor markets, increase the effiidency of PSIP employed in the banana industry is not high for most expenditures, improve the coordination of policy and occupations in tourism and service sector industries. of the provision of public services, and implement In the short term, any pressure on the monetary sound fiscal policies backed up by tight incomes system can be handled by using stockpiled reserves or policies on public sector wages. Monetary and govemment generated fiscal reserve funds. However, exchange rate polides need constant monitoring to there should be no relaxation of the strict limits on the ensure that a competitive relative price regime is in central bank's lending to govemments. Moreover, place. before stocks of reserves are depleted the countries will need to realign their relative price structures. Export Prospects Whatever the policy stance, the countries will have to adjust rapidly to extemal shocks with the instruments OECS countries, along with other members of available. Recession with increased levels of CARICOM, have agreed to a series of tariff reductions unemployment is not a viable altemative. to take place between January 1-July 1, 1993 and January 1-July 1, 1997 (and 1998). These tariff Given the fixed rate of exchange between the EC reductions will reduce effective protection rates on dollar and the U.S. dollar, price competitiveness uncompetitive import substitution industries and will depends upon relative inflation rates in the OECS and enhance export prospects as the economies become in its major markets, and on shifts in the U.S. dollar more competitive. The OECS countries should move exchange rate visAvis European currendes. Low to reduce tariffs and other trade restrictions on a 'fast- inflation rates in the OECS and a low U.S. dollar vis-A- track' basis (January 1-July 1, 1997), since the initial vis European currendes enhance price stages of the CARICOM CET should not prove competitiveness for OECS goods and services. In historically troublesome to OECS countries which situations where the exchange rate is fixed and where have had a lower CET than other members of domestic price levels for all goods rise relative to CARICOM. High tariffs add to the cost of operating a foreign price levels, causing an appredation of the real tourism and service sector oriented economy. A 5 exchange rate, a devaluation may be the preferred percent across-the-board tariff eliminates high and way in which to realign domestic and foreign prices. variable effective protection rates, and provides some If the real exchange rate is not devalued, deflationary level of protection for light manufacturing industry macroeconomic polides are required, whereas if it is without indudng serious distortions. Thus, over the devalued, stable macroeconomic polides are longer term, and in tandem with a services oriented sufficient If the parity of the currency were to be growth strategy, and with a tariff structure more altered, if would be important that the move be consistent with those of more developed island viewed as a move to a new fixed parity, not as a countries, the OECS countries should strive to achieve move to a series of downward adjustments. To a uniform 5 percent tariff. achieve this, complementary monetary and fiscal policy restraint, induding public sector wage restraint, Opportunities exist in the service sector for income would be called for. and employment generation in many areas: finandal and business services, retirement homes, offshore Exports of goods and non-factor services from the medical services, typing, 1-800 answering services, OECS countries depend upon prce competitiveness, hospitals, and so on. Improved communications income levels in North America and Europe, networks and enhanced public and private sector preferential trading relationships, CARICOM policies, coordination are needed for success, induding xiv SUMMARY AND CONCLUSIONS increased factor mobility and harmonized company market protected by a tariff-quota system which law, accounting and fiscal systems. Human resource effectively limits imports of 'dollar bananas" to 2 development should be geared to the service sector. million tonnes per year. The initial reaction of the banana market in Europe to the changed policy has In tourism, a wide range of improvements are needed been moderate, as banana prices have stabilized at to maintain and increase the number of arrivals and roughly their previous levels. However, this initial the length of stay. These problems are more acute in reaction is deceptive, since the new banana regime some countries than in others, but no country can does not appear to be sustainable over the longer afford to rest on its laurels in this highly competitive term (i.e., it is currently being challenged in the industry. Industry offidals are aware of all of these European Court and might be challenged by future problems, but govemment and private sector GATT members), and the preferred position of initiatives will need to be expanded and coordinated Windward Island producers is likely to be substantialy to ensure that tourism attains a high quality status in eroded over the next decade. In addition the new all of these areas. regime is not transparent Quotas are subject to annual reviews by a Banana Management The OECS countries must enhance export prospects Committee, and a complex licensing system Is In by a variety of measures. A competitive real effective place. exchange rate is one essential, requiring a sound fiscal policy regime. Preferential trading relationships have A distinct possibility of the new regime is that the been critical to the export of goods from the OECS, quota rents will increasingly be captured by the but they are under severe pressure. Preferential marketers as opposed to the producers, owing to the tracing relationships are likely to be less favorable in enhanced role of the marketers in the iicensing the future for bananas and sugar, and changes under system. A mechanism should be developed to ensure the General Agreement on Tariffs and Trade (GATT) that the rents are instead captured by the produdng because of the 1993 Uruguay Round negotiations and countries during the transition. One way to do this as a consequence of NAFTA may impact negatively would be to eliminate the import iicenses on some manufactured exports. Niche marketing will administered by the EU and allow the Cadbbean be required for successful development of most countries that hold export quotas to sell or auction the manufacturing, and will require marketing information import rights based on their export allocation. and intelligence support Breaking into new export markets has been difficult for Caribbean producers in Successful adaptation to the uncertainties created by the past Trade in services provides a real opportunity the new banana regime, and to the eventual loss of for expansion, however, if bottlenecks are eliminated preferential market access, requires a coordinated and an appropriate regulatory framework is response from the EU, the donor community and the developed. Public sector reform encompasses a wide govemments of the Windward Islands. The key issues range of broad categories, from more effident involve the reduction of uncertainty, the rapid markets to improved administrative procedures to development and implementation of a strategy for improved finandal intermediation. economic diversificaton, the institution of appropriate incentives and the provision of a social safety net. The Bananas, Sugar and Manufacturing EU must increase the transparency and flexibility of the banana regime, and darify the long terrn On July 1, 1993, the EU introduced a new regime for prospects for banana from the Windward Islands. The banana marketing which will have major long term donor community must support required transitional repercussions for the banana industry in the OECS measures, induding enhanced technical assistance, countries. Prior to July 1, 1993, Windward Island and and must assist in establshing the parameters of a other ACP producers were able to sell any amount of targeted safety net program for those likely to be production they were able to achieve in a protected seriously disadvantaged. UK market which gave high retums to producers, owing to a UK policy of import quotas on so-called A rapid response by Windward Island governments to "dollar bananas.' Subsequent to July 1, 1993, the impending loss of preferential market access for Windward Island producers are restricted to selling a bananas is aitical for a successful transition to the fixed quota of bananas per country in an EU wide new trading environment. Above all, governments xv ECONOMIC POLICIES FOR TRANSITION must demonstrate responsible leadership. This fiscal implications would be disastrous and could requires govemments to articulate dearly that a rapidly lead to macroeconomic imbalances in these competitive industry is an absolute requirement, in countries. order to reduce uncertainty and to allow individual producers to make correct decisions concerning their Prospects for St. Kitts' sugar exports depend entirely future in the industry. The objective is to keep on the continuation of the preferential market producive farmers in the industry, while discouraging arrangements. A key aspect of these arrangements is the ineffident their unilateral character, their benefits can be ended through a general reduclion of trade barriers. In this A credible plan for future development involves a respect, the internal harmonization of the EU market stable and competitive macroeconomic framework may adversely affect the premium prices which St and diversification into non-agricultural areas, Kitts and Nevis enjoys for its sugar exports. Similarly, induding tourism and other services, and the ratification of NAFTA may, in the longer term, manufacturing. The PSIP needs to be targeted to adversely affect Caribbean sugar exports to the U.S. these objectives, focusing on human resource market. Moreover, food and agriculture legislation in development and provision of appropriate physical the U.S. has gradually reduced the U.S. quota. infrastructure for private sector development. As a Because of the 1993 Uruguay Round negotiations, all transition measure, a financially viable social safety net U.S. and other OECD countries' quotas on sugar and program needs to be devised, based on an other agricultural products will be converted to tariffs assessment of the lkely impacts of adjustment on and these will be reduced 36 percent in stages. seriously disadvantaged groups, with increased donor Prospects for sugar exports from St Kitts and Nevis flows to support the adjustment are not promising in the long run, owing to the possibilities of reduced U.S. quotas, an impending The key requirements for govemment policy are: (i) price squeeze on exports to the EU, and the general articulate a credible plan for the future of the banana trend towards trade liberalization. Sugar prospects for industry, (ii) ensure that an appropriate, market-driven, St. Kitts and Nevis will not depend on its quota organizational structure for the industry is in place; (iii) allocations in the future but on how competitive the provide an incentive structure that encourages the country will be. The industry needs to improve its efficient producers; (iv) provide a financially viable efficiency, but revenue losses are certain to occur if sodial safety net program; and (v) encourage rapid the preferential markets disappear. Human resource diversification into productive and competitive development programs are needed to improve activities, particularly services, to the fullest possible. diversification prospects. Beginning September 1992, unit banana earnings While it is impossible to predict the future, a have dedined by about 20 percent The Banana reasonable scenario for sugar is that preferential Growers Assocations (BGA) in Dominica, St. Lucia, arrangements, in the long run, are likely to disappear and St Vincent and the Grenadines converted and prices will continue to be eroded. This will place substantial accumulated reserves and also borrowed increasing pressure on the industry to improve its from local finandial institutions to sustain price-support productivity. Some restructuring of the industry has to the banana growers. By December 1993, the taken place, but divestiture efforts need to be BGAs in all three countries were bankrupt with large intensified now that costs have dedined. outstanding debts - esftimated at EC$25 million or 5 Diversification into other sugar-based products, percent of GDP in Dominica, EC$42 million or 3 induding high-quality rurm should be stepped-up. percent of GDP in SL Lucia, and EC$20 million or 4 Given the significance of the preferential markets, it is percent of GDP in St Vincent and the Grenadines. In important that any reducion in access be phased in addtioRn the governments of these countries are over a period of years to reduce the shock effect and under pressure from the banana growers (ranging to allow for resources to move more easily into other from 6,000 in Dominica to 8,000 in St. Lucia) to productive areas. intervene in the day-otday operations of the banana industry and to guarantee banana price-support at the All significant manufacturing export products benefit current unsustainable levels. If the governments were from preferential trading arrangements. Garments to follow this course of action, the administrative and benefit from U.S. 806/807 customs regulations, xvi SUMMARY AND CONCLUSIONS whereby duty in the U.S. is payable only on the OECS imports of selected items, others are also engaged in value added where the raw material (i.e., doth) is of export promotion for non-traditional exports, in U.S. orgin. Sugar is supported by quotas under Lome marketing farmers' produce to domestic hotels and and in the U.S. Soap products are protected within supermarkets, and in operating markets. The service CARICOM by a high tariff on nonrregional imports, as provided to local farmers is more extensive in some are flour, cardboard boxes and beer. In general, all countres than in others, depending on the manufacturng firms in non-endave industries enjoy institutional strength of the marketing board. The high levels of effective protection, whether or not they export promotion service is also independently export within the Region. In the face of the probable supported by regional organizations such as the dedine in the benefits received from preferential Eastern Caribbean States Export Development market access, combined with competition for labor Agency (ECSEDA). Experience in other countries and rising real wages as a result of the expansion of suggests that the private sector can perform the tourismr the best strategy for development of marketing board tasks more effidently. Reforms to manufacturing in the OECS is to focus on high skill, marketing boards have improved the performance of high technology acbvites. the agricultural sector. These boards in the OECS countries should be privatzed. In cases where this The Incentive Framework cannot be done immediately, a minimum first step should be the eliminaton of any legal monopoly rights The new CET was to have been implemented by July the boards now have. Price controls need to be 1, 1993, but not all OECS countries met this deadline. eliminated as part of this reform process. Following detailed analysis, most countries plan to offset any revenue loss from the implementation of Governments play a major role in reviewing and the new CET with adjustments - in general, involving approving investment dedsions in the Caribbean increases - to the consumption tax rate on a given countries. While some of these activities are product The purpose of these increases in the necessary, and in the public interest, poor consumption tax is to make the combined tariff administrative pracices have increased the costs of reduction and consumption tax increases roughly doing business through delays and excessive revenue neutral in terms of recurrent tax revenue information requirements. Also, in many countries accruing to the central govemmenL lack of dear criteria has impaired transparency and increased the costs of doing business. It is therefore The OECS central govemments derive about 50 difficult for an investor to know how to satisfy percent of their total recurrent revenue from taxes on information requirements. Reforms are required in a intemational trade and from consumption taxes. number of areas, induding tax administration, Consumption taxes are charged on both foreign and customs administration, land use approval companies domestic products, but owing to the limited nature of legislation and market access. domestic production of taxable products, most consumption taxes are in practice raised from foreign There are several ways in which the incentive produced goods. Changes to the CET or to framework in the OECS countries can be improved. consumption taxes have significant impacts on central Reduction of the CET should be undertaken on a fast- govemment revenue. Apart from its impact on track basis. Duty free entry of imports under fiscal revenue, the new CET has raised concems in the incentive programs needs to be restricted in scope. OECS relating to the pattern of trade flows, and to the Calculations show that duty free entry is very ability of the countries to adapt to a more open trade common, and results in large revenue losses. Import regime. OECS countries should also eliminate stamp licensing and price controls should be eliminated, and duties, customs surcharges and other restrictions on market access improved through the elimination of trade. In redudng their cost structure, the OECS marketing boards and through administrative reforms, countries will achieve a real devaluation, a induding the provision of effective one-stop shop requirement imposed by the more competitive world arrangements. tracing environment Most OECS countries have marketing boards, whose objectives are varied. While some concentrate on xvii ECONOMIC POLICIES FOR TRANSITION The Pubik Sector Investment Program Given the pressures arising from a more competitive world trading environment and the need to support prvate sector development the PSIP should support projects designed to provide an approprate framework for the expansion of private investment. Sodal infrastructure and human resource development projects are critical in this regard. The total proposed PSIP for 1994-96 reflects this focus with emphasis on infrastructure (61 percent), sodal sectors (22 percent) and supporting economic sectors (12 percent). Administration and public safety projects account for the remainder (5 percent). PSIP planning and implementation needs improvement, however. Growth Prospects Projections for individual OECS countres indicate low growth prospects if extemal pressures are allowed to impact on the economies without an approprate policy response. Higher growth prospects require that an effective transition to the new trading environment be achieved through approprate policy measures, induding a stable and competitive macroeconomic framework, increased factor mobility, and improved tax and regulatory procedures. These are the measures that should receive prorty attention in the short run. Repositioning of Economies Caribbean economies, induding the OECS countries, are in a state of transiton. Old economic institutions and ideas are being altered by extemal circumstances, and there is a need to reposibon the economies to take advantage of the existing comparatve advantage in skilled, human resource intensive activities. Private sector initatives in tourism and other service sector activies need to be supported by investment in suitable infrastructure (telecommunicabons links, water and sewerage, transportabon) and by human resource investment (educatioRn health). Locabon and manpower advantages exist and need to be exploited through strategic planning that capitalizes on these advantages, given the stable political and sodal environment This is the agenda that dhallenges the OECS countries. xviii 1 Introduction _~~~~~~~~~~~~~~~~~~ . . .... .......... _ ppred. prhe] Carftean Gr ou_ W. __p ii~~~~~~~~~~~~~~~~~~~~i . i.i.....- *tOver two l Ias cadibe, Re .O.CS ountries (have The OECcont aMreinta stat of. tasin frr) anhevd sgnifican utrgins inthies stnardo riving Seof we~eoprld (ejof rotceakt ao 2Z coess for khey products tdsion r thope deapitebeangfo textueptiopnaU unea ith hande lartge concessonarymev did flses fro betilather,al unfaglorblexmal circumstances. anerahl, the Reonomusrs to aco odt ws orl thec is 8din8 to abew ~mucmre xonomis prerforrned wel detaite declicnes fPivatheiSdr ceopmpetitiv anidemarke orniented ofThe OECiStaI fisl aof truadoe, flucuaimeor nspa in the grogth pronande ounterieors thave dipaydresilieednc in the Rpasotawt h .ftake womrldg eonom p atesedo inevment. weather,d itorismeand iaU af spcfcgultural pof duI ncts especiaUy Overin tdevlastatn de rrcade, , the anks cosubtntiehave ugr TheQConrieis anrgeinastatee tof ensutire from aurn thirfaw popl conessonae beingecpional vuwenerabet an largel ofnestmntionhman aid physifrmablcaptealar uniey ffavorable external farcumtancs. Ovdhferll,d pahe doosufiin to anwored whach tis goeinglito bexit mucthe moew ecoomi aeles pierfore wel deate dend ine ine ftueThei compdentvirneand mharkt orethed. Thletvl face. gaatermdo tradke, fluctabanans, inth growth peniformance clouniztionpesues hvdspaydreiliencei theif past wonthrthe tmayof theewo edcounomyiand windemafentwedathersel bariser and fall wofrspdwice ag d icltualroucs, aespnedan8ey inuy n devasometating theurricaes,tank tnon(U subsantil suar Threyingus aurethnee tora ensureothat Ecunrentc gurowtnCmunt)wih are lesslklaoeaa d ingth fture the worlderaironanDeloment thatD thyc ectiveymfae. creation of a fully integrated market. Additionally, the experience fiscal cyonstraints and new and pressing multilateral grant aid and concessionary flows upon daims for aid emerge from Eastern Europe, the Middle which the countries have been dependent have been East, and Southern Africa. This report is written to declining, and are likely to continue to decline over assist OECS governments to make a successful time. Nevertheless, a significant potential for transition to the new world economy. A key issue expansion exists if the countries pursue their relates to the change in EU's banana regime comparative advantage. introduced on July 1, 1993, a change which alters the ThZe OECS countries include Antigua and Barbuda, Dominical, Grenada. Montserrat. St. Kitts and Nevis, SL. Lucia aLnd St. Vincent and the Grenadines. 1 ECONOMIC POLICIES FOR TRANSITION preferential arrangement for bananas in the United years, followed by the possibility of a shock in Kingdom market enjoyed in recent decades by the the form of the elimination of quotas in EU Windward Islands. Ths development wiN impact on markets; both banana producers and non-banana produdng countries within the OECS, and wiN have regional * bananas will remain an important product only implications for the Caribbean Community if the industry is reorganized on commerdal (CARICOM) as a whole, owing to trade and finandal grounds to increase productivity and quality linkages among the countries. Sugar agreements, of doser to Latin American standards, implying a major significance to St Kitts and Nevis, are also sharp reduction in employment in the industry; under potential pressure. Other key issues ciscussed in the Report relate to trade Oberalization polides, and * diversification into other agricultural crops will to public infrastructure podides as reflected in each provide very limited opportunities for workers country's Public Sector Investment Program (PSIP). displaced from the banana industry; The Eastern Caribbean Central Bank (ECCB) has prepared 'A Proposed Econoric Development . the sugar industry in St Kitts and Nevis is likely Strategy for the OECS/ECCB Area,' dated March to be subject to steady dedines in the real 1993, which has been endorsed by the Heads of returns to the industry, making its long term governments and which complements this report existence problematic Other economic and sector work is addressing environmental policy, private sector development, , tourism with its direct and indirect Impacts on sodal sector poicy, and tourism. other sectors Is the key to long term Income and employment growth in the Region; The purpose of this report is to identify and analyze factors and poides that have contributed to past . other service industries induding business, performance, to set recent developments in better finandal and information services, repair, and perspective and to assist in framing the relevant issues medical activities provide opportunitifes for and questions for poicy formulaffon. Thus, the report significant expansion; focuses on a number of key areas which are aitical for the countnies' longer4erm development. Chapter I . a macro-framework involving a stable and of this report discusses recent economic reports competitive exchange rate, liberalized trading relating to the OECS, and the progress made towards relatonships and fiscal disdpline by meeting their recommendations. Recent economic r enss and fc disapeneaby progress is then analyzed. Chapter II desaibes thee gove pents wlb required tenace economic framework that is requred for transition to eprpscts or toris, agrte, envionmet. Capte III manufacturng and other services, supported the new world tracing ermrornenL Chapter III by a public sector wage policy linked to ciscusses the factors which bear on export prospects, productivity inceases and by targeted public a key determinant of growth. Chapter IV is prdciit.nrassadbytreedpbi a kevdetenNnantof gmAK chpter v issector initiatives to remove key constraints, concerned with important impending changes in std preferential market access for bananas, sugar and an manufacturing products. Chapter V dscusses the incetiv fraewok ncessry o moe ~QEC * environmental and human resource incentive firamework necessary to move tne OECS development policdes must be consistent with economies towards an export oriented service sector lopmentple mustb s basis. Chapter VI descnibes the focus of P long term sustainable growth. Chapters VII through XIII analyze for each country Its Previous Report - Selected Isse economc prospects under low growth (base case) and high growth (altenative case) scenarios This report updates the previous World Bank The major implications are: report on The Long Termn Prospects of the OECS Countries (Report No. 8058-CRG, dated February 15, 1990) in selected areas relating to the macro- * banana producers in the Windward Islands are faeokbnnsadsgr rd ieaiao likely to be subject to a double squeeze framework, bananas and sugar, trade liberalization involng price and quanity over the next few and public sector investment. Since that report was prepared, the World Bank has issued for each 2 1 INTRODUCTION OECS country except Montserrat, an 'Updating this report, key recommendations relate to redudng Economic Note' in 1990, and a 'Country Economic dependence on bananas, maintenance of a fixed Memorandum' (or related document) in 1992. exchange rate regime, reduction in fiscal imbalances, Trade polides for CARICOM are discussed in 'The lberalization of trading relationships, privatization of Caribbean Common Market: Trade Polides and commercaaype government enterprises and Regional Integration,' Report No. 8381 -CRG, dated improvements in pubic admiristration. Several December 21, 1990. The 'Caribbean Region: reports have emphasized increased labor and capital Current Economic Situation Regional, Issues, and mobility. External debt arrears have been problematic Capital flows, 1992,' (Report No. 10472-CRG, in Antigua and Barbuda and Grenada, and dated April 23, 1992), discussed many of the issues recommendations have covered ways in which these raised in this report, induding those related to the problems could be overcome (fiscal restraint. environment, and their emergence at this time is privatizatioRn better tax administration). In general not unexpected. All OECS countries have terms, most OECS countries have tended to adopt prepared National Environmental Action Plans these recommendations. AU governments recognize (NEAPs) which complement this report.2 that the role of government is to support private sector initiatives through regulatory refomi, public Ewrnomic Performance infrastructure programs and the provision of educatioR health and related social services. Previous reports indicate that the OECS countries performed well in economic terms in the 1980s owing The vulnerability of the banana industry receives to a number of circumstances: a stable exchange rate; regular attention at the highest levels of government. generally sound macroeconomic polides; absence of exemplified by the relative success of the Region in external debt problems owing partly to private continuing to gain access to EU markets on investment and aid flows; an increase in the sterling preferential terms, and by government concern that price of bananas combined with favorable preferential the industry be restructured to meet competitive market access; ready access to grants, concessionary pressures from Latin American bananas. The EC loans and transfers from abroad; die development of dollar has remained pegged to the US dollar, with the endave manufacturing industries in garments and ECCB holding foreign exchange reseives that are electronics inked to U.S. markets via 806/807 slighdy in excess of its note Dabiti,es and wel above arrangements and the Caribbean Basin Initiative (CBI); the legal requirement of 60 percent cover. A salent and the strong growth in tourism capacty and feature of the econonic performance of the OECS subsequent increase in tourist anivals. Healdl, countties has been their inability to monetize debt via education and other sodal incicators indicate that dte central bank operations which has resulted in economic growth in this period was accompanied by generally sound fiscal management pracices. With improvements in dthse areas to levels generally above respect to fiscal imbalances, some countries have those for countries with similar levels of per capita generated enviable records of current account GDP. For most countries, growth rates in the 1990s surpluses on public sector accounts, but in others the have been reduced below the very impressive situation is less impressive (see Table 2.4 in Chapter performance of the 1980s owing to the world 2). recession, weadter csruptions, falling terms of trade for agricLtural output and the depredation of dte Al governments recognize the aitical role of fiscal Pound Sterling. policy in maintaining a stable macroeconomic framework within dte context of the fixed exchange Country Response to Poliky Recommendations rate regime. AU governments have agreed to implement the new CARICOM Common External Podcy recommendations for the OECS countries have Tariff (CET), which provides for the progressive covered a wide range of issues. For the purposes of reduction of most tariff rates over a five year period. However, not all have implemented the new poicy in 2hin additkin CGCED meetings held in Washington, D.C. in June a way which reduces real protection, since one import 1992 stessed the need for adjusment to tke plce In respons tax has been replaced with another in some cases. to the changing extemal environment. Including Increasing Governments have moved slowly to take advantage competitivenes In woWd markets and reduced aid flows. of opportunities in service sector activities. 3 ECONOMIC POLICIES FOR TRANSITION Governments are also conscious of the potential best in Latin America and the Caribbean over this distortions caused by price controls and import period. Several factors were important to this licensing systerns and these systems are gradually achievement, inducing expanding export markets for becoming lberalized throughout the Region. Results traditional export products and success in the highly with respect to privatization have been slow but competitive tourist industry. Among the institutional governments are receptive to the need to privatize factors engendering a successful econoric more rapidly. Improvements in public administration performance were sound economic mranagement by have occurred in several dimensions: improvements in govemments, and relatively high levels of offidal aid the regulatory framework, increased training for cvil from multilateral and bilateral donors. The slower servants, and down-sizing the dvil service economic growth in the 1 990s was due to a establshment where numbers are excessive. combination of factors inducing damage to However, much remains to be done in these areas. agricultural aops, tourism fadlities and other Similarly, labor mobility among the OECS countries infrastructure which resulted from the passage of has not been systematically approached by hurricane Hugo in September 1989. Recovery from govemments, but efforts to promote capital mobility, the effects of the hurricane was constrained by the under the direction and impetus of the ECCB, are OECD economic slowdowR particularly in the United impressive for their timeliness and comprehensive States, the United Kingdom and Canada, which are nature. External debt problems remain serious the main markets for exports and tourism. constraints on economic policy in both Antigua and Barbuda and Grenadc causing, among other In 1992, preliminary esfimates of real GDP growth for problems, a dangerously low level of public sector the Region as a whole were set at 3.6 percent, up investment even to maintain the level of sodal from 1.9 percent in 1991 but down from 5 percent infrastructure capital. recorded in 1990. The increased rate of economic growth in 1992 was attributed to the recovery in Despite the impressive performance to date, the agricultural production and exports and continued OECS countries remain vulnerable to a changing growth in tourism. Output in 1991 was severely world errvronment of increased compettiveness, impacted by hurricanes. reduced access to preferental markets and diminished aid flows. Continuous imnprovement in the design and Sectord Perfornance implementaton of sound measures of economic policy wiUl be required to maintain adequate levels of Sectoral performance has varied with tourism economic growth. Small island economies are showing the fastest growth overall. Cruise ship particularly vulnerable to external pressures, given anivals have expanded sharply. Agricultural output their narrow resource base and restricted has been influenced by weather and variable terms of administrative capadty. Some of the required polides trade, and manufacturing performance has shvown a are outlined in this report, and others have been generally steady improvement developed or will be developed in a number of major inibatives. Production of agricultural commodiiesb, which are important sources of foreign exchange, fluctuated Recent Economk Perfortnance' substantally from year to year reflecting the effects of variable weather and market conditons. (See Table Overvew 1.2. Figures are for current dollar GDP by sector since constant dollar estimates use different base years for The first three years of the 1990's were marked by a different countries). Real output in agricuLture for the slowing down of growth to an annual average of Region grew by 11 percent in 1992, following a about 3.4 percent (see Table 1.1). The record of contraction of 4.5 percent in 1991 and about 4.5 economic growth of the OECS countries from 1983 to percent growth in 1990. 1990 was impressive by world standards, averaging over 6 percent per annum. This record is among the Banana producton accounts for a large proporton of the value added in agriculture in St Luda and St 3The Statistical Appendix contains countryspecific data for 1988 Vincent and the Grenadnes, and to a lesser extent 92 on GDP, GDP by sector, balance o payments and central Dominica. Production for the group as indicated by government operations. 4 1 INTRODUCIlON export volume rose by 14 percent in 1992 following percent increase in sugar production. The an estimated 18 percent contraction in 1991 and 10.9 performance in the endave sector was sluggish due to percent growth in 1990. However, the future of the the recession in the United States, the main mnarket industry is uncertain as preferential access to the United Kingdom market may be eroded as a result of Tourism in the Region grew by 9 percent in 1992 as the formation of the European single market which indicated by the value added in the hotel and will allow more competitive non-traditional suppliers restaurant sector, comnpared with 6 percent in 1991 to have easier access to this market and 8 percent in 1990. In 1990, stay-over visitors to the Region increased by 9 percent while cruise ship In Grenada, where cocoa, nutmeg and mace have visitors rose 21 percent The growth in stay-over been important eamers of foreign exchange, cocoa visitors was strongest for Dornirica and Grenada production rose by 17 percent in 1992 following a which recorded increases of 28 and 19.5 percent, sharp rise in 1990 and a 26 percent decline in 1991. respectively. In 1991, the number of stay-over visitors The 11 percent reduction in nutmeg in 1992 reflected to the area rose by 6 percent despite the unfavorable a sharp reduction in the price paid to the farmers. economic conditions in the main tourst markets. As Since the late 1980's, the earnings of the cocoa in previous years, there was considerable varation in industry have been affected by depressed pnces the performance of the individual countries. Strong caused by excess world supply and accumulated growth was recorded in Grenada, St Kitts and Nevis stocks. However, in recent times, the Cocoa and St Luda, countries in which hotel capadty Assodation conduded an arrangement with the expanded recently. There was a mnore mnoderate United States importer for the purchase of specific increase in Dominica while the remaining countries quanfifies at agreed prces. With the breakdown of realized a dedine in arrivals. Stay-over visitors to the the agreement between Grenada and Indonesia, area rose 5 percent in 1992, with growth exceeding export prices of nutmeg continued to fall and the the average for the area in Antigua and Barbuda, St. market has been generally depressed. Kitts and Nevis, and St Luda. Grenada recorded a moderate dedine while growth in the remaining In St Kitts and Nevis, sugar cane production was countries was modest adversely affected by hurricane Hugo and the output of sugar dropped to a historically low level in 1990 as Cruise ship artivals in the individual countries were a result of a 33 percent drop in cane production in quite varied in 1990 with sharp rises in Grenada and 1990. In 1991, sugar cane production rose by 30 St Vincent and the Grenadines, decines in St Kitts percent reflecting in part favorable weather and Nevis, and St Lucia and moderate increases in condibons and measures introduced to improve the the remaining countdes. The growth in cruise ship operational efffidency of the industry. The industry passenger arrivals at 25 percent in 1991 was stronger also improved its financial situation markedly, but than in 1990 and this reflected the improvements to continued to be affected by a shortage of labor for berthing fadlifies in some countries and a rise in traffic harvesfting. However, the problem was alleviated to in the Caribbean generally. In 1992, cruise ship some extent as workers from other CARICOM visitors increased by just 4.5 percent with countries were brought in to assist with the reaping of performance varying in the individual countries. the crop. Activity in the constructon sector was shrply The manufacturing sector in the Region comprises curtailed throughout the Region in 1990. This was chiefly agro-processing beverages and light due to tight liquidity conditions in the banking system manufactured goods, garment manufacture and which led to cutbacks in comnmerdal bank lending to electronic assembly. Following a 2 percent the sector. Ths coincided with weak public sector contracton in the sector in 1990, there was a investment in economnic and social infrastructure recovery in 1991 when regional manufacturing rose following the complebon of a number of major by 28 percent Growth in the sector in 1992 projects in 1988 and 1989. Direct foreign invvestmient averaged 2 percent as sugar producton rose by 4 (DFI) in the hotel industry provided the impetus to percent while there was also increased output of growth in the sector in 1990. In 1991, constuction commodities such as flour, rice and soap. In 1991, activity for the Region as a whole remained relatively growth in manufacturing came primarily from a 28 flat expanding by just about one percent Activity 5 ECONOMIC POLICIES FOR TRANSITION during the year was based on a revival of public Public Finances sector irnvestment in somne countries, especially St Lucia, and St Vincent and the Grenadines, and a pidc- The public finances of a number of member countries up in residential construction. In 1992, activity of the OECS recorded satisfactory performances continued to be flat expanding by just under one during the period as a result of prudent fiscal policies. percent While private sector investment activity Despite the slowdown in economic activity, three of increased, reflecting further investment in hotel the seven countries were able to strengthen central Table 1.1: Real Gross Domestic Product, 1983-92 (annual growth rates) 1983487 1988 1989 1990 1991 1992 Antigua and Barbuda 8.4 7.7 6.3 3.5 4.3 1.7 St Kitts and Nevis 5.4 9.8 6.7 3.0 3.9 3.6 Montserrat 3.5 9.4 11.5 14.7 -23.7 4.3 Dominica 4.6 7.9 -1.1 6.6 2.0 2.6 St Lucia 7.3 12.7 8.5 3.9 1.6 6.6 SL Vincent and the Grenadines 5.9 8.6 7.2 7.1 3.1 4.7 Grenada 4.6 5.3 5.7 5.2 2.9 0.6 OECS' 6.5 9.1 5.7 5.0 1.9 3.6 a. OECS average uses nominal GDP as weights. Source: Statistical Appendix capadty and a resumpbon of commercial bank govemment savings while it weakened in the others. lendng for residential construcbioR this was almost In 1992, the weakening in the finances of the central offset by a 6.4 percent dedine in the investment governments was a reflection of slower economic actMty of the regional govemments. activity. The combined current account surplus for the Region fell to EC$95 million from EC$105 million There are no offidally compiled statistics on the labor in 1990, as only three countries recorded surpluses, force and employment for the member countries. while four recorded deficdts (see Table 2.4). However, the available labor market indicators suggest that in 1990 overal employment increased in During 1990, revenue grew at a slower pace than in line with the overall growth of the regional economy, the previous two years. As the economies though it may have fallen in some sectors. The experienced slower growth there was a construction and manufacturing sectors weakened in corresponding slow-down in the growth of imports 1990 and were most likely to have realized job losses from which a substantal portion of revenue is derived but these wotud have been partially offset by through the imposition of import duties and employment gains in the tourism sector. Mismatching consumption taxes. Public sector savings were of vacandes and skils remains a problem. achieved mainly by the containment of expenditure. The poptiation census which was conducted in 1991 In 1991, revenue collection for the group totaled indicated that the populations of most of the countries about EC$1,150 millioRn an increase of 4.7 percent as had been previously overestimated. There is a need against 9.4 percent in the previous year. In general for assistance to improve the quality of data. the weakness in revenue collected was more evident in the countries with a stronger dependence on indirect taxes as a major source of revenue and with 6 1 INTRODUCTION Table 1.2: OECS-GDP by Economic Activity in Selected Sectors, 1990-92 (current EC$ million and percent of GDPf 1990 1991 1992 Antigua and Baxbuda Agriculture 37.3 (3.4) 39.2 (3.5) 41.2 (3.5) Manufacturing 30.2 (2.8) 2&6 (2.6) 26.8 (2.3) Hotels and Restaurants 129.0 (11.9) 122.8 (11.1) 140.0 (11.8) Dominica Agriculture 92.5 (19.9) 96.9 (19.5) 9&5 (16.2) Manufacturing 26.4 (5.7) 30.7 (6.2) 31.3 (5.2) Hotels and Restaurants 7.6 (1.6) 8.8 (1.8) 10.1 (1.7) Grenada Agriculture 71.3 (13.2) 6&8 (12.1) 63.7 (11.2) Manufacturing 22.6 (4.2) 24.3 (4-3) 25.5 (4.5) Hotels and Restaurants 27.7 (5.1) 33.2 (5.9) 34.9 (6.1) Montserrat Agriculture 4.1 (2.2) 5.0 (3.11) 6.3 (3.7) Manufacturing 4.9 (2.6) 3.2 (2.0) 3.4 (2.0) Hotels and Restaurants 5.8 (3.1) 6.2 (3.9) 63 (3.7) SL Kitts and Nevis Agriculture 23.3 (5.5) 25.5 (5.5) 25.1 (4.9) Manufacturing 46.2 (10.8) 45.4 (9.8) 489 (9.5) Hotels and Restaurants 27.5 (6.4) 34.7 (7.5) 41.6 (&I) St Lucia Agriculture 130.6 (12.4) 12&4 (11.4) 149.6 (11.8) Manufacturing 73.0 (7.0) 77.7 (6.9) 81.5 (6.4) Hotels and Restaurants 77.4 (7.4) 89.0 (7.9) 105.0 (83) SL Vincent and the Grenadines Agriculture 83.9 (16.3) 79.1 (14.0) 89.8 (14.7) Manufacturing 385 (7.5) 43.4 (7.7) 45.9 (7.5) Hotels and Restaurants 10.1 (2.0) 11.3 (2.0) 12.8 (2.1) a. Percent of GDP in parentheses. Source: Statistical Appendix. weaknesses in tax administration. By 1992Z the Durng 1990, public sector savings were acdeved combined revenue intake of the Region increased by mainly by containing expenditure. Ths was done by about 5 percent over 1991 to about EC$1200 million. keeping in check increases in wages and salaries Al countries except Grenada and Montserrat realized which is the largest expenditure item in the current revenue increases in excess of 5 percent The account finances of the govemrnments. In 1991, the reduction of revenue in Montserrat reflected the expenditure on current account rose by 6.2 percent return to a normal level of economic activity, to about EC$1050 million. Current expenditure was fdlowing the high level assodated with the somewhat invariant to the level of economic activity rehabilitabon exerdse fdlowing the hurricane. as obligations such as wages, salaries and Interest payments tend to be fixed. Expenditure for wages and salaries for the Region grew 7 percent while that 7 ECONOMIC POLICIES FOR TRANSIT1ON on interest payments rose only marginally. The efforts public and private sector deposits grew at the same to contain expenditure were directed mainly at goods rate of 7.6 percent. The narrow measure of money, and services and some restraint in outlay was currency plus demand deposits, which is perhaps obseived. more dosely linked to economic activity, grew at a comparatively stronger rate of 15.5 percent, and In the future, OECS countres wil have to rely more contrasted with near zero growth in 1991. on domestically generated savings than in the past. Ths requires that govemments adopt sound fiscal Domestic credit in 1992 also expanded at a slower management polides which wiH generate public rate, 8 percent, as against 9 percent in 1991. sector savings through surpluses on recurrent account Reflecting the imnprovement in fiscal performance and Moreover, private sector savings need to be a reduction in capital oudays, net credit to dte Central encouraged through the strengthening and deepening Govemment dedined by 8.4 percent However, of financial markets. lending to the rest of the public sector rose sharply by 23.7 percent Private sector credit extended solely by Moneyand Csedit the commerdal banks, expanded at a slighdy slower rate of 10 percent compared with 10.4 percent in Monetary conditions during 1992 were characterized 1991. The increase in private sector credit was by falling interest rates, reflecting high liquidity in most directed mainly to businesses, credit to which of the banks, and the low interest rates prevailing expanded by 13.4 percent Personal loans, which intemationally. During the period of strong export absorbed about 40 percent of commerial bank loans, growth in the latter half of the 1980s, both deposits grew at a much slower rate of 4.6 percent and credit grew rapidly. The growth of export earnings fell in 1989.1990, and the growth of private In the increased credit to business, significant sector deposits was insuffident to meet the continued allocatons were made to agriculture (13 percent), strong loan demand This led to a reducton in the manufacturing (5.7 percent), tourism (11.4 percent) banks' lquid assets, a sharp increase in interest rates, and distribution (12.6 percent). In the credit allocated and the curtailment of lending, particularly for home to personal loans, the amount extended for mortgages. The liquidity situation improved markedly, mortgages rose by 8.8 percent while lending for starting in dte latter half of 1991, and this predpitated consumer durable goods fell by 2.9 percent a sham drop in deposit interest rates in 1992. lime deposit interest rates ranged between 2 percent and The net foreign assets of the monetary system at the 6.5 percent depending on the amount and maturity, end of 1992 stood at US$1,041 million, an increase of compared with a range of 4 percent and 8 percent a 11.5 percent over the figure at the end of 1991. In year earlier. By contrast. the banks' lending rates that amount. the net reserves of the Central Bank showed very little downward movemenL The prime accounted for US$716 million, an increase of 27.3 lending rates reported by the banks continued to percent compared with the figure at the end of 1991. range between 9 percent and 13 percent, although The net reserves of the Central Bank have increased within the range a few banks have reduced the prime by over US$300 million since 1988. Net foreign rate by half a percentage point The spread is very assets held by the commerdal banks stood at US$325 Ngh, reflecting the small size of the market and limited million, a reduction of 12.4 percent The commercial compebbon. banks' net foreign assets fell significantly in the latter half of 1992, due to the extemal borrowing of one Despite the higher rate of growth in 1992 relatbve to major bank to finance the activibes of a large 1991, there was a decelerabon in the rate of corporate dient In aggregate, the net foreign assets monetary expansion. The total monetary liabilities of of the monetary system at year end were roughly the banking system grew by 7.6 percent in 1992, as equivalent to about 4 months of imports. against an increase of 8.8 percent in 1991. Concidentally, both the currency holdings of the 8 1 INTRODUCTION Table 13. Seected Ceral Govemment Debt l.dkatns, 1992 ^ Antigua and Dominica Grenada St Kitts and St Lucia St Vincent and Overal Barbuda Nevis the Grenadines in percent of exports of goods and nonfactor services Total public extemal debt 113.6 88.1 91.1 37.8 33.3 51.0 74.6 o/w: Arrears 57.2 0.0 11.8 0.0 0.0 0.0 21.8 External debt service (cash) 1.9 5.5 5.5 2.3 3.8 3.5 3.3 External debt service (due) 12.6 5.5 7.6 2.3 3.8 3.5 7.3 in percent of central government revenue - Dometic debt 73.0 81.8 98.0 148.8 35.6 49.9 69.9 Total pubic extemal debt 561.3 173.1 177.9 102.4 80.5 109.7 209.8 o/w: Arrears 282.8 0.0 23.1 0.0 0.0 0.0 61.3 Totaldebtservice(cash) 10.8 15.8 12.9 11.2 11.6 9.9 11.6 Total debt service (due) 63.6 15.8 16.8 11.2 11.1 9.9 23.1 Domestic 1.2 4.9 1.9 4.9 1.9 2.4 2.5 Extemal (cash) 9.5 10.9 10.8 6.3 1.2 7.5 9.2 Extemal (due) 62.4 10.9 14.9 6.3 9.2 7.5 20.8 in percent of GDP Domesticdebt 15.1 23.6 26.6 32.2 10.2 13.0 17.8 Total pubic extemal debt 116.4 50.0 4&3 22.4 23.1 2&5 53.3 o/W: Arrears 58.6 0.0 6.3 0.0 0.0 0.0 15.6 Total debt service (cash) 2.2 4.6 3.4 2.5 3.2 2.6 3.0 Total debt service (due) 13.2 4.6 4.6 2.5 3.2 2.6 5.9 Domestic 0.2 1.4 0.5 1.1 0.5 0.8 0.8 Extemal (cash) 2.0 3.1 2.9 1.4 2.6 1.9 2.3 Extemal (due) 12.8 3.1 4.0 1.4 2.6 1.9 5.2 in percentt Average Interest on extemal 8.4 2.5 3.5 n.a. n.a. 3.4 5.8 debt MEMORANDUM ITEMS: in millions of USS Domestic debt 65.9 43.6 57.3 62.1 4&1 28.4 306.3 Debtservice 1.1 2.6 1.1 2.1 2.5 1.4 10.9 Total public extemal debt 506.4 92.4 103.9 43.4 108.7 64.6 919.3 Public extemal debt (exd. 251.3 92.4 90.4 43.4 108.7 64.6 650.7 arres) Debt service (cash basis) 8.6 5.8 6.3 2.7 12.4 4.4 40.1 Debt service (due basis) 56.3 5.8 &7 2.7 12.4 4.4 90.2 Stock of arrears 255.1 0.0 13.5 0.0 0.0 0 268.8 Principal 147.4 0.0 11.1 0.0 0.0 0 158.5 Interest 107.7 0.0 2.4 0.0 0.0 0 110.1 Central govemment revenue 90.2 53.4 58.4 42.3 135.0 58.9 438.2 GDP 435.2 185.0 215.1 193.0 471.0 226.6 1725.9 Export of goods and nonfactor 445.9 105.0 114.1 115.1 326.6 126.6 1233.2 services in percent of exports of goods and nonfactor services Domestic debt 14.8 41.6 50.2 53.9 14.7 23.2 24.8 Domestic debt service 0.3 2.5 1.0 1.8 0.8 1.1 0.9 The Extemal Sector 16.9 percent in 1991. To a large extent the improvement reflected a significant increase in In the balance of payments, the deficit on the current exports, mainly increased eamings from bananas, and account for the Region in 1992 is estimated to have the re-export of petroleum products from Antigua and narrowed to 12.8 percent of the aggregate GDP from Barbuda. As was often the case, in previous years, the 9 ECONOMIC POLICIES FOR TRANSITION current account defidt in 1992 was more than In the capital account inflows assodated with direct covered by private inflows and offidal capitaL investments fell sharpty in 1992 following cormplebon Accordingly, the overall balance showed an inreased of hotels in some countries. In the offidal sector, surplus, equvalent to 3.8 percent of GDP, up from there was a net outflow of capital estimated at just under 1 percent in 1991. US$15.5 rmillion as amortizabon payments on extemal debt exceeded loan cisbursernents during the year. In The countfies of the OECS are price4akers in world 1992Z gross foreign exchange reserves of the ECCB markets in respect of most of their exports. While, in were US$276 million. Net reserves were US$265 prindple, tNs means that they can set al that they can rnilioR up US$57 million over 1991. produce, they must do so at pfices determined in wortd markets and in intematonally traded currendes. Government and Govemment-Guaranteed Debt Therefore, movements in the bilateral exchange rate of the EC dolar against the currendes of tracing Govemment and government-guaranteed debt partners in goods and tourism services, influence to a oblgatons are not at critical levels in most OECS great extent the Region's export earnings, the number countries. However, the domestic debt stock is high of visitors and consequently toufist receipts. in selected countries and two countries encountered difficulties in recent years in rnaking payments on their Merchandise exports in 1992 were provisionally external debt obaigabons. Without dose nmoritoring estimated at about US$980 mitlior, about 36 percent of all debt inducing government-guaranteed pfivate higher than in 1991. Bananas, the main export extemal debt countries could readh critcal debt ratios commodity earned US$376 rniioRn an increase of 14 and jeopardize their access to extemal capital. In at percent reflecting a 20.8 percent volume increase. least one country, the govemment discovered recently The unit price received for bananas fel by 5.8 percent that some of the private external debt previously on account of the sharp depredation of sterling in the thought to be without govemment guarantees in fact final quarter of the year. Sugar exports rose by 6.7 had govemment guarantees. Govemments must be percent to US$32.6 ritliorn receipts from cocoa fetl aware that public sector guarantees of private debt by 14.6 percent to US$7.1 million due to a 17 percent are extremely fisky and should not be undertaken. fall in volume, while receipts from nutmeg fell by 37 percent to US$6 rnilliorn despite a 20.6 percent Sources of funds suggest that some domestic debt increase in the volume exported. In relabon to non- outstanding in these countfies has balance of traditional exports, increased earnings were realized payments implicatons and that the future integrity of from the expor of flour, soaps and electronic the nabonal insurance schemes could be jeopardized components, as well as from rrinor agricultural crops by the continued reliance on these schemes for low- exported both regionally and extraqregionally. interest financing of govemment borrowing: some domestc debt obligations are to foreign banks, and Imports to the area increased by 5 percent dufing the national insurance schemes' investment optons 1992 to represent about 66 percent of GDP. Given are limited to mainly direct purchase of govemment the modest growth in investment expenditure during securities and bank deposits, which are then used to the year, the increase was likely to be associated with require banks to buy govemment secufities also. consumpborn Central Govemment Domestic Debt The services account is dominated by travel receipts and payments on account of investment incorne and Total domestc debt of the OECS central other factor services. Net travel receipts in 1992 are govemments, exduding Montserrat4 amounted to estimated to have increased by 4.9 percent to US$306 million at end-1992 or 18 percent of the US$1,487 millior, on the strength of a 5 percent aggregate output and 70 percent of central increase in stay-over visitors and a 4.5 percent govemment revenues. Domesbc debt service increase in cruise visitors. Net factor payments remains low, equivalent to 0.8 percent of output and abroad were estimated at US$284 million, an increase of 5.2 percent and reflected largely the repatriated 4Montserrat's central govemrnment and total pubic extemal debt profits of direct investment companies and are not discussed below owing to small debt stock and lack of telecommunications payments. readily available infofmation. 10 1 INTRODUCnON 2.5 percent of central government revenues. Thus, Sodal and Enviromnental Issues the central govenmment budgetary imrp0caffon of the overaU OECS domestic debt is not a serious Issue. Poverty However, in selected countries domestic debt outstanrdng is at a high level. Central government Available poverty indicators for the OECS countries debt outstanding relative to revenues in St. Kitts and suggest that poverty Is not a serious problem in Nevis (149 percent), Grenada (98 percent), Dorninica these countries compared with the lower-middle- (82 percent) and Anbigua and Barbuda (73 percent) income group of countries (Table 1.4). The social exceed the overall average (see Table 1.3). The debt safety nets are adequate in most countries. For service rabo relative to revenues in Dorinica (4.9 example, in Dominica, social security is private percent) and SL Kitts and Nevis (4.9 percent) exceed sector managed,social services are offered free of the overall average also. Thus, although the debt charge, and some low-income housing and social service rabo is not high, It cotud increase when programs cater to community development, youth interest rates start to rise from the present low levels. employment, and vulnerable groups of women and children. No systematic poverty study has been Of the domesbc debt outstanding, almost 14 percent undertaken for the Region.5 A poverty assessment is owed to commercial banks, many of which are for St. Lucia with respect to family size, subsidiaries of foreign banks; another 30 percent has overcrowding, educational attainment of been obtained through debenture issues, some of household heads, welfare payments and infant which are also purchased by foreign-owed banks. To mortality points to a reduction in poverty levels the extent that lenders are foreign institutions, funds between 1980 and 1991.6 Unemployment in the borrowed from them have a balance of payments Region ranges between about 20.30 percent, impCicabon except that the payments are made in largely a result of skills mismatch. Women in the local currency. Domesbc sources of funds are OECS countries are becoming better educated national insurance schemes (36 percent), the single relative to men, and progress is being made in largest source, and the ECCB (10 percent). integrating women into positions of authority and responsibility in both public and private sectors. Total Public iemral Debt Remittance from expatriates play an important role in combating poverty in all OECS countries. The external public and publicly-guaranteed debt of the six OECS countries exceeded US$919 million at However, casual observabons suggest pockets of end-1992 or 53 percent of aggregate GDP and 75 poverty exist in all countries. Good overall health and percent of exports of goods and nonfactor services. other sodal indicators mask inadequate coverage and Together with domestc debt total central poor quality of the social services. Per capita income government and the govemnment-guaranteed debt in the OECS is stl high compared to other developing almost equal to the total value of the Region's exports countries, but the relative quality of lfe has of goods and nonfactor services. Of this total deteriorated in some countries. According to the US$269 million represents arrears on prindpal and UNDP, the human development index improved interest payments on the extemal debt of Antigua and relative to other countries in the 1 990s in Dominica, Barbuda (US$255 millon) and Grenada (US$14 Grenada, and St. Vincent and the Grenadines but it million). As a result. overall debt service due is twice deteriorated in Antgua and Barbuda, St Kitts and the actual payment. The actual debt service payments Nevis and St. Luda. amounted to over 3 percent of the exports of goods and nonfactor services, almost 12 percent of central govemment revenues, and about 3 percent of GDP. ' The CDB, CIDA and IFAD are colaborating on a poverty study, In additon to the two countries in payment arrears on and a pilot study on two OECS counties Is expected to extemal debt service, the group's overall average commence during 1994. extemal debt to exports of goods and nonfactor 6yan Boxill: Poverty in St Lucia: A Quantttive Assessment A services is exceeded by Grenada (91 percent). Draft Report submitted to ECLAC. However, Grenada's debt service rato is below 10 percent owing to the larger share of concessionary 7The human development Index is constructed from an average of loans, the intra-country differences In life expectancies, education and Income levek. See UNDP, Human Deve_opmu Repo.t 1993 br 11 ECONOMIC POLICIES FOR TRANSITION Education and environmental services need greater financial burden on the govemrnments' fiscal balances attenton of the OECS govemments. Some of the and, in tum, contributes to inadequate services and skills rnisrnatch could be alleviated through vocational regulabons. For example, untreated wastes are often training. Certain sodal indicators, such as health and discharged into rivers and seas. Agricultural safe potable water, are irmportant to tourism in the insectidde and fertlizer uses are often not regulated, whole Region. Assistance will be required to maintain espedally in private water catchments. Also, and improve these indicators. The sodal safety net countries are not equipped to monitor the quality of may require more resources if the OECS countries potable water. It is more by chance that the overall experience adverse extemal shocks from reduced inddence of waterbome diseases remain low. banana exports. It is important to avoid the tensions Remedial actions are needed in all countries to avert a that arise if job opportunities are not available to local possible adverse effect on the public health and the people in tourism and other service sector activities. regional tourism industry. Human resource development efforts need to be enhanced. Maintenance and upgrading of the sodal All OECS governments recognize the importance of infrastructure will need continued donor support. pursuing sound environmental polides within their respective countries and on a region-wide basis. A The State of the Environment number of the OECS countries have agreed to provide fadlities for the collectiorn treatment and The environment in the OECS countries remains disposal of domestically-generated and ship-generated pristine. The lush green mountain landscapes, rich solid wastes. In the country context, each and exotic flora and fauna, and beaches and coral govemment has prepared a separate National reefs have attracted an increased number of tourists Environmental Action Plan (NEAP) document These each year to the Region. Forest cover ranges from a NEAPs identify and describe precise environmental third to twothirds of each country. Certain endemic problems, prevailing institutional and legal frameworks birds are unique to each island. As a result, tourism is to address such problems, govemment's economic probably the largest sector of the economy in most polides on environmental issues, and changes in countries. However, the rapid growth of tourism- economic polides and in environmental law and related activities is pladng an increasing burden on institutions required to ensure sustainable growth. the environment, which had hitherto been considered not to be a serious problem. Condusions Potential environmental problems could arise from The OECS countries experienced rapid growth in the inadequate waste management, land use practices 1980s, but performance in the 1990s has been at a and coastal zone management All countries offer much reduced level. Previous reports have identified environmental services to some of their residents, but many of the key problems in adjusting to the changing proper land use practices are not enforced, and extemal environment, induding limited factor coastal zone management suffers from inadequate mobility, burdensome regulatory regimes and low planning, regulation and enforcement The services levels of public saving. Despite many policy reforms are offered either free of charge, such as solid waste to date, continuous improvement in the design and collection, or the cost recovery is well below the long implementaton of sound measures of economic run marginal cost, as in the charges for sewer and policy, particularly to offset perceived problems and to potable water supply. Lack of cost recovery poses a allow for a transition to the new world trading environment, will be required to achieve growth rates details. This index is not available for Montserrat For other of the order of 4 percent An economic framework to countries, the index ranks are as follows: aid in this transition is discussed in Chapter II, and subsequent chapters outline the details of appropriate Antigua and Barbuda 46 60 polides in spedfic areas. Dominica 53 51 Grenada 64 59 St Kiusand Nevis 65 79 SL ucia 68 72 St Vincent and the Grenadines 79 76 Tobl 1of countries rmaked 1 O 173 12 INTRODUCTION Table 1.4: Selected Poverty Indicators kndicator Units Antigua mid Doninica Grenada St Kitts and St Lucia SL Vincent and Averae5 Lower,Middle- Barbuda Nevis the hcome Grenadines Countries GNPpercapita USS 4,430 2,510 2,310 4,670 2,830 1,990 3,123.3 3,820 CPI (Food) 1987=100 121 109 121 100 106 100 109.5 - Energy Consuwpion kg of oN 1,544 287 284 500 347 206 528.0 1,249 per caita equivalent Prim ySdhool %ofSchool - 95 - - - - - 100 Enrdment Ratio Age Access to Heath Care % of 100 100 - 99 100 80 95.8 Population Infant Mortality per VW Eve 20 18 30 30 17 21 22.7 40 Child Mortality per VW Eve 23 20 36 41 22 25 27.8 53 Immunizaton % of Age 89 88 85 99 82 96 89.8 70 Measles Group DPIT % of Age 99 94 80 99 89 98 93.2 74 Group Life Expetanv Years 74 72 70 70 72 71 71.5 67 Total Fertilty Rate Births per 1.9 2.6 3.0 2.6 3.1 2.5 2.6 3.5 Wornan Pouiation Growth Annual % 1.2 -0.4 0.1 -1.6 1.7 0.9 0.3 1.7 a. Unweighted. Source: The World Bank, Social Indicators of Development, 1993. 2 Framework for Transition ~~~~~~~~~..... .. . ... .. ..... ..... .......... . .......... ........ TheJeconmr*c pe* of the OECS:countres in the last decade has bee irn but has swddo.n.'n the last two , Mtigua aid 8a,tx,da. C)omi,a and renada a r ar ha ye e,o 'rowah in 'vcnt yea W, r_laifr to thei 0*0ast W proMnc Cotiu ingct6rs have been Wea -q .. rlpiC$iltna fsa .ak~esses and slow gron cou- . . co-ntries Pre e o-- . with total ePOtepet.i a high pirrV66 it GDP.: oQWlhi has been gnrted by tourism,agcuur,eeilybnns.ndeetd manufatw*g idustrew empci-l nlave and 4Vw.pocessingJ supportdb aebefo,o i n r~l eign k`,w-erent -etween 1988 and 1992, merdhandise er i,.creased b. 'bott'U mi#ion^. but '~q~orts of sen~, maInl touris, hcreased by abt 50 p t tabout US$290 ml o #i: ; Op, cont,nue to b ava, but agculture and manwfactrng are p . a asn r de by tou&m: The trend to a m co M i deadyb the comr tion o ihe Uruguy l6und and tie sces fomat of lhe NA. m a ounres wilJ need to enture tat their eoomic polides are appropriate a peio of ta h r-egme needi to p p ils in the ser*pes seoir Aid flows to the RegOn ar,e ,unlik, to remi a t,' r s levek-. Inadi. the bnana t s iga perod i-fgreat rak r by ..,rduction ew baan mgme in the EU on Jul 1,1993. Prior to July 1, 1993, bananas from the Windward bananas since 1988. In 1988, banana exports were Islands enjoyed preferental access to the UK market EC$378 million, or 21 percent of GDP in the at prices that were substanbally above wodd prices Windward Islands. In 1992, banana exports of Table 2.1: Exports Of Goods and Nonfactor Services, 1988.92 (percent of GDP) 1988 1989 1990 1991 1992 Antigua and Barbuda 90.4 94.5 100.9 98.1 102.8 SL Kitts and Nevis 71.2 70.5 64.6 70.8 71.3 Montserrat 39.6 32.5 30.4 39.5 36.5 Dominica 68.0 55.1 62.2 59.3 58.3 SL Lucia 82.3 76.3 78.5 73.0 73.0 SL Vincent and the Grenadines 92.3 81.6 81.4 66.7 66.3 Grenada 51.7 46.8 56.9 58.0 48.8 OECS 77.7 73.5 76.3 74.8 73.8 a. OECS average uses nominal GDP as weights. Source: CDB. (about 3040 percent). As a resul4 banana exports EC$359 million represented 15 percent of Windward constitute an important source of income, Islands' GDP. Despite the dedine in relative employment and foreign exchange (see Table 2.2). importance, the industry remains critical to the Banana exports are subject to adverse weather, economies directly involved and to the OECS as a espedally hurricanes, but the figures in Table 2.3 show whole. a dear downward trend in the relative importance of 15 ECONOMIC POLICIES FOR TRANSITION Table 2.2: Windward Islands' Exports of Bananas, 1988-92 (percent of GDP) 1988 1989 1990 1991 1992 Dominica 31.5 19.6 22.5 20.6 19.1 St Luca 24.0 18.8 21.0 16.0 17.4 St. Vincent and the Grenadines 24.0 23.0 25.9 20.1 16.4 Grenada 3.6 2.7 2.5 2.3 1.7 Source: CDB. Details of the new EU policy are discussed in Chapter provisions, but the order of magnitude of these IV. The particular details of the new pdicy can be impacts would be small relative to the possible impact cridcal for the small, open and vulnerable OECS from a sharp reduction in banana revenues.9 For economies. However, for the present purposes, it is example, in 1992 offidal transfers to the OECS assumed that the net effect can be summanzed as a amounted to 4 percent of the total current account fall in the pnce of bananas in the U.K up to 30 inflows, compared to about 15 percent from banana percent over the next few years, and that this exports. Conceptually, however, they pose the same translates into a 30 percent reduction in the per unit problems of adjustment Losses can emerge at pnce received by the Windward Islands. Ths is several different levels (see Box 2.1): equivalent to an adverse movement in the terms of trade of about 9 percent given the weight of bananas * the banana industry must be restructured on in total exports. In order to restore equilibrium, other commerdal grounds so that productivity and things being equal, the real exchange rate would have quality are enhancec, and so that the industry can to depredate to switch production from non- attain its quota level of output In 1992, St. Luda tradeables to tradeables. Recent research suggests and St Vincent and the Grenadines exported that a simple purchasing power party (PPP) estimate quantities roughly equal to their new quota levels, of the required change in the real exchange rate in the but Grenada's exports were only about 50 face of a terms of trade shock can be a severe percent of its new quota level, and Dominica's 80 underestimate, so that a 9 percent fall in the relative percent; pnce of non-tradeables would not be suffident to brng the balance of payments back to where it was. * flexibility in goods and factor markets must be For low elasbdbes of subsbtubon between domestic increased by trade liberalizabon and goods and imports, and for low elastidbes of improvements in regulatory requirements, and by transformabon between domesbc goods and exports, increased effidency in implementation of polides the actual change in the relative price of non- (customs administraton, work permits, fiscal tradeables that is required in the face of a terms of incentives, etc.); trade shock can be a multbple of the esfimate derived from PPP assumptions. The policy aspects of this problem are discussed below. 9The fundamental equation in S. Devarajan. J. Lewis and S. Robinson, op. cit., is: Alenaive Scenanos d = I [(a-- p + (l+b) + e] a+b The potenbal economic loss assodated with a banana shock (a sudden sharp drop in price) or squeeze (a The authors argue that low elasticities of substitution nd transformation are typical of developing countries. Assuming p" gradual dedine in price) is large. Other shocs to the and c = 0, and that p x = -9 percent the equilibrium change in the OECS could emerge from a reduction in offidal aid price of domestic good (pd) equals -14 percent when a = b = .5. flows, or from the full implementabon of NAFrA For low elasticities, therefore, the required relative fal in the domestic price of domestic goods to restore the real exchange rate to equilibrium in the face of a 9 percent terms of trade shock See S. Devarajan, J. Lewis and S. Robinson, 'Extemal Shocks, is 14 percent 1.5 times the terms of trade shock When Purchasing Power Parity, and the EquiCbrium Real Exchange quantities do not adjust price adjustments must be that much Rate', World Bank Economk Review, January 1993. larger in the face of a disturbance to equilibrium. 16 2 FRAMEWORK FOR TRANSITION .Box x.2.i Poteial EonomicLoss PFron .- Reuction: in the. P:ce O :B-: -r teledJK makt -h ttsl htai tbeeeo h ee'o 10 percent of GDP :lor Domintica, St t uda and St Vincent ani the sinice esutimte sup4elasiite as. of: he order of 1 .3. Econoitn iOs#es occurt the ext2nt that resou#ce released from- -easturrent esmates sh that m D icafor exampe, nit that d1 r wcent of sub . b I n t r .cUt:f: wit0 t, b v p odmivy aaa lope given -1 ba 6D 1E uou n e eundat $twers. . i :. . a -: . -- d - A fat l.t the value oanana e ts wit -su imaropn centraw government wa ri nco ort. b -st4b ,-- ai ,,a ,- ii it ,n . .. a t . - -."P,, ,., " a . --.-- levels*"* of sncea o fistal i f edttaUo~ halt, soialsersce La Id enioeta protetion ^ ¢ 0 : 0~~~~~~~ . - . : ~~derdwiiinwnces~~~dt as these the cotetMes would~~~~ needto tre"ngten mpt.lttve4r* P Whc wil e..... klbt In walge p;ocy and ohe step to Inraeproductivity. Ain exchange rate adjustmient could asci be considered, but for thX e in v it wo ed*h sp e u bwe ts ints e s den I a a. $e Carbbea ........ ire .erenti l .akesai. Pror....ordBak VO ~~~~~~.. - -, .j. -: :,:--:......... .. ... ..... . .......................... --:..-.: * the PSIP must be focussed on areas that will employment growth and an increase in the enhance prnvate sector development1 with standard of living, and is a higher rate than that priorities established so as to eliminate the projected for many developing countries in the number of ineffective projects; early 1 990s. Given population growth and productivity gains, a growth rate of about 4 * governments must streamline their operations to percent is required simply to prevent levels of increase effidiency: in general terms, dvil service unemployment from rising and to maintain the establishments must contract, and governments current standard of living. must increase the speed at which privatization is taking place, but the professionalism and ex uIaes of Growtfi technical competence of the streamlined cvil service must be increased in order to have the In virtually all OECS countries, tourism has been the administrative capat ty to undertake successful most dynamic sector of the economy. Tourism adjustment programs; and receipts in the seven countries increased from 31 percent of aggregate GDP in 1983 to over 38 percent * donor support must be sought to bridge the inl1992. Simultaneously, value added to the domestic ritical period between a fall in banana receipts economy of the tourism sector has increased. In and the emergence of new economic activities, some countries, tourism has replaced agriculture as Experience suggests that donor support will be the largest sector of the economy. The growth in the enhanced if governments are following sound importance of tourism demonstrates that the OECS adjustment policies, and if governments can show countries have already proceeded along the path of they are working with others in an effective structural adjustment and away from heavy reliance network to resolve common issure. Effective on agriculture, and the problem for the future is to implementation of sound policies should allow accelerate this transformation towards an economy the OECS countries as a whole to attain based on tourism and the service sector activitif. To economic growth rates of the order of 4 percent, fadclitate export diversification and the growth of to prevent high levels of unemployment and to tourism, it has been necessary to undertake public maintain sodal and political cohesion intenally investment in economic and soial infrastructure. and within the Region. A 4 percent growic th rate, These investments will need to be stepped up in the while below past performance, would allow for 17 ECONOMIC POLICIES FOR TRANSITION next three to five years in order to maintain the OECS countres, they suggest that higher growth growth momentum. would be possible if (i) countries develop their investment programs with due consideration to Economic growth is determined by the quantity and sectoral linkages; (ii) govemment consumption quality of the factors of production. The extraordinary expenditures are redirected to physical capital growth of East Asian countries suggests the accumulations; (iii) the quality of labor is improved importance of the accumulabon of physical and through educabon; (iv) and exports rise, espedally the human capital and the allocation of these factors of value added to the domesbc economy of the tourism producton to highly productive investments and to sector, which has become the most dynamic sector of acquire and master technology. Sources of economic most economies. growth equabons for the OECS countries also indicate the importance of quality of factors of production and lhe Macro Setting for Economic Adjustment the use to which these factors are put (see Table 2.3). First in countries with a reasonably well articulated It is axiomatc that economic adjustment is easier to PSIP, increased physical capital accumulabon has a undertake from a posibon of strength rather than of positive effect on the real output growth This is not weakness. A positon of strength requires a sizeable so where public investment is determined in a more surplus on the recurrent govemment fiscal account a ad hoc manner and without considerabon of sectoral flexible and well trained labor force, a well funcioning linkages. Second, in most countries, govemment and simplified administrative structure, and the right consumpton has a negative effect on growth. If mix of incentives to encourage private sector payment arrears in Anbgua and Barbuda and Grenada development Given antidpated changes in aid flows, were to be induded in govemment consumption, domestc saving, both public and private, will need to then the negative impact of government consumpton be increased to finance required levels of investment could be true in all countries. Third, where data on The OECS countries differ markedly in the state of labor supply exists, this factor of producton is not a their central government finances and with respect to contribubng factor to output growth. This suggests key balance of payments and debt indicators. scope for improving the quality of labor and its productivity. Fourth, there is some evidence of St Luda's central govemment finandal situation has exports contribubng to economic growth. been the strongest among the OECS countries in the (Regression equabons are given in Annex B). last five years (see Table 2.4). The current balance has been positive in every year, averaging an impressive To the extent that these equations capture the 7.6 percent of GDP, and the overall balance has been important elements of the producton functons of the about 1 percent or less of GDP. Dorninica and St Table 2.3: Sources Of Real GDP Growth In OECS Countries, 1975-92 Govemment Exports of Growth of Country Investment/GDP Consumption/ GNFS/GDPb Labor GDP Antigua and Barbuda ! +' n.a. Dominca + - n.a. n.a. Grenada + + n.a. Montserrat + St Kitts and Nevis + + n.a. SL Lucia + + + SL Vincent and the Grenadines + -+ n.a. a. Lagged invesument to GDP ratio in Dominica current ratio in SL Kitts and Nevis, and moving average investment to GDP ratios in the other countries. b. For SL Kitts and Nevis, growth rate of exports of goods and nonfactor services. Significant at 5 percent level. Significant at 10 percent level. Significant at 20 percent level. +/- Indicates direction of effect. Source: Annex B. 18 2 FRAMEWORK FOR TRANSITION Vincent and the Grenadnes have also cisplayed a of an adjustment program, and the estimates suggest strong perfrnance on the current balance account, that the OECS countries are able to attract relatively but each has shown some deteriorabion in recent sizeable amounts. In particular, Antfgua and Barbuda, years. DonTirca has experienced a large negative St Kitts and Nevis, St Lucia and Grenada in mnany overall balance, averaging over 10 percent of GDP. years have been able to attract DFI in excess of 10 Financing has been by means of capital grants and percent of GDP. Vrtualty alt of the DFI on a large concessionary loans, but in the last two years scale is cirected to the tourism industry. For example, substantial finandng has been provided by St Vincent and the Grenadnes has formulated plans commercial banks and statutory bodes. St Kitts and for tourist related projects which should result in a Nevis and Montserrat have had no significant sharp increase in foreign cirect investmnent in 1994 imbalance in their central government finances in and subsequent years. For many countries in the last recent years. Grenada and Antigua and Barbuda, on five years the current account balance reflects dosely the other hand, have shown consistent weakness in the level of DFI. current balance accounts. In the case of Antigua and Barbuda, this is not matched by large defidts on Exisbng levels of external debt and of debt servidng capital account, largely because the finandal situation obligatons are not problems in St Kltts and Nevis, has deteriorated to such an extent that the Montserrat, St Luda and St. Vincent and the government cannot borrow or provide counterpart Grenadines, in al of which debt service is either equal funding to donor projects. Grenada has been in to or less than 3 percent of GDP. Dominica's external danger of moving into the same situation for a debt as a proportion of GDP is relatively high, but number of years, but the current government has debt servidng is relatively low and falling as a percent inibated a structural adjustment program to head off of GDP. However, domesbc servidng requirements tuis possibility, which has shown encouraging signs of are also a source of fiscal pressure. In sharp contrast success in 1993. Anbgua and Barbuda will need to Anbgua and Barbuda and Grenada have been implemnent a stabiization program to surmount its experiendng severe cifficuties with extemal debt, and debt and govemment finance problems. both had been accumulabng arrears on prindpal and interest Antigua and Barbuda is paying virtually none Offidal transfers are negligible for some countries of its debt service obligations, resulting in a sharp (Antigua and Barbuda, St Kitts and Nevis, and St ecalation of arrearsas a percent of GDP. Luda) and are tending to fall in most of the others Grenada's situabon is somewhat less serious, but (see Table 2.5).1O However, they are stiD very arrears are a sizeable proportion of GDP. However, significant in Montserrat Domirica, St Vincent and Grenada is now redudng its arrears on both its the Grenadcnes, and Grenada, and any dminution extemal debt and on obligatons to intematonal and would compound the problem of adjusting to a regional orgarizatons. The other countries, however, banana shodc. Similady, private transfers are very with low debt servidng requirements have some important averaging 4.1 percent of GDP in Antgua room to naneuver in financing current account and Barbuda, 7.2 percent in St Kitts and Nevis, 6.9 deficits. Timely paymnent of debt servidng obligations percent in Montserrat, 7.5 percent in Dominica, 3.9 is important to maintain the creditworthiness of the percent in St Lucia, 4.9 percent in St Vincent and the OECS as a whole, and to conbnue donor flows to the Grenadines, and 10.6 percent in Grenada. While is it Region. Arrears and payment delays are potentaly not obvious how public poicy could maintain or very damaging and will make the maintenance of increase the levels of private transfers from abroad, sustainable growth more diffict governments need to be aware of their significance and monitor carefully their perbrmance (see Box 2.2). Foreign direct investment is an important component 0Offidal tranr e measured here using balance of payments accounts rather than government revenue and expenditure accounts. The two are not always easy to mconci. In general it should be bomre in mind that the data base for the OECS countries remains weak so that caution Is required In Intetpretng the existng data. 19 ECONOMIC POLICIES FOR TRANSITION Table 2.4: OECS - Central Government Finances, 1988-92 (percent of GDP) 1988 1989 1990 1991 1992 Antigua and Barbuda Current balance 40.1 -3.3 -1.5 0.0 -0.5 Capital balance -7.0 -4.1 -0.8 -2.5 -0.2 Overal balane -7.1 -7.4 -2.3 -2.5 -0.7 SL Kitts and Nevis Current balance 0.3 2.4 0.1 -2.5 40.2 Capital babnce -4.6 -1.1 -2.9 -1.0 -2.0 Overal balance -4.3 1.3 -2.8 -3.5 -2.2 Montserrat Current balance -0.1 3.6 1.9 2.4 -0.1 Capial balance 1.0 0.0 -2.6 -5.0 -0.4 Overal balance 0.9 3.6 -0.7 -2.6 -0.5 Dominica Current baLbnce 7.6 6.7 2.6 0.9 1.5 Capital babnce -14.4 -17.9 -12.8 -11.2 -16.9 Overal balance -6.8 -11.2 -10.2 -10.3 -15.4 St Lucia Current balance a8 6.9 6.8 7.6 8.0 Capital balance -8.0 -7.4 -6.4 -7.2 -9.3 Overal balance 0.8 -0.5 0.4 0.4 -1.3 St Vncent and the Grenadines Current balance 3.6 2.9 4.6 4.2 2.7 Capital balance -5.4 -5.7 -9.5 -9.2 -4.4 Overal balance -1.8 -2.8 4.9 -5.0 -1.7 Grenada Current balance -2.8 -3.0 0.1 -1.5 -2.5 Capital balance -16.4 -8.6 -4.1 -10.4 -2.0 Overail balnce -19.2 -11.6 -4.0 -11.9 -4.5 Note: The overal balance includes concessonal financing. Source: CDB. tourst sector. All countries, however, will need to The preceding analysis suggests that among the develop and implement economic polides that wil Windward Islands, St. Luaa is in the best postion to support adjustment and ease the process of transition counter the adverse changes in the extemal to a new economic environment environment owing to its strong central govemment finandal position and the high level of DFI. Antigua Economic Policies for Adjustment: Policy and Barbuda is dearly the most vulnerable, despite its Coordination, Factor Mobility, Fiscal Policy, high level of per capita income and strong tourist Monetary Policy and Exchange Rate Policy industry: its central govemment finance system is weak, and it has virtually no ability to borrow except Policy Coordination and Common Services on the basis of expensive suppliers' credit Dorrmnica, with its heavy agricultural base and inmited The OECS countries already recognize that policy manufacturing and tourist activity, will have the most coordination and the provision of common Treaty difficult adjustment problems. Grenada's situation is services can provide substantial benefits. The ECCB, improving as it implements its structural adjustment the OECS Secretariat and the Windward Islands program but there are sffl impediments to foreign Banana Growers Associaton (WINBAN) are but three capital inflows perceived by investors. St. Vincent and of the successes in these areas. However, much the Grenadines, St Kitts and Nevis and Montserrat remains to be accomplished to achieve maximum should continue to encourage DFI, espedally in the benefits from joint efforts. The Establishing the Organization of Eastem Caribbean States lists areas 20 iz J!pne (!I!) !sarmnosaj si! pue Pas aLp ol Sunppj siaulew u w as luawageum putp uopleim j pe:)jlqnd (q) !wsunol guipnpui saaw pup spoog)o Suf Ul SWUM) (!!A) PUL' !UO. leuoqe- gwpew 4PJ)Slulwpe aSDXa pue swolsru walui (!) :Bupnpui pansind aq ol an, (!A) 'UO4PJ)SI I PP Xe) OWCOUI (A) !SDI uu .ISQeIS luoilpu!pjoo:) ajaqm UP (Al SaDipd juio pup uoileziuo E-4 X: . . . . . . . .. . . . . ..... . .. 77 . N: Vztqc: C769 t::: f X: )16 ........... 'b -61.. .. ... ..... 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WR xo JO: O*uw WI NOIIISNVNI SOA XSOM3WV-SA Z ECONOMIC POLICIES FOR TRANSITION In adcition to the need for coordination in market, a foreign currency market for spot and administrative areas, there is an ongoing need for forward transacions, and a market for commerdal hannonization of polides relating to fiscal incentives, bank negotiable CDs, promiissory notes and bankers' the CET and consumption taxes, income and property acceptances. On the long term capital side, the taxes, and similar areas. Existing regional institutions, central bank is to undertake four major initiatives: the inducing CDB, the ECCB and the OECS Secretariat, establishment of the Eastern Caribbean Home should rapidly develop proposals for considerabon by Mortgage Bank, the Eastern Caribbean Enterprise natonal govemments. Paricular attention needs to Fund, a regional share market and Eastern Caribbean be paid to existing data liritabons. Sound poicy can Unit Trust Company.11 These developments wil orly be based on a sound stabsbcal base. In many significantly improve the capital mobility in the OECS, areas the existing base is too weak to support and will be accompanied by the establishment of a government operabons. Increased coordinaton of regional regulatory framework. poides and enhanced provision of common services All improve the competibve posibon of the OECS Labor mobility among the OECS countries needs to countries by streamlining procedures, reducing be enhanced by a commitment by governments to operatng costs and improving factor mobility. They support it through the elimination of work permits to wil also serve to opbimize the use of scarce highly permit free mobility of labor, the adopton of a trained human resources. Moreover, in light of rapidly regional information system on job opportunites, and dianging external drcumstances, the OECS countries in other ways. The OECS Secretariat will be initiating should consider forming an economic union. a study with International Labor Office (LO) support of regional labor mobilty issues. Increased mobility Formaton of an economic union would be the logical provides a better match of skills and jobs, reduces culminabon of the existing Treaty, and would provide bottlenecks and utilizes scarce human resources more concrete advantages to the member states. Labor fully. Private sector business persons in particular mobility would be enhanced, and the flexibility of the need to be able to move freely within the Region to economies in the face of external shocks increased. impraove prospects for joint ventures, cooperative Bargaining strength would be increased visavis the agreements and mergers of existing small firms, to EU and NAFTA, with the ability to negobate as one enhance effidency and improve competbveness. bloc. Monetary and exchange rate issues would be viewed from a larger union perspective. Membership Fiscal Policy in organizabons such as the IDB would be easier to negotiate. Harmonizabon of tax and regulatory A sound fiscal policy is necessary to constrain arrangements would be simpler, and many similar domestic inflationary pressures, to maintain a stable benefits would ensure from enhanced coordinabon real exchange rate and to enhance competitveness in services. foreign markets. A cribcal component of a sound fiscal policy is to constrain the growth of public sector Factor Mobility wage levels. Public sector wage levels should be geared to productivity increases. They should To increase competitveness and reduce vulnerabilty therefore allow for suffident differentabon so that the to extemal shocks, increased factor mobility among public sector can attract welkrained and capable dvil the OECS needs to be actively encouraged. Despite servants in competion with the private sector. recent initatives, much needs to be done in this area, General settlements that raise over,all public sector particularly with respect to labor mobility. wage levels in excess of productivity improvements Improvements in capital mobility within the OECS and wiN generate strong inflationary pressures and distort externally are an important means of mitigating the the relative price of tradeable goods, resulbng in a less effects of a terms of trade shok that impinges upon competitive economy. Public sector wage restraint only some member countries. The ECCB has recognized this and has begun implementing plans for improving capital mobility within the OECS Region. With respect to short term capital movements, the ECCB will promote a secondary market for ECC, A Proposed Economic Developnent Strtegy for the government treasury bills, an inter-bank money oECSkfCCB Ama, March, 1993, pp. 6366. 22 2 FRAMEWORK FOR TRANSITION Table 2.5: Balance of Payments, Selected Entries, 1988-92 (percent of GDP) 1988 1989 1990 1991 1992 Antigua and Barbuda Official Transfers 0.6 0.2 0.4 0.6 0.6 Private Transfers 4.4 4.7 4.1 3.6 3.9 Direct Foreign Investment 17.5 12.5 10.6 10.5 5.6 Current Account -30.2 -26.2 -17.7 -11.5 -11.6 SL Kitts and Nevis Official Transfers 4.0 1.5 40.4 0.6 40.4 Private Transfers 8.5 6.6 5.0 9.5 6.4 Direct Foreign Investment 10.5 28.8 30.6 12.6 12.4 Current Account -21.0 -29.7 -33.1 -18.7 -9.7 Montseffat Official Transfers 3.6 5.0 2.6 3.8 6.1 Private Transfers 8.0 8.5 4.9 6.8 6.5 Direct Foreign Investment 8.2 3.6 5.8 5.9 3.4 Current Account -1.6 -6.8 -15.3 -8.5 -5.0 Dominica Offidal Transfers 6.0 6.5 5.9 4.8 2.9 Private Transfers 7.4 7.8 7.6 7.1 7.7 Direct Foreign Investment 4.7 5.4 4.3 6.0 6.2 Current Account -3.6 -27.5 -22.8 -17.4 -12.4 St Lucia Official Transfer, 2.0 2.0 0.7 1.1 0.2 Private Transfers 4.3 3.7 3.8 4.0 3.8 Direct Foreign Investment 9.0 8.8 11.4 13.5 15.7 Current Account -4.6 -18.1 -17.2 -1 8.9 -23.2 St Vincent and the Grenadines Official Transfers 5.4 5.3 4.3 4.6 2.8 Private Transfers 4.7 4.8 4.8 4.5 5.7 Direct Foreign Investment 5.7 6.1 3.9 4.8 4.1 Current Account 1.6 -0.4 3.7 -3.9 -9.4 Grenada Official Transfers 1.6 4.5 2.5 3.1 6.8 Private Transfers 9.4 9.6 10.7 11.2 12.3 Direct Foreign Investment 9.0 5.6 6.4 7.2 10.7 Current Account -12.5 -20.5 -17.7 -23.8 -16.5 Source: CDB and IMF. reduces the pressure on fiscal resources, increases Given the situation of the OECS countries, where competitiveness, and wil also reduce the cost of an public sector investment is citical to the development extemal shock by allowing for more people to be of private sector initiatives, a sound fiscal policy would employed in the private sector at a lower wage rate, also involve a surplus on recurrent account of other things being equal. Some recent high wage something of the order of 5 percent of GDP, an settlements in the public sector in the OECS suggest expenditure on capital account (PSIP) of roughly 10 that wage policy needs carefti mornitoring and control percent of GDP, and finandng of the overall balance by central govemments. St IGtts and Nevis, for on concessionary terms from extemal donors. More example, announced a 15-20 percent wage award in generally, public savings must be maintained at a level September 1, 1993, equivalent to about 2 percent of suffident to finance the local counterpart of the PSIP. GDP. Even Dominica's granting of a 3 percent wage A recurrent account surplus is also necessary to award will put pressure on the fiscal balance, given generate domestic savings and to enhance donor the current pressure on banana prices. In Grenada, support by adopting credible intemal polides. negotiations for the 1993-95 wage award are long Govemments should be aware that counterpart costs overdue. tend to be much higher in multilateral than in bilateral projects, and that interest rates will in many cases be 23 ECONOMIC POLICIES FOR TRANSITION on less concessionary terms than in the past These unnecessary programs in other areas; and (v) monitor considerations increase the need for fiscal surpluses in PSIP estimates and project implementaton more recurrent accounts. effectively to attain prorty objectives, in human resource development and infrastructure to support As noted previously, several OECS countries have not private sector development and to reduce waste. attained a surplus on recurrent account in recent years. Common harmonized policies with respect to It is citical that govemments have in place an effiident tax structures and levels, and common services with and equitable tax and expenditure system prior to the respect to tax and customs administration, should be onset of a change in the extemal environment, while rapidly developed as part of a fiscal reform package. there is still breathing room to undertake the On the revenue side, countries should undertake the necessary reforms. Increasing tax rates is extremely following: (i) broaden the tax base for indirect taxes difficult in a period of economic crisis, and (import duties and consumption taxes) by redudng govemments tend to meet fiscal objectives by sharp exemptions and concessions: typically such cuts in govemment expenditure. The problem is to exemptions from import duties run to 50 percent or design budget cuts that do not impact negatively on more of total imports; (ii) reduce the CET and essential sodal expenditures in health and education, integrate it with all other import taxes and levies, the or that do not curtail needed infrastructure investment consumption tax, and abolish stamp duties, customs by squeezing counterpart funds. Sound planning surcharges and other taxes on imports; (iii) strengthen based on a solid fiscal framework is required to devise tax administration in all countries, focussing initially on a strategy that is economically, socially and polibically areas where a high benefit-cost ratio exists in terms of feasible. additional revenue achieved; and (iv) simplify the tax system in all countries by eliminating nuisance taxes, Monetary Policy and Exchange Rate Policy consdidating the number of different tax rates, and improving tax reporting forms. All countries should The exchange rate in prindple involves a number of seek to broaden the tax base, through a broad-based options, but unanimous agreement among member consumption tax and/or a personal income tax countries is required to alter existing policy. Under system. Tax harmonization among the OECS the current systern, the ECCB is strictly limited in the countries should be a priority issue. amount of govemment debt it can purchase or monetize, and at least 60 percent of note liabilities On the expenditure side, govemments should must be covered by foreign exchange holdings. This consider the following measures: (i) develop a pegged exchange rate system has worked well and smaller, leaner dvil service establishment with should be maintained unless there are compelling competitive salary rates to attract able people. Set a reasons to change it One option considered in the target for wages and salaries as a percent of total past has been to link the EC dollar to a basket of govemment revenues below current levels; (ii) currendes rather than to the US dollar. The change in implement user pay charges in cases where efffidency the marketing arrangements for bananas has altered gains are large (i.e. user pay charges for water - or one aspect of exchange rate vulnerability, since in metering - can substantially reduce required capital prindple the price of bananas in the future will reflect expenditures on water resource development). European rather than UK markets. Given the law of Contract out govemment services where appropriate one price, a future devaluation of sterling should result for private sector delivery; (iii) privatize govemment in an equivalent upward movement in the £ price of operated enterprises to increase effidency of bananas, unlike past episodes where the f price of operation and to reduce the drain on govemment bananas was effectively insulated from the f fiscal budgets (successful privatization efforts have exchange rate. In addition, tourism is attracting more provided govemments with lump sum funds from the visitors from Continental Europe than before. Both of sale of assets plus increased taxes and/or dividends these changes would suggest a basket be used from more efficient operation of the enterprises). consisting of the ECU and the US dollar if this Proceeds from sale of assets should be used to reduce approach were adopted. However, disadvantages in debt or finance investment; (iv) maintain or improve terms of complexity and uncertainty would seem to essential health, education and other social sector outweigh the theoretical advantages of a link to a expenditures, while redudng or eliminating basket of currencies. 24 2 FRAMEWORK FOR TRANSITION The OECS countries have a monetary and exchange deflation of domestc price levels may result in rate system that has withstood two oil shocks, two substantal and prolonged unemployment A nominal major world recessions and a series of devastabng devaluabon accompanied by tight fiscal policy and a natural disasters in the last 25 years. The system has policy of wage restraint should allow a quicker and been well structured and appropriately managed. less painful adjustment to an external shock, resultng However, the outlook is for a number of shocks to in faster GDP recovery and less unemployment. A fall come, induding reductions in banana and sugar in the real exchange rate stimulates the production of prices, reduced aid flows, and a possible negative tradeable goods and improves the compettive impact from NAFTA. In general, a more competitive posibon of the economy. Recent economic events in situation will prevail in the future. Whatever the Guyana, which has depredated its real exchange rate policy stance, the countries will have to adjust rapidly in recent years, and Barbados, which has not illustrate to extemal shocks with the instruments available. the significance of achieving a speedy adjustment to a Recession with increased levels of unemployment is loss of competitiveness. not a viable altemabve. Banana receipts, while important to individual countries, are dwarfed in Given that a currency is to be devalued, the optimal importance by receipts from tourism, and tourism timing of such a move is before it has been represents an increasing component of foreign antidpated by the market and while demand exchange earnings. However, bananas have a pressures can be contained by a speedy adjustment in significantly higher ratio of net value added to sales fiscal policy. In the Latin America and the Caribbean revenue, and the employment impact of bananas is Region, the past history of devaluations has shown considerable. The short-run mobility of labor that many of them have tended to lose their employed in the banana industry is not high for most effectiveness quiddy, and to generate a series of more occupations in tourism and service sector industries. frequent and larger devaluations in an attempt to In the short-temn, any pressure on the monetary devalue the real exchange rate because tight system can be handled by using stockpiled reserves or complementary polides have not been fully in place. govemment generated fiscal reserve funds. However, The OECS countries have successfully avoided this there should be no relaxation of the strct limits on the cyde of dedine, and should continue to attempt to do Central Bank's lending to the govemments. so, by the adoption of sound macroeconomic polides. Moreover, before stocks of reserves are depleted the If the parity of the currency were to be altered, it countries will need to realign their relative price would be important that the move be viewed as a structures. move to a new fixed parity, not as a move to a series of downward adjustments. To achieve this, Devaluation is a slippery tool at best for small, open complementary fiscal policy restraint inducing public economies. Exchange rate adjustments are sector wage restraint, would be called for, plus a controversial, since they raise the domestc currency reduction in import tariffs. The differental impact of price of both exports and imports, and result in a any change in the exchange rate parity in different redistribubon of income. In situabons where the countiies would require dose OECS coordination for exchange rate is fixed and where domestc price levels an effective overall poicy response. The situation is for all goods rise relative to foreign price levels, complex since some countries would not be affected causing an appredaton of the real exchange rate, a directly by a banana shock, for example, and the devaluabon may be the preferred way in which to increased cost of debt servidng in terms of local realign domesbc and foreign prices. If the real currency would also have a differental impact on exchange rate is not devalued, deflabonary countries. As indicated above, fiscal policy shotud aim macroeconomic policies are required, whereas if it is at generating a surplus on recurrent account suffident devalued, stable macroeconomic polides are to finance the local counterpart of the PSIP. A key suffident As noted above, a fall in the terms of trade element in fiscal policy is an incomes policy for the requires a downward adjustment in relative domestc public sector that restricts wage awards to price levels. Increasing an economy's openness productivity increases. through import tariff reductions increases the equilibrium level of the real exchange rate as do In pindple, taxes on imports and subsidies on exports adverse terms of trade shoxks and reductons in can substtute for a nominal devaluabon. In practice, extemal flows. The alterative of an absolute this opton is not realistc CARICOM regulations 25 ECONOMIC POLICIES FOR TRANSITION prevent unilateral taxes and subsicies on trade, and problems caused by increased contraband and smuggling would tend to mitigate the effect of trade taxes in any event The incease in the C;E to 45 percent in some OECS countries in 1991 appears to have led to a significant increase in smuggling activity. Concusions The OECS countries are subject to increased competitive forces in the wodd as a whole, combined with a loss of preferential rnarkets and a reducbon in aid flows. The potental loss assodated with a drop in the price of bananas is large. An economic framework for transition reqcres that govemnments: (i) harmonize polcies relating to fiscal incentives and tax regimes; (ii) coorninate acton in adrrnirstrative areas such as customs and excise administrabon; (iii) increase factor mobility by reducing restricions on labor flows and by expanding capital markets; (iv) adopt fiscal tax reform and expenditure poiades that will generate sizeable recurrent government fiscal surpluses; (v) enhance domestic saving capability; (vi) maintain a competitive relative price regime through fiscal restraint, inducing an incomes poicy for public sector wages; and (vii) monitor monetary and exchange rate policy to ensure that a compebtve price regime is in place. 26 3 Factors Bearing on Export Prospects Pnice Compe1TI ienss @7ports of goods and non-factor services from the OECS countries depend upon price cpinesi el ri: North America and Europe, preferential trading relationships, CARJCOM policies, the quality of d ,,s oflbred and market arrangements. Civen the fixed rate of exchange between the EC dollar and the US dollar, price compe t ensdpdu,po relaUve inflation rates in the OECS and in its major markets, and on shifts in the US dolliar..ex ange t .'.. European currencies Low inflation rates in the OECS and a low US dollar vis-a-vis European -rrencies ance competiteness for OECS goods and services. Very low import duties reduce the passt.rou. effec.ts.i .. ..,1a . imnportpriees an4 'hus, restrain the overall inflationary pressures in the OECS countries! The in*dx f6r th re, eev Oehag rate for each of the OECS countries fluctuated sharply in the 1980s with movensn the s tJS oiW Se ,98. indics ,of re1l effectie ,exchange rates have been relatively stable Some yea-rto year c e ha b izeable, but th,ey t,end-.to canicel out, as with Grenada Devaluations among CARICC.M counris hat *:to nerate real appeations, eg, Jamaica in 1991. In order to enhance price compeitivene, ' ECS, onti sm rslw work to kiaease -cwecy stability -within CARJCOM, and they should implement: sound POsc ,d reduce mport .d.,ie anda phaseou-t stamp dities and diffeteal onsm tion .'tai-s tt Income Levels in North Amenica and Europe percent growth in the OECS if appropriate macroeconomic and trade polides are implemented, Projections for real growth in the G-7 countries (i.e., as descuibed elsewhere in this report the United States, JapaR Germany, France, Italy, the United Kingdom and Canada) show a dedine in the Preferential Trading Relationships 1 990s, from 3.3 percent per year on average in 1985- 92 to 2.5 percent during 1993-2000. Tourism is highly Preferential trading relationships have been catical to sensitive to income levels, and these projections the export of goods from the OECS, but they are suggest that world tourism may grow less in the 1990s under severe pressure and will not be as helpful in the than in the late 1980s. However, G-7 growth rates of future as in the past. The preferential market for 2.5 percent should be strong enough to engender 4 bananas in the U.K. has been lost and the new EU Table 3.1: Real Effective Exchange Rates, 1988-92 (index 1988-100) 1989 1990 1991 1992 Antigua and Barbuda 98.7 100.9 99.9 99.3 St Kitts and Nevis 95.4 103.7 100.6 97.1 Dominica 92.2 100.0 93.2 93.2 St Lucia 98.1 106.4 99.0 100.0 SL Vincent and the Grenadines 99.8 102.4 101.3 101.3 Grenada 90.8 103.7 98.2 101.8 Note: Data for Montserrat not available. An increase in the index indicates a real depreciation. Annual estimates are cakuated mid-year to mid-year. Source: IMF. 27 ECONOMIC POLICIES FOR TRANSITION BOX 3.1: THE URUGUAY ROUND AND GA1T: THE OECS COUNTRIES Small countries are particulary vulnerable to potentialy adverse trade consequences owing to a limited resource base and the, nabiliY f domestic markets to provide a base for exports. Reductions in MFN tariff rates as a result of GATT negotiations could irnpact neatively on exporters who benefit from tariff preferences since margins of preference are eroded by tariff cuts. OQECS expors benefit f rom CS( CSP and Lome Convendon preferences. The implementation of NAFTA could lead to trade diversion from OECS suppliers to Mexican suppliers. On the other hand, trade liberalization provides general benefits to world trade and is potentially beneficial to OKt OE cotntries. A Worid Bank and UNCTAD trade projection model (SMART: Software for Market Analysis and Restrictions on Trade)'hasbei e to pnrect the Impact of Uruguay Round MFN tariff cuts on OECS exports to the United States and the Europian t)nio. Mon taeirr.. h not irnclded). Results are shown below. The negative entries for the EU reflect mainly the reducstion in prei-irentbllntavbaa1 Assumed in the model .e., A average reduction of 40 percent In EU tariffs). The positive entries for the U.S.refloo net pins rig from: MFN tariff reductions on textils and clothing which outweigh the losses on other products as airesult of tarifVo"_lo ELI otigh U.S. gains wr as countries except Grenada and St Kitts and Nevis. Inclusion of non-tariff barrir lIn he aI us wo r Inrdease the potential gains fnom the Uruguay Round resulting from improved access to U.S. textilc a dothlng rts. but measurement of these effects is not possible within the model as developed. Reducton in barriers to lnternatIonal ttade-In servie l generate additional net benefits for OECS countries in areas such as transport costs, health care provision and providerisof edual tservtces. 0 ESTIMATED CHANGES IN IMPORTS DUE TO URUGUAY ROUND TARIFF CUTS EUROPEAN UNION IMPORTS UNITEDSTATES IMPORi' All Items Foodstuffs Manufactures A1lites :Fd sW:::: .....tt....tu' Ani and Barbudat -56 -53 *3 41 0 - - Domintca *~~~~~~~~3253 .3238 -11 '678 4 . xx Gtenada -.-396 -386 -6 473 0 474 S-*Itts-and Nev: 0 0 0 3s .315 '9 SL qCIa4 < 3741 -5726 -3 3361 0 3361 St. bincent anid the Grenadines .2878 .2865 .13 747 4 fH NAFTA is to cause trade diversion away from OECS exports to North America, existing exports must face trade biens hiW ai i*ia ad NAFrA countries must be viable competitors for OECS exports. Analysis at a four-digit SITC level shows that potenoIa Aff4ft a OECS trade Is confined to the textile and garment sector. Most analysis suggests these longer term effects are poswitive and] thattrade liberaization will enhance economic welfare. The Table below gives results for those OECS countries where the effects are udged to be$ significant. The estimates suggest that 1 to 2 percent of OECS exports to the U.S. are vulnerable to displa"rment as a rusult of INAFT. The negative effects of NAFTA on clothing and textile exports to the U.S. are more than offset by the postive tefkcts o d6thln Wd textile exports to the U.S. as a result of Uruguay Round MFN reductions- for St Lucia, for example, thdie NAFA efect 1 al ne,t'M US$309,000, whereas the GAT effect Is a gsjtive USS3,361,000. The SMART model was used to proJec the, e ts Vi em 1i% within NAFTA of tariffs on textiles and clothing and the removal of all U.S. non-tariff barriers facing Mexics cotinge Projectons relate to the final stage of implementation which may extend up to 10 years before al barriers are elminate The SMART dI measures short run static effects of trade liberalizadton. Longer term effects encompassing growth. technollgy and InVestient fto could alter the short run effects. PtROJEtCWD tISP1ACEMENT CE '1992 OECS CLOThING AND TEXTILE EXPORTS IN THE U.S. otE TO -1.A (L5s100 orrercend PROJECTED TRAM I.OSSE Value of Exoorts in 1992 Valte Peret of:f992 txport L Stitts and Nevis 4839 84 1. X St. 1ciai 2377 5309 1.3 St. Vincentmad the GreAMD"M 3098 43 IA4 'Sourte. Canbbean Region; Copingwith Changes in the Extemal Environmen, IBRD, 1994. banana regime instituted on July 1, 1993 poses U.S. and other OECD countries' quotas on sugar and uncertainties in the short to medium term and the other agricultural products will be converted to tariffs distinct possibility of the complete elimination of a and these will be reduced 36 percent on stages. The protected market for bananas within a decade (see U.S. and Canada give preferential access to some Chapter IV for extended discussion.) The Lome Caribbean products but the impending Agreement on sugar gives a guaranteed quota, but implementation of the North American Free Trade downward price pressures will continue. In addition, Agreement will effectively reduce the value of this because of the 1993 Uruguay Round negotiations, all preferential access by allowing Mexico, a major 28 3 FACrORS BEARING ON EXPORT PROSPECTS competitor, eventual free access to the North should not prove historcally troublesome to OECS American market (see Box 3.1). The U.S. tanff countries which have had a lower CET than other arrangements under 806/807 regulations and CBI members of CARICOM. High tariffs add to the cost concessions have been responsible for most of the of operating a tourism and service sector oriented garment and electronics firms in the OECS, firms economy. A 5 percent across-the-board tariff which are particulady important in St. Kitts and Nevis, eliminates high and variable effective protection rates, St Vincent and the Grenadines, and St. Luda. and provides some level of protection for light Changes under GATT to the Multi-Fibre Agreement manufacturing industry without indudng serious Box 3.2: Trade In Services: An Opportunity for Expansion Woridwide trade iberalzation and the elimination of trade preferences wilt force. countriesb, teritraw O i *ea Whet. ,'ey have * comparative adfvantage In the longer term, the future of manufactured expot from tie OECS wttrl to t owing to -emierging mpetition 'oxm 'other countries and the absence of econotnies of scale. Services po vide a 1 aree w:r .4i :a4dantage exists, and where expansion should occur. World trade In services is the fastest growng sVgmeIgof trae,: X4 the MEC. c,ountries are well placed to expand in these areas given their demonstrated capacity In the tourism : setor , fhe X, l .o eii 'main resource baw (both vwithin and outside of the Region). Existing and rw Communiations networks are crucial for success In exporting servuccess 1 n" In email MOs: mndai ,Wateltes,. Opportunities exist In many areas: financial and business services, retirerment homes, offshore oedii- e tyi 1400 *answering services, medicat record keeping, hospitals, and so on. Service sector exporting wi require public and private sector initiatves. The pauble sector wi e. t , , p, --cw opportunities and quick to respond. Capital and labor mobility must be enhanced, to proinote corporate itatlfo iad jnt - , ' tures (i,e Jointl owne hsppital complexes). Mobility of key professionals, especialy former re 'ints 1ing , ' t ', ., ouraged. Regulatons, tatitimpede development of the service sector must be changed. Com"pany law, acoutng.nd call syterns need to be simpli6ed and standardized. Copyright laws and laws respecting intelectual property tits e"to be t into line with practices elsewhere. The pubtic sector should develop, on a regional basis, an action pln to provide a ,n*ont r, export-oriented service industries to expand, and quickly, while preferential market access for traditional expor sts, may also impact negatively on the garment industry in distortions. Thus, over the longer term, and in tandem the OECS by reducing the number of firms from with a services oriented growth strategy, and with a countries whose U.S. quotas have been filled, and tariff structure more consistent with those of more who seek indirect access to U.S. markets, but developed island countries, the OECS countries positively by reducing barriers to trade in garments. should strive to achieve a uniform 5 percent tariff. Finally, CARICOM has provided a protected market for some OECS products, a market which is to Quality of Goods and Services become less protected if current agreements to reduce the CET are implemented on schedule to 1997 High quality of goods and services is espedally (and 1998). important in a period of increasing competitiveness in markets for bananas, manufactured products and CARICOM Polices tourism. Quality improvement is a key objective of the restructuring of the banana industry (see Chapter OECS countries, along with other members of IV). The manufacturing industry will need to be even CARICOM, have agreed to a series of tariff reductions more quality consdous in future, as more open to take place between 1993 and January 1, 1997 (and markets become more demanding of high quality 1998). These tariff reducbons will reduce effective products. The OECS countries will need increased protection rates on uncompetitive import substitution and probably concerted action in this area, which is industries and will enhance export prospects as the technically demanding and expensive. In tourism, a economies become more competitive. The OECS wide range of improvements are needed to maintain countries should move to reduce tariffs and other and increase the number of arrivals and the length of trade restrictions on a 'fast-track" basis (anuary 1-July stay, induding: (i) improved air access, espedally for 1, 1997), since the initial stages of the CARICOM CET countries without intemational airports; (ii) enhanced 29 ECONOMIC POLICIES FOR TRANSITION customs and immigration procedures which can Marketing Arrangements provide quick and friendly service; (iii) facilities for training of management and staff in the requirements The OECS govemments see themselves as facilitators of the modem hospitality industry; (iv) increased providing economic and social infrastructure, use/availability of high quality local food and necessary investment incentives, access to handicrafts; (v) provision of adequate infrastructure in commercial and finandal services for private sector water, electricity, communications, roads and health development and support for human resource care facilities; (vi) environmental improvements in development. Throughout the 1980s and into the solid waste disposal, sewerage treatment and coastal 1990s, the OECS govemments have introduced a zone managementi (vii) upgraded cruise ship facilities number of economic reforms aimed at creating a induding duty-free shopping. These problems are macroeconomic and regulatory environment more acute in some countries than in others, but no conducive to private sector economic development country can afford to rest on its laurels in this highly As a result of these reform measures, the role of the compebitive industry. Industry officials are aware of all public sector within their economies has changed, of these problems, but govemment and private sector although its size remains somewhat large in most initatives will need to be expanded and coordinated countries (see Box 3.3). to ensure that tourism attains a high quality status in all of these areas. Efforts to expand trade in other For a number of years the OECS govemments have services need to be steppedup (see Box 3.2). been aware of the need to diversify their economnies BOX 33: THE ROLE OF THE PUBLIC SECTOR: AN AGENDA FOR REFORM G'Ooverments, the private sector, trade unions and other key organizations must work together to geneteeconomic and s progress. Increased productivity and efficency are critical to this progress. The public sectorlis tesponsile for prqvidng a ancroeconomic environment and an incentive structure that will facilitate private sector development. Tax burdes need to be reduced, and thepublicsectorfmust become streamlined and efficient. Product and factor markets mustbecome ma-recpetttidveon a regional and world-wide basis. Policy uncertainty, delays in processing applications and discretionary public intervento must be replaced by efficient public sector institutions that reduce the costs and risks of doing business, especially In the key areas of taxwand customs administration and land registry. The agenda for reform encompasses seven broad categories: 0 Macroeconomic and trade policy reform: fiscal balance, a broad based and neutral tax system, improvement inr tax administraton.w and a rapid movenent to trade liberaliution are required. i* abor markets; an efficient work permits system, improved labor-management relations and a reductlonr hi ret*icom on k .nlsah 4nd on temporary emplobyent are required. Human resource development needs increasingtattention. 'A fiscarsponsle socaf safety net needs to be pin in place. 4 Capital markets: unnecessary controls and restrictions on capital movements exist Wmth respect to forelgn Inv_etmli currency Xiconvertibilityc and incompatible tax and acrcounting systems. Legislative frameworls require updating and systems fwr transAii claring tand settlementupgraded. * Administrative pocedumes ceain adrministrative procedures impact negatively on the privaue sector and is0ed to berr0iPsved throughincreasedefiencyand tranparency. CustomsadministrationneedsspecalattentonalongwithlandncuseappovLI One. -t 4shops nreed to become a reality. * 1Lea franework and insdtutioral development; the model companies legislation developed for the OEC$ cot*de sou:. be $dopted. Record keeping and regstries need improvement to facilitate dispute settlements. * Fihandal intermediadon: the regulatory system for banks and financial institutions in the Cainbbean Region nedtio be strene .0;and standardized, and rew institutions and instruments encouraged to improve compeution and reduce te;higis costt of credit. * Market access: existing barriers to competition have generated strong vested intereStS In both public ;nd privtesphee*. Vbfic education and improvements in the competitive environment are needed, including trade reform pdvatizatim eliminatin ol pice controls, elimination of discrimination between foreign and domestic investors and reduction in discriminatory fiscal incentes Sourc:e Carfbbean Countties- Policks for Ptivate Sector Development, IBRD. 1994. 30 3 FACTORS BEARING ON EXPORT PROSPECTS and have actively encouraged foreign and local to be successful providing a supporting role for the entrepreneurs to establish businesses. Equally private sector in marketing, they need to develop important, the govemments have limited the scope of small, highly professional and goal oriented agenies their involvement in the ownership of businesses and with strong links to private sector interests which have have pursued a policy of selected divestment of public a potential interest in exporting. Such agendes should and quasi-public enterprises. Faced with an have a five year "sunset dause,' and they should at increasingly competitive environment, the OECS that time either be absorbed by private sector govemments are keen to set up efforts to continue to interests or disbanded. attract foreign investment, particularly in tourism and manufacturing. To this end, the OECS governments Condusions have sought support from multilateral institutions, such as the Intemational Finance Corporation (IFC) Export prospects of the OECS countries are influenced and the Multilateral Investment Guarantee Agency by the trend towards increased trade liberalization at (MIGA), for entrepreneurial development. IFC's the global level, a trend that aeates opportunity while involvement in the OECS countries indudes: (i) it eliminates protected market access. The uncertainty US$3.7 million co-finandng of the Club St. Luda in posed by an increasingly competitive world FY91 in St. Luda; and (ii) US$0.7 million toward the environment requires that public and private effort be finandng of the Fort Young hotel in FY89 in expended to ensure that potential export markets be Dominica. The OECS countries have recently tumed into actual export markets. This is important in subscribed to MIGA in order to enable: (i) prospective all areas, but most critically so in the tourist industry. foreign investors to purchase investment insurance Heads of govemment in the OECS have tended to against political risks; and (ii) the govemments to seek take over the role of Minister of Finance because of its promotional and advisory services from MIGA to importance: they should seriously consider adding the attract foreign direct investment Minister of Tourism to their responsibilities. Study after study has reported on the need for The OECS countries must enhance export prospects improved marketing arrangements in the OECS by a variety of measures. A competitive real effective countries, and some progress has been made. Geest exchange rate is one essential, requiring a sound fiscal boats can now handle products other than bananas, policy regime. Preferential trading relationships will for example, and the Eastem Caribbean States Export be less favorable in the future for bananas and sugar, Development Agency (ECSEDA) seeks to identify and changes under GATT and as a consequence of market opporunities in the United States. However, NAFTA and of reductions in CARICOM tariff rates the general neglect of marketing is illustrated by the may impact negatively on some manufactured fact that the Agricultural Diversification Coordinating exports. Niche marketing will be required for Unit (ADCU) does not have funding for market successful development of most manufacturing, and development. This gap and others are highlighted in will require marketing information and intelligence the ECCB's 'Proposed Economic Development support. Breaking into new export markets has been Strategy for the OECS/ECCB Area." Increased difficult for Caribbean producers in the past Trade in coordination and additional funding are needed in all services provides a real opportunity for expansion, areas of actual and potential exports. In most cases, however, if bottlenecks are eliminated and an private sector initiatives will be needed to address the appropriate regulatory framework developed. Public issues, but a strong case has been made by some sector reform encompasses a wide range of broad Heads of OECS govemments that public funding is categories, from more effiident markets to improved required to provide information and technical administrative procedures to improved financial assistance in the marketing area, given the urgency of intermediation. the need to diversify away from bananas. Past govemment involvement in the marketing area has, however, not been successful, owing in part to their organizational structure: import monopolies on basic foods have been granted to govemment agencies which in tum are expected to cross-subsidize the export of non-traditional products. If governments are 31 4 Preferential Trading Arrangements .......... .. .......- -. - ................... .. 6 .................. ... ~~~~~~~~~~~~~~~~~~~~~~~~~~~~V:.?. - e. ..... ............... .......... N -.t ......fA.. Bananas, Sugar a&ids; Manufactured axportsK..-i" W $4 -~~~~~ ~ ~ ~~~ ...o M ... ¢ . ...... ,l :: @ ~~~~~ : Z ~~~.-A 7 . 4t nak a - - - ... XPa#-#X ~~dfi.. 04;; * - lw - di O ihi i - : "' W : . - . . - - - - - w . - v . - - { R~~~~~~~~~~~~~~A.- M~z -,@... t*.--a*-''-'' -i~.. Bananas effecfivedy resttcong supply to the 3.7 nila on tonnses adocated under the new system. 1 2 The New Bananaa Reymie The lack of transparency in the rnew system arises The rew EU podicy on bannas is mrore complex and because: (i) key dedsiobns are to be made by a less transparent than the previous rix of national Banana Managenent Conmiittee, wNch has, along banana policies, and it has themefore increased the with olier ph ers, dth ability to issue Ocenses to uncerainty attached to the producton of bananas. ims ort and to alter the level of the current 2 reimoe Tes poses major problerns for govemrments as well as tonne quota; (ii) the rnew regime has no dearly producers The complleitby of the new regime adises defined transiton procedures, and (iii) incone support from the manner in whe h quotas and taeiffs are scuemes to provide assistaryn:e o tradtinaw ACP alocated: traeiional African, Caribbean and Padfic producers are not definea A istirnIct possibist of the (ACP) suppOiers receive non-transferable country newv regime is that the quota rents wil increasingly be spedfic quotas based on past export perfomiance, captured by the marketers as opposed to the wNch quotas are not subject to a taiff in the EU, and oanna effucers ceive a transferable quota iribally 12As thiv epol was going into print the EU lnnounced the set at 2 rlion tonnes per year, te auocaton Of concksion of an agreement vith cour on the five Latin An whidh is determined by past eqxpot performance. A countrk (CoiombLi Costa Rka, Nkwagu and Venezuela) key point is that 30 percent of the 2 milion tonnes or InvolTed in the GAT parnc on bh n he fifte country 600,000 tonnes is to be aprocated to tra tionr ACP uaeana hanat gem pted the 28re, The agraemeng marketeers based on the level of their prmary imports mpor t h ff quota to 2e1 milion metric tonns h 1994s rising to (shipping to Europe), secondary imports (custobaas 2.2 m ion mertr tonner In 1995l e we of th quota w2 be dearance) and ripenidng actity. Inside the 2 re illion loc dted treanston poedue;anaoducin incou e suppoal from th manne in whdi quoas andtarif are shemeass tof pr hsovidexparstac to tr U,and townal ACP tonnes quota, ritaonal Afnal ACP bananas are duty- auntie wil hw the righn to gisn export ssibisfof e70 free( a tariff of ECU 100 per tonne only appb es to percent om these toha Withn the qttar the traiff wg be dosfar baqauoas Tatiffs on abovepquota EI, ACP and reduced fby 100 ECU per metric tonne to 75 ECU per meti other rppluers are at prNsbirbvely utgh levels A tonne o 33 ECONOMIC POLICIES FOR TRANSMON Table 4.1: Banana Producdon And Exporb 1981, 198S and 1991 (000 metric tonnes) 1981 1985 1991 Windward Islands Production 144 184 313 Exports 114 161 232 Dorninica Production 35 40 67 Exports 28 35 56 (71) Grenada Production 18 13 11 Exports 10 8 7 (14) SL Luda Production 58 90 155 Exports 43 74 102 (127) St Vincent and the Grenacines Production 33 41 80 Exports 33 44 68 (82) a. Current EU quotas In parentheses. Source: Statistical Appencix and FAO. producers, owing to the enhanced role of the Impact on the WIwd Islnds marketers in the licensing system. A mehdanism sod be developed to ensure that the rents are Bananas are an important aCop In the Windward instead captured by the produdng couties during Islands and producion inaeased sharply in the 1980s the transibon. One way to do this wcoud be to (see Table 4.1). Bananas constitute a sigruficant share elirminate the import licenses adninistered by the EU of exports and of GDP (see Table 4.2). Prior to the and a0ow the Canibbean countries that hold export introduction of the new banana regime, Windward quotas to sell or auction the import rights based on Island producers were hit by a sharp fal in prices teir export allocation, owing to the depredation of the Pound Stering in the fal of 1992. As a result the industry is in a weak In adcitior there are strong extemal pressures which position financially to mount an effective response to further increase the uncertainty that the new banana the new banana regime. Banana Growers regime has engendered Opposibon to the level of Associations are experiencing severe econofnic protection provided to tracitlonal EU and ACP pressures in 1994. suppliers has come from Latin American producers, from U.S. based arge multnational tracing Beginning September 1992, unit banana earnings corporafions, and fromn member countries of the EU have dedined by about 20 percent The Banana itself which tracitionaly had zero or low tariffs on Growers Associations (BGA) in Dorninica, St Lucia, bananas (Germany, Nethtands and Belgium In and St Vincent and the Grenacines converted partiacuar). Other opposition has come from substantial accumulated reserves and also bon-owed supporters of the Uruguay Round who see the new from local financial institutions to sustain pricesupport banana regime as running cirecdy counter to GATT to the banana growerm By December 1993, the polides on agriciture. It Is a major assumption of this BGAs In al three countries were banlrupt with large report, based on the evidence of trends In the wodd outstandng debts - estimated at EC$25 million or 5 tracing environment that the preferential position of percent of GDP in Dominica, EC$42 miilion or 3 tracdtional EU and especially ACP suppliers Is Dkely to percent in SL Luda, and EC$20 rrilon or 4 percent of be eroded over the next decade, and that the GDP in St Vincent and the Grenadnes. In adcitiorn Windward Islands need to move now to prepare for the governments of these countries are under the inevitable cisappearance of their preferred banana pressure from the banana growers (ranging fromn markets in the EU. 6,000 in Dominica to 8,000 in St Luda) to intervene In dte day-today operations of the banana industry and to guarantee banana price-support at the current unsustainable levels. If the governments were to 34 4 PREFERENTIAL TRADING ARRANGEMENTS Tabl 4.2: Wiward blad Banana EapouI 1980,1991 and 1992 (in percent) 1980 1991 1992 1980 1991 1992 1980 1991 1992 Banana Bmpor/ Banana qpoW/ Banana Bmots/GDP Merchandise Exnr Alcultural Eorts Windward Islands n.a 14.6 15.1 n.a. 50.9 53.5 n.a. 75.8 n.a Domnlnka 5.1 20.3 19.1 30.9 5&5 56.6 68.2 91.6 85.3 Grenada 4.8 2.2 1.7 24.4 1&6 17.2 21.9 28.4 31.4 SL Lucia 9.3 16.1 17.5 31.2 54.0 60.1 75.9 87.4 86.2 SL Vincent and the Gradines 10.7 18&6 18.3 32.8 49.7 49.3 665 63.6 n.a. n.a. = not availabl. Source: WINBAN Annual report and World BanIk follow this course of acton, the administrative and At the farm level a priority objective of polcy Is to fiscal implcabons would be cisastrous and could encourage effident producers and ciscourage rapidly lead to the maaroeconomic imbalances in ineffident ones. Cost ctrves for effident producers these countries. need to be lowered by a variety of measures: common procurement of inputs (fertilizer, blue The new banana regime has resulted in complcated plastic), effident procurement and use of boxes, a production and marketing problems for Windward coordinated program of aerial spraying, and so on. Island producers. Quotas have been set on an annual Beyond the farm level, costs of transport to the port, basis: Domirica 71,000 metric tonnes, Grenada and from the port to Europe, need to be reduced A 14,000, St Luda 127,000 and St Vincent and the recent CDB consultant's report has recommended a Grenaclnes 82,000. However, the new system sets reorganization of the industry in the Windward Islands quarterly import quotas within these annual irmits. A to increase the comrpetitiveness of dte industry, and key problem is that countries cannot transfer quota action along these lines will be necessary to ensure amongst themselves and reduce the risk of the survival of the industry. More spedfic polides are underproduction. As a result, overproduction to outlined below. reduce risk is a cistrnct possibilit, once the countries have achieved a production level consistent with their A Polky Agenda quotas. Failure to aciNeve these quota levels could result in their reduction in subsequent years, adding to Successful adaptaton to the uncertainies created by the pressure to increase production in the short run. the new banana regime, and to the eventual loss of preferential market access, requires a coordinated While producers in the Windward Islands have response from the EU, the donor community and the received benefits from past polides which provided a governments of the Windward Islands. The key Issues protected market in the UK market, their share of the involve the reduction of uncertainty, the rapid retail price has been in the range of 15 to 20 percent development and implementation of a strategy for (see Table 43). World Bank estmates show that most econormic diversification, the insttuton of appropriate of the benefits from the pre-1993 banana regime incentives and the provision of a sodal safety net. accrued to preferred marketers, and not to farmers in EU or ACP countries. Faced with a price squeeze as a The European Urion should be encouraged to: (i) result of the depredabon of the Pound Sterling, and increase the short run flexbility and transparency of antidpatng future liberalizations of the EU quota the banana regime by adopting regional (Windward system, banana producers must become more Islands) quotas, eliminafing quarterly alocations and productive. At present, average yields per acre in the darifying procedures for issung licenses and altering Windward Islands are less than half those in Latn quotas; (ii) define dearly the price objective of the America with part of the differences accounted for by banana regime over the medium term; (iii) define topography and soil fertiCity, and labor costs are at podies for income maintenance and diversification least double. Qualty is also more variable. Cost support to the Windward Islands; (iv) datify intentions reductions must focus on al segments of the with respect to bananas in any subsequent Lome productionrarketing duain from farm to supermarket Agreement following epiration of the current 35 ECONOMIC POLICIES FOR TRANSITION agreement; and (v) outline a long term strategy for banana industry should develop, in order to reduce econorric assistance to the OECS countries. A uncertainty and to allow individual producers to make possible source of funding for targeted development correct decdsons concerning their future in the assistance is the tariff revenue achieved from dollar industry. The objective is to keep productive farmers banana imports, much of which will be a net gain in in the industry, while discouraging the inefficient revenue to the respective Treasuries. Bananas are too important as a cash crop, and as a Multilateral and bilateral donors need to rethink their catalyst to support other agricultural activity on the aid strategy for the Windward Islands, and the OECS basis of the infrastructure that has developed around countuies as a group, in the lght of the lkely erosion bananas, to allow the Industry to disappear. A key in banana preferences. Short run requirements from responsibility for a revised and revitahzed industry donors indude: (i) support to transitional measures, organizabon wil be to develop and implement a induding increased technical assistance to enhance strategy with respect to rnimrrizing transport and public sector initiatives in fiscal refom, project distribution costs and shifting more of the quota rents planning and implementation, environmental planning to the producers. Negatively, governments cannot and other priority areas; and (ii) funding of an guarantee the future of the industry, nor can they immediate in.depth study of the regional and sectoral guarantee price or retums to producers. Any attempt implicabons of a sharp reduction in banana to guarantee retums to producers by govemments production with a view to establishing the objectives will generate an endless fiscal drain, wil raise and financial parameters of a safety net program for expectations unrealistically, and wil simply delay those most likely to be seriously disadvantaged needed adjustment Donor requirements indude: (i) financial support for a A credible plan for future development involves a lirited terrn and appropriate sodal safety net stable macro-framework and diversificaton into non- program to ease the transiton to the new trading agricultural areas, induding tourism and other environment; (ii) continued support for projects to services, and manufacturing. The PSIP needs to be enhance human resource development and to targeted to these objectives, focussing on human improve the physical infrastructure, induding in resource development and provision of appropriate particular infrastructure to support private sector physical infrastructure for private sector development development (iii) encouragement of regional As a transition measure, a financially viable social initatives on policy harmonization and on provision of safety net program needs to be devised. Safety net common services; and (iv) promoton of economic support needs to be targetec, and to focus on union and improvement of flexibility of economic retraining for alternative employment Depending on responsiveness. circumstances, small scale decentrahzed efforts may prove benefidal in the Windward Islands as they have The key requirements for govemment policy are: (i) elsewhere. EU finandng should be sought for funding articulate a crecible plan for the future of the banana safety net programs. industry; (ii) ensure that an appropriate, market-driver, organizational structure for the industry is in place; (iii) The appropriate incentive framework to induce an provide an incentive structure that encourages the effident response from producers wil be difficut to effident producers; (iv) provide a financially viable achieve, given the poitical implications of a reducton sodal safety net program; and (v) encourage rapid in the labor force employed in bananas. The incentive diversification into productive and competitive framework and the safety net provisions must sectors, induding tourism and services, to the fullest therefore work together. One option is to tax all possible. banana production, and to subsidze, by means of a bonus scheme, farmers who adieve productivity Timely response by Windward Islands govemments to increases measured by yields per acre and quality. the impending loss of preferenbal market access for Marginal farmers would leave the industry, and bananas is aitical for a successful transiton to the effident farmers would be encouraged to increase new trading environment Above all governments yields and quality. This opboRn however, may no must demonstrate responsible leadership. Positively, longer be appropriate. this requires governments to articulate dearly how the 36 4 PREFERENTIAL TRADING ARRANGEMENTS Table 4.4: St. Kltts and Nevis - Sugar Operations Indicators 1985 1988 1989 1990 1991 1992 Sugar Output (000 tonnes) 26.9 25.9 24.9 15.5 18.9 20.5 Sugar Exports (000 tonnes) 24.3 23.6 22.5 14.2 1&8 20.1 Exports Value(US$ million) 11.2 13.1 11.9 9.2 11.3 12.1 AcresCuWvated (000) 10.3 11.0 11.4 10.0 10.3 10.5 Yield (tonnes of sugar/acre) 3.6 2.2 2.6 2.8 1.9 2.1 Unitcost(sugar/tonneinECS) 744 1501 1435 1744 1628 1520 Total employees (000) 3.6 3.4 3.4 3.1 3.0 3.0 Loss/Surplus (ECS mil"on) n.a. -10.6 -14.5 -7.2 -2.6 4.4 n.a = not available. Source: SSMC Sugar Manufacturing Corporation (SSMC) was responsible for manufacture and sale of sugar - managed the The sugar sector (see Table 4A) employs about 70 industry until 1986 when the entire operation was percent of the agnicutural labor in St. Kitts and Nevis brought to SSMC.1 By the eady 1980s, acreage and and its exports accounted for about 18 percent of producfion had declned steadily. These factors along foreign exchange earnings in 1992. About 90 percent with managedal and organizafional weaknesses have of the sugar produced is exported to the United made SSMC a fiscal burden. The finandal decline of Kingdom and the Urited States of Amerca under the 1980s resulted from rising production costs, low preferential arrangements.13 The country is the sugar yields, excessive staffing, weak management, benefidary of the EU Sugar Protocol quota and the poor cost accounting, and increasing interest U.S. quota. Sugar exports depend entirely upon the payments on debt continuation of these two preferental markets. The 1993 Uruguay Round of GATT requres lberalizabon The aitical finandal situabon of SSMC is a key factor of wodd agricultural trade. Sugar trade under in the fiscal imbalance. The government took over preferenbal arrangements is threatened: (i) by the debt of SSMC of EC$56.2 million in 1987 and another agreements under these trade negotiations; (ii) by EC$31 milGon of losses have accumulated up to 1991. internal harmonizabon of the EU market; (iii) NAFTA The govemment recognizing the need for as U.S. quotas under various AgricuLture Acts in the fundamental changes in the sugar industry, has: (i) U.S. have already dediined and further reduction contracted a private company to manage the cannot be rued out; and (iv) EU and the developed operabons of SSMC; (ii) appointed a private finandal wodd are now the world's largest exporters and, manager; (iii) formalized a land tenure policy that therefore, might not extend the preferential enables longleases of land, i.e, up to 35 years; (iii) arrangements to the ACP countries. Preferential employed foreign laborers (from Guyana) through prices under the Sugar Protocol are linked to domesbc private contractors to satsfy needs unfilged by Kittian EU prices. These preferential prices have been well workers; (iv) adjusted the domestic sugar price to the above wodd free market prices. border price; and (v) enforced existing retrement age regulations to reduce labor costs. Further, agricultural In St Kitts and Nevis, until 1975 the sugar industry dCiversification is to be intensified and priority to consisted of 52 private estates and one sugar factory. alternatve export crop developnment is being given in In face of severe finandal cifficutes on account of the PSIP. Under the World Bank's AgticiLtural low wodd market prices, low producbon yields and Development Support Project which became ineffidendes in operations, the Government took effectve in 1992Z the government is: (i) working over the industry in 1975. Government corporabons - dosely with the management team to make the sugar - the Nabonal Agricultural Corporation (NACO) was Industry finandally viable; (ii) divesting the sugar responsible for cane producbon while the St Kitts operations; (iii) mecharizing, and (iv) shedding factory labor. 13rhe preferential prices In these markets were about 3 times higher than the world price during 1982-92. The sugar quota for the EU (mainly the U.K) market is 16,500 metric tonnes and 14n1979, a word-wide review of sugar Industries ranked St Kitts 8 000 mnetric tonnes to the U.S. market as the fifth most efficient producer in the world. 37 ECONOMIC POLICIES FOR TRANSITION Table 4.5: Manufacturing Value Added in The OECS, 1978-82 1978-82 1983487 1988 1989 1990 1991 1992 ECS million Antigua and Barbuda 12.9 20.3 24.1 26.8 30.2 28.6 26.8 SL Kitts and Nevis 15.7 26.1 44.3 45.8 46.2 45.4 48.9 Montseffat 3.4 5.7 7.1 5.7 3.9 3.2 3.4 Dominica 8.3 15.2 21.0 24.5 26.4 30.7 31.3 SL Lucia 29.2 45.9 62.2 69.5 73.0 77.7 81.5 SL Vincent and the Grenadines 15.7 28.5 38.2 43.0 38.5 43.4 45.9 Grenada 8.5' 12.4 18.4 20.8 22.6 24.3 25.5 Total 93.7 154.1 215.3 236.1 240.8 253.3 263.3 shares of GDP Antigua and Barbuda 5.1 4.2 3.1 3.1 3.4 2.9 2.7 St Kitts and Nevis 14.2 13.9 15.3 14.3 12.8 11.9 11.9 Montserrat 6.4 6.4 6.1 4.2 2.3 2.3 1.5 Dominica 6.2 6.7 6.5 7.1 7.1 7.5 7.3 SL Lucia 9.4 8.7 8.4 8.3 8.1 8.0 7.7 SL VincentandtheGrenadines 10.9 11.0 10.7 11.0 8.7 9.1 8.9 Grenada 4.7' 4.9 5.3 5.3 5.4 5.5 5.6 Total 8.1 7.6 7.3 7.2 6.8 6.7 6.5 a. 1980.82. Source: OECS. Manufactured Products Vhile it is impossible to predict the future, a Value added in manufacturing in the OECS countries reasonable scenanio for sugar is that preferential has increased in nominal EC dollar terms over the last arrangements are likely to disappear in the long run, 15 years, but its share of GDP has steadily dedined, and prices wil continue to dedine. This will place from 8.1 percent in 1978-82 to 6.5 percent in 1992 increasing pressure on the industry to improve its (see Table 4.5). Dedines have been sharpest in productivity. Given the significance of the preferental Antigua and Barbuda, St Kitts and Nevis, and markets, it is important that any reduction in access Montserrat, but Dominica and Grenada have be phased in over a period of years to reduce the experienced slight growth in manufacturng as a share shock effect and to allow for resources to move more of GDP. In the past sugar was a major component of easily into other productive areas. manufacturing in St Kitts and Nevis, but the importance of the sugar industry has dedined over In the transition period, human development bme: in 1978-82 the value added in sugar averaged programs will have to be developed to retrain the 7.3 percent of GDP, compared to 1.7 percent in sugar industry workers in newer skills. In pursuit of 1992. Even without sugar, manufacturing in St Kitts diversification away from sugar, a diversificabon and Nevis is a more important component of GDP assistance program needs to be established. In the than in any other OECS country. short and medium term it will be necessary to examine the possibilities and to identify the avenues Manufacturing firms in the OECS can be dassified into for continued diversificabon within and outside the three main types: (i) endave industries serving U.S. agriculture sector. In the transition period and prior to markets; (ii) agro-processing and related industries the sugar shock inflicting damage to the sodal serving largely CARICOM markets; and (iii) industries structure of the sodety, a review should be serving local markets. Endave industries consist undertaken to identfy ways and means to mitigate almost exdusively of firms produdng garments and the adverse impact of the loss of preferental markets. electronic equipment Agroprocessing and related industries serving CARICOM markets indude soap products, flour and feed grains and carclboard boxes. Industries serving local markets typically indude beer, 38 4 PREFERENTIAL TRADING ARRANGEMENTS Table 4.6: Exporb of Manufactured Products, OECS, 1988-92 (EC$ million) 1988 1989 1990 1991 1992 SL Kitts and Nevis Total, of which: 68.9 68.3 75.3 n.a. na. Sugar 35.4 32.1 40.8 30.7 32.0 Clothing n.a. n.a. 31.9 n.a. na. Downinica Total of which: 38.5 44.6 50.8 na. n.& Soap 25.3 28.8 31.8 32.8 30.6 Garments/Gloves 4.0 4.4 5.9 na. n.& SLLucia Total a, of which: 111.0 115.0 121.5 105.6 11 8.0 Clothing 43.7 48.1 51.3 50.0 52.7 Boxes 26.2 21.1 18.4 10.8 15.1 Beer &I 10.0 12.7 13.2 13.8 SL Vncent and the Grenadines Flour 18.2 1&8 19.5 18.7 na. Grenada Total of which: 6.6 &1 9.6 12.8 9.2 Flour 1.8 2.0 2.0 3.6 3.5 Clothing 3.0 2.0 3.2 4.6 1.8 a. Includes 'other domestic exports'. n.a. = not availble. Source: CDB, IMF. Data for Antigua and Montserrat not available. dgarettes, soft drinks, toilet paper, furniture, small export within the Region. The CEr and its impact on appliances, concrete blocks and paint. Small amounts intra-regional trade is discussed in Chapter 5. of these products are frequently exported to regional mar-kets. Sugar is exported to non-CARICOM In addition to U.S. 806/807 preferences, OECS firms markets. are eligible for preferential benefits under the CBI. Canada provides somewhat similar benefits under the Accurate data on exports of manufactured products CARIBCAN program. AU of these preferences wViA be are not available. Table 4.6 presents selected data for eroded by the implementation of NAFrA because 1980-92. Manufacturing exports are heavily Mexico, a significant competitor in both endave concentrated on a few products: in 1990, of recorded industries and in agroprocessing industries, wil exports of manufactured products amounting to eventually achieve duty free access to markets in the EC$276 million, 33 percent consisted of garments, 15 U.S. and Canada. Garments, electronic components percent of sugar, 11 percent of soap products, 8 and dtrus concentrates are the industries most lkely percent of flour, 7 percent of cardboard boxes, and 5 to be adversely affected. percent of beer. AU other products accounted for only 20 percent of manufacturing exports. In the face of the probable dedcne in the benefit received from preferential market access, combined AU significant manufacturing export products benefit with competition for labor and rising real wages as a from preferential trading arrangements. Garments result of the expansion of tourismn the best strategy benefit from U.S. 806/807 customs regulations, for development of manufacturing in the OECS whereby duty in the U.S. is payable only on the OECS countries is to focus on high skil, high technology value added where the raw material (i.e. doth) is of activities in areas such as electronics. These skidls U.S. origin. Sugar is supported by quotas under Lome would also be useful in generating job opportunities and in the U.S. Soap products are protected within in the informatics area (data processing, eciting, CARICOM by a high tariff on nonxregional imports, as accounting software development and so on). In are flour, cardboard boxes and beer. In general, all selected areas, agro.processing also offers income and manufacturing firms in non.enclave industries enjoy employment opportunities, espedally in sugar, soap, high levels of effective protection, whether or not they dtrus concentrates, preserves and hot spices. 39 ECONOMIC POLICIES FOR TRANSITION Toudsrn and regional markets vviD generate some riche openings for Ngh quality handicrafts and speaalty products (furniture, designer sun dothing, banana boxes, etc.). On balance, however, these and other developments wil at best cause the share of manufacturing in GDP to remain roughly at its present level. Conduslons It is aitcal that an appropriate response to the new EU banana regime be developed, since every indication points to the disappearance of the preferengal mafket for bananas over the next decade. The EU, the donor community and OECS governments all have a role to play in easing the transiton to the new econormic realities. Above all, governments must demonstrate responsible leadership, in order to reduce uncertainty, to maintain a broad base of the industry, and to provide a stable macroeconorric framework for diversification. A targeted PSIP and a fiscally responsible social safety net are important components of a successful transiton. Prospects for sugar exports from St. Kitts and Nevis are not promising in the long run, owing to the possibility of reduced U.S. quotas, the tauifficabon of quotas because of the 1993 Uruguay Round negobations, an impending price squeeze on exports to the EU, and the general trend towards trade lberalizabton. The industry needs to improve its effidency, but revenue losses are certain to occur if the benefits from preferental markets are eroded Human resource development programs are needed to improve diversification prospects. Manufacturing exports benefits from preferenbal arrangements which are also likely to be eroded over time. Given upward pressure on real wages, manufacturing industry must focus on high skill, high value added niche markets. 40 Incentive Framework and Policies ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~..... ...... . . . , _ _ _ _ ~~~~~~~~~ ~~~ ...... ... ... ....... Trie Pode situation where current CARICOM regional production or potenbial production satisfies or wiill The CARICOM Heads of Government in October satisfy at least 75 percent of regional demand. Two 1992 at a Conference in Tnrindad and Tobago agreed other important principles involve tariff escaiatior, and to introduce a new CET and to revise downward continued protection to agriculture at a 40 percent many Of its tariff rates over the next five years to rate. In general, the CET implemented in 1993 has a January 1, 199& Thle details are complex. The rate structure,witi-,apart from agriculture, a maximum -general principle behind the revised rate structure is rate of 30 percent for countries on the 'fast track" and thlat imports into CARJCOM that compete wvith 35 percent for countries on the "slow track" From regional production face higher tariff rates than non- January 1, 1998, this maximum rate is to be 20 ompeting imports, 'competing being defined as the percent, attained by 3 further incremental downward Total Taxes on country Recurrent Income Intemnattonal Consumption Non-Tax Revenue Taxes Trade Tax Other Taxes Revenue ECS percent of recurrent revenue million Antouca and Barduda 289.6 10.5 19.4 23.8 26.0 20.2 SLr Kitts a fnd Nevis 122.5 10.2 19.0 16.3 27.7 268 Mlontseat' 38.8 27.6 22.7 18.0 19.8 11.9 t olsinat 151.7 22.1 15.9 32.5 9.5 20.0 StL prduc 294.5 na. 25.5 35.3 n.ax nr. SLcVncent andithe Grendines be1i588 27.5 16.8 28.8 13.1 13.9 Grenada 177.1 7.7 14.0 127.4 13.2 TotaTl 1233.0 n.a. 19.4 29.3 n.a. n.a na. = not availble. a. 1 992. b. 1 991. c. Debt svce levy. d. VAT. Income taxes hnclude personal and corporate taxes. Taxes on intemational trade indude customs duties customs servie tax nd customs surae. Consumptbon tax Inudes tax on both Imported and domesti goods. Other ta Ichdude property t busJness tax, business levy, bann lvy, socbal services levy, stamp duties, etc. Sources: Budget EstiE$tesr CDBr IMF 41 ECONOMIC POLICIES FOR TRANSMON Table 5.2: OECS - Status of CET Implementation, Mid-I 993 Country Iiplementaton Date Comment Antgua and Barbuda To be decided Detailed analysis completed. Adjustment to consumpdon tax rate probable. St Kitts and Nevis 1 July 1993 Consumptlon tax rate to be adjusted if revenue af. Montsenat To be decided Customs examining Impact Dominica 1 September 1993 Consumption tax rate to rise by 5 percent St. Luda 1 July 1993 Consumption tax adjusted to achieve revenue neutralty. St Vincent and the Grenadines 1 April 1993 Consumption tax adjusted to achieve revenue neutrty. Grenada 1 July 1993 Adjustnents to be pan of far ranging tax reform package Note:ln the first phase of adjustment to the newly approved CET rates, a typical schedule has rates ranging from zero to 30 or 35 percent with agrcuural products protected at 40 percenL Source: Natonal authorites changes of 5 percent each Agrictiture inputs have a OECS countries, depending in part on their locabon zero duty thoughout Some countries have opted for vis-aMsiS Jamaica and Trinidad and Tobago, the major a 'fast track process to implement tariff reductions in CARICOM exporters. OECS countries, assisted by 1997. This would put increased dowrnward pressure the World Bank and by the OECS Econormics Affairs on prices and improve export competitiveness. Secretariat in Antgua, have undertaken detailed However, the potenbal increases in consumnpton analyses of the potenbal revenue impact of the new taxes, whici are also a tax on imports, may nulify CEr. some of these advantages, as discussed below. The new CEr was to have been implemented by July Two spedal features undelie the tariff history of the 1, 1993, but not all OECS countries met this deadline OECS countries. Many countries raised their tariff (see Table 5.2). Following detailed analysis, most rates in the early 1990s to make them more consist countries plan to offset any revenue loss from the with the external tariff rate structure of other implementation of the new CET with adjustments - In CARICOM countries. Secondly, OECS countries general involving increases - to the consumpton tax enjoy some special rights under the Treaty that rate on a given product The purpose of these established CARICOM, owing to their designation as increases in the consumpbon tax is to make the Less Developed Countries (LDCs). Of particular combined tariff reduction and consumpbon tax significance is that LDCs have the power of increases roughly revenue neutral in terms of derogatbon i.e, they can apply a tauiff rate to an recurrent tax revenue accruing to the central import that is below the CET rate on that particular government producL Countries differ sigrificandy in the extent to which they have used the power of derogation, The revenue implicabons of the new CET are also making generalizabons difficult Analysis of the affected by the degree to which countries offer duty revenue impact of the new CET is complicated by this free entry to imports under various fiscal incentive issue, plus the fact that the revenue impact for a given programs. A detailed examinaton of Grenada's country will depend upon the extent to which trade imports during MardcDecember, 199Z revealed that patterns change as between extra regional sources of the full CEr rate was on only 39 percent of total imports (which generate customs duties) and intra imports. Exemptions for the domestic market under regional sources of imports (which do not generate various fiscal incentive programs amounted to 21 customs dubes). These patterns wiU differ among the percent of total imports, a loss that is compxouded 42 5 INCENTIVE FRAMEWORK AND POLICIES because duty free status under these programs also case of agriculture, the pattem Is to forbid imports exempts the products from VAT. Exemptions also during the period when local produce is on the generate high and variable levels of effective market (i.e, orions, tomatoes, etc). With protection that lead to rrusalocation of resources. manufactured products, the question anses whether local sources can provide the quality and volume required. Administration of an irrport Table S.3: Regional Trade In Selected Countries, lcensing system is costly in tefms of sidled 19b R8a dvil servants, and Import licerising systems (EC$ million) tend to ladc transparency, to generate (ECS million) ineffidency and to promote rent-seeldng 1988 1990 1991 activity. The lists of items subject to import 1989 licenses are graduaily being reduced in the sL. t nNe Regior, but considerable local protecton is Eports to CARICOM 5.6 61 7.0 7.4 stif generated by this system. Govenmments Imports from CARICOM 360 43.1 43.0 47.8 should examine carefuily the costs of the Domninkca present system of import licensing and Exports to CARICOM 31.7 35.7 37.5 na. accelerate Its eiiminatiorn relying instead on hnports fom CARICOM 62.s 57.1 67.8 na the substantial protection stil provided under SL LUcia the CEM to muich domestic production Eports to CARICOM 55.1 55.4 54.5 44.6 activity. Price controls will need to be Imports from CARICOM 91.8 11.8 131.0 1380 elirminated as part of this reform process. St Vincent and the GCreadines OECS countries should also eliminate stamp Exports to CARICOM 96.0 75.0 76,6 n.a. duties, customs surcharges and other Imporb from CARICOM S2.5 6S.1 76.3 na. restrictions on trade. Grenada bport to CARICOM 12.9 15.0 162 19.0 Apart from its impact on revenue, the new Imports from CARICOM S2.2 61.0 69.5 74.7 CET has raised concems in the OECS relating n.a. = not ava&be. to the pattem of trade flows, and to the ability of the countries to adapt to a more open Source: CD and Word Bank ema trade regirme. On the first issue, concem is expressed that the new CET is resulting in an increase in the adverse trade balance Imports from CARICOM countries amounted to 13 between individual OECS countries and CARICOM as percent of total imports, such imports being duty free a result of trade diversion. Data on trade flows are under the provisions of CARICOM. Grenada is Incomplete and out of date, but the available undertaking a major reform of its tax structure to evidence suggests that deterioration in the trade improve revenue buoyancy, reduce u balance between the OECS and the rest of broaden the tax base. Other countries should also CARICOM is not a recent phenomenon (see Table examine their policy regarding remission of import 5.3). From 1988 to 1991, exports by OECS countries duties and other taxef at a minimum, such to the rest of CARICOM were stagnant relative to concessions should be offered only to export odented imports from CARICOM: for the five countries for firms as a means of offsettng the ant.export bias in wNich data are available, the adverse trade balance the tax structure, but firms wuich do not export should increased from EC$94 mTlion in 1988 to EC$196 not receive tax concessions. Recent suggestons that millon in 1990. Given the comparative advantage of the minimum tariff be returned to zero rather than S the OECS in tourisr, the CARICOM trade imbalance percent should be resisted on revenue tand may wel reflect fundamental economic factors rather projections of revenue impgations show that a than trade diversion generated by the CEr. To the minimum 5 percent tariff is requred to reduce th extent that the CET creates a problern it is the uneven fiscal impan of lowering the CEr. Import lcensing implementation of the proposed schedtue rather than remains afeature of tradepocy in the C ECS. Import the CET itself which creates a trade diversion licenses are typically requpred for agrictural podut potential. In additiorn the trade flows reflect real and locally produced manufactured products. In the devaluations combined with improvement in the 43 ECONOMIC POLICIES FOR TRANSMON econonic performance of major CARICOM Most marketing boards cross.subsicze export producers, induding Jamaica and Trindad and promotion with profits from the mark-up on imports. Tobago. The new CET shold, over time, reduce any Sudc mark-ups are a form of indrect taxes on all trade diversion that exists vis-avis U.S. and other consumers, and are an ineffident way of colecting sources of supply since CET rates on most products taxes. This is an espedally inefficient way to promote are sdieduled to fall exports, since the import taxation increases the trade regime's overall anti-export bias. Also, price regulation The major concern relating to the adoption of the slows down private sector development There is a new CET regime is that small countries will experience critical need for a more competitive environment difficulty in adjusting to reduced protectiorn owing to structural rigidties and a lack of local entrepreneurial Experience In the OECS and other countries suggests ability. In this context, it is relevant that agriculture that the private sector can perform the marketing becomes effident that ight industries such as board tasks more effidently. The results of reforms to beverages wig continue to have a competitive edge these institutions have improved the marketing owing to transport cost factors, and that the new CET services provided to farmers, and the farmers have will be phased ir, allowing time for dislocations to be responded accordingly. In Ghana, MaGi, and Nigeria, minirmized Also, OECS tariff sdiedules were relatively export crop marketing boards were aboGished and low within CARICOM. Exdcange rate dcanges within their functions privatized, with good results. Nigeria's CARICOM pose a greater threat to OECS trade flows aboltion of marketing boards for palm oiL cocoa, Fan reductions in the CET. rubber, cotton, and groundnuts, together with exdcange reforms in 1986, led almost immediately to Maket Boards a 6 percent increase in cash crop production in 1987 in spite of bad weather5. After cashew production in Most OECS countries have marketing boards, whose Tanzania had fallen from 145,000 tonnes in the early objectives are varied (see Table 5.4). While some 1970s to 17,000 in the late 1980s, in 1991 the concentrate on imports of selected items, others are govemrnment eliminated the parastatal's legal market also engaged in export promotion for nontradcional monopoly and opened the sector to private traders. exports, in markefing farmers' produce to domesbc By the 1992-93 harvest farmers were beginning to hotels and supernarkets, and in operating markets. rehabilitate old planbngs and plant new trees. The The service provided to local farmers is more harvest rebounded to 41,000 tons'6. extensive in some countries than in others, depending on the institutonal strength of the marketing board Guyana has retained its marketing board in name The export promobon is also independently only, comnpletely dcanging its role from directly supported by regional organzabons such as the intervening in the market to providing information and ECSEDA. In recent years, some marketing boards export brokerage services. The results have been have been victms of internaional trade scams, favorable. Following a decade of stagnation under especially with respect to their fresh produce. To government parastatal controd the banana sector in counter this, market information has now been Belize was completely privatized in early 1985. This developed in the Region and all agendes share such generated a flurry of investment and improved information, cultivation practices, with a consequent rise of producton by 150 percent by 1987 and expansion The source of revenue for the marketng boards is stil continuing. It is also noteworthy that the most mostly the govemment imposed wholesale mark-up vibrant agricultural subsectors in many countries are for each import. Ths achieves two objectives. First, it those in whidh govemments have played little if any allows the govemment to regulate the price of certain marketing role, such as fruits and vegetables in Chile essental imports. Price regulabon extends to certain other essenbal imports undertaken by the private IsSee Knudsen 0. and J. Nash. 1990. Redefning the Role of sector also. Second, the mark-up formula ensures that Govemrment In Agckulture for the 1990s, World Bank Discussion the marketing boards appear financially sound. In St. Paper, No. 105. Vincent and the Grenadnes, for example, this surplus IGSee one C. and M. KigueL 1993. Adjustment in Afrka: generated from sugar importing is used to pay off the Refohn, Results, and the Road Ahead, World Bank Pokcy commercial loan of the now defunct sugar factory. Research DepartmenL 44 5 INCENTIVE FRAMEWORK AND POLICIES Tabe 5.4: OECS Marketing Boards Country Marketing Boards Functions Andgua and Barbuda Central Marketing Corporation Sole importer of rice and sugar, carrots, cabbages, onions and tomatoes. Dominica Exportimport Agency Sole importer of bulk rice and sugar. (DO"A) Grenada The Marketing and National Importing Sole importer of bulk refined sugar. Has the sole right Board in marketing of nontraditional export crops and agro- industrial products. Montserrat Agricultural Marketing Corporation Authorized to market agricultural produce within the country, but has been dormant for 5 years. St Kitts and Nevis Central Marketing Corporation Sole importer/distributor of certain basic foods, and (CEMACO) assists farmers in the seling of their produce to the hotels, supermarkets and for exports. SL Lucia Marketing Board and the Ministry of The Marketing Board is the sole importer of cabbage, Trade lettuce, tomatoes, carrots, sweet peppers and eggs. The Ministry of Trade is the sole Importer of bulk rice, sugar and baking flours. SL Vincent and the Grenadines SL Vincent Marketng Corporation Sole importer of sugar, trading vegetable seeds, marketng of fresh produce, and operates several markets. Source: National authorities. and Mexico, cut flowers in Colombia, and cocoa in wholesale and retail level - varies. In Dorinica, Belize. adrministered prices are based on a pre-determined mnark-up on landed cost of cement petroleum and In Grenada, the Productive Farmers Union, a private petroleum-based products, milk, baby food, flour, non-profit organization, also markets non-traditional chicken, codfish, and other fish. The stated rationale aops for export and the local market, albeit on a small for the controls is the oligopolistic nature of the small scale. In recognition of these problems and Dominican market and the need to protect constraints, the marketing board in St Kitts and Nevis consumers. Measured by market response, the is being reorganized with assistance from the success of this policy has been mixed. Cement is Commonwealth Seacetariat with a view to possibly cited as an example where govemment interventon privatzing the export and import functions of the has reduced profit margins without endangering board. The Govemment of Montserrat is: (i) supply. Other price-controlled goods such as milk and considering reviving the Agricultural Marketing flour, however, are said to be in short supply at Corporatior which is mandated to purchase farm regular intervals. A reducton of the list of price. produce and sell it only in the domestic market; and controlled items, complemented by the establishment (i) possibly privatzing it of a Consumer Advisory Board, as intended by the govemment, would improve effidency of resource Price Controls use. Even if price controls are not enforced, their existence acts as a deterrent to investors. A good Price controls are a common source of distortion in example of the benefidal effects of price decontrol is Cauibbean countries. In most cases, price-controlled the fishery sector in St Vincent and the Grenadines. items are also subject to import licenses, which tend After years of fish in short supply and illegal exports to to reinforce their detrimental impact on consumers. neighboring islands, the St Vincentian fishing industry The extent of price controls - exerdsed mostly through is doing well in the wake of the 1989 price decontrols. maximum profit margins on commodciies at the 45 ECONOMIC POLICIES FOR TRANSMON One-Stop Shop and Admniadve Procedures materials, and access to factory space. Some of these are vague aiteia, but more importantly the Act Governments play a major role in reviewing and provides that the responsible minister can disregard ag approving investment decisions in the Caribbean of the above in arrMng at a decision, and can award when incentives are involved. While some of these fult, partial or nil benefits. activities are necessary, and in the public interest, poor administrative practices have increased the costs One area of improvement relates to the consolidabon of doing business through delays and excessive of incentive approval and administrabon functions in informabon requirements. Also, in marny countries the hands of a single agency whidi is usually also ladc of dear aitera has impaired transparency and responsible for export and investment promoton. increased the uncertainty of doing business. It is Despite the advances there is room for further therefore ciffictt for an investor to know how to streamlining in the following areas: (i) there has been satisfy requirements. a proliferaton of Incentive Acts, followed by further laws covering agriculture, small business, export New corporations are required to file information with manufacturing and finally services. Additonal the registrar of conpuaries under the Companies Act incentives have been woven into Income Tax Acts. or its equivalent in all countries of the Region. AU this legislabon is in need of rationalizabon; (ii) there Registration is needed before operations can begin. are unnecessary overlaps and duplicabon in the In general this is the least troublesome of the steps procedures whidh applicants for incentives regimes involved in establshing a business. A variety of other must follow if their activities qualify for incentives registrations are also needed inducing some or all of granted by different laws; (iii) the scope of the the following: (i) value added tax; (ii) business incentive regimes is too broad. Virtually any enterprise number; (iii) income tax number; and (iv) enterprise (except retail trade) potentially qualifies naabonal insurance. Registrabon can be tme- under some act. Ths means there are no normal' consuming and may require contacts at vauious cases and everyone must go through the approval ministries or agencies. process; (iv) the tax benefit approval process in some instances is slow, opaque and assigns too much Most countries have a Fiscal Incentives Act (FIA) power to individual ministers; and (v) the operabons dating from the mid-I 970s and derived from the of one-stop shops need to be made more effecbve CARICOM agreement on fiscal harmonization. FlAs especially with regard to the system of links and are virtualy identical in all countries and defined three referrals to and from other govemment departments, categories of firms: those meetng thresholds of 10, 25 the type of information required from investors and or 50 percent of domestic value added. These firms the agendes' abilifies to analyze and monitor the get import duty and income tax relief for periods of effects of incentives. up to 10 years depending on the value added category. FlAs also define endave firms as those that An important issue is the insufficient follow-up and produce exdusively for export and these are accorded monitoring of firms receiving the incenbves. Firms the same privileges. Similar incentives are also with approved status do not send annual returns granted through the Income Tax Acts. All countries regularly. In addiboR there is no frequent monitoring have sectoral incentives entrenched in their Income to determine the level of compliance with the basic Tax Acts. Despite efforts to harmonize fiscal condibons of the scheme. Another problem with incentives there are significant variation across insuffident monitoring is that the govemment lades countries. Problems in the administraton of these adequate information to assess the extent to which incentives relate to subjectvity and lack of incentives affect firm performance. The agendes do transparency. The FlAs generally require that relatively little research on the effectiveness of the approvals take account of (i) the benefit to the incentives in increasing investment and creating country; (ii) the impact on wages and employment employmenL Most have some sort of record of the (iii) the effect on existing industries; (iv) use of local number of approvals but there is no analysis of the raw materials; (v) the capadty of existng effect of expiry of benefits at the end of tax holidays, manufacturers; (vi) the risk of the venture; and (vii) the the revenue losses assodated with tax exempbons, applicant's finandal capadty, access to trained the possibility of imposing small income taxes, or the personnel access to technology, access to raw relative importance of various benefits (e.g., duty 46 5 INCENTIVE FRAMEWORK AND POLICIES exemptions versus income tax rel0ef). Most agendes Program created 17 services sites with factory shels in do industry and sector studies to identify investment the OECS Region and Belize during the eady 1980s. opportunibes. The agendes have Olmited resources These estates still provide the bulk of rentable factory and prefer forward4ooking promotional work to space today. Although the financial costs of the retrospective analysis. projects were similar throughout the Regior, rental charges vary widely. Rent colections are a problem Assistance and Infonnation Regarding Ucenses, for management agendes in the submregion, and Permits, Registrations, Approvals, everywhere else in the Caribbean. In the Region as a Land itke and Land Use whole, there has been no real attempt to ratonalze the strategies for providing factory shelds. Rental rates This is the area which is the most problemabc for and other investment incentives are managed in such investors and for the one-stop-shops assisting them. a way as to allow an investor the opportunity to play The one-stop-shops have no power to compel other one country off against another. At the same time, government bodies to make decisions, or to change the accumulation of rental anrears affects the laws and regulations. There appears to be a need for managing agendes' abiDties to finance maintenance better Daison between the one-stop-shop and the and other necessary expenditures, which ultAimately varous other regulatory bodies. Powers to compel increases costs for all tenants. decisions or automabc default approvals after a time limit night help the one-stop-shops expedite the Condusions process. Better laison can also be fadlitated by allowing the one-stop-shop to coordinate or even There are several ways in which the incentve absorb separate agencies performing related framework in the OECS countries can be improved. functions. Reduction of the CET should be undertaken on a fast- track basis. Duty free entry of imports under fiscal In several countries the one-stop-shop also manages incentive programs needs to be restricted in scope. de industnal estates owned by the govemment There Import licensing and price controls should be has been much controversy about the need for public eliminated, and market access improved through the sector involvement in the provision of factory space. elimination of marketing boards and through However, there is a general perception that providing administrative reforms induding the provision of low-cost space is like tax concessions: foreign effective one-stop shop arrangements. Incentive Tax investment wil go elsewhere if it is not available and Acts require rationalizabon, duplicabon in procedures that without such programs the smallisland eliminated, the scope of incentive schemes narrowed, economies, in particular, would have missed out on the approval process made more transparent, and much of the manufacturing investment of the 1980s. inter-agency linkages streamlined. Industry estates Caribbean countries also view themselves to be in require more effident operabon. competton with industrial park space provided by state govemments in the U.S. reputed to be as low as US$1.00 per square foot at locatons much doser to the North American mass market In addiboR some factory space is offered at less than cost to local firms in an effort to encourage new domestic industries. When the public supply of factory shells was started, there were no private sector programs to build factory space for rent in the OECS Region, for example. When such a program was undertakeR funded by the United States Agency for Interriabonal Development (USAID) under its Infrastructure for Productive Investment Program (IPIP), it did not deliver as expected. The diffictiues encountered with support insitutibons and services had been underestmated. Meanwhile, the CDB-funded Industrial Estates 47 6 Public Sector Investment Programs *.eed Zsi,,g,th eenmcWrsIa~ ffci-icuigu edecti'g to.: r .Uti t. '.cxg ..,n.. .:'a. ed' To fadlitate services-oriented acnvities, all countries undertaking PSIPs of suffident size to withstand the need increased public investment in infrastructure and impact of changes in the preferential trading human resource development. High costs relating to arrangements for bananas and sugar and the soial and econonic infrastructure developments in potential diversionary impact of NAFTA on capital snal, mountainous islands and relatively small private flows and export trade from the region. With the sector in temis of finandal capital necessitate a large economies of the major bilateral donors still weak, public investmnent effort so that the private sector can a large amount of the Offical Development develop and flourish In some countries, the need to Assistance (ODA) finance is being diverted from duplicate infrastructure found on other islands also the high income OECS countries to the Middle adds to the total cost Therefore, in the OECS East, South Africa, and Eastern Europe where context, large public investment should not be recent political changes have attracted donor regarded as crowcing out private investment attention. This is reflected in reduced official transfers to most OECS countries in the 1 990s. As To sustain domestic investment efforts at past a result, the OECS countries will increasingly levels, increased public savings in the form of fiscal depend on multilateral donors for development current account surpluses are needed in all finance. Since interest payments to multilateral countries. This is because adverse changes in the donors for a given amount is typically higher than preferential trading arrangements in banana and to bilateral donors, increased dependence on sugar will induce lower private sector savings. multilateral financing will have a stronger impact With reduced offiidal development assistance to on the OECS countries fiscal and balance of the Region, foreign savings available for domestic payment accounts. Those OECS countries with investment will also fall unless this is compensated weak fiscal performance will come under increased by increased DFI or other capital inflows. Overall, pressure. Thus, the need to adopt polides savings available for domestic investment will be recommended in this report. lower than they were prior to the changes in the extemal environment. Yet, to adjust to the Simultaneously with increased investment on extemal changes, countries need to increase their infrastructure and human resource development, investment efforts in order to allow a rapid the OECS govemments need to have in place transition for altemative economic activities to sodal safety-nets and retraining programs for those develop. people most affected by the adverse changes in the banana and sugar industries. Without timely Fiscal current account balances are weak in most policy measures, the social stability enjoyed in OECS countries, and together with recent changes these islands could be affected and private in the extemal environment for bilateral aid, this investment and output growth would be below poses a serious threat to the Region for their potential. 49 ECONOMIC POLICIES FOR TRANSMON Pubik Sector Investment In the OECS Countries OECS countries with an adcdtional US$13.4 rrilion reqwred for St Kitts and Nevis and SL Vincent and the The proposed PSIPs for 1994-96 in the OECS Grenadines for 1996. Of the total requirement for the countries reflect the govemments' objectives of three year peod, donor assistance has been pledged developing infrastructure, supporting economic for US$243.5 milion and addcitonal assistance is and sodal sector projects designed to provide the sought for US$53.3 rillion. Countries with new appropriate fadlitating framework for the unidentified extemal finandng requiremnents are expansion of private investment The total Grenada (US$44.8 million), St Kitts and Nevis proposed PSIP in the OECS countries is equivalent (US$4.4 million), and SL Vincent and the Grenacines to US$392 million for 1994-95. An additional (US$4 muillon). Domestic financing is projected to be US$21 million is proposed by SL Kitts and Nevis US$116.3 miDorL TNis represents locly funded and SL Vincent and the Grenadines for 1996. The projects as weU as domestic counterpart funds for remaining OECS countries are preparing projects donor-funded projects (see Table 6.1). for 1996 and beyond Altogether, the total proposed PSIP amounts to about 10 percent of While the PSIPs have placed increased focus on projected aggregate GDP. infrastructure and human resource development, they have largely neglected social safety net and retraining Public investment vaiies among countries and within programs for the people likely to be most affected by sectors, pardy reflecting availability of donesftic extemal changes. Donor assistance is needed to counterpart funds. Infrastructure and social sectors develop appropriate social safety network and together account for 83 percent of the proposed PSIP. retraining programs for people displaced by Infrastructure developments indude road and port adjustments in the banana and sugar industries. In developments and water and sewerage, and sodal view of the economic transition problemsr the OECS sectors indude educatlon and health. Most countries governments are also seeldng technical and financial have also placed some emphasis on capital fonmaton assistance from the donor community to (i) improve in agricudtural rehabilitaton programs, and tourism the PSIP process to develop a pipeline of projects for and industrial sites developments. In al countries, the three year rolling plans, maintain project data banks, PSIP indudes a large investment In environmental and generally strengthen all aspects of project cyde projects, such as the donor-unded forest management, inclucing developing the recurrent cost managemnent and institutbonal strengthexnng project in implicaton of each project and monitoring external Grenada. finance in a more transparent rnanner; (ii) link the projects and programs to environmentally-sustainable The proposed PSIPs do not indude two World Bank development strategies; and (iii) increase the project projects currently under preparation. Both projects rates of returr. are expected to start in 1995, to be executed over a five year perioc and should be added to the The Size and Composition of the PSIP respectve PSIPs once these are finalized. A Solid Waste Management Project is being prepared for the Overall OECS Public Investment Prgram IBRD-mernber OECS countries (i.e. exduding Montserrat) for a total cost of US$53.4 million. An The average annual proposed PSIP amounts to US$26 education project is also under preparabon, initally in mnillion for eadh of the OECS countries, for a total of Doniinica St Lucia and St Vincent and the US$413 rnillion for the three year period. The Grenadines, for a total of US$22.7 million. In the proposed public sector investment efforts remain low second phase of the Education Project other IBRD- in most countries, although the average is at an member OECS countries wil be induded. adequate level of output owing to large infrastructure expenditures in selected countries. About 76 percent Total Fhancing Requirements of the PSIP relates to ongong projects, reflectng lack of identfied new projects in Dorrinica and St Lucia. The total external financing requirement for the period Only in Montserrat and Grenada new projects in the 1994-95 amounts to US$283.4 million for the seven PSIP exceed ongoing ones (see Table 6.2). In all 50 PSIP cases the PSIPs indude airport rehabilitation projects. is allocated to public adrnirustration and another 1 Also, there is a general shift in emphasis from direct percent mainly to public safety. economic support to econorric infrastructure development. Al except Antigua and Barbuda and Country Public Invutnent Prograns Montserrat have projects designed to upgrade water and sewerage systems. In Antigua and Barbuda, the proposed PSIP for 1994- 95 totals US$11.6 rrmilon or 1.2 percent of projected The composition of the PSIP reflects the importance GDP. Owing to a weak fiscal situation, the PSIP is attached by the OECS governments to supporting more in the nature of rehabilitation of existing infrastructure and social sector expenditures. infrastructure rather than capital fomnation. Ladck of Accordingly, the focus of the ongoing and new domestc counterpart financing, together with the projects is on infrastructure (61 percent), social country's low credit ratng, has meant that the sectors (22 percent), and supporting economic sector proposed pubic investment effort is the lowest in the (12 percent). Adinnistratfon and public safety Region. Econormic services account for 27 percent of projects account for the remainder (5 percent). the PSIP, mainly in the tourism sector. The major Inadequate expenditure on repairs and maintenance projects in tourism are the visitor center, the hotel is a problem in Antigua and Barbuda, Dominica and training center and the convention/cultural center. In Grenada. educatioR the emphasis is on restoration and rehabilitation of primary and secondary schools, with Ongoing infrastructure projects account for about 45 the major projects being the constructon of St. John's percent of the total PSIP, mainly in the transport and Techdical Vocatonal Junior Center and the Anbgua communications sector. In Grenada and Montserrat State College Science building. No significant relatively more resources are being allocated to new expenditure is proposed on health, housing and water projects in the sector while in the remaining countries and sewerage, although the country is currently ongoing projects dominate, and in Dominica and St experiendng a severe water shortage problem which Lucia new projects in the sector are being developed. affects its hotels. The high expenditures on the sodal sectors reflect the importance given by the governments to improved In Dominica, the proposed PSIP for FY94-95 total water and sewerage services, education and health US$19.4 million or 4.6 percent of output. All fadctes and pubic health. However, the differences projects are ongoing, and new projects in all between the ongoing and new project shares in the sectors are being developed for donor funding. PSIP in the sector show that some countries have The major objectives of the PSIP are to focus on been slow to initiate projects in the sodal sector the expansion and upgrading of economic areas. In the supportng economic sector projects, the infrastructure to facilitate greater efficiency in the - emphasis in most countries is primarily on agricultural private sector and the development of the feeder roads or rehabilitation projects in the country's human resources. The size of the agriclture sector, factory shells in the manufacturing requeired PSIP is twice the proposed expenditure sector and the development of tourist sites or of levels at this stage. However, the low level of tourism promoton marketing. New projects are public savings, equivalent to 1.5 percent of output being formrnlated in Dorinica, Grenada and in 1992, cannot support a level of public Montserrat for this sector. In Anbgua and Barbuda, investment necessary to ensure rapid exonomic and St Kitts and Nevis the emphasis on tourism growth. Yet, Dominica is likely to be hardest hit by projects has increased in termns of the share of the the changes in the banana regime the government PSIP. Overall, the share of the tourism sector in the will have to make additional efforts to raise public OECS countries has remained at 0.8 percent of PSIP savings to the level that prevailed in the late 1980s, outays. Finally, about 3 percent of the proposed PSIP i.e, in excess of 5 percent of GDP. In dte proposed 51 ECONOMIC POLICIES FOR TRANSMON Table 6.1: Extemal Finandng Disbursement Requirements for the Public Sector Investment Programs, 1994-96' (US$ millions) Pubkc Sector Invesmnt Finandru Soume Esnated Estimated Disbutsernents Disburnements of whkc Of witd tm Existing fmn New New Unidentifed Ongokn New Local Extenal Identifed External Externl Fnandng Tota Piolects Project Contribution Cowritments Commnitmnents auteiments 199 Antiw and Babuda 6.5 5.7 0.8 0.0 5.7 0.8 0.0 DorrJnka b 10.6 10.6 0.0 4.6 6.0 0.0 0.0 Grenada 37.2 19.3 17.9' 5.4 13.9 0.0 17.9 Montenrat 22.6 10.8 11.8 0.3 10.8 11.5 0.0 St. tt and Nevis 26.3 24.0 2.3 2.9 20.3 0.1 3.0 St Luda b 74.2 74.2 0.0 34.2 40.0 0.0 0.0 St Vlncentad theGraine 29.4 27.3 2.1 14.2 12.9 0.2 2.1 Total 206.9 171.9 34.9 61.6 109.6 12.6 23.1 1915 Antigu and Batuda S.1 2.9 2.2 0.3 2.9 1.9 0.0 Domink b &8 8.8 0.0 3.5 5.4 0.0 0.0 Grenad 26.9 Q0 26.9' 0.0 0.0 0.0 26.9 Monkerrat 18.3 2.0 16.3' 0.9 2.0 15.4 0.0 St KtttsandNiew 21.5 15.9 S.6 3.8 14.1 3.1 0.5 St Luida 80.9 80.9 0.0 2&1 52.8 0.0 0.0 St. V ncntandtheGnadne 23.7 14.7 9.0 10.6 S5. 7.6 M0 Total 18S.3 12S.3 60.0 47.2 82.7 28.0 27.4 19, StKfttsand Ne 107 82 2.5 1.2 7.0 1.6 0.9 St Vlent and the Grcnadnes 10.2 8 1 2.2 6.4 0.4 1.6 1.9 Total 20.9 16.2 4.7 7.6 7.4 3.2 2.8 MEMO6ANDUM IEtS Totalfor 1994495 392.2 297.2 94.9 108.7 192.3 40.6 50.5 Totalforl99486 413.1 313.4 99.6 116.3 199.7 43.8 53.3 Annurd Aerap for 19491 (in percent of GDP) Antgua and Baruda 1.2 0-9 0.3 0.0 0.9 0.3 0.0 Do *ninica 4.6 4.6 0.0 1.9 2.7 0.0 0.0 Grenada 14.2 4.3 9.9 1.2 3.1 0.0 9.9 Montienat 28.4 8.9 19.5 0.8 89 1A7 0.0 St Kitts and Nevi 8.8 7.2 1.6 1.2 6.2 0.7 0.7 SLLuda' 15.0 15.0 0.0 6.0 9.0 0.0 0.0 St Vlncent and the Gnadrnes* 8.1 6.4 1.7 4.0 2.4 1.2 0.5 Reaanui Total 9.6 7.3 2.3 2.7 4.6 1.0 1.2 a. World Banic proiects on OECS Waste Mangent (US$53.4 M) and Education (US$22.7 M) are exiduded from this tabie Both are expected to start In 1995. See text b, On fal year bask begining in 1994 etc. c Of the otal proposed new PSIP for 1994-95 the acatlon k 40 percent In the fint year ad the balnce In 199S. d Asurrm 20 percent countep fundng on CDBIGOM tiapoht praj*c e New unidenId exte finandng reuints for 1994 k obtaIned as th reIdu between total Investment and Identified flnancing totak f. New unidentifie externl flnancing rquireme for 1996 Is obtained as the residual between total lnvestmnent and Identified flnandcng totak. SoUrces Ntional audio.tleo. CDB and 8IRD Staff. 32 6 Psip Table 62 S cwe of lhe 199496 Propoed PSIP in OECS Counies (in percent) EaxnkSupp Infrsrcue sodi5 sec OMer Pulc Couny ToWl Ongtolm New O0uoti New On0oru New Onwolna New Antigua d Barbuda I la 1A 112 41.4 Li QO l ArkuhA 3.7 0.0 Trarupot and Comm 17.8 12.5 Educatlon 41.4 1.1 Adih 0.0 0.0 Tousrm 10.9 12.8 Power 0.0 0.0 Howht 0.0 0.0 O0r 0.0 0.0 MItnactut 0.0 0.0 Wafer and Sew 0.0 O Hea 0.0 0.0 Domi 312 Q. AZ u 41 u . Avouue 11.0 0.0 Teport and Con 2&1 0.0 Educaton 7.1 0.0 AdhnL 2.1 MO Toudam 1.0 0.0 Power 0.0 0.0 Howln 28.3 OO Odwr 2.5 OO Manufactutng 0.0 0.0 WatseNdSewe 12.1 0.0 Health' ao 0.0 Grenada 18 2 A2 ZA Q& 2A lQ Agkukue 9.2 5.9 Transport and Conun SA 248 Education 3.5 7.4 AdmrL 0.4 2.8 Toawm 1.5 1.5 Power 1.9 0.0 Housing 0.0 0.0 Oter 0.0 0.0 Manufactwtng 0.0 11.9 Wae and Sewer 6.2 13.0 Healh 0.7 0.0 Montserat Q1 QQ 2Z kLZ 146 ad 2Q 31 10 Agculue 0.3 0.0 Trnmport and Comn 2.7 6S.2 Education 5.7 0.0 Adrnh 9.8 3.0 Touasm 0.0 0.0 Power 0.0 0.0 Houhn 0.0 0.0 Oth 0.0 O.0 Manufacuring 0.0 0.0 Water and Sewr 0.0 0.0 Hth 0.5 0.5 St.Kltisabd Nevis L k MA %21 1IZ ,2 11 Qm m Agcltue 6.3 2.0 Trarport and Comm 30.7 5.1 Educaton 3.2 0.6 AdmSn 3.0 0.1 Tourism 0.0 1.4 Power 20.4 3.6 HousIg 5.5 1.6 Oth 0.1 0.0 Manufacturing 0.1 0.3 Water and Sewer 7.3 0.4 Health' 5.5 1.9 SL Luda 52 Q.Q 65.3 Q. 2 Q.Q n1 QQ I Agriculture 1.9 0.0 Transport and Comfm 42.5 0.0 Education 11.3 0.0 Admh 2.0 0.0 Toudsm 0.3 0.0 Power 0.1 0.0 HousIng 1.8 0.0 Other 3.1 0.0 Manufactuftng 3.0 0.0 Water and Sewer 22.8 0.0 leah' 12.1 0.0 St. Vincent and the Grenadnes la La 44. 19.2 16.1 U n4 Agriculture 15.0 1.0 Transport and Coam 27.2 8.O Educatlon 6.7 0.0 Admh 1.1 0.4 TourIsm 0.6 0.0 Power 16.7 11.3 Housing 0.0 0.0 Other 0.5 0.0 ManfacturIng 0.0 0.0 Water and Sewer 0.6 0.6 Heahh' 9.3 2.2 Group Average ZU 4A0 44A IZ 1 22 12 2 3l AgrIulure 6.0 1.3 Trarnport and Comff 27.4 12.6 Education 7.6 1.3 Admh 2.5 0.8 TourIsm 0.8 0.8 Power 5.8 2.2 HousIng 2.8 0.2 Other 1.4 0.0 Manufactudng 1.2 1.9 Water and Sewer 11.2 2.2 Heath 7.3 0.7 a. Undeuined totals refer to total PSIP proposed In the sector ienithed In the column headL b. Components may not add to 100 due to rounding emors and discrepancies between pubshed totals and the sum of components. c. Indudes communZity serices Sources Natiorn autles, COB ad I8M Staff. Ln LO ECONOMIC POLICIES FOR TRANSMON PSiP, the focus of the infrastructure Irivestment is on used with 30 percent of expenditure In 1994 and a the provision of roads, air and sea transportation further 40 percent In 1995. Other projects indude fadiities, and power supply. The major infrastructure road imnprovemnent exceeding US$6 rrillion and projects are the Bay Front Development in Roseau construction of government buildngs. (US$6 riUiDon), a Sea Defense Project (US$8 rmilion), and water and sewerage services, inducing the In SL Kifts and Neis, the proposed PSIP for 1994-96 construction of several new rural water systems and totals US$58 nillion with over 82 percent of it on an Integrated water and Sewerage Developmnent ongoing projects. The PSiP to GDP rato Is 9 percent, Project for Roseau. The emphasis in the sodal the fourth lowest ratio in the Region. The fiscai sectors, which account for 43 percent of the total situation has deteriorated in the 1990s, so that public PSIP, is on completing housing projects. Public savings Is now negative. Donor fundng have been irivestments In the economic sector indude projects in Identfied for most projects, and an adcdtional funding agicuitural diversification, manufacturing and tourism of US$4.4 mirion is being sought The focus is on promotion and marketing. irivestment In physical and human capital so as to fadlitate tourism development, agricutural In Grenada, the PSIP for 1994-95 totals US$64.1 diversificaton and encouragement of small million with less than one4hird of it on ongoing manufacturing. In the infrastructure sector, the major projects. The proposed PSIP to GDP ratio is 14.2 developments are the upgrading of the port and percent, which makes it the third largest investment airport in Nevis, road improvement the sea defense rato in the Region. Yet, public savings have been project electridty expansion and upgrading, and a negatve for some brme, in the order of 2.5 percent of water development projecL In the sodal sectors, the GDP. As a result, this proposed PSIP coud be focus isonthe strengthening of the College of Further irnplemented only If bilateral donors fund the entire Education, and the renovation of the JNF Hospital. A project costs and/or if public savings increase. Donor Resettlement Project at Newcastle is planned at a funding is sought for US$44.8 million. The PSIP total cost of US$0.9 million to be funded by the represents a ciscerrible shift in emphasis fromr direct nabonal insurance agency. economic support to infrastructure, reflecting the govemnents desire to restructure the economy and In St Lucia, the proposed PSIP for FY94-95 totals lay the foundation for increased foreign and domestic US$155 million or 15 percent of GDP. All projects private irivestment Infrastructure projects indude are ongoing, and new projects are being prepared for port improvement, roads and sea defense, and water donor funding The high level of investment efforts supply projects. In the sodal sectors, the focus is on could be sustained if bilateral donor spport continues construction and renovation of sdiods. In the and the govemment fiscal surpluses are maintained in economic sectors, the major projects are on fish the order of 8 percent of GDP. Similar to other processing and fruit production. countries in the Region, the major objective of the PSIP is to continue upgrading social and economic In MontserraL the proposed PSIP for 1994-95 totals infrastructure so as to ensure a sustained growth US$41 million or 28 percent of output the largest momentum and to facilitate an increasing role for the proposed investment effort in the Region. About 27 private sector In actively promoting the development percent of the total expenditure Is on ongoing and expansion of the export sector. In the projects. The fiscal situation is also weak in infrastructure sector, the major projects are the V\gie Montserrat making it difficult to provide any airport development, roads, a proposed tunnel linking counterpart funding. Bilateral donors have been Castries with the industrial estate in Cu de Sac, and identified for all projects. The PSIP indudes the water development and management In the social development of a new airport with donor assistance sectors, the projects include constructon of new from BDD and EDF. Initial project design estimates secondary schools, rehabilitaton of the Victona suggested a total cost of about US$44 million. The hospital low income housing and shelters for boys project design is being re-examined. For the purpose and girls. In the tourism sector, the major project is of this report an esfimate of about US$30 million is the complebon of the Vendors' Arcade. Other major 54 6 psip projects indude the completion of an industrial estate There is a caitcal need to raise public savings in most and support to sustainable hillside farrning. OECS countries so as to support a PSIP of adequate size, especially as bilateral donors are replaced by In St Vincent and the Grenadines, the proposed PSIP multilateral donors. To attract multilateral donor for 1994-96 totals US$63 million or 8 percent of GDP. funding, the countries need to contribute about 40 About 78 percent of the expenditure is on ongoing percent of the projects' total cost as counterpart projects. Donor funding is sought for US$4 mnillion. funding This implies that the OECS countries need to The share of infrastnrcture in the proposed PSIP is maintain sound fiscal discipline and management that over 64 percent. and it reflects the need to duplicate result in fiscal current account surpluses of at least 5 sodal and economic infrastructure on each island. percent of output Only St. Lucia has generated Ongoing and new infrastructure projects indude adequate public savings (fiscal surpluses) in the 1990s improvement to Canouan and E.T. Joshua airports, and it will remain in good shape provided it does not development of Campden Park Container Port change polides that undermine this savings effort In completion of the Diamond Industrial Estate, 1992, the current account defidt ranged between 0.1 electrification of Canouan, improvements to electric to 2.5 percent of output in four countries, with transmission and distribution, and construction and surpluses only in SL Lucia (8 percent), Dominica (1.5 rehabilitation of agricultural feeder roads. The percent) and St Vincent and the Grenadines (2.7 infrastructure projects indude construction of cold percent). storage fadcties at Joshua airport on the mainland to fadlitate exports of perishable items. In the social Scope for funding public investment from domestic sectors, the major projects are the construction of borrowing is also limited. Already, virtually all Canpden Park Secondary Sdciod and a post- countries use their nabonal insurance sdcemes to fund secondary facility, and the continuation of Klingstown development projects. As discussed in Chapter I, Hospital redevelopment In the economic sectors, the heavy reliance on the national insurance schemes for major projects are in fisheries development development project financdng could jeopardize the smallholder crop improvement and marketing, and future integrity of these schemes and contribute to agricultural rehabilitation and diversification. The fiscal strain. Changes in the banana regime are government distinguishes between a three year already impacting the fiscal situabon in each country finandng PSIP and a more tentative five year planning and are likely to deteriorate further, thereby limiting PSIP which is formulated in conjunction with the Five the govemments' ability to undertake domestically Year Development Plan. financed development projects and/or provide counterpart finandng for projects funded by Financing multilateral lenders. While the OECS countries need to strengthen their fiscal current account surpluses, Financing of the PSIP comes from govemments' fiscal increased bilateral donor support is needed in the surpluses, domestc borrowing, extemal grants and interim so the countries may prepare for the changes loans on concessionary terms. St Luda generates in the extemal environment adequate fiscal surpluses for counterpart funds. This explains why the country is able to undertake a public Overall, the OECS countries depend on extemal investment effort larger than the average for the finandng for nearly 72 percent of the total PSIP. Region. Montserrat's even larger effort however, is External finandng ranges from over 80 percent in financed primarily by external donors. The fiscal Montserrat Antigua and Barbuda, and SL Kltts and situation in St Vincent and the Grenadines is also Nevis, to 51 percent in SL Vincent and the reasonably good, and it could improve its public Grenadines. Most of the external finandng consists of investment efforts provided extemal finandng is grants or concessionary loans. AlMtogh the available as grants or on concessional terms. Most authorities are aware of the distributon between other countries continue to generate insuffident fiscal extemal grants and concessionary loans, these are not surpluses. monitored on a systematic basis. Antigua and Barbuda, Dominica and SL Kitts and Nevis present 55 ECONOMIC POLICIES FOR TRANSITION data on extemal grants and loans but without further The PSIP implementabon ratfo vanes among details on external loans. In the proposed PSIP, countries, aitically depending on the availability of extemal grant finandng is 85 percent for Anbgua and counterpart funds (e.g, in Grenada), and the humnan Barbuda, 54 percent for Dominica, and 45 percent for resource constraint It is estimated that the average St Kitts and Nevis. finandal implementabon ratio is less than 80 percent, with the physical implementaton ratio even smaller. PSIP Planning and Implemenlation Both rabos vary widely among countries. Common problems affecting the implementation raffo in all Donor assistance to the OECS countries has countries are lack of adequately trained staff and established the mechanisms for preparing and frequent staff changes. This suggests a continuing implemenfing public investment projects. Public need to develop hurnan resources in PSIP investments are undertaken in each country in the programming. To maximize sodal and economric context of a PSIP with a view to maximizing the social retums from public investment the OECS countries and economic retums. need to improve further their project cyde management The PSIP process in most OECS countries has improved in recent years and these countries have sectoral plans and strategies. The PSIP process is still relatively weak in Anfigua and Barbuda and in Montserrat In Antfgua and Barbuda, projects are devised and implemented on an ad hoc basis without reference to well articulated national or sectoral development frameworks, and without appropriate project analysis. In St Kitts and Nevis, the PSIP process is rudimentary with project formulabon and monitoring still at an indpient stage. The sources of growth analysis reported in Chapter 11 reinforces the importance of an integrated PSIP. Improvement to the PSIP process in all countries would accelerate the social and econormic returns from public investment and fadlitate a more rapid private sector development Donor technical assistance will be required in some countries to fadlitate this process. The success of the PSIP depends on the capadties to monitor, evaluate and implerment projects, in addibon to the ability of govemments to secure finandng for these projects. Project absorptive capadty depends on a well trained cadre of project analysts, design engineers, and implemenfing and executing agencies, induding a well structured and well equipped planning unit While the PSIP process in the OECS countries has improved in recent years, extemal techrical and finandal assistance will be crifical in the next five years to further develop this process and to undertake a PSIP of suffident size to provide the supporting fadlifies for private sector development Also, aid coordinafion within the countries needs to be improved as PSIPs confinue to be donor-driven to a large extent 56 Antigua and Barbuda Overview Over the five years to 1992, the economy of Antigua and Barbuda grew at an ual avet 't i4rwa 4 pfe compared with an average of 8 percent in the mid-1980s, Toturism has been theip i groh Notwithstanding the slowdown in economic activity in North America, be GulfWa'ad grwirnopeiti in the global tourist industry, there has been a 16 percent increase in visitor arraials in aid 8adse J Much of this increase reflects a 10 percent increase in air arrival and a 23 , i irf ci$ sip aMWisF During the 1988-1992 period, arrivals from the United States, Canada, Eirope ad theCr;in coie at 40percent 8 percent 30 percent and 17 percent respectively. of al . sayeviusoAga and B conrtwction sector, which experienced phenomenal growth in the mk1498Q:gewmc trf lw .. the rewperiod During this period, the annual average growth in this Se W-s 4:pe x,,, with ..', of 30 percent in the mid-1980s. The drop in public sectorconstmucton pro'et,hsbe"a m-ajo ft ,'i to he faJ offin activity in the constructon sector. In the area of public finance, the central govemment's remains low. To tum the situation around, the finandal position weakened as the growth in govemment must act swifdy to improve its fiscal expenditure exceeded the growth in revenue. As a performance and restore the country's result, in each of the five years under review, a current creditworthiness. Both of these condtions must be account defidt was recorded. Stemming from this, satisfied if the authorities are to obtain the foreign and the govemment has been forced to extensively domestic resources that are needed to support the reduce its investment expenditures. In addition, the PSIP. govemment has experenced difficulty in meeting its scheduled debt obligations. Consequently, there has Major Macroeconomic Issues been a sizable build-up of arrears. Debt Management and Fiscal Stabilization In the external sector, there was an improvement in the current account balance as the services balance At the present time, Antigua and Barbuda's improved due, in large part, to increased eamings outstanding extemal debt, induding interest arrears, is from tourism. Capital inflows fell significantly as about 84 percent of GDP. The stodc of extemal private direct investment contracted sharply. As a arrears is now at about 50 percent of GDP. Other result, there was a steady worsening of the overall salient features of the debt and arrears situation are balance in the balance of payments, most of which that most of the debt is owed to commerdal was financed through the accumulation of arrears. institutions and the debt is primarily short-term in nature. With the scheduled debt service payments Within the banking system, liquidity was tight up until absorbing at least 45 percent of public revenue and 1991. Consequently, interest rates for loans and grants, the debt problem, needless to say, has put deposits were high. However, with the banking considerable pressure on the fiscal operabons of the system becoming more liquid in 1992 as the loan govemmenL In fact for the past five years, the central expansion rate fell, interest rates were lowered. govemment has generated not only a current account Estmates put the rate of inflation for the period under defidt, but also an overal budget defidt ranging in review at 5 percent. value from US$55 million in 1988 to US$8 million in 1992. These current account defidts have tended to Over the medium term, the economy is likely to lower the country's savings rate at tmes when per remain in some difficulty as investment spending capita income was growing sharply. To increase the 57 ECONOMIC POLICIES FOR TRANSITION resources available for development purposes, the Medium-Term Economic Prmpect govemment must improve both its fiscal and debt management Otherwise, the PSIP will continue to The meciurnterm development of Anbgua and contract and arrears will continue to build up. Barbuda is looked at from two perspectives. One is the baseline scenario. The other is the altermative Economk Planning and Invesment Programming scenario. Presently, public sector investment programming is Baseline Scenario not well developed. Neither is the process of economic planning and management There are In the baseline scenario, no changes in several reasons for ths, First, there is an absence of a macroeconorric policies are assumed up to 1998. As carefully arbctaated naional development strategy. a result, weak fiscal performance and high debt and Second, the project selection procedure is markedly arrears levels are expected to persist (see Table 7.1). defident Thrd, the implementafion and monitoring In this environment, real GDP is projected to grow at capadty of the local authories is weak. Fourth the about 2 percent annually between 1993 and 2000. responsibility for tradcing expenditures on capital Mirroring this weak performance of the economry is projects is not centralized. Fifth, the capadty of the the slow projected growth in consumption and local authorities to collect and analyze, in a timly investment expenditures, and in exports. These manner, data pertaining to varables like GDP, expenditures are projected to grow by about 2 employment, the price level and wages, is grossly percent annually in the 1993-96 subperod. Over the inadequate. To rectify this situation, institutions second subperod, 1997.2000, while investment and should be strengthned and other reforms introduced. exports are projected to condnue growing by about 2 A, more systemabc approach towards project analysis percent annually, consumpbon growth Is expected to must be developed. A database containing all of the be marginally higher at about 2.5 percent The latter vital informabon on projects must be created. In result is in keeping with a higher consumption to GDP adcibon, the productive capadty of the statstcal unit ratio for the second subperiod. A corolary to this must be enhanced. development is the expected fal in the savings to GDP rato over time. In the case of domestic savings, Environmeental Degradaion dte share goes from an annual average of 24 percent of GDP during the subperiod 1993-96 to an annual Environmental degradation is another issue of average of 21 percent of GDP in the second concern, given the importance of tourism in subperiod. Projecbons for national savings, generating income in the economy. For tourism to meanwhile, show a drop from an annual average of remain viable over the long run, the authoriies must 17 percent of GDP in the 1993-96 subperiod to an address the problems of waste cisposal and coastal average of 15 percent in the 1997-2000 subperiod. erosion. At the present bme, the fadlites for sewage and solid waste cisposal are inadequate. As a ret, Stmulated by annual average growth in imports of there is the lealdng of waste water from the dumps about 2 percent, the resource balance in the balance into the environment as well as uncontrolled dumping of payments is expected to average about US$20.5 at most sites. With beach sand riring, as wel as the million annually during the sub.peuiod 1993-96 and destrucbon of the wetlands and the lack of strict US$5.5 million annually in the second subiperiod (see builing codes, the coastal zone is also under stress. Table 7.3). When current transfers and factor In recogniton of these erironnmental problems, th payments and receipts are taken into considerabon, govemment of Antigua and Barbuda has recently set the current account balance of the balance of up an environmental commission. Among other payments is, however, expected to worsen over the things, the comnission will help shape the next several years. goverment's environmental polides as wel as propose the legal and other franiewodcs for protecting In the capital account, with no change In the environment maaoeconorric policy, the analysis is projecting very small increases in net DFI. Over the first subperioc 1993-96, an annual net inflow of US$20.5 mnilion is projected from foreign investors compared to US$22.5 million in the second subperiod. As far as 58 7 ANTIGUA AND BARBUDA: KEY ISSUES AND POLICIES Table 7.1: Antigua and Barbuda - Base Case Macroeconomic Indicators, 1992-2000a Item Preimilinx Piieied 1992 1993-96 1997-2000 real gtowth rates Gross domestic product 2.0 1.5 2.0 Consumption 11.0 2.0 2.5 PubIc 8.3 3.0 3.0 Private 12.0 1.2 2.3 Fixed domestic investment 1.3 2.0 2.0 Exports of GNFS 4.4 1.9 1.9 Imports of GNFS 8.4 1.7 2.3 shares of GDP Domestic savings 24.4 24.3 21.0 National savings 18.0 17.4 15 4 Consumption 75.6 75.7 79.2 Fixed domestic Investment 20.9 20.0 20.0 Exports of GNFS 88.2 89.9 89.8 Imports of GNFS 84.7 85.6 8&8 Terms of trade index (1992-100)b 100.0 99.5 96.5 a. Projections based on constant 1991 p8Ices. bh A decrease in the index Implies that the temis of trade are unfavorable to the country. Source: CDEB Table 7.2: Antigua and Barbuda - Alternative Case Macroeconomic Indicators, 1992-2000' Item Preliminar Prooected 1992 1993.96 1997.2000 real grwth rates Gross domestic product 2.0 3.0 3.9 Consumption 11.0 1.9 3.9 Publc 8.3 2.8 3.0 Private 12.0 1.7 3.9 Fixed domestic investment 1.3 2.4 4.1 Exports of GNFS 4.4 3.0 3.8 Imports of GNFS 84 3.0 3.6 slsres of CDP Domestic savings 24.4 24.2 22.6 National savings 18.0 17.3 17.3 ConsumptIon 75.6 75.6 77.3 Fixed domestic investment 20.9 20.8 21.0 Exports of GNFS 88.2 88.6 8&3 Imports of GNFS 84.7 85.0 86.6 Temis of trade index (1 992-100)' 100.0 99.5 96.4 a. Projections based on constant 1991 prices. b. A decrease in the index Implies that the terms of trade are urnfavorable to the country. Source: CDB. 59 ECONOMIC POLICIES FOR TRANSITION the public capital sub-account is concerned, negative external debt. In this new policy environment, the balances are expected through 1997, as amortization analysis projects a stronger economic performance. payments by the govemment exceed loans disbursed GDP growth is projected to be about 3 percent over to the govemment. In the first subperod, 1993-96, an the 1993-96 subperod and about 4 percent in the annual average outflow of US$9 million is expected latter subperiod (see Table 7.2). The projected growth compared to a net inflow of about US$5 million in the in exports and investment expenditures is also second subperod. Official grants to Antigua and corresponcingly higher. In the balance of payments, Barbuda are projected to remain fairly flat at about there would also be a marked improvement in the US$2.8 million annually over the first subperod and country's holdings of net intemational reserves as the US$3.0 million annually over the second subperod. capital account improves (see Table 7.4). Altemative Scenario The second scenario assumes that there is early policy reform conducive to the rescheduling of the country's Table 7.3: Antigua and Barbuda - Base Case Balance of Payments, 1992-2000 (USS million) Item fedllm)ae 1992 1993-96 1997.2000 Resource balance 15.0 20.5 5.5 Exports of GNFS 388.0 425.3 518.0 Imports of GNFS 373.0 405.0 512.5 Net factor payments -33.0 -39.0 -39.5 of which: interest on public debt 3.0 3.3 2.0 Private transfers 5.0 5-5 6.8 Cument account balance -13.0 -12.8 *27.2 Capital account Net direct foreign investment 20.0 20.5 22.4 Official grants 1.0 2.8 3.0 Public capital 5.0 -9.2 4.8 Disbursements 10.0 2.8 18.8 Amortization *5.0 -12.0 *14.0 Other capitat n.e.i. 5.0 1.7 0.0 Changes is reserves (-) = increase -18.0 *3.0 -3.0 MEMORANDUM ITEMS: Total debt (USS million) 369.3 343.3 293.4 Total debt/GDP 83.9 72.9 51.3 Debt service (USS million) 7.8 16.1 17.5 Debt servicelXGS 2.0 3.7 3.3 Debt service/GDP 1.8 3.4 3.0 Interest/GDP 0.6 0. 0.6 a Totals may not add up due to rounding. Source: CDB. 60 7 ANTIGUA AND BARBUDA: KEY ISSUES AND POLICIES Table 7.4: Antigua and Barbuda - Alternative Case Balance Of Payments, 1992-2000 (USS million) Item Prelminait 1992 1993-96 1997.2000 Resource balance 150 16.7 10.5 Exponu of GNFS 388.0 434.5 5648 Imports of GNFS 373.0 417.8 554.3 Net factor payments -33.0 -39.5 40.5 Pulvate transfers 5.0 .5 568 Current account balance .13.0 -17.3 *23.2 Capital account balance Net drect foreign investment 20.0 21.5 23.7 Offical grants 1.0 2.0 2.0 Publc capital 5.0 -2.2 S.2 Disbursements 10.0 9.8 22.2 Amortization .5.0 -12.0 -17.0 Other capital nme.l 5.0 .1.0 0.3 Changes in reserves 1) - Increase- 18.0 -3.0 4J0 MEMORANDUM ITEMS: Total debt (USS mnilion) 369.3 414.7 343.4 Total debt/GDP 83.9 44 S4.1 Debt service (US$ milon) 7.8 16.8 22.9 Debt servIce/GDP 2.0 3I5 3.5 Debt ervice/exports 1.8 3.8 4 0 Interest/GDP 0.6 0.9 0.9 Source: CDf. 61 8 Dominica During t to -99Z -e -i -- gwh eh4$edf hi e t 6 g -i - i -i ,sIwo :eun toeachin a 1 pIteru of M3pce he w, ,nwhileto has been a gmg apoximateb,r5 percet perartnur. lfis al pebnne uigte per hor, haS dt*raed. E 1988 th betardefc was 6 Opercert OP. BGDP 9. had tlatd 9 t of-d Me d also escalle hf,m US$66r"Wolio m 44: pecn f (1 oU$105 milono(5 eretOf DR8eas o highly conce~ionaw nure of the 4ebt Dmica.hasbeeb to m-aa a rtQ Duringthe e4 with die eed 99, he both by hunicane flusjchaDomiA~s cutre dicit ahed t e evptn of 1992., iWa an. offiale ann s and a weaeoominiomen are r to pres es han t t e l a idutetn the'OCS Major Economk Issues Diversification Banana Industry One of the major strategies for long-run economnic growth has to be the development of the non-banana The erosion of preferential access to the UK market sectors. This will pose a number of problems. The poses a major threat to the banana industry. During continuation of trade preferences for some time, the period 1988-1992, the industry accounted for together with the lack of suffident supporting more than 90 percent of primary exports and infrastructure, will make difficult the movement of approximately 61 percent of all exports. A significant factors of production out of the banana sector. It is proportion of agricultural production, which accounts expected, however, that as the sector becomes for approximately 25 percent of GDP, is also increasingly exposed to full internabonal compebbon, attributable to banana production. In addition, the resources will be taken out of banana production. banana industry and related services employ more The challenge will be to direct the newly released than 60 percent of agricultural workers. resources into altemative sources of production. Consequently, any shock to banana exports will have a major impact on the Dominican economy. Possible altemabves indude meat, milk and fish products, which in 1992 are estimated to have There are basically two strategies possible in the accounted for 63 percent of food imports. In current crisis. Firstly, the banana industry must addition, Dominican farmers currently produce more undergo significant restructuring in order to increase than twenty agricultural crops which can help to effidency and product quality if producers are to counteract the expected contraction in the banana compete effectively in an increasingly liberalized trade sector if the marketing and transportabon bottlenecks, environment Secondly, there must be increased in particular, can be overcome. Moreover, the efforts at economic diversificabon in order to toufism sector is currently exhibiting considerable cornpensate for e expected contracton within the dynamism. Indications are, however, that given the banana sector. current economic difficulbes, a successful transitbon to a post-banana economy will not be able to take place 63 ECONOMIC POLICIES FOR TRANSITION without a significant influx of foreign resources, both allow GOCD to project the short as well as nediurm. private and official. term effects of various policy measures and developments on fiscal performance, and to Capital Inflows formulate, at an early stage, strategies to reverse any negative trend in the fiscal accounts. Within an The current banana crisis and its impact on the environment which seems destined to be difficult over Dominican economy is being exacerbated by another the next three to five years because of problems in disturbing trend - the dedine in officdal and private both the banana industry and the manufacturing capital inflows. Capital inflows contracted sharply sector, and the implementation of the CET, a from US$33.8 million in 1990 to US$17.7 million in comprehensive review and reformulabon of fiscal 1992. The majority of this contraction has been policy is necessary. occasioned by reduced offidal inflows whidh plummeted from US$12.4 million in 1991 to US$2.3 Medium-Term Economic Prospects million in 1992. Reasons for the reduced offidal inflows indude the continuing recession in donor Effective July 1, 1993, the new EU trade regime for countries, the accompanying fiscal difficultes and the bananas came into effect. Under this regime focus on Eastern Europe. The current scarcity of Dominica will continue to have access to the EU foreign capital resources suggests strongly the need to market for its exports, but recent price developments increase the domnestic capital savings ratio and to point to the possibility of the banana export price search for new sources of foreign capital inflows. falling by about 20 percent during 1993-94. In view of this possible development, the base case scenario Public Finances projects a relatively bleak economic outlook. Ongoing initiaives to diversify the economy are also Base Case Scenario taking place against a background of fiscal difficulties. In FY1987/88, the overall budgetary deficit was The base case scenario considers: (i) the recent estimated at EC$20 million or 6 percent of GDP. In banana developments; and (ii) the current polides and FY1 991/92, the deficit had escalated to EC$42 million programs of the government, induding the 3 percent or 9 percent of GDP. The recent initiabves to wage increase to public employees. Under the new increase efficiency in the collecton of revenues EU regime, Dominica will continue to have access to through the Customs and Inland Revenue its banana exports (see Table 8.1). Given the Departments are bmely and are likely to bring some possibility of the banana export price falling by 20 improvement Together with additional revenue percent, however, banana output is projected to measures, induding a tax of EC$2 per person on decrease by about 30 percent in line with the cruise ship passengers, there will likely be an estimated supply-price elastidty of recent years. improvement in the fiscal balance. Efforts also need Export earnings could potenbally be reduced by US$9 to be concentrated on broadening the tax base, million per year (US$25 million), which could then making the tax burden more equitable, and enhancing have a mulbplier effect of about 5 percent of GDP. the effectiveness of tax administration polides. The The cumulative effect could be up to 10 percent of establishment of a joint govemment/union committee GDP during 1993-96. In addition, if the fiscal balances to discuss salaries and other issues should be seriously deteriorate as a result of unsustainable wage increases considered to avoid a repebton of past experiences and negligible improvements take place in the regarding wage increases which led to a deterioration incentive framework, intemabonal corpetitiveness in the public finances and in internaional will dedine. Similarly, if regulatory and trade reforms competitiveness. fail to be realized, private sector investment would not come forward to the degree necessary to achieve the In addition, it would be useful for the GOCD to growth rates induded in these projections. If such introduce mulbtyear budgetary planning that events were to materialize, the economic outlook for encompasses at least a three-year period. This would Dominica would become severely douded. 64 8 DOMINICA: KEY ISSUES AND POLICIES Table 8.1: Dominica - Base Case Macroeconomic Indicators, 1992-2000 b Item PiwJnar Pniected 1992 1993-96 1997-2000 real gyowth rates Gro domestic product 2.1 0.4 .1.5 Gross domestic income 1.1 0.6 -2.0 Consumption 9.1 0.8 -5.3 PubIc 11.9 0.S .2.0 Private 17.2 0.2 463 Gross fixed investment 18&2 -4.5 -5.2 Exports of GNFS 5.1 2.0 2.5 Imports of GNFS 40.1 40.5 -1.4 shares of GDP Domestic savings 12.3 3.8 7.4 National savings 14.5 6.9 9.3 Consumption 87.7 95.5 92.3 Fixed domestic investment 32.5 27.8 24.5 Exports of GNFS 53.6 46.4 53.2 Imports of GNFS 73.8 69.7 70.0 Temis of trade index (1992-100) b 96.2 71.8 67.6 a. Projections based on constant 1991 prices. b. A decrease in the index Imples that the tems of trade are unfavorable to the country. Sources: MTESP and IBRD Staff. Table 8.2: Dominica - Alternative Case Macroeconomic Indicator, 1992-2000 a Item eimirzr Prniected 1992 1993-96 1997-2000 mal goswth rates Gross domestic prduct 2.1 2.5 3.8 Gross domestic Income 1.1 2.9 3.9 Consumption .8.1 2.0 3.0 Public -11.9 0.8 0.4 Private 17.2 2.5 3.5 Gross fixed investment -18 2 2.7 3.7 Exports of GNFS 5. 1 4.6 6.0 Imports of GNFS 40.1 1.8 3.3 shares of GDPP Domestic savings 12.3 10.4 16.3 National savings 14.5 13.5 18.7 Consumption 87.7 89.1 83.4 Fixed domestic investment 32.5 30.4 31.9 Exports of GNFS 53.6 50.7 54.8 Imports of GNFS 73.8 70.2 70.1 Terms of trade Index (1 992-100)b 96.2 82.2 79.3 a. Projections based on constant 1991 prices bh A decrease in the Index Imples that the tems of trade are unfavomble to the country. Sources: MTESP and IBRD Staff. 65 ECONOMIC POLICIES FOR TRANSITION Under such a scenario, economic growth is projected of GDP) by 1996, and to US$33 million (or 11 to slow down significantly during 1993-94 and percent of GDP) by the year 2000. To cover this become negative during 1995-2000 (see Table 8.1). deficit, the govemment projects that Dominica will The current account deficit of the balance of continue to attract all of its finandng requirements in payments is projected to increase to US$30 million by the form of grants and highly concessionary assistance the year 2000. Debt service as a proportion of from bilateral and multilateral sources. exports of goods and services would rise from about 7 percent in 1992 to about 10 percent in the year The ongoing and new public sector investment 2000. Under this scenario, imports would be reduced program is concentrated on large infrastructure as the public sector investment program would be projects geared to support tourism expansion and smaller as the economy tapers into a recession. agricultural diversification. Therefore, the ratio of total extemal debt to GDP is projected to move from 56 Alternative Scenario percent of GDP in 1992 to about 63 percent of GDP during 1993-96 and to 71 percent of GDP during The altemative scenario takes into account the 20 1997-2000. Debt service levels are projected to percent drop in bananas prices, effective July 1, 1993 remain manageable during 1993-2000, amounting to as Dominica continues to have access to the EU less than 7 percent of exports of goods, services and market for its exports of high quality bananas. In net private transfers, and less than 13 percent of response to extemal developments, the govemment central govemment current revenues. speedily implements its economic reform agenda in the areas of: (i) fiscal adjustment,induding following a tight wage policy, to generate additional public savings to undertake investment in private sector supporting infrastructure; (ii) liberalizing the trade regime, and improving the incentive framework and regulatory environment to increase economic efficiency, enhance intemational competitiveness, and attract private investment in all sectors; and (iii) stimulating private sector4ed economic growth and focussing diversification efforts on non-traditional agriculture, manufacturing, agro.products, nature tourism, and informatics. Under these assumptions, based on the implementation of the reform agenda and barring any other unforeseen extemal event, real GDP is projected to grow at about 2.5 percent per year during 1993-96 and 3.8 percent per year during 1997-2000. Real exports of goods and non-factor services are projected to grow at about 5-6 percent per year on average during 1993-2000, as soap manufacturing (2.5 percent), non-banana agriculture (4 percent), tourism and other services (7 percent) continue to increase. With real GDP growth projected at 3.4 percent per year, the real import growth is projected to be between 2 percent and 3 percent per year on average during 1993-2000. As a result, the current account deficit of the balance of payments is projected to fall from 18 percent of GDP (US$34 million) in 1992, to about US$37 million (16 percent 66 8 DOMINICA: KEY ISSUES AND POLICIES Table 8.3: Dominica - Base Case Balance of Payments, 1992-2000 (US$ million) Item Preirinarv Pidd 1992 1993-96 1997-2000 Resource balance -38.3 -4&8 -380 Exports of GNFS 101.7 97.1 121.0 Imports of GNFS 140.1 145.8 158.9 Net factor payments 4.7 -7.1 .10.2 of which: Interest on pubhc debt 2.1 2.6 4.2 Private transfer 13.0 13.5 14.4 Current account balance -34.1 -42.4 -33.9 Capital account Net direct foreign investment 13.0 10.9 7.9 Offidal grants 5.4 5.0 4.8 Public capital 7.2 22.1 21.3 Disbursements 11.4 27.4 2.3 Amortization 4.2 -5.3 .7.0 Other capital nme.i 13.7 0.0 0.0 Changes In resrves (I) - Increase. 5.2 414 4A1 MEMORANDUM ITEMS: Total debt (USS million) 105.4 153.1 244.9 Total debt/GDP 55.6 72.8 107.7 Debt service (USS million) 7.6 9.5 12.6 Debt service/CDP 4.0 4.6 5.6 Debt service/exports? 6.5 8.2 9.1 Debt service/current revenues 12.5 15 5 19.9 Interest/GDP 1.4 1.7 2.1 a IBRD DRS data. b. Exports of good, servkes and net priate tranrfer. Sources: MTESP and IBRO Staff. 67 8 DOMINICA: KEY ISSUES AND POLICIES Table 8.4: Dominica - Alternative Case Balance of Payments, 1992-2000 (USS million) Item Prefminarv Proxecl 1992 1993-1996 1997-2000 Resource balance -38.3 -42.1 *42.5 Exports of GNFS 101.7 110.3 154.3 Imports of GNFS 140.1 152.3 196.9 Net factor payments -8.7 *6.9 *7.8 Interest on public debt 2.1 2.4 3.4 Private transfers 13.0 13.5 14.4 Current account balance -34.1 .35.5 -35.9 Capital account Net direct foreign investment 13.0 16.5 24.3 Official grants 5.4 5.0 4.8 Public capital 7.2 15.3 13.9 Disbursements 11.4 20.6 20.7 Amortlisation -5.2 *5.3 -58 Other capitra n.e.i. 13.7 0.0 Changes in reserves (.) = increase -5.2 *1.3 *7.1 MEMORANDUM ITEMS' Total debt (USS million) 105.4 138.0 199.7 Total debt/GDP 55.6 63.3 71.1 Debt service (USS million) 7.6 9.3 11.7 Debt servIce/GDP 4.0 4.3 4.2 Debt service/exports b 6.5 7.3 6.8 Debt service/current revenues 12.5 13.1 12.1 Interest/GDP 1.4 1.5 1.5 a. IBRD DRS data. b. Exports of goods, services and net private transfers. Sources MTESP and IBRD Staff. 68 9 Grenada Overview Growth in real GDP, after averaging over 5 percent between 1984 and :1990, sWed consderably:.n.191.92 to about 7.5 percent as the adverse effects of the recession in the developed countries and the dine in the aIgricutial sector were compounded by poor fiscal management The extemal current account deficit ideuted from iboui,.0 percent of GDP in 1988 to about 15 percent in 1991 before falling to 10 percent in 1992,l:argely reflecting ffrictuations in export eamings from agricufture. The current balance ofthe fiscal accounts movedfrom a small surpl1us n 7988 to a deficit of 3 percent of GDP in 1992, as total revenues and grants fll whik current iresiesed As raresult of the poor fiscal outtum, the Government of Grenada (COG) made substantial use olf do c borrowing especially from the National Insurance Scheme, accumulated domestic and extemal arreai, a'nd sharpPly cut capital expenditures. Major Economic Issues In the area of expenditure controls, much attention Fiscal Performance has been placed on the wages and salaries bill which accounts for, on average, 50 percent of recurrent In early 1992, GOG, with the assistance of a revenue. A staff reduction policy has been Caribbean Development Bank-led mission, prepared a implemented. Further efforts in this area should macroeconomic policy framework paper (PFP) which involve the establishment of a committee comprising identified the persistent fiscal deficits to be the major govemment and trade unions to discuss salary problem in Grenada. Consequently, a Structural revision and other labor matters, as well as to Adjustment Program (SAP) was developed and is promote an increased understanding of the role of being implemented. labor in the implementation of govemment policy. The SAP aims to achieve a sustainable rate of GOG also needs to review the present policy which economic growth that will provide increased puts the brunt of the fiscal adjustment on capital employment as well as the resources to improve the expenditure. In an environment where public sector standard of living. The critical elements of the SAP investment, particularly in infrastructure, is a major indude strengthening of the fiscal position and incentive for private investment, the persistent dedine sectoral policies aimed at increasing output and in capital expenditure impacts adversely on future improving the balance of payments. growth. Concessions to entrepreneurs are fairly widespread and GOG needs to review its policy in A major part of the SAP is the current fiscal review, this critical area. The low level of manufactured which indudes tax reform, expenditure controls and exports brings into question the effectiveness of privatization. The polides are aimed at reversing the concessions to the sector. fiscal imbalance, thereby providing GOG with resources for counterpart funding and reducing Arrears on extemal debt service still remain high but arrears. Measures to enhance revenue collection and GOG has been trying to meet current charges. to dose loopholes in the tax legislation are also Grenada is now redudng its arrears on both extemal suggested. Notwithstanding the fiscal measures debt and on obligations to regional and intemational introduced in 1991 and 1992 to address the critical organizations. In 1991, GOG succeeded in having fiscal situation, GOG continues to run a fiscal deficit some US$30 million of its debt rescheduled. COG and is unable to meet its debt obligations. In 1992, needs to accelerate efforts to have other debts the fiscal defidt was 3 percent of GDP while debt rescheduled or forgiven. This would ease the strain service arrears reached 7 percent of GDP. on public finances and improve the country's aedit- 69 ECONOMIC POLICIES FOR TRANSITION worthiness. Further, any rescheduling will reduce the Corporation (IDC) and ensure that more effective cal on the export earnings. marketing is done. Further, present legislation needs to be reviewed, espedally as it relates to the length of Public Sector Management time it takes to process applications. The restructuring of IDC into a one-stop shop should help to ensure that The greatest threat to the successful implementation applications are processed more speedily. GOG has of the SAP may be the capadty of the public sector to undertaken to assist small entrepreneurs through the efficiently and effectively manage the program. A Small Enterprise Development Unit of the Grenada snall technical staff, which is relatively inexperienced, Development Bank GOG also continues to support may compronise the value of technical assistance. training in required skills through the expansion of its GOG should seek external assistance with training for technical and vocational educational program. its staff. This should form an integral part of the fiscal reform program. In the interim, GOG should Environment endeavor to get adcibonal technical staffing from regional and internatonal organizabons. Disposal of solid and liquid waste remains the major environmental issue. A sewerage system has been EWort Base completed in the major tourist area but connectons have not been made because of lack of finance. Tourism has been the engine of growth over the past However, a donor agency has recently provided a three years. The country is well positioned to take loan to assist in this area. It is important that GOG advantage of the eco-tourism market However, the take steps to ensure all establishments in the area are question of capadty, espedally at the up-market level, linked to the system. needs to be addressed. New investment to expand capadty is required. The elimination of acute water Medium-Term Economic Prospect shortages in the tourism belt must also be given priority. GDP growth projections are based on robust growth in the tourism sector and recovery in the agricultural The dedine in the output of major commodites sector. An expansion in both private and pubUc (bananas, nutmeg and mace) needs to be reversed. investment is forecasted as a result of the GOG has taken steps to revitalize production of implementabon of the SAP. cocoa and bananas and has inibated a program to improve the marketing arrangements for nutmeg and Base Case Scenario mace. The problem of moko cisease in the banana industry and reducion in acreage in both the banana The base case scenario takes into considerabon: (i) and cocoa industries has been addressed. Nutmeg the effect of banana shock and trade liberalization; and mace production have suffered after the dedine and (ii) no slippages in the implementabon of the SAP. in prices as a result of the collapse of the marketing Grenada's quota under the new European Union agreement between Grenada and Indonesia. To regime is substantially higher than its present improve the industrys compefitiveness, immediate producton. The base scenario projects an inital efforts are required to control the growth in costs, increase in producton up to 1996 but a tapering off particlarly of wages and inputs. GOG should thereafter as banana prices slide. The scenario also consider the merging of the commodity boards to forecasts buoyant growth in cocoa production on the improve effidency. heels of the rehabilitation program and also in light of GOG ability to sell as much as It can produce. Despite being the redpient of a very high level of Nutmeg producton is expected to slow but output in fiscal concessions, the manufacturing sector is sbil very non-traditional agriculture should expand. GOG has weak GOG has announced plans to promote new placed much emphasis on agricultural diversification irvestment in agroprocessing and in upgrading but must address the issue of competitiveness within institutonal support To this end, GOG needs to the sector if it is to support the tourism sector which review the role of the Industrial Development will be the engine of growth. 70 9 GRENADA. KEY ISSUES AND POLICIES Table 9.1: Grenada - Base Case Macroeconomic Indicators, 1992-2000 PinMdnar Pronsd 1992 1993-1996 1997.2000 mat growth rates Gros domestc produclt 06 1.6 3.5 Consumption 0.6 2.5 3.4 Pubic -10.7 A02 i5 Ptivate 4.1 3.3 3.4 Fixed domestic invesnent -19.3 -2.8 3.5 Expots ofGNFS -1.0 3.5 4.2 Impo1t of GNFS *63 1.9 19 shar of GDP Domestic savings 16.8 12.7 12.5 Natonal savins 25.9 22.5 23.0 Corsumpton 83.2 867 85.9 Fixed domesic In t 362 30.4 30.0 Exports oGNFS 53.8 567 SI8 Impots o GNFS 73.1 73.8 74.7 a. Projection bad on oostant 1991 prices Source: CDB Table 9.2: Grenada - Alternative Case Macroeconomic Indicators, 1992-2000' Itmn PferrInary P d 1992 1993-1996 1997- 2000 -iral growth rates GCr domesic product 0.6 1.7 3.5 Consun4mion 0.6 2.4 3.1 Pubic -10.7 Q2 3.5 Private 4.1 3.2 3.1 FRxed domestic Invesment -19.3 -2.8 3.5 Exporls of GNFS -1.0 3.6 44 Imports of GNFS A63 1.9 3.8 - ha P of CP I Domestic savIngs 16.8 12.7 13.7 Natioral savngs 25.9 22.5 244 Consumption 83.2 867 84.8 Fixed domestic Investnent 36.2 30.4 30.0 Expt dof GNFS 53.8 56.6 59.5 IndortsofGNFS 73.1 73.7 743 a. Projetions based on contnt 1991 prIces.. Source: CDO 71 ECONOMIC POLICIES FOR TRANSITION Central governmnent surpluses are projected to incorporates: (i) a faster declne in debt outstanding; increase as the resut of the implementation of the (ii) a slightly stronger fiscal performance; and (iii) Table 9.3: Grenada - Base Case Balance Of Payments, 1992-20OO (USS million) Itemn PreDrinaN Ped 1992 1993.1996 1997-2000 Resource balance -41.8 41.2 -53.2 Exports oGNFS 116.2 131.1 174.2 Imports of GNFS 158o 172.3 227.4 Net factor paynents 65 -5.7 45.0 Private tansfers 26.1 28.6 36.1 Cumunt account balance -22.2 -1113 -22.1 Captal aount Net dect foreign Investment 26.5 20.1 23.7 Offlicl grants 2.3 3.0 0.0 Pubkc captal 6.3 0.4 5.7 DIsbureent 10.2 6.8 11.7 Amonxtlatlon 3.9 6.4 6.0 Other, capital neL -61 .1.1 0.0 Changes In rewrves (4 - Increase 68 4.1 -7.3 MEMORANDUM ITEMS: Total debt (USS uvion) 109.2 92.4 106.0 Total debtO/GP 50.5 39.5 35.5 Debt service (US$S mon) 5.6 9.2 9.5 Debt servlke/XGSb 4.7 6,9 5.3 Debt sevioe/GDP 2.6 4.0 3.2 Debt servi/governent revenues 3.5 5.2 4.2 IntefetEGDP 0.8 1.2 1.2 a. Tota nmay not add due to roundIg. b. Expos of goods seies and net prvate transfer. Source: CDB. SAP. These surpluses should be used for counterpart higher levels of direct foreign investment which would financing for donor-financed projects under the PSIP. guarantee much stronger future growth. In other Government investment is, thus, projected to expand words, it assumes that the result of the SAP on the in order to support new domestic and foreign private economy will be much stronger than was evident in investment (see Table 9.1). 1993. Expenditure is projected to be dampened due to the The improved pdicy environment is projected to lead implementaton of the SAP and wif result in lowering to higher export and import growth (see Table 9.2). the current deficit on the extemal account from 10 As a restut the current account balance wiU remain, percent of GDP in 1992 to about 8 percent in 2000. on average, constant throughout 1994-2000 at about As a result of better savings in the public sector, a 6.5 percent of GDP. Ths, coupled with the refomms return of confidence in the private sector and introduced under the SAP, will induce increased direct increased competitiveness, both domestc and foreign investment nabonal savings are projected to expand gradually. Under the above scenario, yiving standards would Debt outstanding is forecasted to declne under this improve and employment opportunites would scenario after 1996, unlike the base scenario where expand. debt increased continuously until 2000 (see Table 9.4). Ahemadw Scenario The altematve scenario takes into account similar assumpbons to the base scenario but also 72 9 GRENADA: KEY ISSUES AND POLICIES Table 9.4: Grenada - Altemative 'tase Balance Of Payments, 1992-2000 (US$ million) Itrn Priminan Pkcted 1992 1993-96 1997-2000 Reaoux bance -418 41.3 49.6 Exp of GNPS 116.2 131.2 175.9 Inports of GNfS 1 so 172.5 225.5 Netf bctor payments 65 *SA .45 PfiSate tranlem 26.1 28.6 36.1 Cunent aoount balce -22.2 -1&4 -18O C apcicowunt NaM dIir foreign kwsbrment 26.5 20.1 25.1 Offida gunts 2.3 3.8 2.3 PKbc caot 6.3 .3 *1.5 DIbursenents 10.2 6.1 4.6 Amnotatlon 3.9 6.4 6.0 Odrcapitahe nel. 4L1 -1.1 0.0 Chane In resers (4 - Increme 48 4.1 -7.9 AEMORANDUM rTEMS: Tota debt (USS milon) 109.2 91.9 86.2 Tota debt$XD 50.S 39.3 29.4 DObt wvke (USS nSlon) 5.6 9.3 9.0 DetW ivkefVcGS b 4.7 6.9 5.0 Debt senk4cZP 2.6 4.0 3.0 Debt* swv .*.emnw. revxes 3.5 5.2 40 InterestMDP 0.8 1.2 1.0 a. Totas may not add due to munring b. Exports d goock sercs and net prvate tramdene Sowe CDB& 73 10 Montserrat 2= m = =R | >4n l X = = , | | |-~~ ~ ~~~~~~~~~~~~~ . ........... _ ; ...........*...*.*. y....'.........*................................... ..R.. ..... Monsera dpens eail ontorim s ts ai8 u ffdec inO# foode~I p trd c tLEpnion of the k4sortearin setor.Te structure of this scwetris domesbc uagristural seto is,~ thereoe,conidere natnnsbitb Nrhnrcn n Brtish forw dvlpethfcsi greaterf diewrsif icto of th 'nesmntora retire ent 2orn Spr earning torisn seto byg dev.elpngeso40ris and gv ,rornthesecrto d aepbend heaiahly ontstasl intse mansuffincieasncy In foodiproduction. EpnIon ofe treao due to the high rate of repeat visitors and the long mnanufacturing, the GOM intends to continue -average length of stay (varying fromn six weeks to six encouraging lG8ht manufacturing, pursue a mnore m-.onths). proactive investmnent promnotion strategy, and support the developmnent of small businesses. The GOM, in In 1992, stopover visitor arrvals were estimated at collaboration with the British Governmnent, is also 18,650, a 3 percent increase over arrivals in 1991. presently conducting a strategic review of the Since the hurrcane of 1989, the tourism sector has economy with a view to defiring an appropriate suffered a downturrr with total visitor anivals dedining development strategy covering tourism, export fromn 30,300 in 1988 to an estimated 19,596 in 1992. manufacturing and agriculture. Several factors have restiiced yrowth of the sector. In particular, a large number of apartments and villas were destroyed by the hurricane. Extensive hurricane MaJor Econiomi' ISSUes damage to the marine port facilities also halted cruise ship visitors whicd, in 1988, accounted for 10,206 or Low Domestc Savings and Economi Vlnr ability 34 percent of total anivals. The main economic concem is the low level of The broad development thrust of the Government of domestic savings~, estimated at 7.5 percent of GDP in Montserrat (GOM) emphasizes the attainment of self. 1992. This is reflected in the persistent external sustaining growth in the quality of life of the current account deficit, estimated at 30 percent of population over the medium to long run. Consistent GDP at markcet prices in 1 99Z and strong with this overaii aim, the GOM has identified several dependence on official aid to finance the economy's distinct objectives to be pursued in the medium term. import requiremnents. Recent data show a The GOM acknovvledges that the prhvate sector, as deterioration in net public sector savings, and a low the main engine of growth in the economy, is intent level of private investment. on fadilitating increased investment, especially in export activities. A second strand of GOM's Historical data over the past ten years show that development objectives is the pursuit of self- financing of economnic growth is largely sourced from 75 ECONOMIC POLICIES FOR TRANSMON extenal grant aid which is channeled through Consideration should be given to reduang the level govemrnment construction projects. Incications are and dispersion of tarffs rates, while preserving tax that the exisbng primacy of the public sector in the buoyancy. The study also recommended an overal structure of the economy increases the examfination of the extent of revenue losses arising vulnerability of the econormy to extemal shodcks by from duty-free concessions and based on attracting lbor from private sector activites. Within discretionary waivers. the past three years, this has been intensified due, in part, to the hurricane reconstruction efforts. In the Tourism Development and Epott Desifkation context of a small labor force, this has contributed to economywide upward pressures on wages, higher To fadlitate a more sustained growth path for the inflatiorn, and reduced corpetitiveness of the tourism economy, there is need for greater diversification of sector. In order to sustain a more viable growth path, the export sector. In this regard, the need for an there is an urgent need to restrain private active strategy to attract foreign investment is viewed consumption, which averaged 89 percent of GDP as aitical. This is particaiafy important in view of the over the past five years, and increase domestic present recession in the United Kingdom and the savirngs. resultng uncertainty that past levels of offidal aid are sustainable in the future. Fisal Adutmerts and Public Sector Reform Diversificaton of exports into tourism and other The government has become a significant employer in services stems from a perspective of what is the econormy. This occurred as GOM sought to sustainable in a small, open economy such as rehabilitate the basic economic and sodal Montserrat in the context of rapid global attenbon to infrastructure foAowing hurrcane Hugo. Despite intemabonal price competitiveness in production and relatively small fiscal surpluses in the past, these have trade, and the increased acceptance in the Caribbean been inadequate to coiplenent the largely extemally and in Latn America of the efficacy of a more market financed PSIP. The pace of the PSIP has consequently driven economic policy framework. been undermined, with, for example, only half of targeted development expendtures achieved in 1992. The scope for agricultural exports is considered to be In recognition of the unsustainable growth of the limited due to the combination of small size and public sector, and the need for greater fiscal savings, generally steep topography which severely limits GOM has expressed a commitment to redudng the economies of scale in such activities. size and costs of the public sector wage bil from 60 percent of total recurrent expenditure in 1992 to 50 Production of fight manufactures, which has been a percent over a five year period Ths is expected to feature in Montserrat in the past, continues to serve provide greater scope for the PSIP through increased an irnportant role in the economy. In the long run, domesbc counterpart finance, while also making more however, the attraciveness of Montserrat in terms of labor available for private sector activibes. unit labor costs and technical skids cannot be guaranteed in view of regional and hemispheric Notwithstanding the need for expenditure restraint trends. Greater comparative advantage exists In other indications are that weak fiscal operabons have Caribbean and Labin American countries in the resulted from significant revenue losses. A joint production of commodity exports than is achievable ECCB/CDB/OECS study of the economic situation in in Montserrat Montserrat in 1992 highighted several weaknesses in the tax regime which require attention. The study The promoton of an upqmarket ecotourism product found that, compared with other OECS countries, the therefore, should be a centerpiece of the revenue base in Montserrat was too narrow to development strategy of Montserrat in the medium to maintain tax buoyancy, and that recent reductions or long run. This does not predude diversification in exemptons on personal income taxes have further other services such as data entry, finance, or aggravated revenue losses. A reform of the indirect commodty exports where niche markets or trade tax structure was recommended to accompany arrangements allow temporary trade advantages, for current plans to Implement the CARICOM CET. example, within CARICOM. 76 10 MONTSERRAT: KEY ISSUES AND POLICIES The long run economic development of Montserrat and alignment of the airport runway. This severely hinges on maintaining a competitive export sector. In constrains aircraft access, and has restricted airport the context of a fixed exchange rate regime and a operations to daylight hours. The inadequacies of the relatively open economy, external competitiveness airport have also prevented direct access to the island depends largely upon changes in domestic inflation. from the major tourism markets. Airline passengers In particular, wage restraint is citical to controlling have to be routed through Antigua with the attendant domestic inflation.. logistical difficulties. The potential for export of goods has also been limited, with exports having to be GOM's program of import substitution contains transhipped via Antigua at additional costs to the several elements which conflict with the goal of producers. Upgrading of the airport would be a sustainable exportled development The import significant boost to opening up investment regime is restrictive with import duties ranging from 5- opportunities and development in the tourism sector. 45 percent In addition, an 8 percent customs service charge is levied on all imports. Further, all imports are Medium-Tenn Economic Prospects subjected to ad valorem consumption taxes ranging from 5-45 percent The consumption tax range in Prospects for the economy are largely contingent Montserrat is higher than most other members of the upon the pace of further recovery and diversification OECS. It is exceeded only by Antigua and Barbuda of the tourism sector, and GOM's access to official aid with a range from 10 percent to 50 percent. Of the and other extemal finandng to maintain adequate eight ECCB member countries (inducing Anguilla), social and economic infrastructure. Two scenarios are four require no customs service charges, while the therefore presented, both of which assume that others require a maximum of 2.5 percent Since Montserrat will remain a member of the ECCB and 1984, there has been a progressive increase in the CARICOM. Fiscal recurrent expenditure is therefore number of imported items subjected to import assumed to be limited by recurrent revenues, with no licenses and restrictions with the list of import licenses significant monetization of deficits. The gradual presently totalling 21 and covering agricultural reduction of import tariffs to maximum rates of 20 produce and some processed foods. percent by 1997 by member countries of CARICOM is also assumed. There are early signs that GOM's import substitution policy is generating unsustainable wage and price In the high growth scenario, shown in Tables 10.1 and pressures. Indccations are that growth of farmgate 10.3, the recent dedine in the economy is projected prices has accelerated over the past two years, to be reversed in 1994. Economic growth projections averaging around 25 percent or much faster than the for the medium term reflect further recovery and 6 percent average increase in the consumer price expansion of the tourism sector, coupled with steady index (50 percent of which comprises imported investment in public infrastructure. Growth is also goods). Partly as a result of the restricted import expected to be enhanced by increased agricultural alternatives, domestic crop production increased by activities under GOM's program to develop that 42 percent in 1991 and an estimated 38 percent in sector. Tourism expansion and diversification will be 1992. Despite the surge in food production, food mainly financed by foreign private capital, while the exports remained virtually unchanged at US$1.0 pace of public sector investment is expected to be rnillion over the 1991-1992 period. With further maintained from continued access to offidal aid and increases in import restridcions envisaged to protect concessionary external loan finandng. domestic production, economy-wide upward pressures on wages and prices are likely to increase. In the low growth scenario, shown in Tables 10.2 and These will ultimately undermine extemal 10.4, tourism activity is assumed to be stymied by competiiveness, and the scope for export expansion. continued weak institutional support and marketing, reduced foreign private investment in new hotels, and Economic Infrastructure slowdown in extemal offidal aid flows. A significant deterrent to the development of the export sector in Montserrat has been the small size 77 ECONOMIC POLICIES FOR TRANSITION he High Growth Scenario With the projected growth in tourism activity, growth in exports of goods and non4actor services is In the high growth scenario, overall GDP is projected projeced to average 9 percent over the period 1993- to improve from 3 percent in 1994 to a high of 6 1998,tapetingoffto7percentin2000. This pattern percent in 1998, with subsequent slowdown to 4 of growth is assumed to reflect the pace of investment percent in 2000. The main impetus for this growth in tourism over the review perodL and the attainment pattern wil derrve from tourism and related activities of environmentally sustainable Uimits to developments in construction and utilities, which combined are in order to preserve the pristine attraciveness of the expected to grow by around 7 percent per annum island. With increased economic activity, imports of over the period 1993-2000. Agricultural activity is goods and non-factor services are also expected to expected to show growth of 4-5 percent between show parallel movements, albeit at a slower pace as 1993 and 1998, tapering steacily thereafter to 1 local agricultural production displaces some food percent growth in 2000. imports. The pace of expansion in tourism is expected to The projected rise in exports of goods and nonfactor reflect the realizabon of current plans for two new services is expected to contribute significandy to a resort complexes. Construction of at least one, a 70 gradual reducbon of the extemal current account vifla resort at Bamesby Point, is expected to begin in deficit from US$14.5 million in 1993 to US$11 million 1994. Tourism is also expected to be boosted by a in 2000. Net capital inflows are therefore expected to more aggressive manketing of the destination through rise from US$15 million in 1993 to a peak level of the newly formed tourism board comprising both US$18 million in 1997, and thereafter slowing to public and private sector interests. Indicabons are US$13 million in 2000. that present problems of limited air access to the island are being addressed through introduction of air Despite an antidpated steady improvement in the services by a local airline. Advanced negotiations for extemal resource gap, the economy wil continue to financing of a proposed airport expansion project are depend upon external borrowings. Net long term also currently underway and it is expected that air loans is projected to rise from US$2.0 million in 1993 access problems should be resolved in the medium to a peak of US$6 million in 1997. Thereafter this is term( Cruise ship visitor arrivals, which fell significantly assumed to fall steadily to US$2.5 miilion in 2000. following the hurricane in 1989, have also resumed, Montserrat has benefitted in the past from with two cruiselines commencing calls from late 1993. concessionary terms on debt accumulation. As a result debt servidng has remained at manageable Real GDP growth reflects the pace of both public and levels. In 1993, debt service was 1 percent of gross private investment which combined are projected to exports of goods, non-factor services and net private be maintained at 35-40 percent over the period 1993- transfers, and 1 percent of estimated recurrent 2000. Finandng is projected to be derived mainly revenues of GOM. Over the period 1993-2000, debt from increases in the savings ratio from 6.5 percent in service payments are expected to rise to peak level at 1993 to 17 percent in 2000. This would be about 5 percent of gross exports of goods, non-factor supplernented by net foreign private capital, offidal services and net private transfers, and about 4 percent grants and external borrowings. Long term capital of GOM's recurrent revenues in 2000. The external inflows are projected to increase from 11 percent of debt burden is expected to remain manageable in the GDP in 1993 to a peak level of 13 percent in 1996, review period assuming further tounrsm4ed growth in thereafter faUing steadily to 3 percent in 2000. The the economy. tapering off of long term capital investment towards the end of the review period is reflective of sustained growth in domestic savings to match growth in investment demand. Offidal capital inflows are assumed to be rise steadily from US$4 million in 1993 to peak levels of US$6 million in 1997, thereafter dedining to US$5 milGon in 2000. 78 10 MONTSERRAT: KEY ISSUES AND POLICIES Table 10.1: Monterrat - High Growth Case Macroeconomic Indicators, 1992-2000 Iem PJrejrrnary Proieci 1993 1993}1996 1997-2000 a growth ras Gross domestc product -2.0 3.0 5.0 Consumption -0.7 0.4 3.6 Pubic 4.0 3.3 4.0 Pivate -2.1 4,5 3.1 Rxed domestic inestment .16.7 2.9 2.5 Exports of GNFS 9.0 A7 7.7 Imports of GNFS -3.7 2.3 40 _r o( GDPF Domestic savings 6.5 12.3 17.4 Natnx savings 1.2 24.4 29.7 Consumption 93.7 87.8 80.8 FRxed domestk invesment 35.0 38.3 37.5 ENpDt soGNFS 37.2 36.5 42.3 InVo dof GNFS 64.8 63.3 61.4 a. Projectns based on corsant 1991 pri Source: CDB. Table 10.2: Montserrat - Low Growth Case Macroeconomic Indicators, 1992-2002 Prelminar Pro'ectd Item 1993 1993}1996 1997-2000 -r----- 4eel growth rtes Grss domestk product -2.0 1.5 2.5 Consumption 9.9 1.4 1.6 Pubic 4.0 3.3 3.3 P8vate 11.7 0.9 1.0 Fixed domestic Investment .40.5 1.3 4.1 ExpoI do GNFS 4.8 5.0 5.3 Importso(GNFS -5.7 0.8 1.7 -share of GCDPa Domtstic uvings -3.6 2.2 6.7 Natinor savings a 1 13.6 14.3 Consumption 103.8 97.8 89.7 Pubic 22.2 22.3 22.9 Piivate 81.6 75.5 66.7 Fcxed domestic Invesbtent 25.0 30.0 32.5 ExpotsofGNFS 36.7 36.1 39.2 Impots of GNFS 65.5 62.6 61.9 a. Constant prks Source: CD6. 79 ECONOMIC POLICES FOR TRANSMTION The Low Gowth Scenarlo are projected to rise steadily from 11 percent of GDP in 1993 to 18.6 percent in 2000. Offidal capital The low growth scenario is based on slow pace of grants are assumed to remain at comparable levels to expansion in tourism, increased incentives to the high growth scenario to 1995, but it is assumed development of domestic agrculture inducing non- that they will be reduced in the long run. tariff barriers to imports, and slow-down in inflows of offidal and private capital. The reduced growth of domestic savings wig increase reliance on external borrowings. Thus, the current GOM's enhanced toursm thrust is expected to derive account deficdt is expected to increase from US$14.5 largely from aggressive marketing through the newly million in 1993 to US$20 million in 2000. With offidal formed toursm board GOM's finandal commitment grants expected to contract in the long run, and to this entity is, however, expected to be significant in foreign investment in tourism stymied by the meddium tern, and wil compete with resources uncompetitive domestic prices and policy support, aimed at developing the domestic agriculture sector external borrowings are expected to increase from under GOM's Food Self-Sufficiency Program. This US$2 million in 1993 to US$10 million in 2000. As a scenario assumes that lack of adequate commitment result total external debt service as a proportion of to tourism promotion and marketing will undermine gross export of goods and non-factor services is the export earning capadty of the economy in the expected to increase from 1 percent in 1993 to 8 medium to long run. percent in 2000. The rise in debt service ratios reflect increased pressure on GOM to provide resources for Indications are that increased nontariff barriers to maintenance of public infrastructure and provision of food imports have contuibuted to price increases, and public services. It also constrains GOM's ability to it is assumned that conbinuabon of this in the medium maintain the pace of public sector investment and term wiU further aggravate domestic price inflabon. employment Under such a scenario, external compettiveness of tourism is expected to be steadily undermined, Sustainability of growth is dependent upon the extent leading to weak overall export performance, and to which competitiveness in tourism can be lowerng of GOM's recurrent revenues (derived maintained, and continued access by GOM to official mainly from import taxes), and contraction of aid to maintain the required pace of public domestic demand Within this context extemal investment Prospects are also contingent upon the private capital is expected to contract and the ability minrimization of policyinduced distortions which fuel of GOM to secure external loan finandng for inflation in the tourism sector. In particular, dose infrastructure wil be jeopardized by weak counterpart monitoring is required of public sector wages, as well financing. In short, economic prospects are expected as import substitution measures which fuel inflabon. to deteriorate in the absence of a demonstrable policy emphasis on tourism development Long run growth prospects are also contingent upon a reform of GOM's indirect tax structure in order to In the absence of enhanced policy support for increase revenue collection, and remove distortions. tourism,, the leading export sector, real GDP is This reform should focus on repladng the projected to grow by 2-3 percent over the period consumption tax on imports with one that does not 1993-2002. This will be reflective of slower growth (3- disaiminate against the tradeable sector. 4 percent) in the combined tourism, construction and Consideraton should also be given to redudcng the utlities sector. Agriculture is expected to maintain its customs service tax of 8 percent to a level average growth of 4-5 percent over the period 1993- comparable with that in other OECS countries. The 1998, falling to 1 percent in 2000. elimination of import licensing and price controls on imports is urgendy required to limit domestic Slower growth of the economy reflects a lower rate of production ineffidendes and monopoly behavior by domesbc investment ranging from 25-35 percent of importers. In sum, favorable growth prospects for GDP over dte period 1993-2000. Finandng of this Montserrat rest upon an early reversal of recent investement is projected to originate pardy from dedines in tourism, and sustained efforts to promote domestc savings. The main source of investment and develop this sector. finandng wiU be extemal. Long- term capital inflows 80 1 0 MONTSERRAT: KEY ISSUES AND POLICIES Table 10.3: Monserrat- High Growlh Case Balance of Paymens, 1992-2000 a (US$ million) Item Pneliminarv Proiected 1993 1993-1996 1997-2000 Resource balance -17.9 -17.9 .19.6 Export of GNFS 23.1 28.2 43.7 Imports of GNFS 41.0 46.1 63.3 Net factor payrments -2.7 .3.0 -3.6 od vwkc Interest on pubic debt 0.1 0.4 1.1 Prlvate transfes 6.1 5.9 10.3 Cunent account baLance .14.5 .15.0 -13.0 Capital acount Net cdrect foreign Investment 5.2 4.7 5.8 OffiWa grants 4.0 S.5 5.3 Public capital 2.0 4.8 4.0 Dkbursements 2.1 5.0 4.8 Amortzation 0.1 0.2 0.8 Other capital nmeL 3.8 1.0 0.0 Changes in reserves (4 Increase 40.5 -1.0 -2.1 MEMORANDUM ITEMS: Total debt (USS mnlon) 6.2 14.8 35.6 Total debt/GDP 9.5 19.6 34.5 Debt service (USS mkon) 0.2 0.6 2.0 Debt arcepGS - 0.9 2.1 4.5 Debt servke/GDP 0.3 0.8 2.0 Debt service/governwent revenu 0.5 1.3 3.2 Inteat]GDP 0.1 0.5 1.2 a. Totab may not add due to rounding, b. Export of goodr serices and net pdvate transfes n.eL - not ekewhere Icluded Source: CDB Table 10.4: Monberrat- Low Growth Case Balance of Payments, 1988-2000' (US$ million) Item Preminany Priected 1993 1993-1996 1997-2000 Resource balance -17.9 -1 88 -20.5 Exportsd GNFS 23.1 25.7 35.8 Imports of GNFS 41.0 44.5 563 Net factor payments -2.7 -3.0 -3.9 of whNd Interet on pubic debt 0.1 0.4 1.5 Pdvate transfen 61 5.7 5.0 Cumnt account balanlce -14.5 16.1 .19.4 Capltal account Net drect foreign Investment 5.0 5.5 6.9 Offcil grants 4.0 5.0 3.3 Pubic capital 2.1 5.5 10.6 Disbusements 2.3 5.8 11.4 Amotisatlon 0.1 0.2 0.8 Other capitaL nre.i 0.0 1.0 0.2 Changes In eserves ( Increm 40.5 0.9 -1.6 MEMORANDUM ITEMS: Total debt (USS milion) 6.3 15.4 53.2 Tot debt/GDP 9.8 21.1 57.9 Debt service (USS milron) 0.2 0.6 2.4 Debt service/XGSb 0.9 2.3 6.2 Debt service/GDP 0.3 0.9 2.5 Debt servkce/government revenues 0.5 1.4 4.1 Interest/GDP 0.1 0.6 1.7 a. Totak may not add due to founcing, b. Exports of goods, services and net pdvate transfes Souce: CDB. 81 1 1 St. Kitts and Nevis ........... . . ............. ................ .......... ........................................................................ Major Macroeconomic Issues reduction in the number of import dutV exemptions would raise custom duty collections. Fiscal Policy and Debt The need for continued adherence to The main task facing the Government of St. Kitts expenditure restraint also needs to be stressed in and Nevis (GOSKN) is to generate increased light of the tight fiscal situation and program public savings by maintaining fiscal restraint and capital expenditures in both St. Kitts and Nevis. In improving recurrent revenue performance. Suth pareicular, measures to restrain growth in the savings are needed to help finance the capital domestic wage bill should be considered strongly. imestment program and reduce the need for borrowing. Public savings are particularly critical Recent indicai ons are that GOSKN's domestic during the early part of 1994-1996 as GOSKN debt began to dedine in 1993. However, based faces both a bunching of loanfinanced capital on the proposed PSIP, external debt levels are projects which require counterpart funding and expected to rise, offsettbng this decline. Although pressure on the recurrent account due the this debt is likely to be of a concessionary nature, September 1993 granting of a 15K20 percent GOSKN needs to carefully monitor the debt public sector salary inaease, retroactive to May service implications of such finandng, as its 1993. expenditure activities, induding the provision of counterpart funds for investment projects, are In this context there is a dear need to enhance likely to be constrained by such obligations. revenue performance. Recurrent revenues as a percentage of GDP have fallen from over 24 Govemment Priorities percent in 1989 and 1990 to 22 percent in 1992, and the tax effort has dropped to 19 percent of The economy of St Kitts and Nevis is grewing GDP compared with over 20 percent in 1988 and rapidly. Issues relating to the size and 1989. A review of the existing level of tax composition of the work force need to be exemptions and the current propert c tax, as well carefully integrated into the developbent policy as a broadening of the tax base and continued framework. The preparation of the PSIP has administrative improvements, should enable tended to be haphazard and no core projects GOSKN to raise the tax effort. In addition, a have been identified. Projects are consequents y often thosen on the basis of funbing availability, 83 ECONOMIC POLICIES FOR TRANSMON rather than on the basis of integrated At present production levels of 20,500 tonnes, development objectives. In this context, the industry is just about breaking even. institutional strengthening of the Planning Units However, it is estimated that about 28,000- in St Kitts and Nevis, and the 30,000 tonnes are needed per year if the industry identification of a deady defined role for them, is to remain viable. Substantial new investment, will be a priority task for the government. particularly in improving the transport system, is needed in order to ensure increased production. Human Resource Development St. Kitts and Nevis currently benefits from Although the total population of St Kitts and preferential trading arrangements with both the Nevis has been dedining over the past five years, U.S. and EU. The Federation has a small export demand for labor has been rising in line with the quota with the U.S., but relies principally on development of the tourism sector. Reliable data exports to the EU under the Sugar Protocol to the on the labor force and employment are not Lome Agreement However, the worldwide available. However, indications are that labor move to freer trade is expected to result in lower and skills shortages have emerged. The seasonal prices for sugar. In all, the industry faces an importation of sugarcane cutters has eased the uncertain future. Should GOSKN fail in its efforts problem in the sugar sector, but the government to privatize the industry, it is likely to be left still faces the challenge of overcoming skilled overseeing a slow dedine in the industry. labor shortages in the manufacturing and tourism sectors. In addition, the increase in both public Non-Sugar Agriculture and private construction activity scheduled for 1993-1994 is expected to lead to further Diversification of the agricultural sector is an inaeases in the demand for labor and in wage important element in the government's overall pressures wNih could adversely affect the development strategy. A program supported by operations of the endave manufacturing sector. the United Nations Development Program, the If this is to be avoided, the govemment will have Food and Agriculture Organization and the to adopt a judicious approach to wage policy. In World Bank is already under way to encourage addition, enhancing the educational and skills non-sugar agriculture, and this has begun to level of the population should be seen as a address the issues of land distribution, land priority in order to satisfy the demands of a tenure and institutional support. There are now growing tourism and services sector. an estimated 20 full-time commerdal farmers with an average age of 30, which bodes well for Sugar the long-term future of the non-sugar agricultural sector. The sector has potential for further The cultivation and processing of sugarcane has diversification and rapid growth, espedally in the traditionally dominated the economy of St. Kitts production of vegetables and fruits to meet and Nevis. This dominance has been steadily demand by hotels. Many hotels have already eroded over the last decade, with tourism and established contracts with several growers to export-orientated manufacturing assuming a ensure adequate supply. As production expands, larger role. Sugarcane cultivation accounted for it should be possible to begin exporting on a 9.5 percent of real GDP in 1981, while sugar regular basis to neighboring countries. It is, processing accounted for 8 percent. This therefore, undertaking the preparation of a new contribution had fallen to 3.5 percent and 3 Development Plan and reformulating its medium- percent in 1991, respectively. However, the term economic strategy. The government plans sector remains important to the economy - sugar to speedily implement its revised policy agenda exports still account for about 45 percent of to place the economy of St. Kitts and Nevis on an merchandise export eamings and the industry alternative growth path. An alternative scenario provides approximately 2,500 jobs - and its is detailed below. future performance will have a significant impact on the medium-term development of St. Kitts and Nevis. 84 11 ST. KlTTS AND NEVIS: KEY ISSUES AND POLICIES Tourism Development the sugar export price during 1994-1996. In view of these developments, the' base case scenario Tourism has grown rapidly over the past five projects an economic outlook with a relatively years and has emerged as the dominant sector in low GDP growth rate of about 2 percent per SKN. The sector receives considerable year. govemment support, prindpally in the form of investment incentives, and further growth is The government recognizes that the country's envisaged as new private sector hotels are growth prospects are highly dependent on: (i) the constructed, and the cruise ship industry expands. guaranteed markets for its exports of sugar in the GOSKN is already considering investments to EU and the U.S.; (ii) the preferential market improve air and sea ports so as to upgrade the access under CBI of garments and other small facility for receiving passengers and has plans to manufacturers to the U.S.; (iii) the develop a large cruise ship berthing facility in implementation of the government's economic Basseterre. Such investments will enhance policy agenda and the degree of success of tourism development and provide a boost to the accelerating economic diversification; and construction industry, but are also likely to (iv) economic developments in major markets. 17 exacerbate skilled labor shortages and put pressure on the environment. To assist in this transition, the EU is to provide support for the economic diversification projects GOSKN's policy and investment strategy in the during 1994-96, with the understanding that St. sector will thus need to be sensitive to existing Kitts and Nevis and other OECS countries would human resource constraints and environmental achieve significant economic diversification by issues, and concem itself with establishing the 1996. In view of these factors, two scenarios are optimum size of the tourism industry. At present presented below. SKN, and particularly Nevis, has concentrated on developing the luxury tourism market. Despite its Base Case (Low Growth) Scenario lack of white sandy beaches in comparison with other islands in the Caribbean, SKN has been The base case scenario considers: (i) the recent able to play on its relative underdevelopment, developments in the external environment quiet, friendly welcome, and scenic beauty to mentioned above; and (ii) the current policies attract visitors. and programs of the government. Medium-Term Economic Prospecb Under the Sugar Protocol, St. Kitts and Nevis will continue to have access to the EU sugar markets Projections of real GDP growth in St. Kitts and until 2000. The projections are based on the Nevis reflect the projected growth in tourism, assumption of sugar export prices in real terms dedine in the sugar industry, continued gains in would drop beginning in 1994. In addition, if non-sugar agricultural output, and slow but government fiscal operations remain weak in steady growth in the non-sugar manufacturing 1993-94 as a consequence of the recent wage sector. Private net foreign investment is assumed award of 15-20 percent to the civil service, to finance developments in tourism, but compensatory revenue measures are not government borrowing to support supporting introduced, and negligible improvements take infrastructure requirements will also be necessary. place in the incentive framework, international Under the Sugar Protocol, SKN has access to the 17 Projections for real growth in the G-7 countries (i.e., Canada, EU market for its exports. But recent agricultural France, Germany, Italy, Japan, United Kingdom, and the US) show a moderate -slowing down in the 1990s, from 3.3% per liberalization resulting from the 1993 Uruguay year on average in 1985-1992 to 2.5% during 1993-2000. Round negotiations will lead to a tariffication of Inflation, in US dollars is projected to average 3.2% per year. EU and U.S. quotas. Also, recent price None of these trends would pose a serious constraint to the from increased sugar country's growth. Other potentially more serious constraints developments, arising rrom Increasea sugar which could result from noneconomic factors such as adverse production in the wodd, might result in a fall of weather conditions, which of course cannot be predicted, are thus not induded in the projections. 85 ECONOMIC POLICIES FOR TRANSITION Table 11.1: Base Case -Actual and Projected Macroeconomic Indicators,. 1992-2000 ' Prefiminarv Proiected 1992 1993-96 1997-2000 -cal growth rates- Gross domesct product 3.0 2.1 2.5 Gross domestic income 3.2 2.0 2.3 Consumption 8.3 1.9 2.5 Public 5.2 2.9 3.2 Private 9.4 1.6 2.3 Gross fixed investment 10.3 3.8 3.0 Exports of GNFS 2.4 2.4 2.3 Imports of GNFS 3.1 2.7 2.6 -hares of GDP Central govemment savings 0.6 4.1 -2.2 Domesticsavings 10.5 11.4 10.0 National savings 12.7 14.8 14.1 Consumpdon 89.5 88.5 89.4 Gross fixed investment 24.3 25.4 26.3 Exports of GNFS 59.7 60.6 60.0 Imports of GNFS 73.5 74.5 75.6 Projections based on constant prices. Source: Statistical Appendix Table 11.2: AlMterave Case - Actual and Projected Macroeconomic Indiators, 1992-2000 Preliminar Prolected 1992 1993-96 1997-2000 real growth rates Gross domestc product 3.0 3.5 5.0 Gross domestic income 3.2 3.5 4.8 Consumption 8.3 3.1 3.9 Public 5.2 2.9 3.2 Private 9.4 3.1 4.2 Gross fixed investment 10.3 5.8 7.4 Exports of GNFS 2.4 4.6 5.3 Imports of GNFS 3.1 4.5 4.9 shares of GDP Domestic savings 10.5 11.9 13.5 National savings 12.7 15.4 18.0 Consumpdon 89.5 88.0 85.8 Gross fixed investment 24.3 25.8 28.3 Exports of GNFS 59.7 61.6 62.4 Imports of GNFS 73.5 75.3 76.5 ' Projectons based on constant prices. Source: Statistical Appendix. 86 11 ST. KITTS AND NEVIS: KEY ISSUES AND POLICIES competitiveness will dedine. Therefore, the response to extemal developments, the central govemment's current account is projected government should rapidly implement its to be in deficit over the medium-term. Similarly, economic reform agenda, particularly in the areas if regulatory and trade reforms fail to materialize, of: (i) fiscal adjustment, induding maintenance of private sector investment would not come a tight wage policy and implementing revenue forward to the degree necessary to achieve the enhancing fiscal measures to generate additional growth rates induded in these projections. If public savings to undertake investments in such events were to occur, the economic outlook infrastructure and human resource development for St Kitts and Nevis would be one of low in support of private sector investments; (ii) trade growth, of about 2 percent per year. liberalization, and improving further the incentive framework and regulatory environment to Under such a scenario of slowdown in economic increase economic efficiency, enhance growth, the standard of living would only improve intemational competitiveness, and attract private slowly. The economic environment would be less investment in all sectors; and (iii) economic conducive for significant private sector diversification, in particular up-market tourism, expansion. and informatics. Under these assumptions, and barring any other unforeseen extemal event, real Import growth would slow down. The current GDP is projected to grow between 4-5 percent account defidt of the balance of payments is per year during 1993-96 as a result of growth in projected to remain at 1992 levels of US$22 nontraditional agriculture, manufacturing, and million during 1993-96, and thereafter rapidly tourism and other service sectors. increase to US$33 million during 1997-2000. Debt service as a proportion of exports of goods On the basis of the timely implementation of the and services. Uving standards would rise from above mentioned policies, investment is projected about 3 percent in 1992 to about 4 percent in to increase from about 24 percent of GDP of 1992 the year 2000. to about 26-28 percent of GDP during 1993-2000. This ratio reflects some increase in pubic The govemment is committed to re-orienting the infrastructure agroprocessing, manufacturing, economy away from the adverse impact of the tourism, and other services. An appropriate above scenario. It is, therefore, undertaking the economic policy environment would allow an preparation of a new Development Plant and increase in foreign investment in excess of 30 reformulating its medium-term economic percent between 1993 and 2000. Domestic savings strategy. The govemment plans to speedily are projected to increase from 10 percent of GDP in implement its revised policy agenda to place the 1992 to about 14 percent during the late-1990s as economy of St. Kitts and Nevis on a higher rising per capita incomes wig lead to increased growth path propelled by private investment. An domestic resource mobilization. The central alternative scenario is detailed below. government's revenue enhancing measures - elimination of duty exemptions, broadening of the Altemative (High-Growth) Scenano property tax base, and improvements in tax administration - coupled with continuing wage An altemative scenario takes into account the 10 restraint, are projected to yield current surpluses of percent drop in sugar prices beginning 1994 and about 3-5 percent of GDP during the rest of 1990s. that the terms of trade would be unfavorable during the rest of the 1990s. However, St. Kitts Real exports of goods and nonfactor services are and Nevis continues to have access to the projected to grow at about 5 percent per year on preferential markets in the U.S. and the EU for average during 1993-2000, as small manufacturing sugar exports. St. Kitts is currently a relatively non.sugar agriculture, tourism and other rvices low cost sugar producer. It needs to maintain continue to increase. As real GDP grows at a costs at least at current levels in order to sustainable 4-5 percent per year, real import growth compete in the changing world environment. In is projected to be about 5 percent per year on 87 ECONOMIC POLICIES FOR TRANSITION average during 1993-2000. As a result of these developments, the current account defidt of the balance of payments is projected to decrease from 12 percent of GDP in 1992, to about 10 percent of GDP by 1996, and to 9 percent of GDP by the year 2001. To cover this defidt; the govemment projects that St. Kitts and Nevis will attract its finandng requirements on reasonable terms from bilateral and multilateral sources. The increasingly uncertain extemal environment would require some extemal borrowing on commerdal terms and increased domestic resource mobilization for St. Kitts and Nevis to rapidly adapt to the changing world. Reserves, equivalent to about 2-3 months of imports, are projected to be gradually built up during 1993-2000. The PSIP is concentrated on large infrastructure projects geared to support toursm expansion, agricultural diversification and human resource development Therefore, the ratio of total external debt to GDP is projected to be between 24-28 percent of GDP during 1993-2000. Debt service levels are projected to remain manageable during this period, amounting to about 3 percent of exports of goods and services. 88 11 ST. KITTS AND NEVIS: KEY ISSUES AND POLICIES Table 11.3: Base Case - Actual and Projected Balance of Payments, 1992-2000 (USS million) Item reliminay Proiected 1992 1993-96 1997-2000 Resource balance -26.7 -29.8 -43.6 Exports of GNFS 115.2 128.9 159.4 Imports of GNFS 141.9 158.7 203.0 Net factor income *8.0 -7.1 46.5 Private transfers 12.3 14.2 17.3 Current account balance -22.4 -22.7 -32.8 Capital account Net direct foreign Investment 23.9 23.3 24.5 Official grants 1.0 0.3 0.0 PubUc capital 0.8 7.0 17.9 Disbursements 2.9 9.6 21.6 Amortization *2.1 -2.6 -3.7 Other capitaL n.e.i. 6.2 .0.9 -9.0 Changes In reserves (increase -) -9.5 *7.0 -9.0 MEMORANDUM ITEMS: Total debt (USSmiWon) 44.1 59.0 114.4 Total debt/GDP 22.8 27.0 42.7 Debt servce (USSmIliIon) 3.7 4.5 7.3 Debt service/GDP 1.9 2.1 2.7 Debt service/exporns 3.1 3.3 4.3 Ext debt service/current Revenue 3.3 3.5 4.5 Interest/GDP 0.8 0.8 1.3 a. Exporns of goods and services. n.e.i. = not elsewhere included. Source: Statistical Appendix. Table 11.4: Altemative Case - Actual and Projected Balance of Payments, 1992-2000 (US$ million) Item prelminai Proiected 1992 1993-96 1997-2000 Resource baLance -26.7 -30.3 *44.6 Expors of GNFS 115.2 134.6 186.8 Imports of GNFS 141.9 164.9 231.4 Net factor income *8.0 *7.2 46.6 Private transfers 12.3 14.8 20.1 Current account balance *22.4 *22.7 -31.1 Capital account Net direct foreign investment 23.9 25.1 29.5 Official grants 1.0 1.0 1.0 Public caital 0.8 3.9 9.6 Disbursements 2.9 6.5 13.1 Amortization *2.1 -2.6 *3.4 Other capitaL n.e.l. 6.2 40.3 0.0 Changes in reserves (-) - increase -9.5 -7.0 -9.0 MEMORANDUM ITEMS: Total debt (USSmillion) 44.1 53.3 83.3 Total debt/GDP 22.8 23.9 27.7 Debt service (USSmiglon) 3.7 4.4 6.1 Debt service/GDP 1.9 2.0 2.0 Debt service/exports 3.1 3.1 3.1 Ext debt service/current revenue 3.3 3.3 3.3 Interest/GDP 0.8 0.8 0.9 a. Exports of goods services and net private transfers. nLe.l. - not elsewhere Included Source: Statistical Appendix. 89 12 St. Lucia . S~~~~~~~~ ~~~~~~~~~~~~~~~ .. . ..... MaJoethre hacreo cndun qaso neconomic actMWfi Efots are underwa toe resrutue bearn 9anandustr growh raei hve ben sbjet teconsderale opertationas inan res f erfortomake fthe bndutaymor Thebanana inusryi the mo tn~sstae importan acivity ovnmpetitive. At thi egovrnmn leve ing the~j tinbthagicuturat l sector,i andty is cotribuqeted an Wiondo ward nIslans arrssangements aore $ underayn baveageo;as ou 9n fr percten ofe Pdiumeri ng 198 contjunction wi the athe beaneana groer andfcw* si99or Inuth ryn inoperatinsae beeodn baned othrsn* marlketer to reorgninuziheprouto~nts the mretingm exports to thwei UKn u.nder system ofu prefretia in ordeIr to reduntce*l Thits and inpcraservenues. A tcess Ierltvl high preferential priceshic have maja ~tueor c omoentrof ovme theani ar,eogniztion* heffr Mand Mave economied exasio Effrt arucio uan ndroerwas t resodtrutuebaaann.sr from ~ ~ ~ ~ ~~~~~~~peain in85 anne efor to8 mak theu indutrymor thebnanas indust2 y maingSt.Ld the morgst impotan acivt hcmethe.r A the governmenturvlevelwin thecurn i1na texagriutural secor,and xonternibute hae tansWitindardlandess arrngements arerundemey ntar 1992. condutryb oper usantionavey bee basemet nddwldpnd on makeeret reorganiz production andmaktn eprtvnusan to the UKindransyste of prmefeetic hadingodrt reffduencost and icrase rchevenuesnd An acciitess. Thteaielhihpeernilpeeshv ao componen of thihe reorganizaftio efforta provded depndabe icomestrem togrowrs, invovesthe sralnin ofe oplerations withien thei ande thae encouragdepeansionglmre of gme production Banan Gro er Asocaletiotefn. lcnsmr prferom2,80tonnacess in 1980l to abou 135de ,720AC banana eportduer. Banan export edtfareddnings havoghte trnstinaacesandrce afrbangementsD hare prcsalso acn sstribthed substeantal makto govwiernment bendedwildpndn sonloe the level ofiv p erodcto lande frevenercst adtollthaeafinanciga fdoesi haratindling efficieny whpch camngbe achnievedan ton pareanticiaeainbte vmalueoadded betweecnofrit Unedeprtedao ine EuroeaPond Stringle-mrke whd gregim, poution adThe saleoiif ilne to th inlcnsuer.e preerntalnacprcessi likel tuotd begifn erod hed lande ACPul nore olmt h desefcsoh baaaprtoducer hs alread rexpected toiac dedining Alpethuhted imprtncenof badnana winhu undPuha formoercsticd-lar-rea u anansiatton nidsr export earig.Te iaain unrblt ningse drcbontiu tog resulting impact on growers, on industry through major deterioration in the fiscal accounts, operations, and on the rest of the economy will be or rapid increase in public sector borrowing, exacerbated when the price dedines continue to domestic or external. take place. 91 ECONOMIC POLICIES FOR TRANSITION Human Resources Development St. Luda currently has excellent beach and rainforest attractions, a combination, when put Significant attention has been paid in the recent together with ease of access and high-quality past to the development of the country's human accommodation, that is not very common in the resources in recognition of past defidendes in Caribbean. These will need to be conserved. The public sector management performance and the authorities will need to plan further development of importance of public sector management capadty the industry very carefully in order to ensure that in the development process, and in response to expansion in the physical capacity to increasing demands for skilled workers as a result accommodate visitors, and the growth in the of rapid expansion in tourism and related activities. ancillary operations and activities which While primary and secondary school enrollment accompany increased visitor arrivals, do not reduce has been growing faster than the OECS average, the attractiveness of the destination and result in a the enrollment ratio at the tertiary level is perverse impact on the performance of the noticeably below the OECS average. The main industry. While growth in the industry will barriers to entry in higher-evel educational probably continue for a considerable period into institutions for St. Lucians are the academic entry the future, the authorities will need to start requirements and the costs of training the latter examining, as quiddy as possible, likely industry induding living costs given the absence of candidates to replace tourism as the main significant tertiary capacity on the island. contributors to output growth in the future, in order that the transition can be easy and that the Increased attention to improving the quality of expansion process can proceed smoothly. education at the primary and secondary level and to re-examine funding arrangements for tertiary Fiscal Management training are needed. Both approaches will involve substantial increases in public sector expenditure, In recent years the authorities have paid a great at least at the outset, at the same time that the deal of attention to public sector fiscal economy is fadng the prospect of reduced management, as a result of difficult times in the earnings from bananas. Some assistance should be past, and the results of that attention is shown in forthcoming from the proposed OECS education the high central government recurrent account project at the primary and secondary level; and surpluses; in the relatively small (when they have more effort will need to be put into private sector occurred) overall central government defidts funding of, students at the tertiary level, as well as despite high levels of capital spending; and in the to continue the development of domestic capadty performance of the rest of the public sector. The for tertiary training, induding the utilization of expected dedine in economic activity as a result of distance-teaching arrangements, in order to the banana situation will have an adverse impact address the high the cost of overseas education, on public finances. Increased attention will need and to increase the effiidency of spending on to be paid to the maintenance of fiscal stability education and training. although St Luda, in comparison with other affected OECS countries, is in a better position to Environmental Management deal with the banana crisis. St. Luda has been a model among OECS countries in adopting sound Increasing reliance on tourism will require the fiscal polides, and these polides have been authorities to expand the level of the current effort accompanied by a diversifying economy, solid to conserve the environment. While a focus on the economic growth and high levels of foreign direct up-market end of the tourist industry will tend in investment. the direction of greater visitor expenditure per unit of required infrastructure, highwincome visitors are Medium-Tern Economic Prospects more likely to demand value for money, and will react faster to perceptions of environmental Under the new EU trade regime for bananas, St degradation. Luda will continue to have access to the EU market for its exports, but recent developments might result in a sharp fall of the banana export price. 92 12 ST. LUCIA: KEY ISSUES AND POLICIES Taking into account these developments, the base Under such a scenario of slowdown in economic case scenario projects an economic outlook with a growth, the standard of living would decrease. The relatively low GDP growth rate of 2 percent per economic environment would not be condudve year. for significant private sector expansion and the flow of foreign investment would be significantly The government recognizes that the country's reduced. Import growth would also slow down. growth prospects are highly dependent on: (i) the The current account deficit of the balance of prices of bananas and efficiency of banana payments is projected to increase from US$70 production in the context of the new EC banana million in 1992 to US$101 million during 1993-96, regime; (ii) the implementation of its economic and thereafter taper off at US$89 million during policy agenda and the degree of success of 1997-2001. Debt service as a proportion of economic diversification efforts; and (iii) economic exports of goods, services and private transfers developments in major markets. To mitigate the would rise from about 3 percent in 1992 to about adverse impact of a drop in banana prices, the EU 9 percent in the year 2001. Living standards would is to provide support for the banana related and be further affected because of the significant agricultural diversification projects during 1993-96, increase in unemployment. St. Lucia's CARICOM with the understanding that St. Lucia and other partners would also be adversely affected by these Windward Islands would achieve significant developments, thereby inducing a cumulative economic diversification by 1996. In view of these negative effect. factors, two scenarios are presented below. The condusion, therefore, under a base case Base Case Scenario scenario is that a steep price drop for banana exports would have an adverse impact upon The base case scenario considers: (i) the recent output and employment in St. Lucia as well as in its banana developments; and (ii) the current policies domestic and external balances. and programs of the government. Based on the assumption of banana export prices falling by 20 The government is committed to countering the percent, banana output is projected to decrease by adverse impact of the above scenario. It is, about 30 percent in line with the estimated supply- therefore, undertaking the preparation of a price elastidty of recent years. Export earnings Development Plan and reformulating its medium- could potentially be reduced by about US$25 term economic strategy. The government plans to million per year (EC$68 million), which could then timely implement its revised policy agenda to place have a multiplier effect of about 5 percent of GDP the economy of St. Luda on an alternative growth during 1993-96. In addition, if fiscal balances plan. The altemative scenario is detailed below. deteriorate as a consequence of the drop in banana related revenues and incomes of banana Altemative Scenario growers, and as a result of large public sector wage increases, and negligible improvements take place An alternative scenario takes into account a 20 in the incentive framework, international percent drop in banana prices as St. Lucia competitiveness will dedine. The fiscal surpluses continues to have access to the EU market for its generated during 1990-92 are projected to erode exports. In response to external developments, the by 40 percent during 1993-96 and by more than government would speedily implement its half in the outer years. Similarly, if regulatory and economic reform agenda in the areas of: (i) fiscal trade reforms fail to materialize, private sector adjustment, induding continuation of a tight wage investment would not come forward to the degree policy, to generate adequate public savings to necessary to achieve the growth rates included in undertake infrastructure investments in support of these projections. If such events were to occur, private sector investments; (ii) liberalizing the trade the economic outlook for St. Luda would be one of regime, and improving the incentive framework low growth rate with a rising population growth and regulatory environment to inaease economic rate of about 1.6 percent per annum. effidency, strengthen intemational competitiveness, and attract private Investment in all sectors; and (iii) continuing with the banana 93 ECONOMIC POLICIES FOR TRANSITION intensification and economic diversification efforts balance of payments is projected to increase from in nontraditional agrculture, manufacturing, agro- 15 percent of GDP (US$70 million) in 1992 to products, up-market tourism, and informatics. about 22 percent of GDP (US$129 million) by 1996, and then level off at about 15 percent of Under these assumptions, and barring any other GDP by the year 2001. To cover this deficit, the unforeseen external event, real GDP is projected to government projects that St. Lucia will continue to grow at about 3 percent per year during 1993-96 attract all of its financing requirements in the form as a result of growth in nontraditional agriculture, of grants and highly concessionary assistance from manufacturing, and tourism and other service bilateral and multilateral sources. The increasingly sectors. This would be a decreased growth rate uncertain external environment would require compared to the recent ones of about 5 percent external assistance on concessional terms for St per year. Lucia to rapidly adapt to the changing world. Reserves, equivalent to about 3 months of imports, On the basis of timely implementation of the are projected to fall marginally durng 1993-2001. above-mentioned polides, the efficiency of investment is projected to improve and total The PSIP is concentrated on large infrastructure investment is projected to decrease marginally projects geared to support tourism expansion, from about 30 percent of GDP in 1992 to about agricultural diversification and human resource 29-30 percent of GDP during 1993-2001. This ratio development. Therefore, the ratio of total external reflects some increase in public infrastructure debt to GDP is projected to move from 18 percent projects and increasing private investment, mainly of GDP in 1992 to about 30 percent of GDP in agro-processing, manufacturing, tourism, and during 1993-96, and to 41 percent of GDP during other services. An appropriate economic policy 1997-2001. Debt service levels are projected to environment would allow a 75 percent increase in remain manageable during 1993-2001, amounting the foreign investment between 1993 and 2001. to between 4-10 percent of exports of goods, Domestic savings are projected to decrease from services, and net private transfers, and less than 11 15 percent of GDP in 1992 to 9 percent during percent of central government current revenues. 1993-96 as consumers adjust to lower banana prices and farm incomes. Subsequently, as a result of increased domestic resource mobilization efforts, domestic savings are projected to increase to about 14 percent of GDP during 1997-2001. The central government's revenue enhandng measures by elimination of duty exemptions, broadening of property tax base and improvements in tax administration, coupled with continuing wage restraint, is projected to yield lower current surpluses of about 8 percent of GDP during the rest of the 1990s. Real exports of goods and non-factor are projected to grow at about 2-6 percent per year on average during 1993-2001, as small manufacturing (5.5 percent), non-banana agriculture (4 percent), tourism and other services (7 percent) continue to increase. As real GDP grows at a sustainable 3-4 percent per year, after decelerating to about 3 percent in 1993-94 owing to the impact of the fall in banana prices, real import growth is projected to be between 2 percent and 4 percent a year on average during 1993-2001. As a result of these developments, the current account defidt of the 94 12 ST. LUCIA: KEY ISSUES AND POLICIES Table 12.1: St. Lucia - Base Case Macroeconomic Indicators, 1992-2001a Item Preliminary Proiected 1992 1993-96 1997-2001 -real growth rates- Gross domestic product 6.6 1.3 2.4 Gross domestic income 3.2 0.7 2.3 Consumption -6.6 2.5 0.8 Pubic 3.0 2.2 2.0 Private 5 2.6 0.5 Gross fixed investment 25.3 -2.1 2.4 Exports of GNFS 10.4 0.9 3.8 Imports of GNFS 1.0 1.0 2.0 hares of GDP- Public sector savings 11.4 6.5 5.0 Domestic savings 14.7 9.3 12.3 Consumption 82.1 85.3 82.1 Gross fixed investment 30.0 28.0 26.0 Exports of GNFS 71.8 70.4 73.8 Imports of GNFS 83.9 83.6 82.0 Terms of trade Index (1991=1 OO) 88.8 76.4 75.5 a. Shares based on constant prices, except for pubiic sector savings. b. A decrease in the index implies that the terms of trade have been unfavorable to the country. Sou'e: MTESP. Table 12.2: St. Lucia - Alternative Case Macroeconomic Indicatom, 1992-2001a Item Preliminarv Proiected 1992 1993-1996 1997-2000 real growth rates- Gross domestic product 6.6 2.6 3.9 Gross domestic income 3.2 2.2 3.9 Consumption -6.6 4.0 1.7 Public 3.0 -0.4 *60 Private 85 4.9 2.8 Gross fixed investment 25.3 1.8 3.9 xports of GNFS 10.4 1.8 6.1 Imports of GNFS 1.0 3.0 3.6 shares of GDP Piubic sector savings 11.1 7.9 8.0 Domestic savings 14.7 9.1 13.8 Consumption 82.1 85.7 81.1 Gross fixed investment 30.0 29.8 29.0 Exports of GNFS 71.8 69.4 74.3 Imports of GNFS 83.9 84.9 84.5 Terms of trade index (1991 =100)" 88.8 76.6 75.3 a. Shares based on constant prices, except for pubiic sector saving. b. A decrease in the index Implies that the terms of trade are unfavorable to the country. Source: MTESP. 95 ECONOMIC POLICIES FOR TRANSITION Table 123: St. Lucia - Base Case Balance of Payment., 1992-2001 (US$ million) Item Preminar Proiecled 1992 1993-96 1997-2001 Resource balance -72.6 95.8 -87.4 Exports of GNFS 326.6 334.0 441.1 Imports of GNFS 399.2 429.8 528.S Net factor Income -15.2 -25.8 -31.4 Interet on MET debt 5.1 6.5 14.6 Private transfers 17.7 20.5 29.4 Current account balance -70.2 -101.0 -89.4 Capital account 103.6 141.5 165.8 Net direct forign Investment 74.0 76.5 81.0 Offidal grants 1.1 1.0 1.0 Pubic captal 14.7 23.3 14.8 Disbursements 21.1 32.0 41.9 Amortisation b6.4 A87 -27.1 Other capital .13.6 0.0 0.0 Changes In reserves (-) I increase -60 0.2 -7.4 MEMORANDUM ITEMS: Total debt (USS million) 88.8 1481 233.3 Total debt$/DP 18.4 282 35.8 Debt rvice (USS mrlon) 11.8 15SS 41.9 Debt servce/GDP 2.5 2.9 6.3 Debt service/exports i 3.4 4.2 A6 Debt servIce/current revenues 7.8 1 1.5 2S.4 lnterestGDP 1.1 1.3 2.3 a. IBR DRS data. b. Exports of gocxk servIces and net poivate trafen Source: MTESP. Table 12.4: SL Luda - Allernative Case Balance of Payments, 1992-2001 (US$ million) Item Prellminary Plxected 1992 1993-96 1997-2001 Resource balance -72.6 .109.8 106.5 Exports of GNFS 326.6 340.4 49S.3 Imports of GNFS 399.2 450.2 601.8 Net factor Income -15.2 -30.0 -52.2 Interest on public debt 5.1 7.2 19.8 Private transfers 17.7 21.4 29.6 Current account balnce -70.2 1 18A5 .129.1 Capital account 103.6 172.3 231.1 Net direct foreign Investment 74.0 86.6 122.7 Official grants 1.1 1.0 1.0 Pubic ctal 14.7 33.7 16.9 Disbursements 21.1 42.3 53.7 Amortliation .6.4 A6 -36.8 Other capita nmel. -13.6 0.0 0.0 Changes In reserves () - Increase .6.0 2.8 -11.5 MEMORANDUM ITEMS: Total debt (US$ mlon)- 88.5 166.1 293.3 Total debt/GDP 1.3 30.5 40.9 Debtservice(USS$rriSon) 11.8 16.1 56.9 Det servIceGDP 2.4 3.0 7.7 Debt servlce/exports ' 3.4 4.3 10.4 Debt service/current revenue 7.8 11.2 29.8 Interest/GDP 1.1 1.4 2.8 a. IBRD DRS dita b. Expors ofgoods, servces and net private trserm ne.i. - not ekewter Inckuied Sour: MTESP. 96 St. Vincent and the Grenadines o~ ~ ~ ~~~~~~~~~. . .... . ...... .. ,......- . ... ... - . ..... ~~~~~j,,,h,~~~~~~~~~~~~~~~~.. .., ,",." ..... . . ........ e~~~~~~~~~~~~~~~~~~k pvriches$ remaine towI9~, ra L rwhi t /cn~adteGeai averaging 4.8u percent per annm, lethoughh egrsowthn raten tenudenad toorise n.~t Ba ana cit prdutieoprsinsben pdturing therperid instaanesolt oftearnd cmwain n importswtin ontutinsctraM4 p~rie.Ther smlaede bfottadn public sector ThsmntI eiue banaainduhefstryw conthiuedaot1 per cengro th expertinsl durroing ros s/Owi euetealiyi support of the etor bDPan about 48 percent omecandicue telsse capiarly probram Hic 9? owever, wustnile d~ttebt export ear gneings iprvng19,adi the singleen moste prema inaned beo 30prcenht in 1 G9 DPe,l anftd d heb gimpotrtant ectoroi actvit ianSt.Vinent byd the servcen, Athough ouput heaes rmasinrcoeed Innageabl, eGrenaines. l hev in domstry utempoy twohirds ofeall pathea 199 leeslt bf the depredationa nathre Poun msteg agrichuoturalwrkeds agiculth e iaterpa lf thccounts for lowdw the bate ana borrowng. desl fe act boyunte et o2t0 p ercntofmGD and for abote8 pcentwe steay eq,asioi i toris andIn ublc sctocaioa mperchandise oexprllate oreaings.gInwth el rec ntps, Ecnoi pvera foermanpecet dueri the shon to abdium4.vapercont on thrae doutpuing eamngprfrmnc Durmingth reikewyt period,i growesto Windcosumrd Maor Macroeconomiy haeinfluencdteleen pIcslns prouema deinedlw aveagn 4.8mpercentn pero patrofcivyinheesofhecnm. annum alathoughear the grothoraties tendedt riee Banana industryoprtnshvbenaedn durooing theriodnasia riersulictiof, thirnduding imorth eprstteUKudraytmofrfrnil pridcs Thilvelsofictou wtstning pgiublicr aswector acsadprcs The bananaindust y cotibtd gbuth preerenba conapricutual program. iowee, oabutsandying detouim eportcearnvings in 1992,endal iscthestngeamosto reaned sbetnilonw 30nperment ofisP anddebta impgowrtant enomcuactiit epnion ot. Vin dctiand h slnervc,togdiin,hsrmie maaeb e,vGenadines. Thegindutr emloyds. Twoethigprdcsol parlyas rsul o te cncssina ntur o mot grculsturedal waorkes agrcuture itselfe acouemnt'sfo ofimerchandie exports ear the ra e men phast, th ter islikly o wrseifpriesoWndwrd ofntheindusted yt thae finfluncdn the levelmand lowercost dolar-re bannainenifes.Duin prmtn.cnmcdvri.n .orts to tothe Uunderal system of preferential product dvrictowtnarctrasela acsadpcsThrlte dlk*:.,.cntribute totefnnig fgvrmn Durin thereviw perod, rowt in cnsumr Maoprain Mandrote general lsseves faciiy prices remained law, averaging 4.8 percent per ECONOMIC POLICIES FOR TRANSMON The depreciation of the Pound Sterling (in which packaged produce, and the trade continues at a banana prices are quoted) beginning late in 1992 reduced level. Some local traders have expanded has already resulted in an estimated 20 percent the operation into a two-way activity, bringing in dedine in unit banana earnings. The resulting for resale items In daily consumption manufactured ongoing shake-out in the industry has had a in Trinidad and Tobago rather than retuning with number of effects, induding some marginal lands just cash as in previous years. going out of production; a dedine in central govemment revenue growth; a slowdown in the Transportation arrangements have been dted as a pace of domestically-financed investment; a rise in major obstade to the expansion of non-banana unemployment; and major finandal difficulties for agriculture in St. Vincent the Grenadines. Within the Banana Growers Association, which converted the past year the transportation of agricultural and substantially accumulated reserves Into an horticultural output has received a major boost overdraft position in an attempt to sustain prices to with the provision of a jet cargo service from St. growers. Vincent (and other Caribbean islands) to the U.S. This service has recently been inceased from one Efforts are being made to restructure operations in flight per week to three, probably reflecting some the industry. At the govemment level In the agricultural production adjustments as a result of Windward Islands, arrangements are underway in the banana situation. In support of these conjunction with the banana growers and arrangements the authorities have commissioned marketers to reorganize production and marketing an airports development study to assess the arrangements in order to reduce costs and increase feasibility of providing long-haul air traffic airport revenues. In St. Vincent and the Grenadines, a fadlities, and are expanding and upgrading cargo major program to streamline operations and to cut storage fadlities at E.T. Joshua Airport in St costs is currently ongoing in the Banana Growers Vincent. Association. One effect of this has been to transfer some operations and their costs (e.g. some Tourism Development transportation and handling as a result of the dosure of six buying stations in rural areas) back to The St. Vincent authorities regard the tourist the growers, with the consequence that some industry as the activity most likely to provide growers have reduced or ceased operations. substantial dependable economic diversification capadty in the short- to medium-term. Most of Whether the industry survives when the current present tourism activity is concentrated in the transitional access arrangements are phased out Grenadines, where activities are in the traditional will depend on the level of production effiidency Caribbean sun/sea/sand patter, and substantial whidh can be achieved, and the extent to which new investment is underway or planned to expand growers can partidpate in the value-added capadty in the Grenadines. Efforts to increase the between fruit delivery at the shipping port and the share of the main island In tourism activity require sale to the final consumer. a different kind of marketing approach because of the substantially different physical attributes Agricultural Diversirication involved. The govemment is contemplating the establishment of a major hotel and a golf course The changed market prospects for bananas wiU along a stretch of mainisland coast where encourage and support ongoing government attractive beach development is possible. The efforts to diversify agricultural production. possibility of govemment involvement is as a result Significant resources have been put into land of perceived failure of private sector Interests to reform programs, under which state-owned land follow through on previously stated intentions. (mostly acquired from previous owners) has been made available for family farms. Although As a result of the archipelagic nature of St. Vincent production of root crops and vegetables has and the Grenadines and the resulting high per declined substantially following the contraction of capita cost of infrastructure development, the focus the Trinidad and Tobago market, opportunities still has been on up-market rather than mass tourism. exist in that market for high-quality graded and This approach as been reinforced by the 98 13 ST. VINCENT AND THE GRENADINES: KEY ISSUES AND POLICIES environmental implications of large numbers of In recognition of the unfavorable medium-term visitors on the relatively small islands. One outlook because of the banana situation, the consequence of this has been an ambivalent authorities have been seeking ways to increase attitude on the part of the authorities towards public sector efficiency even further. Most of the cruise ship tourism. While it is likely that loss-making public enterprises have been privatized development of cruise ship facilities will proceed, (leased or sold), or their operations have been or the authorities may seek to limit the number of are being discontinued. A tax reform and visiting liners in order to minimize adverse institutional strengthening program is currently environmental effects, induding the reaction of underway in the major revenue earning agencies, stopover tourists to cruise passengers. and expenditure control has been tightened. In addition, an administrative reform program has Human Resource Development already resulted in considerable changes in system operations, and further work is continuing. The There has been a continuing perception of new emphasis on training has brought a number of unacceptably high unemployment in St. Vincent new university graduates into the public sector, and the Grenadines side by side with shortages of particularly in the area of finance and planning, and required technical and managerial skills throughout effort is underway to provide graduate training to the economy, especially in the public sector. The existing staff. problem has been particularly acute in the main island, partly as a result of the nature of tourism The authorities have indicated their agreement in activity in the country and the greater capadty of principle to trade liberalization, to a rationalization the main island to support unemployed persons. of the incentives framework and to the streamlining of procedures, particularly as they The authorities have embarked on an extensive affect foreign investment. They have indicated, program in an attempt to address the situation. however, that the approach must be cautious, The program involves major investment in training particularly given the uncertainty surrounding the and education in all their aspects, induding an public finances as a result of the banana situation apprenticeship scheme to be operated in and the unpredictability of foreign investment, conjunction with the private sector. A labor particularly in the manufacturing sector. management information system has been established, designed to provide information for Medium-Term Economic Prospects manpower development planning. The country is partidpating in the World Bank-led education Under the new EU trade regime for bananas, St. project for the OECS, and expects to structure the Vincent and the Grenadines will continue to have operations of that project to meet its needs. One access to the European market for its exports, but of the major tourism projects currently being the regime, in allowing increased competition from implemented will indude a small school for lower-cost producers in Latin America, will most hospitality industry training, and this will reduce the likely result in falling export prices during the cost of training tourism industry workers. medium term. In view of these developments, the base case scenario projects relatively low GDP Public Sector Management growth rate of less than 2 percent per year. As in most small countries, the .activities of the The country's growth prospects are highly public sector exert considerable influence on the dependent on: (i) domestic currency banana prices rest of the economy and the sodety. The in the context of the new EU banana regime; (ii) authorities have been mindful of the economic the extent to which the authorities are able to difficulties faced by other countries in the region, Implement their economic policy agenda and the and have sought to manage the public finances degree of success attained with the economic prudently. Considerable effort has gone into the diversification efforts; (iii) economic developments generation of recurrent surpluses, and external in major markets in the context of the global financing has been consistently sought on economic environment. concessional terms. 99 ECONOMIC POLICIES FOR TRANSITION Base Case Scenario government implements its reform agenda in the areas of: (i) fiscal adjustment, induding the The base case scenario considers recent banana maintenance of a tight wages policy, in order to developments and the current programs and generate additional public sector savings for policies of the government. Based on the infrastructure development to facilitate private assumption of domestic currency banana prices sector investment; (ii) trade regime reform, falling by 20 percent, banana production is improvement in the regulatory and business projected to dedine by about 30 percent in line dimate, and intensification of investment with the estimated supply-price elasticities of promotion efforts in order to increase economic recent years. Export eamings could potentially be efficiency, enhance international competitiveness, reduced by about US$10 million per year (EC$27 and attract private investment in all sectors; and million), which would then have a multiplier effect (iii) intensifying diversification efforts in non-banana of about 10 percent of GDP through to 1996. In agriculture, agro-processing, manufacturing, addition, if fiscal balances deteriorate as a tourism and services. Under these assumptions, consequence of the drop in the incomes of banana particularly those relating to the flow of private growers and in related revenues, and there are no investment, and barring unforeseen adverse significant changes either in the domestic private events, real GDP is projected to grow at about 3 sector business dimate or in the level of success percent per year during 1993-96 as a result of achieved in efforts to attract foreign investment. growth in non-banana agriculture (7 percent), economic performance will dedine. In addition, manufacturing (5 percent), and tourism and other the fiscal surpluses generated during 1990-92 are services (8 percent). projected to dedine during 1993-96, and to turn negative to the extent of about 3 percent of GDP On the basis of timely implementation of the policy during 1997-2000. Under such conditions, and reform agenda, investment is projected to increase assuming the continuation of population growth at from about 31 percent of GDP in 1992 to about around 1 percent per annum, the economic 32 percent-33 percent of GDP during 1993-2000. outlook for St. Vincent and the Grenadines would This ratio reflects some increase in the volume of indude negative per capita income growth and public investment in infrastructure, and increases in possibly negative overall GDP growth as well. private investment, mainly in agro-processing, manufacturing, tourism, and in other services. Under this scenario, living levels would dedine, Domestic savings are projected to decrease from import growth would slow, and the domestic 13 percent of GDP in 1992 to 6 percent during economic environment would become less 1993-96 as households and firms adjust to lower attractive to private investors, especially foreign banana prices. Subsequently, as a result of investors. The current account deficit of the increased domestic resource mobilization efforts, balance of payments is projected to increase from domestic savings are projected to increase to US$18 million in 1992 to US$28 million during about 8 percent of GDP during 1997-2000. Efforts 1993-96, and thereafter fall to US$22 million during to increase central government revenue (mainly via 1997-2000. Debt service as a proportion of broadening the property tax base, eliminating trade exports of goods and services would rise from tax exemptions, and improving the tax about 4 percent in 1992 to about 5 percent in the administration) and to restrain current spending are year 2000. Living standards would be further projected to yield current surpluses of about 4-5 affected by increasing unemployment. The percent of GDP during the rest of the 1990s. country's regional trading partners would be adversely affected by these developments, thereby Real exports of goods and non-factor services are inducing a cumulative negative effect. projected to grow at about 5 percent-6 percent per year on average during 1993-2000, as small Altemative Scenario manufacturing (2.5 percent), non-banana agriculture (4 percent), tourism and other services An altemative scenario takes account of the (7 percent) continue to increase. Real GDP is government's concern to avoid the base scenario projected to grow at about 3 percent-4 percent per projected outcome, and assumes that the year, after falling below 2 percent in 1994 as a 100 13 ST. VINCENT AND THE GRENADINES: KEY ISSUES AND POLICIES result of the domestic currency banana price competitive without a substantial loss in output impact, and real import growth is projected at volume, the growth in GDP could remain positive between 3 percent and 4 percent on average even at the bottom of the trough. during 1993-2000. As a result of these developments, the current account defidt of the balance of payments is projected to increase from 8 percent of GDP (US$18 million) in 1992 to about 11 percent of GDP (US$29 million) by 1996, and then fall to 5 percent of GDP (US$19 million) by the year 2000. This defidt is expected to be covered by grants and by loans on concessional terms, and such flows are required if, given the increasingly competitive world economic environment, the adjustment process is to take place in St. Vincent and the Grenadines in a timely manner. The public sector investment program indudes large infrastructure projects intended to support tourism expansion, agrcultural diversification, and human resource development. The ratio of total external debt to GDP is projected to move from 28 percent of GDP in 1992 to about 37 percent of GDP during 1993-96, and to 42 percent of GDP during 1997.2000. Debt service levels are projected to remain manageable if financing flows take place on concessional terms. Prospecs Economic growth in likely to dedine in St. Vincent and the Grenadines from the current 4.5 percent during the short- to medium-term as a result of the banana situation. The extent of the dedine in growth will depend on the extent of the fall in the domestic unit price to growers over the next 12 to 24 months (which will involve both market price and exchange rate effects), and the extent to which exports of non-banana agricultural output, induding marine products, can be substituted. The ability of the tourism sector to take up the slack will be limited in the medium-term by the physical concentration of the industry in the Grenadines, and the limited capadty of the islands, both in terms of the number of hotel rooms and the number of aircraft seats for stopover visitors. Investment in new productive capadty in non- banana agriculture, manufacturing and other services-based acivity as complements to the ongoing activity in tourism will be required if the banana outtum approximates a worst-case scenario. If banana production can remain 101 ECONOMIC POLICIES FOR TRANSITION Table 13.1: St. Vincent and the Grenadines - Base Case Macroeconomic Indicators, (1992-2000) Item Preliminary Proiected 1992 1993-96 1997-2000 real growth rates Gross domestic product 5.0 1.3 2.5 Gross domestic income 6.0 -1.3 2.4 Consumption 6.3 1.5 2.2 Public 2.5 3.0 3.0 Private 7.4 1.1 2.0 Fixed domestic investment 1.3 0.0 2.1 Exports of GNFS 3.8 1.4 2.7 Imports of GNFS 4.1 1.1 2.2 shares of GDP Domestic savings 12.9 3.6 2.2 National savings 22.5 17.9 21.3 Consumption 89.6 90.7 89.7 Gross fixed investment 31.0 30.0 29.0 Exports of GNFS 55.5 47.4 47.2 Imports of GNFS 72.9 73.0 73.7 Terms of trade index (1 990-1 00)a 105.1 76.3 68.4 a. A decrease in the index implies that the terms of trade have been unfavorable. Source: MTESP. 102 13 ST. VINCENT AND THE GRENADINES: KEY ISSUES AND POLICIES TabMe 13.2: SL Vincent and the Grenadue - Allemadive Case Macroeconomk Indicabors, 1992-2000 Item Prelmina Prokct 1992 1993-1996 1997-2000 -r ai growth rat e S.0 2.8 4.2 Gross domestic product Grss domestlc incorme 6.0 4.2 3.9 6.3 1.5 2.9 Co ion Public 2.5 3.0 3.0 Ptivate 7.4 1.1 2.9 Fixed domestic Investment 1.3 4.4 4.2 porsb of GNFS 3.8 4.0 5.3 kaports of GNFS 4.1 2.9 3.6 -sha res of CDPG Domestic savings 12.9 6.0 7.8 National savings 22.5 20.2 25.4 Consumpion 89.6 87.4 82.4 Gross fixed investment 31.0 32.0 33.0 Exports of GNFS 55.5 48.2 49.1 Imports of GNFS 72.9 73.5 74.0 Temrs of trade index (1990=1000" 105.1 74.7 64.8 a. Probections in 1991 pices. b. A decrease in the index implife that the tenm of trade are unfavorable. Source: MTESP. Tabl 13.3: SL Vincent and the Grenadimes- Base Cae Balnc of Pamernts 198-2000' (L)SS million) Item Preliminary Proieced 1992 1993-96 1997-2000 Resource balance -40.0 -63.4 -79.6 ExportsofGNFS 127.0 117.0 142.1 Imporb of GNFS 167.0 180.3 221.8 Net factor payments -14.0 -9.8 -87 of which: interest on public debt 2.0 2.4 3.8 Private transfers 36.0 45.6 66.8 Current account balance -18.0 -27.5 -21.6 Capital account Net direct foreign investment 9.0 10.1 11.7 Offical grants 7.0 10.0 5.0 Public capital 3.0 9.3 7.0 Disbursements 6.0 12.8 11.3 Amortisation -3.0 -3.5 -4.4 Changes in reserves (-) = Increase -1.0 -1.9 -2.1 MEMORANDUM ITEMS: Total debt (USS milion) 63.2 87.9 119.3 Total debt/GDP 27.6 35.5 39.7 Debt service (USS million) 4.7 5.9 8.2 Debt servkce/GDP 2.1 2.4 2.7 Debt service/exports 3.6 4.8 5.5 Debt service/current revenues 7.9 10.1 12.3 Intere;t/GDP 0.8 1.0 1.3 a. Exports of goods, services and net private transfers. SourCe: MTESP. 103 ECONOMIC POUCIES FOR TRANSMON Tabie 13.4: St. Vincent and the Grenadines - Altemative Case Balance of Payments, 1992-2000 (USS million) Item Preliminary Proiected 1992 1993-1996 1997-2000 Resource balance -40.0 -64.7 -82.9 Exports of GNFS 127.0 123.1 163.9 Imports of GNFS 167.0 187.7 246.8 Net factor payments -14.0 -8.5 -7.6 of which: interest on public debt 2.0 2.5 4.3 Private transfers 36.0 45.6 66.8 Current account balance -18.0 -27.7 -23.7 Capital account Net direct foreign investment 9.0 11.4 14.8 Offidal grants 7.0 10.0 5.0 Public capital 3.0 12.4 9.7 Disbursements 6.0 15.9 14.0 Amortisation -3.0 -3.5 -4.4 Changes in reserves (-) - increase -1.0 -6.1 -5.8 MEMORANDUM ITEMS: Total debt (US$ million) 63.2 94.0 141.1 Total debt/GDP 27.6 36.6 42.4 Debt service (USS million) 4.7 6.0 8.7 Debt service/GDP 2.1 2.3 2.6 Debt service/exports' 3.6 4.6 5.1 Debt service/current revenues 7.9 9.5 10.3 Interest/GDP 0.8 1.0 1.3 a. Exports of goods, services and net private transfers. Source: MTESP. 104 Annex A World Trade in Bananas and the New European Union Banana Regime Oveiew - ., ...~~~~~~~~~~~~~~~~. . . 0. E -E.- . E-.-. . - .-.--,,----------.--. The European Union (EU, formerft Economi Comunity) market for' baims wa- oran''ed priCmarin J national basis with different reguladions applying to each of the member states up to June.3 0, 993. T adv.n of the single EC market on July I, 1953 made it essenUal, however for these ameted k,et con',,', t" # single marketing sysem. The new reime permits free movemen of banonast E E regulatins "con inter alia,quota provisions governing trade with traditional EU and Afrkan, Caibben and Paci:.(Cm banana, "anrd with norn-raditional bananas. For the n?portation of quota, bnanas, * lening systn:has b e.stablshed which strengthens the position of the established marketers in the EUt. anueL Consequendy Windward Island bananas, although alowed duty free ent,y under a fixed quota,.face .,in d co..et.toon 6fromoter sources. : .. .. .. . . . Prior to July 1, 1993 most bananas originating from segmented the EU market, because critical the Windward Islands countries entered the decisions on banana imports are determined by a protected UK market under a preferential Management Committee prior to the beginning of agreement that provided significant benefits by each year and importation is allowed only on a restricting imports from other sources of supply. quarterly basis under licenses granted to the Under the new regime, the UK market cannot be marketers. These two new elements will further insulated from third country bananas once they distort supply and demand conditions in the world enter any EU member country. Banana exports banana market. from all Caribbean countries are, therefore, vulnerable to the changing market environment World Banana Market and to the monopoly powers exercised by traditional importers. Rapid downward changes in World production of fresh bananas consists of banana prices have, thus, been described as a bananas grown for subsistence and local 'banana shock' to the Caribbean economies. The consumption, and for international trade. The impact of the 'banana shock' will be considerable, latter is a distinct economic activity in most espedally in Dominica, St. Lucia and St. Vincent exporting countries, with a few varieties and the Grenadines, but it will also affect the other predominant, selected for their high yields, countries of the Commonwealth Caribbean. In durability in long distance transport, consistent fact, this process has already begun to have an quality and unblemished appearance. In recent adverse effect on the export earnings because of years, world production has hovered between 45 the easing of prices in the UK market, owing to the to 48 million tonnes. However, only about 11 realignment of currencies in the EU, and the million tonnes enter international trade. depreciation of the Pound Sterling. The geographical distribution of production is The current banana regime is even more complex wide, although mainly confined to tropical and sub- than the previous quota regime it replaced which tropical dimates. In 1991, the largest producing ECONOMIC POLICIES FOR TRANSMON regions were Asia with 40 percent of total world World exports from all sources increased by over production or 19 million tonnes, and South 30 percent during 1980-91, while world production America with 26 percent or 12.4 million tonnes. grew by 19 percent. Exports from Central and The largest single producers were India and Brazil, South America increased from 4.1 million tonnes to accounting for 13 percent and 12 percent of world 7.9 million tonnes, an increase of 93 percent. production, respectively. During the same period, Windward Islands exports rose from 73,300 tonnes to 232,000 tonnes, or by Between 1980 and 1991, world banana production 232 percent. Both area expansion and yield increased by 19 percent. This growth, however, increases contributed to this trend, although by the was uneven. For example, Central and South 1980s, the scope for further yield increases by America, induding Cuba and Mexico, increased by most Central and South American exporters had about 7.9 percent. As Table A.1 above shows, the been reduced. Caribbean region exhibited 54 percent growth, although in absolute numbers, its share of world The volume of bananas entering intemational trade production was only 3.2 percent in 1991. The reached a peak of 10.2 million tonnes in 1991. By Windward Islandsl' output grew at 148 percent far the most important contributors were the and accounted for 0.7 percent of world production. Central and South American exporters, also In the rest of the world, production has continued commonly known as 'dollar-area banana' suppliers. to increase in Asia mainly due to expansion in These countries accounted for around 77 percent China. Africa's production increased by 41 of world exports. Among these countries, Ecuador, percent. European production is relatively with exports of 2.7 million tonnes, is the world's insignificant to the total and has exhibited a largest exporter, accounting for 27 percent of dedining trend. The main impetus for increased world exports, and acts as a residual supplier production resulted from increased demand in the whenever shortfalls occur. On the other hand, developed countries and in the case of the Caribbean banana exports accounted for only Caribbean countries, because of the protected UK around 6 percent of world exports, and the market. Windward Islands only 2 percent. During 1980-91, the Caribbean Islands' exports more than doubled, Unlike other tropical products entering world trade and those of the Windward Islands, trebled (Table - rubber, cocoa, sugar and coffee - bananas are A.2). Although their yields have improved, given fragile, highly perishable, and cannot be stored. the prevailing small holder production and Their skins are easily blemished. When ripe they ecological conditions, they remain significantly have a shell life of less than a week. They have, lower than those achieved on Central and South therefore, to be cut green and prevented from American plantations. ripening while travelling long distances. The proportion of bananas entering world trade In 1991, world banana imports reached a record amounted to 21 percent of world production in level of 9.5 million tonnes, an 8 percent increase 1991 or a little over 10 million tonnes. However, over the previous year. 9 More than 90 percent go in some countries, particularly the Caribbean and to the developed countries. The largest importers Central and South America, production is mostly are the EU and the USA, with 37 percent and 31 geared to the world market. percent of the world total, respectively. Japan is the third major importer with around 9 percent of total world imports. The countries of Eastern Europe and the former USSR remain insignificant 1Vindward IsLands output growth has been achieved through as importers. Within the European Community, acreage ecpansion and through inreases in yields per acre. In Germany is the largest import market accounting recent yean there was a concerted drive, supported by the donor community to rehabiltate and revitalize the industry. Inputs for nearly 14 percent of the world total, followed became readily available; their use widespread. A feeder road by the UK with 5 percent. Some European program opened up new areas to banana cultivation. The redistribution of lands previously under plantation4ype ownership attracted smal fames. The pattem of production, however, is FAO has not yet been able to reconcile banana expot and influenced by the vagaries of cimate, seasonal trends in grower imports, and for 1991 there remains a considerable gp between prices, time and extent of annual plantings, etc. reported exports and reported imports. 106 ANNEX A Table A.1: Caribbean Banana Production, 1980 and 1991 (000 metric tonnes) 1980 1991 1980-1991 Percentae Growth Windward Isnds 126 313 148 Doninica 32 67 109 Grenada 18 11 -39 St LuIa 55 1SS 182 St Vincent and the Grenadines 21 80 281 Caribbean Total 985 1517 54 Source: FAO. Production Yearbooks, 1980-91. Community imports might be regarded as home its income elastidty in the major importing production - trade between Madeira and Portugal, countries has been estimated to vary in the range the Canary Islands and Spain, and the French West of +1.3 to -1.3. Indies and France, are all counted as imports. The banana export market is not a single world market where Table A.2: Caribbean Exports, 1980 and 1991 countries compete equally (000 metric tonnes) regarding production costs and freedom of access to different 1980 1991 destinations. There are six world Windward Islands 73.3 232.0 Doin;n"' 7.8 556 market segments. This division is Grenada 12.6 67 broadly valid even now, but with St Lucia 33.5 1101. the introduction of the single EU St Vincent and the Grenadines 19.6 6&2 market, Germany will no longer be Caribbean Total 281.0 603.7 an open market, and imports since July 1, 1993 are subject to a 20 a. Dominica's exports were unusualy low in 1980 relative to measured production. percent tariff and limited by quota. Source: FAO. Trade Yearbooks, 1980-91. Open Markets. Open markets are by far the largest segment, equivalent to 48 During 1980-91, world banana imports increased percent of world imports in recent years. They are by around 48 percent. Imports by the EU, other tariff free and cover major trade flows from Central Western Europe and the USA increased by 57 and South America to North America. Germany percent, 76 percent, and 51 percent, respectively. was induded in this category until June 30, 1993. In contrast, the Japanese market grew by 216 There are no quantitative restrictions on the origin percent, although from a small base. In the EU or volume of imports, a high proportion of trade is market, the average growth per year was 4 undertaken by three multinational banana percent, while in its open market portion (mainly companies, and there is relatively high flexibility in Germany), it was 7.2 percent. the direction of trade, based on market conditions 20 -economic factors such as in the different importing countries. Price, income, and nonreconomic factors such as the growing interest in and shift towards healthy Open Markeb - Subject to Tariff. These markets eating affect import demand. The price elastidty indude Japar, Non-EU Western Europe and the of demand for bananas at retail is less than unity; smaller EU countries until June 30, 1993, which accounted for 18 percent of world imports. 20Because of the pewisHabty of bans, thire Is no word market pice for bananas. Rather, pries are determined by supply and demand at a specdfic place at a spedfic time; they Preferential Market. Preferential markets account differ from locaton to locatkon and almost from day to day. for 16 percent of world imports. Trade flows from 107 ECONOMIC POLICIES FOR TRANSITION Table A.3: Windward Islands' Domestic Merchandise Export Earnings, 1988-1992 (USS million, and banana share in percent) 1988 1989 1990 1991 1992 Total Banana Total Banana Total Banana Total Banana Total Banana Share Share Share Share Share Windward Islands 288.9 48.6 256.2 47.2 285.6 69.8 246.5 79.4 198.3 84.3 Dominica 56.0 6&6 44.7 56.1 53.8 57.2 54.1 58.3 57.9& 55.0 Grenada 28.4 16.5 25.0 16.0 21.8 17.9 19.7a 18.8 17.6b 18.8 St. Lucia 119.2 54.9 111.9 52.2 127.3 50.7 105.5 53.1 122.8 55.7 St Vincent and the Grenadines 85.3 37.4 74.6 44.6 82.7a 51.3 67.2b 52.8 n.a n.a a. Preliminary figures b. Estimates. Source: IMF. the French Overseas Departments of Guadeloupe corporations: United Brands responsible for the and Martinique and ACP countries (mainly Chiquita brand, Castle & Cook responsible for Jamaica, Windward Islands, Suriname, Belize, Dole, and Del Monte. On a much smaller scale, Cameroon, Ivory Coast and Somalia) to France, GEEST from the UK is a significant player in Italy and the United Kingdom. These suppliers had marketing of Windward Islands bananas. The three preferential access, under quota and licensing major multinationals are vertically integrated arrangements, to their import markets. Shortfalls between production and/or purchase in the open were made up from open market suppliers. market exporting countries, and in the wholesale trade of the fruit in the importing countries. Spain and Portugal. Their share of world trade has Together, these three companies account for been 6 percent in recent years but is not subject to around 60 percent of world exports. new EU regime. Domestic trade flows from the Canary Islands to Spain and from Madeira to The multinationals are most dosely involved with Portugal. Suppliers are part of the countries to exports from Central and South America and which they export so that trade flows are outside particularly from Central America, where they are the main competitive banana trade. Potential Markets. There are two Table A.4: Exports to the UK Market, 1980 and 1991 groupings in this category, Eastem (000 metric tonnes) Europe and the former USSR, and the Belze 13.9 19.2 oil exporting countries of the Near East Jamaica 35.0 69.5 and North Africa, consistently identified Suriname 22.4 27.7 by low per capita consumption. WVndward Islnds 75.9 202.5 by ~~~~~~~~~~~~~~~Dominica 7.3 49.4 Growth in these markets had been Grenada 11.1 7.0 promising, but recent economic SL Lucia 31.2 85.1 difficulties have led to a sharp reduction St Vincent and the Grenadines 26.3 61.0 in demand in all but a few countries. Total Caribbean 147.2 31489 in demand in all ~~~~~~~~Total UK Market 328.5 489.3 Source: FAO. Other Markets. Diverse trade flows of only local or minor quantitative significance indudes exports to near by or adjacent directly involved in the production of around 60 markets such as from Ecuador to Chile and percent of their export supplies. They were, Argentina, and from various Padfic Islands and however, quick to become involved in the Ecuador to New Zealand. Philippines after the opening of the Japanese markets in the 1980's. The involvement of A well-known feature of the export trade is the multinationals in the production and trade of what major role played by three multinational is after all an unsophisticated, unprocessed, fresh 108 ANNEX A Table A.S. UK Market Famiretail spread, 1976,1986 and 1992 (pence per lb or percent) Year Farr Vakue Wholesale Retail Price FannRetail Spread Famner Share of Retail Pic Maketings Price Share of Retil Price 1976 2.9 n/a 15.8 12.9 18.4 81.6 1981 4.5 17.9 266 22.1 169 83.1 1986 89 29.8 43.7 34.8 20.4 79.6 1992 8.8 30.4 54.0 45.2 163 83.7 Ihe pnce iward land banana vowets ve is the residual market vakie left after al the costs and margins associated with the operations othe Banana Grwers Association and GEEST have been deducted. Prices are not uniormn dther within or between each of the islands because of the unit costs of eaich one of the Associations are different; the rate of input vares from Wland to iland; and other premia payrent if and when received, also dcter from island to island. Source: WINBAN- Consultant study for CDB. 1993, on Banana Industry of Windward slands. product has been noted by analysts of this quality exchange export earnings; in the French Overseas control in the marketing of a highly perishable Departments, Guadeloupe and Martinique, 50 product. This perishability leads to the importance percent; in Belize the equivalent proportion is of the shipping, marketing and distribution chains, about 9 percent; in Costa Rica, Honduras, Panama which in turn lead to high returns that can be and Somalia, it is in excess of 20 percent; and in earned in these activities rather than in production. most other banana exporting countries less than 10 However, the logistics need to be managed very percent. In some of the producing countries, the efficiently for these profits to be realized, and it is industry is also an important source of income and here that the management skills of the employment. In the Windward Islands, the banana multinationals are relevant. The economies of sector contributes around 30 percent of GDP and scale in production, shipping and transportation provides employment for about 50 percent of the also encourage large vertically integrated labor force. Moreover, bananas have a weekly organizations. harvesting schedule throughout the year and, thus, offer regular employment. This regularity has In the Windward Islands, bananas account for important social and infrastructure implications. As between 47 percent and 84 percent of foreign a result of this dependency, many of these Table A.6: UK Banana Prices, 1980-1992 (pence per lb. or percent) Year FOB Price CIF Wholesale Retail Retail Margin/ Wholesale Margin/ Shippers & Handles Price Price Price Retail Pricea Retail Priceb Margin COF-FOB/Retail Price 1980 17.1 25.7 33.5 1981 17.9 26.5 32.5 1982 20.3 29.8 31.9 1983 23.5 33.6 30.1 1984 25.7 39.3 34.6 1985 27.5 44.1 37.6 1986 29.8 45.8 34.9 1987 31.0 48.5 36.1 1988 15.3 19.6 29.9 48.3 38.1 21.3 8.9 1989 15.1 20.4 28.9 48.0 40.0 17.7 11.0 1990 14.6 20.9 29.9 51.9 42.4 17.3 12.1 1991 15.0 21.7 30.7 53.9 43.0 16.6 12.4 1992 13.8 30.4 54.0 43.7 a. Retail Margin = Retail Price - Wholesale Price. b. Whoklsale Margin = Whole Price - CIF Price. Source: FAO. 109 ECONOMIC POLICIES FOR TRANSITION economies are especially exposed to external Although the UK market is growing (import shocks. demand will continue its upward trend because per capita consumption is relatively low) and the Caribbean Market Caribbean exporters aim to capture their quota allocations by expanding production in the short Banana exports from Jamaica and the Windward term, other sources will continue to expand their Islands owe their origin to the scarcity of 'dollars' in supplies unless restricted by quota. One question the UK in the 1950s. Subsequently, other is whether fast Caribbean banana growth is producers, such as Belize and Suriname, also desirable in the expectation of remaining in the UK became dependent on the UK market and the market while production costs are much higher other three Windward Islands became UK suppliers than those of Central and South America 'dollar in the 1950s. Since then, these countries have bananas.' geared their exports to the UK market. Since the early 1980s, considerable expansion has taken Data on marketing costs are not easily available, place in Jamaica and the Windward Islands. but it is generally believed that prices are highest in Among the other Caribbean countries, Belize and the protected markets of France, Italy and the UK. Suriname were also the principal suppliers to the The cost of marketing in the UK is considered to UK market In 1991, the combined share of the be the highest while that in the German market is Caribbean countries' exports to the UK market believed to be the lowest. As Table A.5 accounted for 65 percent of the total compared demonstrates, the farm-retail spread in the UK with 45 percent in 1980 (see Table A.4). The between 1976 and 1992 ranged from 80 to 84 remainder of the UK market was supplied by percent. 'dollar banana' exporters, namely, Colombia, Costa Rica, Ecuador, Guatemala and Honduras, and some As seen in Table A.6, retail prices in the UK rose other African and Central and South American steadily from 1980 while at the same time the retail suppliers. It should be noted that these countries margin was also rising, both in absolute and relative have been the residual suppliers to the UK market - terms. The margin at the wholesale level, however, - allowed to ship only when Caribbean bananas appears to be dedining since 1988. This may reflect were unable to supply total demand. In 1980, a some compebtiion among banana ripeners. There are little over 95 percent of total Caribbean exports only three major importers in the UK, of wNch GEEST was destined for the UK market. By 1991, this has a 40 percent share, but there is an increasing role share had fallen to 90 percent, although the for multiple chain stores in selling bananas. What is quantity exported had more than doubled; yet, it obvious from Tables A.5 and A.6 is that increased was not sufficient to meet the demand. The demand for more processing and improvements irr resulting shortfall was filled by 'dollar banana' marketing services has resulted in lowering the share imports and from African ACP producers. of the farmer by depressing farm prices.21 The UK has traditionally granted unrestricted duty- Data on costs of production in the Caribbean and in free access to Commonwealth producers such as Central and South America are limited. It is, therefore, Belize, Dominica, Grenada, Jamaica, St. Lucia and not possible to compare the competitiveness of St. Vincent, and to Surname. These arrangements Caribbean bananas with that of the most efficient are, however, no longer valid. The Commonwealth Central and South America producers. However, Caribbean countries will continue to maintain a based on estimates produced in 1990, a comparison duty-free preferred position in the EU under the of costs of production in the Windward Islands and new regime, but their export quantities have now Central America is shown in Table A.7. There is a been fixed. Most of the Caribbean bananas will marked difference between the Windward Islands and continue to be shipped to the UK market under the Central America in the FOB cost at the point of new EU regulations. Bananas from other sources shipment Central America enjoys a cost advantage will, however, be able to enter the UK market through other EU member states. 21See consultant study for the CDB endtled 'Development of a time phased acton plan to improve competitiveness of the banana industry in the Windward islands,' Appendix 4. 110 ANNEX A Table A.7: Production Costs In Windward Islands And Central America Windward Islands Central America Productivity 5 go 7 tonnes per acre 23 to 24 tonnes per acre Production cost US$1760 to 2420 per acre US$1100 to 1540 per acre Marketing cost! US$1 540 to 2200 per acre USS1320 to 1650 per acre FOB cost US$3300 to 4620 per acre USS2420 to 3190 per acre a. Marketing costs are the cost incurred by the Banana Growers Association In bringing bananas to the wharf for shipping to the UK and Italy. Source: USAID Office Barbados. of US$880 to US$1,430 per tonne. This means that for Dominica and Grenada are pointed out - the Windward Islands have a 36 to 45 percent significant variations in production systems usec, disadvantage on FOB cost Given the productivity variation in size and scale of operabons, and inability levels of 5 to 7 tonnes per acre and existing FOB costs to deterrmne the true cost of inputs and other setvices at the wharf, many producers in the Windward Islands provided by the Banana Growers Assodations,22 have very littte, if any, chance of competing in the Some of these figures may be at vanance from open market An important factor is labor, low estimates contained in earlier tables because figures in productivity and high costs adversely affect the cost Table A.9 are based on 1991 prices and assumptions structure. about yield and size of farms may be different. The high cost of labor in the Windward Islands is Table A.& Wndward Ilands Production Cost of Assumed 10 Tonnes Per Acre, 1990 Cost per Acre US$ Percent Cost of labor 857 43.5 Cost of inputs 512 26.0 Post harvest cost 194 9.8 Managerment cost 370 18.8 Depreciation cost 37 1.9 Total production cost 1.970 100.0 Source: FAO and USAID Office, Barbados. Cost estimates based on higher than average attributable to alternative employment opportunibes productivity - 10 tonnes per acre - show that the cost in construction and tourism. These two sectors of produdng in the Windward Islands is US$1,970 per continue to attract labor away from agriculture. Input acre. The major cost component is labor, accounting costs are higher because of smaler volumes for 44 percent (if the post harvest cost is induded then purdiased. To compete in the single European labor cost woutd average 54 percent), followed by market, costs must be sharply reduced and inputs (26 percent), and management (19 percent) producbvity rapidly inreased. (see Table A.8). In considering the implicabons of the single European A recent study prepared for the Caribbean market for Caribbean producers it must be stressed Development Bank on 'The development of a bme phased action plan to improve the comnpetitiveness of 22See consutant study for CDI: Development of a tnimphased the industry in the Windward Islands", estmated costs action plan to improve competitiveness of the banana industry of of producton. Difficulties in preparing cost profiles the Windward Islands, 1993, p. 35. 111 ECONOMIC POLICIES FOR TRANSITION that thxse countries face an uphill task in an open earnings would have an adverse impact on market The difference in competitive conditions with employment Central and South Anerica can be summarized in the box below: -1. . rtw- *wgau' zas hRyor mou.-tInogw. tM;Ited land1.- t--- f l ri...l.........., .... ........ ty.... ... , . .;....... -. -Er~l i,ndo ,#- -d IhEFQ9 lo :-ie-. t -i- - -)t s-l,li ii4W 4ISes(1:i 0:i if ij4 toin:s:X'SSi' ifr acri,e)S iet Notwithtanin rlativpelyrt ra h aighers prdcto costs, Erpeantanion Regrimutue *W~ondb unt bananas~~~~~~~~~~~~~~~~n areiaU vitalate tothpWndaraIlad ooom. .hey tprovideo soptable c foreign exchngto mearngs Sinoer 198t cth EU hapus buetom tIh Iues towrgf banana ignfianet ernployment soiltpeot.t an otiue mricet due tohoer world. Inw 199u, itO acontd fr3 e~~~ononv*s oliargescale. .....~~~~~.. ..... baaa ar vit.... toteWnwadIlnteoois They provide stable fOreign ~ ecang eanng, Sic 18 the EUhsbeoeteoagstbnn sig :fiant, epomnopotnte,adcnbt maetithwod. In 191 .tacout..or3 to nabonal income. The industry has been a major percent of world imports. These reached a peak of -source of econornic growth, achieved under the 3.6 million tonnes from 2.5 million tonnes five years umbrella of protectionism in the EU. Table A.10 earlier. The growing share is reflected in the demonstrates the importance of the industry to the increasing EU banana per capita consumption, which Caribbean economies. It should be noted that, as far in 1991 reached a peak of 10.1 kg as compared to 7 as tax revenues are concered, banana farmers have kg five years earlier. The German market contributed been exempted from the payment of direct taxes in significantly to this growth. In 1991 Germany the Windward Islands. Nevertheless, there is a imported 1.29 million tonnes, or 36 percent of total relatonship between fiscal revenue and producer EU imports. In the same year, the UK, France and income from bananas because of indirect taxes. A Italy imported 489,300, 454,300 and 452,000 tonnes rise in banana income leads to an increase Si respectvely, and in percentage terms these figures expenditures on goods and servicf which are subject represented 14, 13 and 13 percent, respectively. to import duties and consumption tax in the These four states imported 76 percent of total EU Windward Islands. 1989-91 estimatce indicate that imports. indirect taxes contributed between 27 percent and 45 percent of current revenue in Dominica, Grenada, St. Banana supplies to the EU originate from three main Luia and St Vincenpt whereas direct taxes accounted groups: EU domebsc producers, producers from ACP for ies than 13 percent It is, therefore, obvious that countries signatories in the Lome Convenbaon, and any fall in producer income translatf into significant hdollar banana' producers from Central and South reduceons in current revenues and prefsures on fiscal America EU imports of wdhlar bananas' in 1991 balances. accounted for about 64 percent of the total, domestically produced bananas contributed nearly 20 Although data on employment in the banana and percent, and African and Caribbean bananas about related sectors are rather weak in these countries, 18 percent Of the EU countries, the UK was the unoffidal esimates pnt to the fact that banana principal importer of Caribbean bananas (.indward production, internal transportaion and dpstribuon of Islands, Jamaica, Belize and Surname). UK imports inputs is probably a source of nearly 50 percent of the fomntis source rose from 274,000 tonnes in 1986 to total employment A decrease in banana export 319,000 tonndf in 1991, accountng for 9 to 12 112 ANNEX A Table A.9: Windward Ilands Cost of Production' Spain. In the case of France, production of the French Overseas Teritofies of Dornica Grenada St Lucia Guadeloupe and Martinique (1991) (I991) (1990) was induded in this group. Labor Cost per Acre (USS) 964 1,616 1,097 France imported from the Input Cost (USS) 791 609 362 ACP countries (Cameroon Production Cost (USS) 1,755 2,225 1,459 and lvory Coast) nearly 37 Labor Share of Production Cost 55 73 75 Input Cost Share of Production Cost 45 27 25 percent of its total imports It also imnported, along with Greece and Portugal, from a. Based on farmn of sie five acres or kess for St Luda and for Dorninica and Grenada Golar suppliers under license farms size of three acres. Source: Consultant study for CDB 1993 on Banana Indust"y of Windward Islands, p. 36. and subject to the 20 percent duty. Spain relied percent of total EU imnports. Exports from the on its supplies from Windward Islands have contributed from 7 to 10 domestbc sources This group accounted for 28 percent of total EU imports between 1986 and 1991, percent of EU consumption in 1991. a sigrificant increase from about 4 to 5 percent in the early 1 980s * ACP Sulpplies. UK and Italy were induded in this category. The UK imported nearly 65 percent of The EU banana market prior to the comning into force its imports from the Caribbean sources 'Bollar on July 1, 1993 of the single market banana regime, bananas,' if imported, were subject to Gcensing was governed by four cdstinct regulations: and to the 20 percent common external tariff. Italy was also in this category and in recent years, Duty Free. Germany was the only EU memiber in due to shortfalls from suppies from Somalia, had .because of a speial protocol to been importing 'dollar bananas'. In 1991, the UK Treaty of Rome. Geymany is also the largest and Italy together accounted for 26 percent of EU irmporter, accounting for 36 percent of EU banana consumpbon. banana consumnption in 1991. Table A.10 Windward Isands' Banana Exports, 1980,1991 and 1992 Banana Exports/ Banana Eport/ Domnstic Banana EBPorts/ GD1P Merchandise Exports Total BEoort Eamines 1980 1991 1992 1980 1991 1992 1980 1991 1992 Windward Islands n.a. 14.620 15.1 n.a. 50.9 53.5 n.a. 51.0 54.5 Dorninica 5.1 .3 19.1 30.9 58.5 56.6 30.9 5&5 57.0 Grenada 4.8 2.2 1.7 24.4 18.6 17.2 23.6 19.0 17.2 St Lucia 9.3 16.1 17.5 31.2 54.0 60.1 22.9 54.0 60.0 St. Vincent 10.7 18.6 18.3 32.8 49.7 49.3 31.0 50.0 49.3 n.a. = not availba. Sources: WINBAN Annual reports and World Bank. The main features of the new regime are: * Duty Paid. Belgiurm Denmark, Ireland, Luxembourg and the Netherlands applied a 20 * Finandal support and restructuring sdcemes for percent tariff on dolar bananas and accounted bananas produced within EU territory for 9 percent of EU consumption. (Guadeloupe, Martirique Canary Islands, Madeira and Greece);23'2M * Domesically Produced. This category encompassed France, Greece, Portugal and 23linancal support means that compensation for any os of Income shal be granted to EC producers who are nwmbers of a 113 ECONOMIC POLICIES FOR TRANSITION * Tariff-free entry for traditional quantities of ACP Ucense allocation procedures for importers within the bananas and for nornractional ACP bananas tariff quota are complex. They are largely based on inside the 2 mnillion tonnes quota25 historic trade but there are two stages to consider. First the 2 rrillion tonnes are divided into three parts, * A tariff quota of 2 rrillion tonnes (subject to that is: 66.5 percent to be allocated according to third- possible upward adjustment as consumption country trade ('dollar bananas" and nontradibional expands) for other bananas at a tariff of 100 ACP bananas); 30 percent according to trade in ACP ECUs per tonne, roughly equivalent to the former induding Caribbean or EU fruit; and 3.5 percent for 20 percent taiff; newcomers, that is, those with no record of trade in non-ACP third country fruit Secondly, there is a * A much higher tariff (750 EUU per tonne) on any weighting given to each stage of the operations of an imports above the quota; and importer that qualify for license entitlement Each banana, for these purposes, is considered to have * An allocabon of the quotas among importers in undergone three markebing stages: (a) primary import such a way that importers of the ACP bananas would also have a shue in Table A.11: imports from elsewhere. Traditional Banan Quantities From Windward Ilands Metric Tonnes It is irmportant to note that the actual level of te tariff quota will be determined in advance Dominica 71,000 Grenada 14,000 of the year to which it applies in the light of StGruda 127,000 likely supplies and market requirements. It can, St Vincent and the Grenadines 82,000 therefore, be adjusted upwards from the basic Source: OECS Secretariat level of 2 million tonnes.26 For each individual ACP state, its 'traditional' quantity or quota is (shipping to Europe); (b) secondary import (customs set out in an annex to the regulation. This is shown in dearance); and (c) ripening. The weightings accorded Table A.1 1 for the Windward Islands. to each stage are respectively 57:15:28. If a trader undertakes all three operations, they can daim the total tonnage handled. If a trader is simply the recognized producer's orpnization which is rnarketing in the EC bananas compying with the comrnon standards hid down pnmary importer, the weight is 0.57 for each tonne However, compensation may be paid to an Individual producer handled, and so on. who, because of a specific situation, and in particular geographica location, is unable to join a producerls ognzd. QuoaarnttasfabemngAPtts,ir The nethdobg forcalchan ns on rgaization. Qotas are not transferable among ACP states, rior The methodology for calculating comipensation Is described in the regulations. The regulation fixes the maximum quandty of can ACP states group together for quota purposes. banans produced in the EC and marketed for which The four Windward Islands have thus to be compensadon may be paid at 854,000 tonnes to be broken down considered separately. Quandties in excess of the as follows for each producer region in the EC: Canry Wands 420,000 tonnes, Guadeloupe 150,000 tonnes; Martinique tradioonal levels may be imported either (i) on 219,000 tonnes; Madeira the Azores and the Algarve 50,000 payment of an over-quota tariff of 750 ECUs per tonnes and Crete and Lakonia 15.000 tonnes. tonne or (ii) as part of the 2 million tonnes tariff quota. 24nitialy it was suggested that ACP e t EU w In this case, a license would be required but the duty benefit from such an income support scheme a Commission would be zero. The ACP states, indudi?n Carbbean proposal for technical assistance and revenue suppon for exporters of bananas, enjoy a 100 ECU margin of traditional ACP supple Is at present blocked in the Council. preference over the dollar regime within their respective 'quotas' or without 2lmporter are required to make a security deposit of IS ECUs per tonne which will be refunded on importation of the kcensed quantity. 27Caribbean traditional exports enter duty4ree whereas 'dollar bananas' pay a duty of 20 percent or 100 ECUs, but if they were 2It is possible to raise quotas whenever prices move upwards but to export over and above their traditonal quota and do not it s not ckar whether the 2 million tonnes quota can be reduced, obtain a license, in that event they are lable to pay a tariff of 750 if pices fel sharply. This task Is assigned to the Banana ECUs, thus the preference of 100 ECUs for Caribbean bananas is Management Committee of the EU Commission, maintained. 114 ANNEX A The reference period for past trade is a three-year contrary to the exisbng rules of the GATT, and were rolling average, starbing with 1989-91 for the quota cisairrinatory and severely lirrited their entlements, distributon coveting the second half of 1993, moving and were therefore ilegaL A GATr Panel has upheld to 1990.92 for 1994 licenses and so on. An the Central and South American complaint. The individual's license entitlenent is calculated separately GATr Coundl, however, failed to obtain a consensus in respect of third country, that is, dollar banana, and in a meetng on June 16, 1993. Instead, the GATT EU/ACP inducing Caribbean fruit Purely to illustrate, Coundl appointed another panel to examine the if a trader had been the prinary importer (but not the current regulabons. The GATT Panel reported again secondary importer or ripener) of 10,000 tonnes per on February 15, 1994, that the European Union year of ACP fruit in a reference period when total banana regime violates GATT's riles. ACP imports and EU sencings28 to the EU were 1.5 rmillion metric tonnes per year, he would qualify for a The second challenge came from Germany supported license on the basis of the formula given in the by Belgium and the Nethedands, on the basis that the footnote below.29 The newcomer's share (70,000 Community dedsion revoked the spedal Protocol tonnes) will be divided equally among all the Germany enjoyed under the Treaty of Rome and was newcomers who apply. For the second half of 1993, adopted by a qualified majouity while unanimity was it amounts to 0.48 tonnes per applicant required in such a case, and that the EU regulaton disaiminated against Central and South American A Management Committee for Bananas has been suppliers and would result in significant increases in established to operate the regulations. The price for the German consumer. Germany, therefore, Committee has made the first cistrbuton of importers inibated proceedings against the new regime In the Ucenses for the quarter beginning July 1, 1993. The European Court of Justce. Germany also asked for price objective of the regulations is to permit bananas the postponement of the coming into force of the produced in the EU and those from the ACP states regime on July 1, 1993. The European Court dedded which are traditional suppliers to be disposed of on on June 29,1993 to deny the German request the EU market providing an adequate income for producers and at fair prices for consumers without Prior to the advent of the new EU regimne, the undermining imports of bananas from other third scenario most talked about was that the exporters country suppliers. Although the objective is laudable, would face a slaw and gradual removal of subsidies. only the implementation of the regulabons over a It was also thought that prices would drop initally due period of time will demonstrate whether it is to increased supplies and then would rise again but to achievable. lower levels than before. Afterwards, prices would respond to supply and demand forces in a more open The EU's dedsion on bananas sparked hosble market reactions from 'dollar banana' interests in Central and South America, and from the U.S. and within the In 1991, the highest retail price in the EU was Community itself, on an unprecedented scale both in US$2,386 per tonne in Italy and in the UK it was terms of intensity and objecbves. The challenges to US$2,219. These levels were 29 percent and 15 the EU regulabons have come from two fronts. The percent higher than those in Germany and France. first, which is ostensibly targeted at the EU under the On the whole, the prices in the protected segment of umbrella of the GATU, has been launched by five Labn the EU market were, on average, 26 percent higher American countries (Costa Rica, Colombia, than in Germany. In the period 1980 to 1992, retail Guatemala, Nicaragua and Venezuela), which daimed prices rose sharply in the UK Between 1980 and that both the regime prior to July 1, 1993 and the 1991 retail prices rose 110 percent In Germany, future regime as provided for by the regulation and France and Italy, prices between the same period rose which came into effect from July 1, 1993, were by 36 percent, 129 percent and 87 percent respecbvely. Price forecasts for 1993 differ widely 26EC sendinp refer to imports from Guadeloupe, Martinique, depending upon the assumptions about quota and Canary Isnds, Madeira, the Azors and the Algare, and Ce tariffs. However, according to a World Bank 36 and Lkonia. Discussion Paper, with the assupipbon of a dolar 2910,000 x 0.57 x 600,000 = 2,280 tons. 1,500,000 oBorret Bren and M.C. Yang. EC Bananarama 1992. The Sequet World Bank Working Paper WPS 958, p. 12. 115 ECONOMIC POLICIES FOR TRANSITION quota of 2 fillion tonnes and a 20 percent tariff, a distribution patterns, recondliation of quality retail price of US$2,099 wil be readied The 1991 differentials, etc, the shaping of which, together with average weighted retail price for Germany, France, the implementation of Management Committee Italy and the UK was US$1,954 per tonne. The dedsions, will affect market operations. Moreover, forecast price wil thus be 7.4 percent above the 1991 the banana distribution chain from farm to retail is weighted price. In the first six months of 1993, that is, highly integrated based on a precise rotation schedule prior to the single European market corring into being which ensures regularity of supply and rapid on July 1, 1993, retail prices in selected countries turnaround of vessels, ripening techniques, effective were as shown below. UK prices were only 0.6 utilization of ripening capadty, etc The perishability percent higher than German prices. If this trend were of bananas predudes any action whidh would to be translated into the longer term then the seriously hamper the smooth operation of this chain. differential between the German and the formerly Any action which results in a serious distortion of the protected markets of the UK will be negligible. marketing chain is likely to have a major impact on Current market inteligence suggests that the German costs and prices which in tum would impact upon and the UK prices are fairly stable but that German consumer demand. Another element to be prices are edging upwards. Since the advent of the considered in the short run, is the inflexibility of the single European market, prices in the formerly supply chain. Both Caribbean and 'dollar banana' protected markets in the EU have not fallen but have producers are locked into contractual arrangements remained above the free market price (US price): with traditional markebing groups. It would take time to disentangle such arrangements, even if it were January bt June 1993 (US cents per b.) praclical and desirable to do so in the longer term. UK France Germarn USA The Banana Management Committee is targeting a 71.4 98.0 71.0 47.0 price by fixing the volume of imports into the EU but it is not dear what the target is. This price should From 1985-90, ACP suppliers received an average of meet the commitment of the EU to maintain a fair and CIF price of US$669.8 as compared with EU producer equitable price for both banana exporters and aF price of US$684.2, while that for 'dollar bananas' consumers. The present quota allocabons amount to was US$501.5 (see Table A.12). During this period 3.7 million tonnes. The Caribbean countries have a ACP producers had an average advantage of 31 quota of 477,000 tonnes, the rest of the ACP percent over dollar producers. The current EU countries 380,700 tonnes and the EU producers regulations would attempt to maintain this advantage 854,000 tonnes. Collectively the duty free exporters to the ACP suppiers, induding Caribbean suppliers. have a quota of 1.7 million tonnes. The Caribbean But whether they wil be able to acieve this objective quota is 24 percent of the dollar quota and the is a queston mark. Quota manipulabon will require Windward Islands is 14.7 percenL The dollar area fine tuning; fine tuning hardly ever succeeds. exporters have a quota of 2 million tonnes, which if required, could be adjusted upwards. In all, the quota Under the new regime, Caribbean exporters continue is 3.7 million tonnes, and the projected import to have a favorable posibon within the EU. However, requirements are 3.85 million tonnes by 1995. This this favorable positon can be eroded since there are would mean that demand and supply equilibrium will no assurances that the 2 miiiion tonne 'dolar nornally be reached at a higher price. However, bananas' quota will not be increased3". The EU since all bananas will flow freely in the EU, a certain regulabons for the organizabon of a single European amount of competibon will have some adverse banana market have begun to evolve but have not yet impact on prices. For the time being, therefore, been time-tested. There are a number of unknowns Caribbean countries are assured of the volume but and details have yet to be developed. There are many not the price. It should, however, be noted that the factors such as consumer behavior, flexibility in average price of bananas in the EU following the new regime is likely to be higher as compared to the old 1Importers are required to make a security deposit of 15 ECUs regime, particulary if the overall quota is maintained per tonne whkh wil be refunded on importation of the censed at 3.7 million metric tonnes. The Windward Islands quantity. bananas, because of quality differences, may fetch a lower price, possibly as much as 20 percent 116 ANNEX A Table A.12: EU Import Prices, 1985-1990 (CIF Price USS per tonne) ACP EU Dollar Suppliers Weighted Average Suppliers Suppliers 1985 544.2 482.5 427.6 464.9 1986 665.3 636.8 495.5 571.0 1987 737.6 764.1 348.6 661.4 1988 779.0 773.1 532.8 646.4 1989 683.0 672.5 518.1 586.5 1990 789.3 776.5 636.5 693.8 Average 699.8 684.2 501.5 1985-90 Source: EU Commission. Prospecis for Caribbean Exporls and reach 3.85 million tonnes by 1995. Banana imports in Germany were projected to grow only In a FAO study on wodid banana import reqLirements moderately but they could reach about 1.4 million in 1995,32 an annual per capita consumption of tonnes by 1995, accounting for 37 percent of the EU around 10 kg., which some years ago was considered total. Import demand in the UK is expected to be 8 to represent saturation level, was exceeded in many percent higher than in 1991. On the other hand, importing countries. In fact, world banana imports World Bank projections of import demand for 1995 previously projected for 1994 were reached in 1991. were reached in 1991. These forecasts do not take However, developments varied considerably in the into account the new regime in the EU. On the European and North American markets. While whole, world import demand would rise by an annual imports into the EU and other areas of Westem average growth rate of 2.3 percent from 1991. This Europe rose more rapidly than antidpated, they projection implies the continuation of the favorable increased only moderately in the U.S. and Canada annual growth in banana imports observed since the from 1988 to 1991. In forecasbng the 1995 level, mid-1 980's. Imports by developed countries, as a FAO took into account past trends of per capita whole, are projected to grow at an annual rate of 1.9 demand and gave higher weighbing to the larger percent over the 1991-95 period and may account for import/consumpbon figures of recent years. On this 88 percent of world imports. basis, FAO forecasts and World Bank projections for world import demand in 1995 are shown in Table Caribbean banana exporters to the EU continue to A.1 3. This table illustrates that world import demand receive preferential treatment under the new regime in 1991 matched the World Bank projected demand being challenged by competitors from Central and for 1995. The main factors influencing demand since South America and by the major importer, Germany. 1990s were marketing promoton, increased The Caribbean exports will, therefore, be operating in consumer preference for convenience foods, an uncertain environment. The uncertainties inaeasing health consciousness, competitive pridng surrounding the creation of the single EU banana the unificabon of Germany, and trade liberalizabon in market and the regulabons goveming it pose a major Korea.33 problem to banana marketing in the EU. The liffing of barriers between EU member states should raise the In the FAO forecasts, EU banana imports were demand for cheaper "dollar bananas' and shtmulate re- projected to grow at an annual rate of 1.3 percent export from Germany to other EU member states to the disadvantage of all other EU traditional suppliers 2FAO: CEP: BA92/3: Medium Term Outlook for World Trade in induding the Caribbean exporters. Bananas, July, 1993, p. 3. A possible scenario is the one where the Windward World Bank: Market Outlook for Major Primary Commodities, Islands and Belize, Jamaica and Surname will have to October 1992, p. 61. compete with the cheaper 'dollar bananas' from 117 ECONOMIC POLICIES FOR TRANSITION Table A.13: World Imports of Bananas, 1991 and 1995 (000 metric tonnes) -World Bank- 1991 1995 1995 EU 3,622.6 3,850.0 n.a. France 454.3 480.0 507.0 Germany 1,355.2 1,400.0 1,355.0 Italy 452.0 520.0 443.0 UK 489.3 530.0 483.0 Rest of Developed Countries 4,883.2 5,297.0 6,611.0 Developing Countries 1,013.0 1,254.0 1,227.0 World 9,518.8 10,401.0 9,606.0 n.a. = not availbe. Sources: FAO Medium Tern Outook for World Trade Bananas, July 1992 and World Bank: Market Outlooks for Major Primary Commodities, October 1992. Central and South Amneica. Since the Caribbean exporters. It is generally forecast that prices for countries, espedally the Windward Islands, depend Caribbean bananas will be much lower than those heavily on banana exports to the EU, this scenario will obtained prior to July 1, 1993. Some forecasters are reduce the demand for the relatively costly Windward of the view that a price decline of as much as 30 to 40 Islands bananas, and, therefore, reduce their export percent may occur. This may be due to the fact that earnings. A sharp reduction in the Windward Islands the UK prices were much higher than those in export earnings wil place their economic future in Germany. If this were to occur and assuming a lower jeopardy. This is because small-scale farmers - which range of this forecast of a 30 percent dedine in export constitute a significant proporton of producers and earings, Table A14 shows the dedine in export do not have supplementary means of income - will earnings from the 1991 level. If export prices were to suffer a sharp decine in incomes and will not be able fall to the level indicated, export volumes would also to provide employment for the rural populabon. In be affected. The magnitude of the dedine in export additon, smalscale farmers live in the rural areas, earnings would have a devastating impact on the hence their income tends to remain within the local economies of the Windward Islands. economy. In the Windward Islands, the actual price received by The probability of further liberalizabon of preferental the banana growers is the residual market value left treatment to a selected group of countries cannot be after all costs and margins assodated with the Banana ried out. Some Canibbean countries will find it Growers Assodatbon operations and GEEST's cost difficult, if not impossible, to maintain their current EU have been deducted As a result it is fair to assume banana export levels in a compebtve atmosphere that a 30 to 40 percent decline in UK CIF prices since their costs of production are much higher than would translate itself into a proportionate dedine all those of dollar bananas. the way to the farm. On this basis, Table A.15 illustrates the fall which would occur in CIF prices for One of the extreme scenarios which might be the Windward Islands' bananas shipped to the UK envisaged is that Caribbean exporters of bananas, market If the quantum of exports from the especially from the Windward Islands, are unable to Windward Islands was maintained at the level of 1992 withstand the wind of competibon which may lead to exports of 274,600 tonnes and prices fell to the levels total extincbon of the industry. The consequences of indicated, total earnings would amount to Pound such an event wiU be extremely high. If these Sterling 89.6 million and 79.6 million (US$155.9 countries fail to find altemative crops, and to diversify rmillion and US$133.8 million) at 30 percent and 40 into other productive activibes, this would have far percent falls respectively. This would mean a loss of reaching adverse economic; political and social US$67.4 migion and US$89.5 million from the 1992 ramificabons. base, which if it occurred over a five year period would average a fall of approximately US$16 million The erosion of full market protection in the UK market each year. Farmers revenues would also dedine, and will adversely affect the export earrings of Caribbean the banana industry earnings have a large multiplier 118 ANNEX A effect on the economy. The issue is one of cash flow is the inescapable condusion that the preferential to farmers and also of employment Roughly 30,000 treatment for Caribbean exporters is likely to be farmers are involved in the Windward Islands banana eroded. Moreover, three of the four countries within industry, of which as many as 50 percent may be the Windward Islands (Dormnica, Grenada and St marginal farmers. In additior, the banana industry Vincent) may be unable to fulfill their quota although provided employment to a large segment of the efforts are under way to increase production and Table A.14: Windward Islands Export Earnings from Bana Actual Export Eamings Windward Islands Dominica 33,709 Grenada 3,704 St Lucia 56,020 St Vincent and the Grenadines 35,482 Source: IBRD estimates. additional labor force. In all, it is estimated that about productivity to meet these targets. However, while 15,000 farmers and another 10,000 to 15,000 workers output expansion may appear beneficial in the short involved in harvesting and post.harvesting, run due to the current uncertain environment, in the transportation and other ancillary activities could be long run it will encourage an allocation of scarce adversely affected resources in a manner which may not be their most effident use. Policy Options. The Caribbean banana industry, particularly that of the Windward Islands, is The Caribbean exporters of bananas wil have to undergoing the end of an era with the introduction of adjust in the face of an uncertain transition and future. he new EU banana regimne. Under the new regime The issue is not one of adjustment but at what speed some measure of guaranteed access is being should the adjustment be made. In this context, permitted for the Caribbean exporters but Caribbean govemments should be encouraged to competition is now the watchword in the EU market. develop a strategy for speedy adjustment The Pressure for increased competition within the EU govemments have to face the question of short term Table A.1 5: Windward Islands' - Estimated Fall in Export Earnings Actual 30 percent Decine 40 percent Decine 1992 CIF Price 21.2 14.8 12.7 (Pence per lb.) 1992 Farmer Price &8 6.2 5.3 (Pence per lb.) Volume of Exports 1992 CIF Price and 30 percent Decline 40 percent Decline (MT) Quantity Pound Sterling Pound SterLng Pound Sterling Windward Islands 274,600 12&3 89.6 76.9 Dominica 58,000 27.1 18.9 16.2 Grenada 6,300 2.9 2.1 1.8 St Lucia 132,900 62.1 43.4 37.2 St Vincent and the 77,400 36.2 25.2 21.7 Grenadines Source: Actual price figures are from the UK Ministy of Agriculural Fisheries and Food and WINBAN. market is being built by the Central and South maximization of benefits or a longer term strategy to American exporters and the queston of preferenbal evolve a more secure and stable economy. treatment might reemerge as an issue within the GATr framework and unhappiness over the present Improving efficiency and the incentive structure arrangements has emerged within the EU. All in all it should be the long term objective of a banana 119 ECONOMIC POLICIES FOR TRANSITION development strategy. Being a small holder based The banana industry of the Caribbean would be economy, the level of farm value relative to farrn forced to compress and become much smaller. The production costs is crucial to the banana industry's economic and social consequences of this sustainability. This farm value which approximates 16 compression would be enormous. Apart from the percent of the UK retail price is the residual remaining farmers, the industry provides employment and after all the costs and margins associated with the income to a large segment of society. The cost of the post-farmgate stages have been covered. In an industry's compression would be high. It would not environment where real prces for bananas are likely only adversely affect the national economy but would to continue their slow dedine, savings in post- affect the living standards of farners and those farmgate costs will be required if farm incomes are to associated with the banana industry. For example, it be maintained. is estimated that 27,000 to 30,000 farmers scattered all over the Windward Islands produce bananas. A Moreover, in order to increase productivity in the compression of the industry would deprive 50 percent agricultural sector, it is of paramount importance to of these farmers of their livelihood. A safety net needs develop strategies to improve the effectiveness of to be provided to ease the economic and social costs agricultural research, extension and training. Effort to countries and those dependent on the industry in should be directed to improving cost effectiveness in the transition period. A mechanism to provide a this area. Consideration should be given to safety net must be cost effective and should be transferring greater responsibility for providing applied to an identifiable target Any safety net extension services to the private sector. Attention program must be geared to providing training needs to be directed to rationalizing and eliminating activities aimed at durable solutions to problems. some institutions and to providing a leaner framework Moreover, a safety net should also assist those who to operate effidendy.34 can, with help, operate more efficiently. An effciency objective should be factored into the program. It is now widely accepted that the EU banana policy may become less restrictive during the 1990s and the In evolving transition measures to support the prices received by the preferred suppliers are likely to compression of the banana industry, safety net fall substantially. At lower prices, some banana measures should emerge as part of an overall strategy industries will become uncompetitive. The extent to rather than be considered as a separate activity. In which this will be so will differ from country to this context correction of the relative prices of various country, depending on changes in their real exchange factors of production need to be considered. rates and real wages, and their potential for productivity gains. However, in the short term, it is Caribbean banana production is mostly undertaken necessary for the Caribbean exporters to improve by small farm holders, and it is esftimated that around productivity and reliability of supply in the banana 50 percent of these are marginal farmers. Under the industry to meet their EU quota and maximize export pressure of lower prices these farmers will not be able eamings from this source. Not to do so risks losing to sustain productive activity. This will inevitably lead part of the quota and foregoing the implidt income to a labor displacement The quesftion is how to transfer. In devising policies to improve productivity absorb these resources in altemative activities. It in the short run, it would seem sensible to seek means would be essential to establish training fadlities to which would allow the most effident producers and train displaced workers to undertake diversificaton. those with the most scope for productivity increases In anticipation of this, a labor training fund should be the opportunity to improve productivity, but not created. adopt policies which attempt to increase productivity by all farmers. At the same time, it seems desirable to Under the new EU banana regime, there is not only a encourage the marginal farmers to move out of the country quota but the importers are being allocated a industry. quarterly quota for importation and require a license. Shipments will, therefore, have to be geared to 34Wodd Bank: Stitegies To Improye T Effe ss of quarterdy production and this will require accurate Agikutural Research, Edension And Training In CAR/COM, May forecasting. In view of this, as well as for overall 1993, suggests various avenues to reduce cost and improve productivity, establishment of a production forecasting effectiveness. 120 ANNEX A system to maximize the efficiency of shipping and Polides for adjustment require coorcinated action on distribution operations, is an urgent necessity. fiscal, monetary and exchange rate options among the OECS countries A sound fiscal policy is necessary to Another area of possible help to the Windward Islands constrain domestic inflationary pressures, to maintain is in the level of transport costs incurred in shipping a stable real exchange and to enhance bananas from the Caribbean to the UK Studies have competitiveness on foreign markets. shown that ocean freight rates are the most important single contract cost of exporting bananas from the Caribbean. A small reduction in that cost item will have a relatively large impact on the lancing cost of Caribbean bananas. This may help the Windward Islands bananas to become more competitive. The cost of marketing bananas in the U.K is considered to be the highest in the EU. Farm price and retail price spreads range from 80 percent to 84 percent. Thus, marketing margins take the largest share. It is necessary to find a mechanism to transfer the rent element in marketing in the short term to a fund which will assist the removal of marginal producers from the industry. The strategy for diversification away from bananas should indude a well planned and a coherent program which ought to indude, apart from tourism and other services, manufacturing fishery development and development of market intelligence and technology in production and processing of altemative crops such as mangos, dtrus fruit, horticultural products and cut flowers. The countries will need technical assistance to develop their market intelligence and its dissemination to farmers. In this context an examination should be undertaken of transport bottlenedcs to diversification induding airports. Tourism has emerged as a major source of diversification in some of the Windward Islands but Doiniica, although attempting to move into ecological tourism, has limitations because of black sand. Tourism is also a seasonal industry and moreover is subject to cydical influences originating in the developed countries of Europe and North America. But is has potential for further expansion. The agriculture sector can also be geared to cater for fruit and vegetable requirements of the tourist industry. The macroeconomic setting for economic adjustment in the Windward Islands differs markedly in the state of their central govemment finances and with respect to key balance of payments and debt indicators. 121 ECONOMIC POLICIES FOR TRANSMON Ta A.k16c Wold TrDaS in Bauma por, 190l991 (YOOme& knnes) 1960 1961 1982 1983 1964 1985 1986 1967 1968 1969 1990 1991 Carbbean Beize 15.0 10.5 10.7 10. 10.7 10.9 153 22.1 27.5 29.6 2as8 67 ham 33.1 162 21.4 23.4 11.0 13.0 20.9 34.7 27.9 43.0 61.2 7S.3 Suiname 34.0 3as 30.6 32.2 34.9 37.3 36.0 34.0 3S.6 268 283 2&2 Subegion 82.1 65.1 62.7 66.2 56.6 61.2 72.2 90.7 91.1 101.4 116.3 122.2 Whdwd Islands Dominica 7.8 27.5 27.5 29.9 33.3 34.5 51.0 61.2 73.3 52.6 S9.9 55.6 Grenada 12.5 10.2 9.6 4.1 66 A1 62 6. 9.1 66 7.7 6.7 SL Luda 33.5 43.1 41.8 46.9 64.S5 74.0 11.1 83.0 141.8 120.6 134.0 101.5 St Vncent & the Crenacne 19.6 33.4 26.8 25.0 34.5 44.1 43.4 39.0 60.4 67.3 77.8 68.2 Subreglon 73.3 114.2 105.6 105.9 140.9 160.7 113.7 191.4 284.6 249.2 279.3 232.0 Others DominicanPpqxbk 11.1 282 17.7 6.3 56 3.2 2.2 1.5 1.8 5.4 12.3 16.5 French West 1ndeL Guadaoupe 60.5 90.4 119.2 114.4 131.6 102.7 128.4 91.4 105.4 81.7 70.6 6sa Mu*lnqu 53.9 74.8 94.5 167.8 1760 154.1 173.7 170.8 174.5 1866 220.4 146.5 Sub-Sgon 125.6 183.3 231.5 2886 315.1 260.1 304.4 263.7 281.7 275.6 303.3 249.5 Regon 281.0 372.7 399.8 460.7 512.6 482.0 490.3 545.8 657.3 626.1 696. 603.7 Mexico ard Central America CostRica 999.2 1025.8 1015.8 1032.5 1029.8 856.5 86.2 991.2 1060.8 127S.7 1443.6 1641.1 Guatemala 391.1 400.0 404.1 316.1 320.9 365.8 342.7 363.5 332.9 395.8 366.3 332.3 Honduras 33.1 8041 914.5 714.4 8462 871.8 810.4 931.6 891.2 849.6 811.5 6967 Mexico 16.0 6.0 7.0 30.8 32.4 43.8 80.5 94.6 891.2 100.1 1S4.1 210.0 Nkaragua 120.5 94.3 146.7 68.6 82. 89.0 784 7S.8 72.0 79.6 92.0 106.6 Paiwn 504.9 572.6 565.5 652.0 655.4 6862 5869 675.8 583.4 676.9 745.8 706.6 Subfegon 2064.9 2902.8 3053.7 2814.4 2814.4 2913.2 2784.2 3132.4 3831.6 3377.7 3595.4 South Amea BRazl 673 66.7 59.2 89.4 103.2 105.3 101.2 81.2 76.2 83.5 53.1 384 Cobnbla 691.6 802.9 804.2 786.9 1029.8 783.0 907.1 994.0 977.7 9864 11462 1473.4 Ecuador 1290.6 1229.6 1261.3 910.0 907.2 1075.0 1365.3 14062 1551.2 1770.0 2209.6 2714.3 Venezuel S.7 6.9 7.5 14.2 26.2 2a0 30.3 15.4 16.4 34.2 37.5 364 Sub-gion 2055.3 2106.0 2132.1 1800.5 2066.3 1991.4 2483.8 2496.8 2621.4 2873.2 34484 4264.5 Region 41202 s506. 51868 4614.9 5036.0 4904.6 526.0 5629.3 6453.1 6250.9 7061.8 7880.o ANNEX A Table A.16. Woufd Trade in Banana Export., 1960-1991 (confd) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Ada Chna 10.1 95.4 99.0 121.0 127.1 135.3 96.9 124.5 102.5 97.1 52.2 75.0 IsRd 0.8 3.2 5.2 7.7 9.2 6.9 6.0 2.9 5.8 0.4 0.5 0.8 Malaysia 23.6 28.0 26.1 26.3 33.6 27.2 28.6 30.2 285 27.2 35.3 35.0 Pakstan 12.4 9.5 10.8 4.6 3.2 4.6 5.2 86 6.0 0.4 0.4 0.8 Phlippines 923.8 869.7 927.7 644.6 800.3 689.3 955.7 775.0 866.8 851.0 839.5 950.5 Thailand 12.7 16.2 18.4 9.7 4.4 4.0 2.2 1.8 1.6 3.6 2.4 2.1 Vietram 8.2 8.0 1.3 12.5 8.0 8.0 9.8 11.7 7.2 3.5 2.9 10.1 Region 991.5 1030.0 1088.4 826.4 985.8 974.2 1004.5 954.7 1018.4 973.3 933.5 1074.3 Cook Islnds 2.1 2.4 2.1 0.2 1.2 1.9 0.7 0.2 0.7 0.4 0.3 0.3 Samoa 2.3 1.2 2.1 1.3 0.4 0.1 0.1 0.1 0.1 0.1 0.0 0.2 Torg 2.3 2.7 0.6 1.1 2.6 2.6 4.1 3.6 1.3 0.4 0.3 1.2 Region 6.7 6.3 4.8 2.6 4.2 46 4.9 3.9 2.2 1.0 0.6 1.7 Afca Cameroon 64.9 53.3 40.9 4S.7 62.0 50.4 38.6 20.2 38.1 83.2 61.3 116.0 Cape Verde 1.0 2.0 1.2 1.2 0.5 1.4 1.9 1.4 2.2 3.2 3.2 3.0 Etiopa 5.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 "vs yCoast 122.0 111.4 91.7 99.6 99.6 11.2 91.7 94.9 77.8 85.7 101.0 120.0 Mdasar 2.3 1.3 0.2 0.1 0.1 0.5 0.0 0.5 0.1 0.7 0.0 0.1 Somfla 60.0 34.3 50.5 47.9 47.9 45.3 57.9 64.0 73.4 78.0 74.6 10.0 Region 245.0 204.3 1865 212.1 212.1 110.8 192.1 173.0 193.5 250.2 242.1 251.1 Europe Portgl (Ind Ma) 28.3 26.9 27.6 32.5 32.5 32.5 38.7 40.5 37.4 37.3 40.0 36.0 Spain (nd Caay IsAnd) 405.4 410.5 396.4 401.6 400.0 400.0 400.0 400.0 400.0 400.0 400.0 400.0 Region 433.7 437.4 424.0 434.1 432.6 432.5 438.7 440.5 437.4 437.3 440.0 4360 Woild 60780 7059.4 7289.3 6529.6 7183.2 6939.0 7398s 7747.2 8761.9 8538.6 9376.6 10226.8 Soure: Foodand Aguicukum OuanizatxTrade Yearbooks 1991. Food and Acukuse Oruanizad Bana StatIks 1992. ANNEX B Table B.1: Sources of Growth: Regression for OECS Countries Country Period Regression Estimates R2 Antigua & Barbuda 1981-92 Real GDP Growth = -29.49 - 0.86 I-/GDP + 1.68 GC/GDP + 0.30 XGNFS/GDP 0.80 (1.05)a (7.26) (1.77) (3.97) Dominica 1977-92 Real GDP Growth = 9.64 + 0.36 I/GDP.i - 0.67 GC/GDP - 15.03 D 0.70 (0.88) (2.3) (2.05) (4.08) Grenada 1979-92 Real GDP Growth = -1.66 0.28 I1/GDP + 0.52 GC/GDP + 0.07 XGNFS/GDP 0.65 (0.09) (1.28) (3.53) (0.33) Montserrat 1979-92 Real GOP Growth = 126.49 + 0.22 I/GDP 5.99 GC/GDP - 0.63 XGNFS/GDP 0.003 LFG 0.64 (2.34) (0.42) (2.08) (1.37) (0.002) SL Kitts & Nevis 1977-92 Real GOP Growth = 18.17 + 0.04 I/GDP 0.40 GC/GDP + 0.06 G of XGNFS 3.79 D 0.53 (1.75) (0.35) (1.07) (1.47) (2.08) St Lucia 1975-92 Real GDP Growth = -2.35 + 0.16 I*/GDP - 0.24 GC/GDP + 0.10 XGNFS/GDP - 9.32 D + 1.07 LFG 0.76 (2.29) (3.31) (3.04) (1.31) (3.99) (1.38) St. Vincent and the 1977-92 Real GOP Growth = -4.04 + 0.31 I/GDP - 0.23 GC/GDP + 0.09 XGNFS/GDP - 0.06D 0.57 Grenadines (0.47) (1.70) (0.79) (2.84) (0.04) NOTES: I = total investment, I = 3-year moving average of total investment, I = 5-year moving average of total investment, GDP = gross domestic product GC = govemment consumption, XGNFS = export of goods and nonfactor services, LFG = labor force growth, G of XGNFS = growth of XGNFS, and D = dummy for hurricanes and/or volcano. a. Numbers in parentheses refer to t-statistics. Source: IBRD staff estimates Lf Statistical Appendix Table 1.1: Antigua and Barbuda: Selected Indicators, 1980-91 129 Table 1.2: Antigua and Barbuda: Base Case - Actual and Projected Key Macroeconomic Indicators, 1992-2002 131 Table 1.3 Antigua and Barbuda: Base Case - Actual and Projected Balance of Payments, 1992-2002 132 Table 1.4 Antigua and Barbuda: Altemative Case - Actual and Projected Key Macroeconomic Indicators, 1992-2002 133 Table 1.5 Antigua and Barbuda: Alternatve Case - Actual and Projected Balance of Payments, 1992-2002 134 Table 1.6: Dominica: Selected Indicators, 1980-91 135 Table 1.7 Dominica: Base Case - Actual and Projected Key Macroeconomic Indicators, 1992-2001 137 Table 1.8 Dominica: Base Case - Actual and Projected Balance of Payments, 1992-2001 138 Table 1.9 Dominica: Alternative Case- Actual and Projected Key Macroeconomic Indicators, 1992-2001 139 Tablel.10 Dominica: Altemative Case - Actual and Projected Balance of Payments, 1992-2001 140 Table 1.11 Grenada: Selected Indicators, 1980-91 141 Table 1.12 Grenada: Base Case - Actual and Projected Key Macroeconomic Indicators, 1992-2002 143 Table 1.13 Grenada: Base Case - Actual and Projected Balance of Payments, 1992-2002 144 Table 1.14 Grenada: Alternative Case - Actual and Projected Key Macroeconomic Indicators, 1992-2002 145 Table 1.15 Grenada: Altemative Case - Actual and Projected Balance of Payments, 1992-2002 146 Table 1.16 Montserrat: Selected Indicators, 1980-91 147 Table 1.1 7 Montserrat: Low Case - Actual and Projected Key Macroeconomic Indicators, 1992-2002 149 Table 1.18 Montserrat: Low Case - Actual and Projected Balance of Payments, 1992-2002 150 Table 1.19 Montserrat: High Case - Actual and Projected Key Macroeconomic Indicators, 1992-2002 151 Tablel .20 Montserrat: High Case - Actual and Projected Balance of Payments, 1992-2002 152 Table 1.21 St Kitts and Nevis: Selected Indicators, 1980-91 153 Table 1.22 St Kitts and Nevis: Base Case - Actual and Projected Key Macroeconomic Indicators, 1992-2002 155 Table 1.23 St Kitts and Nevis: Base Case - Actual and Projected Balance of Payments, 1992-2002 156 Table 1.24 St Kitts and Nevis: Altematve Case - Actual and Projected Key Macroeconomic Indicators, 1992-2002 157 Table 1.25 St Kitts and Nevis: Alternative Case - Actual and Projected Balance of Payments, 1992-2002 158 Table 1.26 St Luda: Selected Indicators, 1980-91 159 Table 1.27 St Lucia: Base Case - Actual and Projected Key Macroeconomic Indicators, 1992-2001 161 Table 1.28 St Lucia: Base Case - Actual and Projected Balance of Payments, 1992-2001 162 Table 1.29 St Lucia: Altematve Case - Actual and Projected Key Macroeconomic Indicators, 1992-2001 163 Table 1.30 St Lucia: Altemative Case - Actual and Projected Balance of Payments, 1992-2001 164 Table 1.31 St Vincent and the Grenadines: Selected Indicators, 1980-91 165 Table 1.32 St Vincent and the Grenadines: Base Case - Key Indicators, 1992-2000 167 Table 1.33 St Vincent and the Grenadines: Base Case - Balance of Payments Projections, 1992-2000 168 Table 1.34 St Vincent and the Grenadines: Alternative Case Key Indicators, 1992-2000 169 Table 1.35 St Vincent and the Grenadines: Alternative Case Balance of Payments Projectons, 1992-2000 170 127 Table 1.1: ANTIGUA AND BARBUDA: SELECTED INDICATORS. 1980-91 Page 1 of 2 1980 1981 1982 1983 1984 1985 1988 1987 1988 1989 1990 1991 A. GENERAL INFORMATION Arme km sqB: 442 Mid-yer Population l'O00) ... ... ... ... ... ... ... ... ... ... ... 64.0 Popultion Growth Ra %) ... ... ... ... ... ... ... ... ... ... ... ... Unemployment Rat (%) 20.7 ... 20.9 20.9 ... ... ... ... ... Avergo Exchange Rate 1 per US$) 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 B. SOCIAL INDICATORS 1. Vital Statietics Crude Birth Rate 17.0 18.0 15.6 15.8 15.0 15.7 14.8 14.3 13.0 ... ... ... Crude Death Rat 5.1 5.1 5.3 5.4 5.1 5.4 5.0 5.1 ... ... Infant Mortlty Rate ... ... ... ... ... ... ... ... 20.0 ... ... ... Lif Expectancy at Birth (yam) 73.0 73.0 Male.. ... ... ... ... ... ... ... ... ... ... ... Fern... ... ... ... ... ... ... ... ... ... ... ... II. Education School Enrollment (No.) Prenry ... 9,501 10,277 9,933 9,184 9,072 9,087 9,097 ... ... ... ... Secondary ... 3,388 3,407 4,197 5,300 4,480 4,346 4,413 ... ... ... ... Pupil-Toecher Ratio Prunwy ... 25.0 31.0 29.0 27.0 20.6 20.1 20.4 ... ... ... ... Secondwy ... 11.0 14.0 19.0 14.0 14.0 13.8 13.8 ... ... ... ... Ill. Health and Houeing No. Doctors per 1000 popuation 0.3 ... ... 0.4 0.5 0.8 0.8 0.8 0.6 ... ... ... No. Dentiet per 1000 popueton 0.04 ... ... 0.05 0.07 0.07 0.09 0.09 ... ... ... ... Averge Houeehold Size ... ... ... ... ... ... ... ... ... ... ... C. ECONOMIC INDICATORS II. Annual Chane of Selected Indicators GDP - Contnt Prices 1%) 6.7 5.0 0.4 6.9 7.5 8.8 9.7 8.8 7.7 8.3 3.5 4.3 Consur Priee m %) ... ... ... 2.3 3.8 (2.0) 0.5 3.6 6.8 3.7 7.0 ... Money SupplylMi (%( ... ... ... ... ... ... ... ... ... Net Foreign Aeste (rmn) ... ... ... ... ... (8.4) 9.0 (4.7) 39.6 ( (19.7) (165.5 76.7 Table 1.1: ANTIGUA AND BARBUDA: SELECTED INDICATORS. 1980-91 WWonItJ Pag 2 of 2 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Ill. 1alnce Of Planenta (US$mn) 1. Baancof tTr ... ... ... (77.4) (116.7) (130.1) 1192.8) (202.01 (184.1) (226.5) (211.8) (217.1) Exports (fob) ... ... ... 32.3 34.0 26.9 19.6 16.8 17.0 15.7 19.0 35.4 hnports (ei) ... ... ... (109.7) (150.7) 157.0) (212.4) (218.9) (201.1) (242.3) (230.7) (252.6) 2. Swvioe Aooount ... ... ... 65.2 86.0 31.1 63.3 79.4 128J 135.1 163.1 173.6 -spens ... ... ... ... ... ... 176.2 199.4 237.2 274.5 318.8 320.4 hprt ... ... ... ... ... ... (113.0) (120.1) (108.4) (139.4) (155.6) (146.8) 3. AntomaoenTranefre nwt) ... ... ... 5.1 6.1 14.2 12.8 11.7 12.1 12.3 10.4 3.3 Pv ... ... ... 4.9 5.3 13.5 9.5 9.2 9.4 9.0 7.9 6.6 OfficW ... ... ... 0.2 0.9 0.7 3.3 2.5 2.7 3.3 2.5 2.7 4. Curent Acoount ino (1 +2+3 ... ... ... (7.1) (24.5) (24.8) (116.7) (111.0) (43.2) (79.2) (38.2) (34.2) S. NetC It Movenwt ... ... ... .. ... ... 117.7 76.5 25.1 35.9 14.3 5.3 S. Chae In Reewvese() - km"" ... .. (1.0 (2.) (4.3) (10.0) 2.7 (2.4) 0.0 0.6 IS.1) 7. CuirentAocountblWnooea%ofGDP ... ... ... (4.6) (14.1) (12.3) (47.5) (38.7) (12.7) (21.3) (9.7) (8.1) IV. Principal Export (*mn) S.I.T.C Setion. 10 + 1) 3.5 2.8 2.5 2.8 2.6 2.0 2.5 3.7 ... ... ... ... S.I.T.C Sectorn (6 + 8) 47.4 55.1 30.9 26.8 21.2 22.1 25.1 21.7 ... ... ... ... V. CHnt,d Govemnt Opeadotn ($mn) Current Revenue 56.8 69.1 80.3 77.8 99.9 117.7 152.1 172.8 193.5 202.7 222.8 221.5 Curent Expenditure. 57.2 65.4 70.3 73.2 112.9 122.7 131.0 156.9 194.4 225.2 236.3 221.6 Current Account Surpls/De*ict (0.4) 3.7 9.9 4.6 (13.0) (5.0) 21.1 15.9 (0.9) (22.5) (13.5) 10.1) C*lt Reve_nue Nd Gr ... ... ... ... - - 7.3 7.6 11.3 36.3 12.2 13.2 Capl Expenditure ... ... ... ... 32.6 37.4 69.5 35.0 29.6 27.4 19.1 37.6 Oveal Suplu/(Dflt ... ... ... ... (45.6) (42.4) (48.4) (19.1) (30.5) (49.9) (20.4) (24.5) CurrNt SurpM/DeQ i % of GOP (0.2) 1.3 3.1 1.3 (2.8) 10.9) 3.2 2.1 10.1) (2.2) (1.3) 0.0 Overal Surpluk/AD.dlas % of GDP ... ... ... ... (9.7) (7.8) (7.3) (2.5) (3.3) I.0 1.9) (2.2) VI. Daometic Credit by Sector Orrin) Total Domesi Crodit ... ... ... ... ... ... 383.5 443.4 543.4 616.7 658.3 694.5 Priva Sector ... ... ... ... ... ... 295.1 353.9 415.7 482.5 525.4 570.7 Produve Sector ... ... ... ... ... ... ... ... ... Serv4os Seotor. ... ... ... ... ... ... ... ... ... Od Seto ... ... ... ... ... .. .. .. .. .. .. .. Publi Sector ... ... ... ... ... ... 88.4 89.5 127.7 134.2 132.9 123.8 C4n&rdGovwrnmat Inet) ... ... ... ... ... ... 80.2 77.5 118.1 124.4 125.6 118.1 O*tblo S¢etor ... ... ... ... ... ... 8.2 12.0 9.6 9.8 7.3 5.7 VIl. Extnal Debt Outstang (US mn) Total Externa Debt Outstafning 33.6 46.9 51.6 53.0 58.7 62.2 151.8 231.3 243.1 258.7 264.7 261.9 Debt Servie 6.7 7.0 10.6 10.2 7.4 11.0 7.0 15.8 11.3 4.5 1 1.6 7.0 Interest 3.0 4.2 7.6 4.8 1.1 5.1 4.9 6.7 8.2 1.4 2.9 2.7 Amortization 3.7 2.8 3.0 5.4 6.3 5.9 2.0 9.1 3.1 3.1 8.7 4.5 Debt Sevie a % of GDP 6.1 5.6 7.7 6.7 4.3 5.5 2.8 5.5 3.3 1.2 2.9 1.7 Debt Servioc e % of Current Revnue 31.8 27.4 35.7 35.4 20.0 25.2 12.4 24.7 15.8 6.0 14.1 8.5 Debt Servio Redo 9.0 8.2 13.0 11.1 6.5 8.9 3.6 7.3 4.4 1.6 3.4 2.0 Source: Natona Goverrnmnts and Caribbean DeviWoprnent Bank. Table 1.2: ANTIGUA AND BARUDA: BASE CASE - ACTUAL AND PROJECTED KEY MACROECONOMIC INDICATORS, 1992-2002 Actual Prel. Est. Projections 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 GDP Growth Rate 2.0 1.0 1.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 GNP Growth Rate .. -0.1 1.2 2.3 2.6 2.5 1.8 2.7 2.5 2.3 2.3 GNP/Capita Growth Rate .. -0.6 0.7 1.8 2.1 2.0 1.3 2.2 2.0 1.8 1.8 Pvt.Cons/Capits Growth Rate .. -0.2 -0.6 1.8 1.8 1.8 1.9 1.9 1.9 1.9 1.9 Total DOD 1/ (in USS) 369.3 383.2 340.5 328.5 320.9 315.9 300.9 285.9 270.9 255.9 240.9 DOD/XGS 2/ 93.6 94.1 81.0 74.9 69.5 64.9 58.8 53.1 47.7 42.8 38.3 DOD/GDP 83.9 85.4 74.3 68.5 63.6 59.4 53.7 48.4 43.5 39.0 34.9 Debt Service (in USS) 7.8 13.2 22.5 16.9 11.7 8.6 21.8 20.2 19.5 21.2 23.2 Debt Service/XGS 2.0 3.2 5.4 3.8 2.5 1.8 4.3 3.7 3.4 3.6 3.7 Debt Service/GDP 1.8 2.9 4.9 3.5 2.3 1.6 3.9 3.4 3.1 3.2 3.4 Interest/XGS 0.6 1.1 1.0 0.9 0.7 0.6 1.1 0.6 0.4 0.4 0.4 Interest/GDP 0.6 1.0 0.9 0.8 0.6 0.5 1.0 0.6 0.4 0.4 0.4 Gross Investment/GDP 3/ 20.9 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0 Domestic Savings/GDP 3/ 24.4 25.1 25.2 23.9 23.1 22.3 21.4 20.5 19.7 19.5 19.3 National Savings/GDP 3/ 18.0 17.7 18.0 17.0 16.7 16.3 15.3 15.1 14.7 14.8 14.8 Governeent Revenue/GDP 20.7 20.7 20.7 20.7 20.7 20.7 20.7 20.7 20.7 20.7 20.7 Goverruent Expenditure/GDP 20.0 18.7 17.7 17.7 17.2 17.2 17.2 17.2 17.2 17.2 17.2 Deficit(-) or Surplus(+) 0.6 2.0 3.0 3.0 3.5 3.5 3.5 3.5 3.5 3.5 3.5 Export Growth Rate (GUlFS) .. 1.9 1.9 2.0 2.0 2.0 1.9 1.9 1.9 1.9 1.9 Exports/GDP (GULFS) 88.2 89.3 90.2 90.1 90.1 90.0 89.9 89.8 89.7 89.6 89.5 Import Growth Rate (G&UFS) .. 0.6 1.5 2.3 2.3 2.3 2.3 2.3 2.4 2.4 2.4 Imports/GDP (GUNFS) 84.7 84.2 85.0 86.1 86.9 87.6 88.4 89.2 90.0 90.1 90.2 Current Account (USS) -13.0 -10.6 -9.3 -14.3 -16.7 -19.5 -26.5 -29.2 -33.4 -34.6 -36.0 Current Account/GDP -3.0 -2.4 -2.0 -3.0 -3.3 -3.7 -4.7 -4.9 -5.4 -5.3 -5.2 Terms of Trade Index 100.0 100.7 100.2 98.9 98.2 97.5 96.8 96.1 95.5 95.8 96.0 1/ Total debt outstanding and disbursed includes INF debt. 2/ Exports of goods nd services. 3/ Projections are in constant prices. Source: Caribbean Devetopment Bank. T.ble 1.3: AMTIGIA AME AISR@DA: BASE CASE - ACTUAL AND PROJECTED BALANCE OF PAYMENTS, 1992-2002 *_------- tCUSS million) .......... ................... _.......... ..................... ..................................________..___...... ........... _...... .......... Actual Prol. Est. Projection 1992 1993 1994 1995 1996 1997 1996 1999 2000 2001 2002 ... . . .._ . . . . . .. . . . . .. . . . . .. . . . . .. . . . . . . . ............................................... ____. ............ A. Exports of Goods & FS 388 401 414 432 454 479 504 530 559 see 618 1.Nerchandise 55 56 58 60 63 66 69 73 76 8o 83 2. on-Factor Srvice 333 3U 356 372 391 412 434 458 483 506 535 U. Ioits of Good & FS 373 378 390 413 439 466 496 527 561 591 623 1. merch ndis 297 300 310 330 351 374 399 425 453 478 503 2. NonaFactor Servie etleJ ship) 76 78 80 83 a8 92 97 102 108 114 120 C. Resoure Salet 15 23 24 19 16 13 8 3 -2 -3 -5 D. Net Factor Incrme -33 -39 -39 -39 -39 -38 -41 -40 -39 -39 -39 1. Factor Recipts 7 6 7 7 7 8 8 8 9 9 10 2. Factor PaVynts 40 45 45 46 46 46 49 48 48 48 49 E. Net Current Trwnfers 5 5 5 6 6 6 7 7 7 8 8 F. Current Accoumt Balanee -13 -11 -9 -14 -17 -20 -26 -29 -33 -35 -36 G. Long-Term CapitaL Inflow 26 14 6 17 20 23 29 32 36 38 39 1. Direct Investment 20 20 20 21 21 22 22 23 23 23 24 2. OfficiaL CapitaL Grants 1 2 3 3 3 3 3 3 3 3 3 3. Het LT Loors (DRS dmta) 5 -8 -18 -6 -5 -2 4 7 10 11 12 a. Disbursements 10 1 0 6 4 4 21 23 27 30 33 b. Repsy ents 5 9 18 13 8 6 16 17 17 19 21 4. Other LT Inflow (nwt) 0 0 0 0 -0 -0 0 0 0 0 0 H. Total Other Item (net) 5 0 0 0 0 0 0 0 0 0 0 1. CapitaL Account Bleance 31 14 6 17 20 23 29 32 36 38 39 J. Overall glanc 18 3 -3 3 3 3 3 3 3 3 3 J. ChanSes in et Resrves -18 -3 3 -3 -3 -3 -3 -3 -3 -3 .3 1. Net Credit fro the INF 0 0 0 0 0 0 0 0 0 0 0 2. Other Reserve Chanoes -18 -3 3 -3 .3 -3 -3 .3 -3 -3 -3 (- indicates increase) Shares of GDP (Current USS): 1. Resource Balanee 3.5 5.1 5.2 4.0 3.2 2.3 1.5 0.6 -0.3 -0.5 -0.7 2. Total Interest P ymnts 0.6 1.0 0.9 0.8 0.6 0.5 1.0 0.6 0.4 0.4 0.4 3. Current Account Balance -3.0 -2.4 -2.0 -3.0 -3.3 -3.7 -4.7 -4.9 -5.4 -5.3 -5.2 4. LT Capital Inflow 5.9 3.0 1.3 3.6 3.9 4.2 5.3 5.5 5.8 5.7 5.7 Ne.orendm Item: GDP ( nLns. of Current USS) 440 449 459 479 505 532 561 591 623 656 691 Foreign Exchnwe Reserves: 1. Gross Reserves incl. Gold 51.5 54.5 51.1 54.1 57.1 60.1 63.1 66.1 69.1 72.2 75.3 2. Gross Res.in Months of Iq"orts 1.5 1.5 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.3 Source: Caribbean Developw.nt Bank. Table 1 .4: ANTIGUA AND BARBUDA: ALTERNATIVE CASE - ACTUAL AND PROJECTED KEY MACROECONOMIC INDICATORS, 1992-2002 ActuaL PreL. Est. Projections 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 GDP Growth Rate 2.0 2.0 3.0 3.5 3.5 3.5 4.0 4.0 4.0 4.0 4.0 GNP Growth Rate .. 0.9 3.4 3.7 4.2 4.1 4.0 4.8 4.6 4.3 4.3 GNP/Capita Growth Rate .. 0.4 2.9 3.2 3.7 3.6 3.5 4.3 4.0 3.8 3.8 Pvt.Cons/Capita Growth Rate .. 1.5 2.3 3.2 2.6 2.5 3.8 3.8 3.1 3.1 3.1 Debt Service (in USS) 7.8 13.2 22.5 18.1 13.2 12.4 26.7 26.0 26.4 29.2 32.2 Debt Service/XGS 2.0 3.2 5.3 4.0 2.7 2.4 4.8 4.4 4.2 4.3 4.4 Debt Service/GDP 1.8 2.9 4.8 3.6 2.5 2.2 4.3 3.9 3.7 3.8 3.9 Interest/XGS 0.6 1.1 0.9 1.2 1.0 0.9 1.3 1.0 0.8 0.9 0.9 Interest/GDP 0.6 0.9 0.8 1.1 0.9 0.8 1.2 0.9 0.8 0.8 0.8 Gross Investment/GDP 1/ 20.9 20.0 21.0 21.0 21.0 21.0 21.0 21.0 21.0 21.0 21.0 Domestic Savings/GDP 1/ 24.4 24.8 24.6 23.7 23.5 23.3 22.8 22.3 22.1 22.7 23.2 NationaL Savings/GDP 1/ 18.0 17.5 17.6 16.8 17.2 17.6 17.0 17.2 17.5 18.4 19.2 Goverrnent Revenue/GDP 20.7 20.8 20.8 21.0 21.1 21.2 21.2 21.2 21.2 21.2 21.2 Government Expenditure/GDP 20.0 18.8 17.8 18.0 17.6 17.7 17.7 17.7 17.7 17.7 17.7 Deficit(-) or SurpLus(+) 0.6 2.0 3.0 3.0 3.5 3.5 3.5 3.5 3.5 3.5 3.5 Export Growth Rate (GINFS) .. 2.3 2.8 3.2 3.7 3.7 3.6 3.7 4.1 4.1 4.1 Exports/GDP (G&NFS) 88.2 88.8 88.6 88.4 88.5 88.6 88.3 88.0 88.1 88.2 88.3 Import Growth Rate (GUNFS) .. 1.3 3.8 3.3 3.3 3.3 3.7 3.7 3.7 3.7 3.7 Imports/GDP (G&NFS) 84.7 84.0 85.0 85.6 86.0 86.2 86.4 86.7 86.9 86.4 86.0 Current Account (USS) -13.0 -11.7 -15.9 -20.8 -20.1 -19.4 -24.3 -25.0 -24.5 -19.7 -14.4 Current Account/GDP -3.0 -2.6 -3.4 -4.2 -3.7 -3.4 -4.0 -3.8 -3.4 -2.6 -1.8 Terms of Trade Index 100.0 100.7 100.2 98.9 98.2 97.5 96.7 96.0 95.3 95.6 95.8 1/ Projections are in constant prices. Source: Cari" n DeveLop ent Bank. wJ Tabte 1.5: AHTIGM AMD BAREUDA: ALTERNATIVE CASE - ACTUAL AND PROJECTED BALANCE OF PAYNENTS. 1992-2002 .......... -USS million) Actual Prol. Est. Projections , ............----- .... --------------------------------------------.................------------------------............. ..................................... 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 A. Exports of Goods & NFS 3U 402 419 443 474 So0 543 582 626 673 m 1. Nerchandiso 55 56 S8 60 63 66 69 72 76 79 83 2. MUn-Factor Srvice 333 34 361 383 411 442 474 S09 550 594 640 . Iwports of oods & NFS 373 381 401 429 460 494 532 573 618 659 704 1. Merchndise 297 302 320 343 368 396 427 41 498 531 567 2. Non-Factorw rvice 76 78 82 86 92 96 105 112 120 128 137 C. Resource Sole. 15 22 17 14 14 14 11 9 8 13 19 D. Net Factor Inco -33 -39 -39 -40 -40 -39 -42 -41 -40 -41 -42 1. Factorleceipts 7 6 7 7 8 8 9 10 10 11 12 2. Factor Paymnts 40 45 45 47 47 48 51 50 51 52 54 E. NHt Current Transfers 5 5 5 6 6 6 7 7 7 8 8 F. Currant Account Salenc -13 -12 -16 -21 -20 -19 -24 -25 -24 -20 -14 G. Long-Term Capital Inflow 26 14 18 27 26 27 32 32 32 27 21 1. Direct Irewts nt 20 20 21 21 22 23 23 24 25 26 26 2. Officifl Capitsl Grants 1 2 2 2 2 2 2 2 2 2 2 3. Not LT Loanc (DRS dot) 5 -9 -5 3 2 2 7 6 5 -1 -7 a. Disbursements 10 0 13 16 10 10 26 27 26 22 18 b. Repayments 5 9 18 13 8 8 19 20 21 23 25 4. Other LT Inflows (Cnt) -0 0 -0 -0 0 0 0 0 0 0 0 H. Total Other It._ (Cnt) 5 0 0 0 0 0 0 0 0 0 0 1. Net Short Term Capital 0 0 0 0 0 0 0 0 0 0 0 2. Capital Flos H.E.I. 5 0 0 0 0 0 0 0 0 0 0 3. Errors nd Oissionr 0 0 0 0 0 0 0 0 0 0 0 1. Capital Account Balance 31 14 18 27 26 27 32 32 32 27 21 J. overall Baltnce 18 2 2 6 6 8 8 7 7 7 7 J. Ch s in Noet lesrves -18 -2 -2 -2 -6 -8 -8 -8 -8 *8 .8 1. Net Credit fro th INF 0 0 0 0 0 0 0 0 0 0 0 2. Other Reserv Chenoec -18 -2 -2 -2 -6 -8 -8 -8 -8 -8 -8 (- indicates increas) Shares of GDP (Current USS): 1. Resource BPLance 3.5 4.8 3.6 2.7 2.5 2.4 1.9 1.3 1.2 1.7 2.3 2. Total Interet Payants 0.6 0.9 0.8 1.1 0.9 0.8 1.2 0.9 0.8 0.8 0.8 3. Current AccoLant Bleance -3.0 -2.6 -3.4 -4.2 -3.7 -3.4 -4.0 -3.8 -3.4 -2.6 -1.8 4. LT Capital Inflow 5.9 3.0 3.8 5.4 4.8 4.7 5.2 4.9 4.5 3.5 2.6 Memoranlu It_m: GDP ( linr. of Current USS) 440 453 472 501 535 573 615 661 711 763 819 Foreign Exchauoe Reserves: 1. Gross Reserves ncl. Gold 51.5 53.5 55.5 61.5 67.5 75.5 83.5 91.5 99.5 107.5 115.5 2. Gross Res.in Nonths of lIports 1.5 1.5 1.5 1.5 1.6 1.7 1.7 1.8 1.8 1.8 1.8 Source: Caribben Dvwlopoant nk. Table 1.6: DOMINICA: SELECTED INDICATORS. 1980-91 Page 1 of 2 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 A. GENERAL INFORMATION Area (km sq): 750 Mid-year Population ('000) 73.9 73.8 73.5 73.3 73.0 72.7 72.5 72.2 72.7 72.4 72.1 71.8 Population Growth Rate 1%) ... 0.7 2.4 2.1 1.6 (0.4) (0.3) 10.4) 0.7 (0.4) 10.41 (0.4) Unemployment Rate 1%) ... ... ... ... ... ... ... ... ... ... Average Exchange Rate 15 per USSI 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 B. SOCIAL INDICATORS I. Vital Statistics Crude Birth Rate ... 19.8 25.4 26.7 24.5 22.2 21.4 19.1 17.7 20.1 22.5 ... Crude Death Rate ... 4.4 4.7 4.9 5.6 5.3 4.6 5.6 5.0 6.2 7.2 ... Infant Mortality Rate ... ... ... ... ... ... ... ... ... ... 15.0 ... Life Expectancy at Birth (years) Male 62.8 ... ... ... ... ... 63.5 ... ... ... ... ... Female 67.9 ... ... ... ... ... 69.8 ... ... ... ... ... II. Education School Enrollment (No.) Primary 16,840 19,000 17,816 17.615 17.339 16.362 16.360 15.510 14.970 14.832 14.427 ... Secondary 3,218 3.299 3,464 3,443 3,439 3,345 3.347 3.240 3.270 3,450 4,374 ... Pupil-Teacher Ratio Primary 26.6 30.9 27.0 26.2 26.4 25.3 25.3 24.9 24.0 23.8 23.0 ... Secondary 22.3 22.8 22.1 21.9 21.2 20.2 19.6 17.8 18.7 19.1 22.0 ... Ill. Health and Housing No. Doctors per 1000 population ... ... ... ... ... ... ... 0.3 ... ... ... ... No. Dentists per 1000 population ... ... ... ... ... ... ... 0.04 ... ... ... ... Average Household Size ... ... ... ... ... ... .. ... ... ... ... C. ECONOMIC INDICATORS II. Annual Change of Selected Indicators GDP - Constant Prices 1% 16.4 6.4 2.4 2.1 5.4 1.7 6.8 6.8 7.9 (1.1) 6.6 2.1 Consumer Prices (%) 32.7 13.3 4.4 4.1 2.2 2.1 3.0 4.8 2.2 6.3 2.5 5.9 MorNe Supply AM1s (Mn ... ... ... ... ... ... ... .0 .2 .0) .8) .4 Net Foreign Assets lRmnl ... ... ... ... ... 121.91 20.5 48.0' 1 6.2 18.6' 11 16.'s') 6.4' Tdie 1.6: DOMINICA: SELECTED INDICATORS. 1980-91 Peg 2 of 2 1980 1981 1982 1983 1984 1985 1986 1987 1986 1989 1990 1991 Ill. Bdme Of PaVment. (uSmn) 1. Beene of Trade (37.9) 130.51 (23.01 119.61 (32.21 (26.9) 14.6) l9.6 (20.21 148.11 147.9) (40.0) Erport- fob) 9.7 19.2 24.4 27.6 25.6 28.4 44.6 49.3 67.0 46.3 56.1 55.6 hvqr (G) 147.7) 1490.7) 47.6) (47.1) (57.8) (55.3) (49.2 (58.90 (77.2) (94.4) 1103.9) (96.51 2. Service Accourt ... ... ... 4.9 6.5 2.2 (7.7) (7.9) (4.0) (7.3) (4.9) (2.5) E ... ... ... ... ... ... 16.6 19.7 24.8 27.4 35.0 40.0 hro ... ... ... ... ... ... 124.31 (27.9" (28.91 434.8q (39.91 142.5q 3. ket_men Trwnef.rse ... ... ... 9.4 19.0 21.3 16.2 14.8 18.9 23.0 21.8 22.2 Privae. ... ... ... 5.0 6.3 6.7 3.0 7.6 3.4 11.7 12.8 12.7 Offiadl ... ... ... 4.4 12.7 14.6 15.2 7.2 10.4 11.3 9.1 9.5 4. CurretAccount eo (1 +23) ... ... . 5.3) (6.7) (3.4) 6.9 12.7) (5.4) (32.4) 130.8) (21.2) 5. Not Cap" Mov ... ... ... ... ... ... 4.2 8.9 5.5 32.6 30.0 25.7 6. Chneg in Pervee () - *irreme ... ... ... 3.0 (3.8) 2.7 (4.80 (8.1) 3.4 2.1 (2.9) (3.6) 7. Curenwt Accournt Bekncee. % of GDP ... ... ... (6.6) (7.4) (3.5) 5.3 12.1) 13.7) (20.6) (18.01 (11.5) IV. Princp Export. 9rvm) Baaa 8.0 24.6 26.9 30.3 30.0 36.0 68.1 96.1 102.0 67.8 83.1 81.3 Toet Soap 5.8 9.4 11.5 9.5 9.1 10.8 10.9 12.3 13.2 13.2 15.5 ... Hosehold Soap 7.3 11.2 12.0 10.8 5.8 8.4 8.0 8.9 12.1 15.5 18.3 ... V. Cnral Govenwnn Operaor. (#rim Current PRvenue. 50.2 58.9 58.6 69.7 74.8 84.4 93.3 109.7 123.2 129.2 139.7 144.9 Current Expwnktwe 62.6 64.1 86.0 73.2 77.5 83.6 88.7 101.8 98.5 106.1 130.1 141.3 CurrwntAccountSurplusDeficdt) (12.4) (5.2) 17.4) 13.51 12.7) 0.8 4.6 7.9 24.7 23.1 9.6 3.6 Cap" Revenu 21.6 18.5 24.9 36.6 40.8 46.6 12.2 41.1 6.6 0.4 1.3 3.5 Caital Expenditure 18.5 25.4 21.0 38.7 45.7 48.8 13.7 31.5 53.2 74.7 81.4 48.8 Ove Surpluk/IDefic 130.9) (30.6) (28.41 (42.2) 148.41 (1.41 3.1 17.5 121.9) (51.2) (70.51 141.7) Current Surpluwk(D*fidt) _ % oA GDP 17.81 12.9) (3.8) (1.6) (1.1) 0.3 1.5 2.3 6.3 5.4 2.1 0.7 Overel Surpluk(De - % of GDP (19.4) 117.11 (14.6) 119.61 (20.0) 10.51 1.0 6.2 (5.6) (12.1) 115.2) 18.41 VI. Domestic Credit by Soctor l(mn) Total Domestic Credit ... ... ... ... ... ... 130.5 121.7 133.5 190.0 267.6 311.5 Private Secor ... ... ... ... ... ... 93.3 98.9 130.2 175.6 212.7 236.0 Productive Sector. ... ... ... ... ... ... ... ... ... ... ... ... Sevice Sector ... ... ... ... ... ... ... ... ... ... ... ... Odr Sox .. .. .. . ... ... ... ... ... ... ... ... Pubic Secor ... ... ... ... ... ... 37.2 22.8 3.3 14.4 54.9 765.5 Centrl Govenmet (nt) ... ... ... ... ... ... 34.8 21.8 12.7) 6.1 36.4 50.9 Odw Sector ... ... ... ... ... ... 2.4 1.0 6.0 8.3 18.5 24.6 VU. Extnal Det Outstanin (US$mn) TotalExtnl Debt Outstendirg 12.3 18.9 27.7 40.4 43.2 42.7 37.1 54.1 65.8 72.0 85.6 92.9 Debt Swvice 0.9 0.8 1.4 2.8 4.4 4.3 1.8 2.8 5.7 3.6 5.2 5.3 Interest 0.3 0.4 0.8 1.7 2.0 2.0 0.8 1.0 1.7 1.6 1.8 1.9 Anortze.tk 0.6 0.4 0.6 1.1 2.4 2.3 1.0 2.0 4.0 4.1 3.4 3.4 Deb Swvioe % of GDP 1.5 1.2 1.9 3.5 4.0 4.4 1.6 2.2 3.9 2.3 3.0 2.9 Debt Svi m % of Currnt Ruvwnw 4.8 3.7 6.5 10.8 15.9 13.8 5.2 6.9 12.5 7.5 10.1 9.9 Debt Srvie Rtio 5.7 3.4 4.7 8.6 11.9 11.2 2.9 4.1 7.0 4.9 5.7 5.5 Sour: National Govvenments ed Cobbn Developwrn Bank. Table 1.7: DONINICA: BASE CASE - ACTUAL AND PROJECTED KEY MACROECONOMIC INDICATORS, 1992-2001 Prel. Est. Projections 1992 1993 1994 1995 1996 1997 1996 1999 2000 2001 GDP Growth Rate 2.1 2.0 0.5 0.0 -1.0 -1.5 -1.5 -1.5 -1.5 -1.5 GNP Growth Rate 2.1 3.1 0.6 -0.0 -1.1 -1.6 -2.2 -2.1 -2.0 -1.8 GNP/Capita Growth Rate 1.1 2.1 -0.4 -1.0 -2.1 -2.6 -3.2 -3.0 -2.9 -2.8 Pvt.Cons/Capita Growth Rate 16.0 4.9 0.6 -2.2 -4.3 -5.4 -6.5 -5.9 -7.3 -7.7 TotaL DOD 1/ (in USS) 105.4 118.0 138.1 165.5 190.8 214.1 236.4 255.9 273.0 284.1 DOD/XGS 2/ 90.3 105.5 123.8 143.3 157.1 167.0 175.9 181.1 183.5 180.6 DOD/GDP 55.6 59.1 66.5 77.8 87.8 96.8 105.1 111.8 117.1 119.9 Debt Service (in USS) 7.6 8.7 9.1 9.7 10.4 11.0 12.0 13.1 14.4 16.3 Debt Service/XGS 2/ 6.5 7.8 8.2 8.4 8.6 8.6 8.9 9.3 9.7 10.3 Debt Service/GDP 4.0 4.4 4.4 4.6 4.8 5.0 5.3 5.7 6.2 6.9 Debt Service/Current Revenue 12.5 14.1 15.1 15.7 17.1 17.8 19.0 20.5 22.1 24.5 Interest/XGS 2/ 2.3 2.9 3.0 3.0 3.2 3.4 3.5 3.6 3.5 3.5 Interest/GDP 1.4 1.6 1.6 1.6 1.8 2.0 2.1 2.2 2.3 2.3 Gross Investment/GDP 3/ 32.5 30.3 28.0 27.0 26.0 25.0 25.0 24.0 24.0 24.0 Domestic Savings/GDP 3/ 12.3 5.7 3.1 2.7 3.5 4.7 6.7 8.1 10.2 12.6 National Savings/GDP 3/ 14.5 8.8 6.3 5.9 6.5 7.5 8.8 9.6 11.2 13.4 Government Revenue/GDP 32.1 31.0 29.0 29.0 28.0 28.0 28.0 28.0 28.0 28.0 Government Expenditure/GWP 30.8 31.0 30.0 30.0 30.0 30.0 30.0 30.0 30.0 30.0 Deficit (-) or Surplus (+)/GDP 1.3 0.0 -1.0 -1.0 -2.0 -2.0 -2.0 -2.0 -2.0 -2.0 Export Growth Rate (CGINFS) 5.0 0.9 2.0 2.5 2.5 2.5 2.5 2.5 2.5 2.5 Exports/GDP (GUNFS) 53.6 47.3 45.1 45.7 47.4 49.5 51.9 54.4 57.0 59.5 leport Growth Rate (GLNFS) -0.2 0.7 -0.8 -0.5 -1.4 -1.8 -1.1 -1.6 -1.2 -1.2 Iports/GDP (GUNFS) 73.8 71.3 69.0 69.3 69.3 69.4 69.9 70.1 70.6 70.7 Current Account (USS) -34.1 -41.7 -43.1 -43.5 -41.1 -37.8 -35.8 -32.5 -29.5 -24.8 Current Account/GDP -17.9 -20.9 -20.8 -20.4 -18.9 -17.1 -15.9 -14.2 -12.6 -10.5 Term of Trade Index 96.2 79.9 72.1 68.1 67.0 66.7 67.2 67.9 68.5 69.4 1/ Total debt outstwnding and disbursed includes IMF debt. 2/ Exports of goods, services wnd private transfers. 3/ Projections are In constant prices. Source: Caribben Develope nt Bank. w4 Table 1.8: DOMINICA: BASE CASE - ACTUAL AND PROJECTED BALANCE OF PAYMENTS, 1992-2001 (USS million) Prel. Est. Projections ... .-- ..........--------------------------------------------------------------------............. ....................._. 1992 1993 1994 1995 1996 1997 1996 1999 2000 2001 .............................................................................................................................. A. Exports of Goods & NFS 101.7 94.4 93.6 97.3 103.0 109.5 116.8 124.6 132.9 141.0 1. Nerchandise 58.1 46.8 41.9 40.4 41.1 43.0 45.7 48.9 52.6 56.6 2. Non-Factor Services 43.6 47.5 51.7 56.9 61.9 66.6 71.1 75.7 80.2 84.4 B. Imports of Goods & NFS 140.1 142.2 143.3 147.3 150.5 153.4 157.3 160.5 164.6 167.7 1. Merchandise 102.5 103.4 103.8 106.8 109.1 111.3 114.4 116.7 120.1 122.4 2. Non-Factor Services 37.6 38.9 39.5 40.5 41.4 42.1 42.9 43.7 4.5 45.3 C. Resource Balance -38.3 -47.9 -49.7 -50.1 -47.5 -43.9 -40.5 -35.8 -31.8 -26.6 D. Net Factor Income -8.7 -7.0 -6.9 -7.1 -7.5 -8.0 -9.6 -11.0 -12.3 -13.2 1. Factor Receipts 2.0 4.3 4.5 4.5 4.5 4.6 3.3 2.3 1.3 1.3 2. Factor Payents 10.7 11.3 11.4 11.6 12.1 12.5 12.9 13.3 13.6 14.5 E. Net Current Transfers 13.0 13.1 13.4 13.7 13.9 14.1 14.3 14.4 14.6 15.0 F. Current Account Balance -34.1 -41.7 -43.1 -43.5 -41.1 -37.8 -35.8 -32.5 -29.5 -24.8 G. Long-Term Capital Inflow 31.5 30.3 36.8 43.6 41.3 37.9 35.9 32.5 29.5 24.8 1. Direct Investment 13.0 12.0 11.0 10.5 10.0 9.0 8.0 7.5 7.0 7.0 2. OfficiaL Capital Grants 5.4 5.0 5.0 5.0 5.0 4.8 4.8 4.8 4.8 4.8 3. Net LT Loans (DRS data) 7.2 13.3 20.8 28.1 26.3 24.1 23.1 20.2 17.7 13.0 a. Disbursements 11.4 18.1 25.9 33.5 32.0 30.0 29.6 27.5 26.1 23.1 b. Repayments 4.2 4.8 5.1 5.4 5.7 5.9 6.5 7.3 8.4 10.0 4. Other LT Inflows (net) 5.9 0.0 0.0 0.0 0.0 -0.0 -0.0 -0.0 0.0 -0.0 H. Total Other Ite_ (net) 7.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1. Overall Balance 5.2 -11.4 -6.3 0.2 0.1 0.1 0.1 0.1 0.1 -0.0 J. Changes in Net Reserves -5.2 11.4 6.3 -0.2 -0.2 -0.1 -0.2 -0.1 -0.2 -0.2 1. Net Credit from the INF -0.7 -0.7 -0.7 -0.8 -0.8 -0.8 -0.8 -0.8 -0.8 -0.8 2. Other Reserve Changes -4.5 12.1 7.0 0.6 0.6 0.7 0.6 0.7 0.6 0.6 (- indicates increae) Shares of CDP (Current USS): 1. Resource BaLance -20.2 -24.0 -23.9 -23.5 -21.9 -19.8 -18.0 -15.7 -13.6 -11.2 2. Total Interest Payments 1.4 1.6 1.6 1.6 1.8 2.0 2.1 2.2 2.3 2.3 3. Current Accowut Balance -17.9 -20.9 -20.8 -20.4 -18.9 -17.1 -15.9 -14.2 -12.6 -10.5 4. LT Capital Inflow 16.6 15.2 17.7 20.5 19.0 17.1 16.0 14.2 12.7 10.5 Nemoranxkm Item: GDP ( Lrns. of Current USS) 190 200 208 213 217 221 225 229 3 237 Foreign Exchange Reserves: 1. Gross Reserves incl. Gold 24.2 12.8 6.4 6.6 6.8 6.9 7.1 7.2 7.4 7.6 2. Gross Res.in Months of leports 1.9 1.0 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 Source: Caribbeen Development Bank. Toble 1.9: DOMINICA: ALTERNATIVE CASE - ACTUAL AND PROJECTED KEY MACROECONOMIC INDICATORS 1992-2001 Prel. Est. Projections 1992 1993 1994 1995 1996 1997 1996 1999 2000 2001 GDP Growth Rate 2.1 2.0 2.0 3.0 3.0 3.0 4.0 4.0 4.0 4.0 GNP Growth Rate 2.1 3.1 2.2 3.1 3.1 3.1 4.1 4.1 4.2 4.0 MUP/Capita Growth Rate 1.1 2.1 1.2 2.1 2.1 2.1 3.1 3.1 3.1 2.9 Total DOD 1/ (in USS) 105.4 113.3 129.1 146.0 163.6 180.5 194.3 208.0 216.1 213.3 DOD/XGS 2/ 90.3 95.9 104.6 111.4 116.5 119.2 118.2 115.8 109.3 98.0 DMD/GDP 55.6 56.8 61.3 65.7 69.2 71.7 71.9 71.7 69.3 63.7 Debt Service (in USO) 7.6 8.7 9.0 9.5 10.0 10.5 11.3 12.0 12.9 13.9 Debt Service/XGS 2V 6.5 7.4 7.3 7.3 7.2 6.9 6.9 6.7 6.5 6.4 Debt Service/GDP 4.0 4.4 4.3 4.3 4.2 4.2 4.2 4.1 4.1 4.2 Debt Service/Current Revenw 12.5 13.7 13.4 12.8 12.6 12.3 12.2 12.0 11.9 11.9 Interest/XGS 2/ 2.3 2.7 2.6 2.5 2.5 2.5 2.5 2.3 2.2 2.0 Interest/GDP 1.4 1.6 1.5 1.5 1.5 1.5 1.5 1.5 1.4 1.3 Gross Irwestent/GDP 3/ 32.5 30.3 30.0 30.5 31.0 31.5 32.0 32.0 32.0 32.0 Domestic Savino/GDP 3/ 12.3 9.0 9.7 10.7 12.1 13.8 15.3 17.1 19.1 21.6 Natiorel Savins/UDP 3/ 14.5 12.1 12.9 13.9 15.0 16.5 17.8 19.4 21.3 23.5 Government Revwme/GDP 32.1 31.9 32.0 33.4 33.7 34.0 34.3 34.6 34.9 35.0 Goverruent Expenditure/GDP 30.8 31.3 30.0 30.9 30.7 30.0 30.0 30.1 30.4 30.0 Deficit C-) or Surplus (+)/GDP 1.3 0.6 2.0 2.5 3.0 4.0 4.3 4.5 4.5 5.0 Export Growth Rote (CGIFS) 5.0 4.6 4.5 4.6 4.8 5.1 5.7 6.3 6.7 6.8 Exports/GDP (GUlFS) 53.6 50.5 50.1 50.8 51.6 52.8 53.8 55.4 57.2 59.1 Import Growth Rate (GlNFS) -0.2 0.6 1.4 2.6 2.7 2.8 3.6 3.4 3.4 3.4 Imports/GDP (GUlFS) 73.8 71.2 69.5 69.9 70.0 70.1 70.2 70.1 69.9 69.4 Current Account (USS) -34.1 -35.3 -34.4 -35.7 -36.6 -36.9 -37.5 -36.1 -33.2 -28.2 Current Account/GDP -17.9 -17.7 -16.3 -16.1 -15.5 -14.7 -13.9 -12.4 -10.6 -8.4 Terms of Trade Index 96.2 65.2 82.7 80.9 80.0 79.4 79.1 79.1 79.4 80.3 1/ Total debt outatnding and disbursed includes INF debt. V/ Exports of goods service nd private tranofers. 3/ Projections are n constant prices. Source: Caribbean Develop nt * nk. D0 Table 1.10: DONINICA: ALTERNATIVE CASE - ACTUAL AD PRWJECTED BALANCE OF PAYNENTS, 1992-2001 --------- (USS million) Prel. Est. Projections 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 A. Exports of Gods & INFS 101.7 100.7 105.5 112.8 122.0 132.8 145.4 160.7 178.5 196.1 1. Nerhadise 58.1 53.2 53.7 55.8 56.7 62.2 66.4 71.4 77.2 83.5 2. Non-Factor Sevice 43.6 47.5 51.7 57.0 63.2 70.6 79.1 69.3 101.2 114.6 B. Iqorts of Goods I INFS 140.1 142.2 146.5 15S.3 165.3 176.4 109.5 203.3 218.2 232.6 1. Nsocdvise 102.5 103.3 106.4 113.3 120.7 129.0 139.2 149.7 161.2 171.9 2. Now-Factor S _vie 37.6 38.9 40.0 42.1 44.6 47.3 50.3 53.6 57.0 60.6 C. Resource blatce -38.3 -41.4 -41.0 -42.5 -43.4 -43.6 -44.1 -42.6 -39.8 -34.5 0. Net Factor Income -8.7 -7.0 -6.6 -6.9 -7.2 -7.4 -7.7 -7.9 -6.0 -6.7 1. Factor Rwepts 2.0 4.3 4.5 4.5 4.5 4.6 4.6 4.6 4.6 4.6 2. Factor Paynts 10.7 11.3 11.3 11.4 11.7 12.0 12.3 12.5 12.6 13.4 E. Not Current Tranfer 13.0 13.1 13.4 13.7 13.9 14.1 14.3 14.4 14.6 15.0 F. Currant Account Sle -34.1 -35.3 -34.4 -35.7 -36.6 -36.9 -37.5 -36.1 -33.2 -28.2 G. Long-Tom Capital Inflou 31.5 27.7 37.5 39.6 42.5 43.5 43.4 44.4 40.5 33.9 1. Direct Intv_snt 13.0 14.0 16.0 17.0 19.0 21.0 24.0 25.0 27.0 30.0 2. Official Capitel Grants 5.4 5.0 5.0 5.0 5.0 4.6 4.8 4.8 4.8 4.6 3. Not LT Lo (DCS dsta) 7.2 6.7 16.5 17.6 16.5 17.7 14.6 14.6 8.7 -0.9 a. Disbusmjnts 11.4 13.5 21.6 23.0 24.2 23.6 21.1 21.5 16.5 7.9 b. Raps nts 4.2 4.8 5.1 5.4 5.7 5.9 6.5 7.0 7.8 8.6 4. Other LT Inflows (net) 5.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -0.0 0.0 H. Total Other Iti_ (net) 7.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1. OveraLL goanct 5.2 -7.6 3.1 3.9 5.9 6.6 5.9 8.3 7.3 5.7 J. Chwesr in Not Resweve -5.2 7.6 -3.1 -3.9 -5.9 -6.6 -5.9 -6.3 -7.4 -5.8 1. Net Credit from the IF -0.7 -0.7 -0.7 -0.8 -0.8 -0.8 -0.8 -0.6 -0.8 -0.8 2. Other Resrwve Charles -4.5 8.3 -2.4 -3.1 -5.1 -5.8 -5.1 -7.5 -6.6 -5.0 C- nidicates incres) Share of GDP (Current USS): 1. Resource bLancr -20.2 -20.8 -19.5 -19.1 -18.3 -17.3 -16.3 -14.7 -12.7 -10.3 2. Total Intereft Pey nts 1.4 1.6 1.5 1.5 1.5 1.5 1.5 1.5 1.4 1.3 3. Currant AccoUnt Balnce -17.9 -17.7 -16.3 -16.1 -15.5 -14.7 -13.9 -12.4 -10.6 -8.4 4. LT Capital Inflow 16.6 13.9 17.8 17.8 18.0 17.3 16.1 15.3 13.0 10.1 Nminrasm I tom: GDP C Ntne. of Current USS) 190 200 211 222 236 252 270 290 312 335 Foreign Exchue Reserves: 1. Gross Reserves Inct. Gold 24.2 16.6 19.7 23.6 29.5 36.1 42.0 50.4 57.7 63.5 2. Gros Res.in Months of lquorts 1.9 1.3 1.5 1.7 2.0 2.3 2.5 2.8 3.0 3.1 Source: Caribbean Development Bank. Table 1.11: GRENADA: SELECTED INDICATORS. 1980-91 Page 1 of 2 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 A. GENERAL INFORMATION Area (km sql: 345 Mid-year Population ('000) 86.0 89.1 89.6 91.6 94.1 93.9 90.4 94.1 99.2 100.0 100.2 90.7 Population Growth Rate M%) 0.3 3.6 0.4 2.3 3.4 (0.2) 13.7) 4.1 5.4 0.8 0.2 ... Unemployment Rate (%1 ... ... ... ... ... ... ... ... 26.0 ... ... 13.2 Average Exchange Rate I$ per US$1 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 B. SOCIAL INDICATORS I. Vital Statistics Crude Birth Rate 23.5 27.2 29.2 31.4 30.0 33.1 34.8 33.0 24.7 29.5 28.0 ... Crude Death Rate 6.9 8.2 8.1 8.7 7.7 8.7 7.7 8.3 7.2 8.2 8.6 ... Infant Mortality Rate 22.8 14.9 13.4 21.2 10.6 18.0 15.9 15.9 17.5 13.4 26.7 ... Life Expectancy at Birth (years) Male 66.7 ... ... ... ... ... 67.8 ... ... ... ... ... Female 73.0 ... ... ... ... ... 74.3 ... ... ... ... ... II. Education School Enrollment (No.) Primary 21,449 ... ... ... 19,939 19,834 19,969 19,988 20,207 ... ... ... Secondary 5,253 ... ... ... 6,508 4,921 6,437 5,457 6,412 6,509 ... ... Pupil-Teacher Ratio Primary 27.7 ... ... ... 27.1 26.4 25.9 26.3 26.5 ... ... ... Secondary ... ... ... ... 20.9 15.7 20.9 20.3 20.6 19.7 ... ... Ill. Health and Housing No. Doctors per 1000 population 0.3 ... ... ... 0.3 ... ... 0.4 0.4 0.4 ... ... No. Dentists per 1000 population 0.1 ... ... ... 0.1 ... ... 0.1 0.1 0.1 Average Household Size ... ... ... ... ... ... ... ... 4.0 ... ... 3.7 C. ECONOMIC INDICATORS II. Annual Change of Selected Indicators GDP - Constant Prices (% ... 2.1 5.3 1.2 5.6 4.9 5.5 6.0 5.3 5.7 5.2 2.9 Consumer Prices M%) 21.1 18.8 6.6 6.1 5.6 2.5 0.6 (0.9) 6.5 3.7 2.6 2.7 Money Supply (Ml) M%) ... 7.1 3.9 (3.9) (8.0) 8.7 26.9 2.8 11.3 15.6 (1.0) 4.7 Net Foreign Assets ($mn) ... ... ... ... ... (8.3) (3.9) 16.7 5.4 (45.01 26.0 2.9 TeN 1.1 1: GRNAA:SLECTED INDICATORS, 19410-91 [cau't) Pg. 2 of 2 1l60 1901 1962 1963 1964 1366 1966 1367 1966 1963 1390 191 NU. Salanoe Of Pay met lUSlIOnm 1. Balnanc of Trae" (36.91 ... ... (36.09 140.41 (54.19 (52.21 (57.2) (59.4) (70.91 (73.71 130.41 Exponts (fob) 17.2 ... ... 19.2 167 23.6 26.7 31.3 32.6 26.2 26.6 23.2 "Immp"l lki (54.1) ... ... 157.22 (57.11 (76.41 130.91 (60.1 192.2) 199.01 (106.31 (113.9 2. SeMa.Aoomurt 137 ... ... 7.2 6.2 14.6 15.6 137 163 15.5 13.2 26.5 EPoIPs ... ... ... ... ... ... 48.0 48.6 56.1 57.4 67.7 76.3 in,pt ... ... ... ... . ... (33.2) (6.09 (37.91 142.09 (446. 1(47.91 . intenational Tromwfwr (lwe 21.9 ... ... 22.1 36.3 41.3 33.7 23.3 24.3 25.3 32.5 27.1 PdVfte 0.6 ... ... 10.6 11.7 12.0 3.6 14.3 15.6 16.7 17.0 167 Offl2a 12.3 ... ... 11.3 24.6 26.3 23.9 3.1 9.4 6.6 15.5 6.4 4. Cunwnt Aooount Blnowe(1 +2 +31 (1.3) ... ... W1.7 4.1 1.7 (2.7) (13.91 (16.2) (30.09 (26.09 (34.91 S. Net Capital Movemnt .. .. . ... ... ... 9.0 20.3 10.6 26.5 1 1.6 26.1 6. Change In Pasw .ll I Inarm 0.7) ... ... 1.0' (3.09' 1.0" 0.2 (2.01 5.3 1.6 (2.11 (2.X) 7. Curnwt Aocounvt Blance as%of GDP (1.7) ... ... 19.31 4.0 1.5 (2.09 (13.09 19.7) (16.51 (13.91 (16.9 [V. ptinpa E,qaotu OmniI Senoete 11.1 10.0 6.9 6.1 7.3 6.6 10.1 11.1 12.7 10.6 10.6 10.1 Frsah Fnu 0.6 1.3 4.5 11.2 13.9 17.3 15.3 6.3 3.9 3.0 2.3 Cocoa 16.3 19.1 12.5 11.0 11.0 13.5 11.3 10.6 6.6 6.7 7.1 l6.3 Nutheg. 6.5 6.2 6.2 6.6 6.6 11.4 26.2 36.4 31.3 27.4 16.0 9.5 Mac. 1.6 1.7 2.5 2.1 2.5 3.61 5.3 7.2 7.3 5.3 3.2 2.7 V. Centra Govrnment Operatiom Omnmi Curent Rteveusm I/ 50. 1 63.9 77.0 64.5 105.6 123.3 115.5 106.4 123.3 151.4 147.6 161.6 Cuivft Epmidltuias 59.6 64.4 71.6 74.4 106.3 115.1 101.4 133.2 176.5 171.4 153.9 1 64.5 Curnun Accotunt Surplus(Deflimit) (0.5) (0.5) 5.4 10.1 0.5 6.6 14.1 (24.19 (53.2) (20.09 (6.3) (2.7) Capita Prwvenu, O mdGrn. . - ... ... 42.7 12.6 7.3 3.9 135 22.6 Capita Expenitur and Not Lendin 37.5 74.6 103.6 92.2 67.9 76.2 76.7 37.6 56.2 34.4 70.6 46.1 Overe Surplual(Dsfllt (36.0) (75.3) (96.2) (62.11 (67.41 (69.41 (19.91 (50.09 (110.1l (50.51 (63.4) (26.2) Curnut Surpku/(Defl tasof GDP (0.2) (0.2) 2.3 4.0 0.2 2.6 4.0 W6.1 (11.9) (4.1) (1.2) (0.5) Owmrl Surpkusl(Dsflcit) as of GOP (16.91 (34.7) (41.09 (32.5) (24.5) (22.2) (5.7) (12.3) (23.2 (10.3) (11.91 (4.91 VI. Domestic Cedit by Secto(r1nin) Total Domestic Credkt ... ... ... ... ... ... 212.4 246.3 266.0 340.4 360.6 376.0 P,1vat Sectr.. . ... ... ... ... 152.4 166.6 213.0 273.3 271.1 267.6 Poduther SeAtwr ... ... ... ... .. ... ... ... ... .. .. Cedntral Dwry mnt (pm) .. ... ... ... ... ... 52.1 4S.5 64.4 56.6 66.3 77.2 OthwrPblSect ... ... ... ... ... ... 7.9 3.6 10.6 14.5 12.6 11.0 VN. External Debt Outstandin (US *mnn Total External Debt Outstanding 14.4 26.2 33.7 48.4 48.4 40.7 53.7 63.6 66.0 66.5 ss.s 62.9 Debt Sewvoe 1.7 1.4 2.4 2.6 7.2 3.2 4.5 5.6 6.1 3.1 2.9 3.7 Aiteres 0.5 0.6 0.9 1.4 2.3 0.9 2.0 2.3 2.4 1.4 1.2 1.4 Amortizatio, 1.2 0.6 1.5 1.2 4.9 2.3 2.5 3.3 3.7 1.7 1.7 2.3 Debt Sevic, as 11 of GOP 2.3 1.7 2.7 2.6 7.1 2.6 3.5 3.7 3.7 1.7 1.4 1.6 Debt Swvlcea % ofQaCunwt Rsven 7.6 5.9 6.4 6.3 16.4 7.0 10.5 13.9 13.4 5.5 5.3 6.2 gbt Swve RPOW ... ... ... ... ... 5.6 7.4 6.7 6.2 3.9 2.2 5.1 I/ Inckudes grants SoumDe: NVotInel Governmenvts and Carbbean Development Bank. Table 1.12: GRENADA - BASE CASE - ACTUAL AND PROJECTED KEY MACROECONOMIC INDICATORS, 1992-2002 Actual Prel. Est. Projections 1992 1993 1994 1995 1996 1997 1996 1999 2000 2001 2002 GDP Growth Rate 0.6 0.5 1.0 2.0 3.0 3.5 3.5 3.5 3.5 3.5 3.5 GNP Growth Rate .. 0.6 1.2 2.3 3.4 3.7 3.7 3.3 3.8 3.6 3.6 GNP/Capita Growth Rate .. 0.1 0.7 1.8 2.9 3.2 3.2 2.8 3.3 3.1 3.0 Total DOD 1/ (In USS) 109.2 92.1 91.6 91.6 94.1 97.3 101.6 106.0 117.0 121.6 133.0 DOD/XGS 2/ 91.4 74.6 70.5 66.0 63.1 60.5 58.6 57.8 58.1 56.1 57.1 DOD/GDP 50.5 41.5 40.4 38.7 37.4 36.1 35.3 35.1 35.5 34.6 35.4 Debt Service (in USS) 5.6 10.2 10.0 8.4 8.4 8.5 9.5 10.4 9.7 9.9 11.0 Debt Service/XGS 4.7 8.2 7.7 6.0 5.7 5.3 5.5 5.6 4.8 4.6 4.7 Debt Service/GDP 2.6 4.6 4.4 3.5 3.4 3.2 3.3 3.4 2.9 2.8 2.9 Debt ServIce/Current Revenue 3.5 6.0 5.8 4.7 4.4 4.2 4.3 4.4 3.9 3.7 3.9 Interest/XGS 1.5 2.4 2.2 2.0 1.9 1.8 1.8 2.2 1.9 1.9 2.0 Interest/GDP 0.8 1.3 1.2 1.2 1.1 1.1 1.1 1.3 1.2 1.2 1.2 Gross Investment/GDP 3/ 36.2 31.7 30.0 30.0 30.0 30.0 30.0 30.0 30.0 30.0 30.0 Domestic Savings/GDP 3/ 16.8 12.5 12.6 13.0 12.9 12.7 12.6 12.5 12.4 12.6 13.0 National Savings/GDP 3/ 25.9 21.4 22.2 23.1 23.4 23.4 23.3 22.8 22.7 22.7 22.9 Government Revenue/QDP 27.3 28.1 28.1 28.1 28.1 28.1 28.1 28.1 28.1 28.1 28.1 Governmvet Expenditure/GDP 28.2 27.0 26.1 25.6 25.1 24.6 24.1 23.6 23.1 23.1 23.1 Deficit (-) or Surplus (+)/GDP -1.0 1.1 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.0 5.0 Export Growth Rate (CGLNFS) .. 2.6 3.8 3.8 3.8 4.1 4.1 4.2 4.2 4.1 4.2 Exports/GDP (GUlFS) 53.8 54.1 55.6 56.7 57.2 57.6 58.1 58.5 59.0 59.4 59.8 Import Growth Rate (GUiFS) .. 1.6 0.5 2.2 3.4 3.9 3.9 3.9 3.9 3.9 3.7 Imports/GDP (GLNFS) 73.1 73.0 72.9 73.7 74.4 75.1 75.8 76.5 77.1 77.2 77.2 Current Account (USS) -22.2 -22.5 -17.5 -16.5 -17.0 -18.5 -20.4 -23.6 -25.9 -27.3 -28.5 Current Account/GDP -10.3 -10.1 -7.7 -7.0 -6.7 -6.9 -7.1 -7.7 -7.9 -7.8 -7.6 Terms of Trade Index 100.0 95.7 96.0 95.3 95.2 95.3 9f.5 9.9 96.4 96.9 97.5 1/ Total debt outstanding and disbursed includes IMF debt. 2/ Exports of goods and services. 3/ Projections are in conrtant prices. Source: Caribbean Development Bank. wA Table 1.13: GRENADA - BASE CASE - ACTLAL AND PROWECTED BALANCE OF PAYMENTS, 1992-2002 ---------- ((US$ mittion) Actuat Prlt. Est. Projectiors 1992 1993 1994 1995 1996 1997 1996 1999 2000 2001 2002 A. Exports of Goods & NFS 116 120 126 134 144 155 167 180 194 209 225 1. Merchandise 20 19 20 21 22 24 25 27 29 30 32 2. Non-Factor Services 96 101 107 114 122 132 142 153 166 179 193 B. Ieports of Good & NFS 158 162 165 175 187 202 218 235 254 272 320 1. Merchandise 130 134 136 14 155 167 181 195 211 225 240 2. Non-Factor Services 28 28 29 30 32 35 37 40 43 47 80 C. Reaource Balance -42 -42 -39 -40 -43 -47 -51 -55 -60 -63 -96 D. Net Factor Income -7 -6 -6 -6 -5 -5 -5 -6 -5 -5 -5 1. Factor Receipts 3 3 4 4 5 6 6 7 7 8 8 2. Factor Payments 10 10 10 10 10 11 11 12 12 13 13 E. Net Current Transfers 26 26 28 29 31 33 35 37 39 40 42 F. Current Accoaunt Balance -22.2 -22.5 -17 -16 -17 -18 -20 -24 -26 -27 -59 G. Long-Term Capital Inflow 35 22 24 23 24 25 27 31 34 36 38 1. Direct Investment 27 19 20 21 21 22 23 24 25 25 26 2. Official Capital Grants 2 4 5 3 0 0 0 0 0 0 0 3. Met LT Lons (DRS data) 6 -0 -0 -0 3 3 4 6 9 11 11 a. Disbursements 10 7 7 5 8 9 11 13 15 17 18 b. Repayoents 4 7 7 6 6 6 6 6 6 6 6 4. Other LT Inflows (net) -0 0 0 0 0 0 0 0 0 -0 1 H. Total Other Items (net) -6 -4 0 0 0 0 0 0 0 0 0 1. Capftal Account Batance 29 18 24 23 24 25 27 31 34 36 38 J. OveratllaLance 7 -5 7 7 7 7 7 7 8 9 -20 J. Changes n Met Reserves -7 5 -7 -7 -7 -7 -7 -7 -8 -9 -10 1. Net Credit from the IMF 0 0 0 0 0 0 0 0 0 0 0 2. Other Reserve Changes -7 5 -7 -7 -7 -7 -7 -7 -8 -9 -10 (- indicates increase) Shares of GDP (Currant US$): 1. Resource Balance -19.3 -19.0 -17.3 -17.0 -17.2 -17.5 -17.7 -17.9 -18.1 -17.8 -25.4 2. Totat Interest Paymnts 0.8 1.3 1.2 1.2 1.1 1.1 1.1 1.3 1.2 1.2 1.2 3. Current Account Balance -10.3 -10.1 -7.7 -7.0 -6.7 -6.9 -7.1 -7.7 -7.9 -7.8 -15.6 4. LT Capitat Inflou 16.2 10.0 10.8 9.9 9.5 9.4 9.5 9.9 10.3 10.3 10.2 Memoran&. I te: GDP ( MInL. of Current US) 216 222 227 237 252 269 288 308 329 352 376 Foreign Exchange Reserves: 1. Gross Reserves fncL. Gold 25.9 21.4 28.4 35.4 42.4 49.4 56.4 63.4 71.4 80.4 90.4 2. Gross Res.in Months of lIports 1.9 1.5 1.9 2.3 2.6 2.8 3.0 3.1 3.2 3.4 3.6 Source: Caribbean Development Bank. TabLe 1.14: GRENADA - ALTERNATIVE CASE - ACTLUAL AND PROJECTED KEY MACROECONOMIC INDICATORS, 1992-2002 Actual PreL. Est. Projections 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 GDP Growth Rate 0.6 0.5 1.0 2.5 2.6 3.0 3.5 3.5 4.0 4.0 4.0 GNP Growth Rate .. 0.6 1.2 2.9 3.0 3.2 3.8 3.4 4.4 4.3 4.2 GNP/Capita Growth Rate .. 0.1 0.7 2.3 2.5 2.7 3.3 2.9 3.9 3.7 3.6 TotaL DOD 1/ (in USS) 109.2 92.1 91.7 92.6 91.4 88.3 86.2 85.0 85.4 80.9 83.5 DOD/XGS 2/ 91.4 74.6 70.5 66.7 60.9 54.6 49.4 45.1 41.8 36.7 35.0 DOD/GDP 50.5 41.5 40.4 38.9 36.3 32.9 30.1 27.7 25.9 22.9 22.0 Debt Service (in USS) 5.6 10.2 10.0 8.4 8.5 8.4 9.1 9.8 8.8 8.3 8.5 Debt Service/XGS 2/ 4.7 8.2 7.7 6.0 5.7 5.2 5.2 5.2 4.3 3.8 3.6 Debt Service/GDP 2.6 4.6 4.4 3.5 3.4 3.1 3.2 3.2 2.7 2.4 2.2 Debt Service/Current Revenue 3.5 6.0 5.8 4.6 4.4 4.1 4.2 4.2 3.5 3.1 2.9 Interest/XGS 2/ 1.5 2.4 2.2 2.0 1.9 1.8 1.5 1.8 1.4 1.3 1.2 Interest/GDP 0.8 1.3 1.2 1.2 1.1 1.1 0.9 1.1 0.9 0.8 0.8 Gross Investment/GDP 3/ 36.2 31.7 30.0 30.0 30.0 30.0 30.0 30.0 30.0 30.0 30.0 Domestic Savings/GDP 3/ 16.8 12.5 12.6 12.7 13.2 13.6 13.7 13.7 13.6 13.8 14.1 NationaL Savings/GDP 3/ 25.9 21.4 22.2 22.8 23.8 24.4 24.5 24.3 24.2 24.3 24.4 Goverrnent Revenue/GDP 27.3 28.1 28.1 28.1 28.1 28.1 28.1 28.1 28.1 28.1 28.1 Goverrnmnt Expenditure/GDP 28.2 27.0 26.1 25.6 25.1 24.6 24.1 23.6 23.1 23.1 23.1 Deficit (-) or Surplus (+)/GDP -1.0 1.1 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.0 5.0 Export Growth Rate (G&NFS) .. 2.6 3.8 3.9 4.3 4.3 4.3 4.4 4.5 4.5 4.5 Exports/GDP (GlNFS) 53.8 54.1 55.7 56.4 57.4 58.2 58.8 59.3 59.7 60.1 60.4 Import Growth Rate (GUlFS) .. 1.6 0.5 2.7 2.7 3.2 3.8 3.8 4.3 4.3 4.3 Imports/GDP (G&NFS) 73.1 73.0 72.9 73.8 74.3 74.8 75.4 76.0 76.6 76.7 76.7 Current Account (USS) -22.2 -22.5 -17.5 -17.4 -16.2 -15.7 -16.7 -18.6 -20.8 -21.7 -22.9 Current Account/GDP -10.3 -10.1 -7.7 -7.3 -6.4 -5.9 -5.8 -6.1 -6.3 -6.1 -6.0 Terum of Trade Index 100.0 95.7 96.0 95.3 95.2 95.4 95.8 96.3 97.0 97.9 98.9 1/ Total debt outstanding and disbursed includes IMF debt. 2/ Exports of goods and services. 3/ Projections are in constant prices. Source: Caribbean DeveLopnent Bank. Lf Table 1.15: GRENADA - ALTERNATIVE CASE - ACTUAL AND PROJECTED BALANCE OF PAYMENTS, 1992-2002 -------- - (USs million) Actual Prel. Est. Projections 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 A. Exports of Goods & NFS 116 120 126 134 145 156 168 182 197 213 230 1. Merchandise 20 19 20 21 22 24 25 27 30 32 34 2. Non-Factor Services 96 101 107 114 122 132 143 155 167 181 195 B. Imports of Goods & NFS 158 162 165 176 187 201 216 233 252 271 291 1. Merchandise 130 134 137 145 155 166 179 193 210 225 242 2. Non-Factor Services 28 28 29 30 32 34 37 39 43 4 49 C. Resource Balance -42 -42 -39 -41 -42 -44 -48 -51 -56 -59 -62 D. Net Factor Income -7 -6 -6 -6 -5 -5 -4 -5 -4 -3 -3 1. Factor Receipts 3 3 4 4 5 6 6 7 7 8 9 2. Factor Payments 10 10 10 10 10 10 10 12 11 11 12 E. Net Current Transfers 26 26 28 29 31 33 35 37 39 40 42 F. Current Account Balance -22 -22 -18 -17 -16 -16 -17 -19 -21 -22 -23 G. Long-Term Capital Inflow 35 22 25 24 23 23 24 27 30 33 35 1. Direct Investment 27 19 20 21 21 23 24 26 27 29 30 2. Official Capital Grants 2 4 5 3 3 3 2 2 2 2 2 3. Net LT Loans (DRS data) 6 -0 -0 1 -1 -3 -2 -1 0 2 3 a. Disbursements 10 7 7 6 4 3 4 5 6 7 8 b. Repsyments 4 7 7 6 6 6 6 6 6 6 6 4. Other LT Inflows (net) -0 0 0 0 0 0 0 0 0 0 0 H. Total Other Itens (net) -6 -4 0 0 0 0 0 0 0 0 0 1. Capital Account Balance 29 18 25 24 23 23 24 27 30 33 35 J. Overall Baltnce 7 -4 7 7 7 7 7 8 9 11 12 J. Changes in Net Reserves -7 5 -7 -7 -7 -7 -8 -8 -9 -11 -12 1. Net Credit from the IMF 0 0 0 0 0 0 0 0 0 0 0 2. Other Reserve Changes -7 5 -7 -7 -7 -7 -8 -8 -9 -11 -12 (- indicates increase) Shares of GDP (Current USS): 1. Resource Balance -19.3 -19.0 -17.3 -17.4 -16.9 -16.5 -16.6 -16.6 -16.8 -16.6 -16.3 2. Total Interest Payments 0.8 1.3 1.2 1.2 1.1 1.1 0.9 1.1 0.9 0.8 0.8 3. Current Account Balance -10.3 -10.1 -7.7 -7.3 -6.4 -5.9 -5.8 -6.1 -6.3 -6.1 -6.0 4. LT Capital Inflow 16.2 10.0 10.8 10.3 9.2 8.5 8.4 8.7 9.0 9.2 9.1 Morank Item: GDP ( NtnM . of Current USS) 216 222 227 238 252 268 287 307 330 354 380 Foreign Exchange Reserves: 1. Gross Reserves inct. Gold 25.9 21.4 28.4 35.4 42.4 49.4 56.9 64.9 73.9 84.9 96.9 2. Gross Res.in Months of lIports 1.9 1.5 1.9 2.3 2.6 2.8 3.0 3.2 3.4 3.6 3.8 Source: Caribbean Development Bank. Table 1.16: MONTSERRAT: SELECTED INDICATORS. 198Q-91 Page 1 of 1 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 A. GENERAL INFORMATION Area (km sq): 103 Mid-year Population ('000) 11.6 11.6 11.7 11.8 11.9 11.9 11.9 11.9 11.9 11.9 11.9 10.9 Population Growth Rate (%) ... 0.0 0.9 0.9 0.8 0.1 0.1 0.1 0.1 0.1 (0.41 (8.2) Unemployment Rate (%) 6.1 5.5 5.6 5.8 5.3 4.2 2.0 1.1 0.2 1.0 ... Average Exchange Rate ($ per US$) 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 B. SOCIAL INDICATORS I. Vital Statistics Crude Birth Rate 19.3 19.9 22.3 22.7 20.7 21.0 16.8 15.1 15.3 13.0 15.2 Crude Death Rate 8.9 10.1 9.8 10.6 8.8 11.5 10.6 9.8 10.4 11.4 11.1 ... Infant Mortality Rate 40.2 21.6 7.7 30.1 12.3 17.0 5.0 27.8 11.0 19.4 11.3 ... Life Expectancy at Birth (years) Male 62.8 ... ... ... ... ... 63.5 ... ... ... ... Female 67.9 ... ... ... ... ... 69.8 ... ... ... ... ... II. Education School Enrollment (No.) Primary ... ... ... ... ... 1,487 1,351 1,403 ... ... ... Secondary ... ... ... ... ... 955 1,016 984 ... ... ... ... Pupil-Teacher Ratio Primary ... ... ... ... ... 22.5 20.2 20.9 ... ... Secondary ... ... ... ... ... 14.7 14.3 13.9 ... ... ... ... III. Health and Housing No. Doctors per 1000 population ... ... ... ... ... ... 0.6 ... ... ... No. Dentists per 1000 population ... ... ... ... ... ... ... 0.08 ... ... Average Household Size 3.1 ... ... ... ... ... ... ... ... ... C. ECONOMIC INDICATORS II. Annual Change of Selected Indicators GDP - Constant Prices (%1 10.3 3.6 4.4 (4.3) 1.8 6.0 2.8 5.3 9.4 11.5 14.7 (23.7) Consumer Prices (%) 29.8 7.1 9.8 4.7 5.5 2.7 3.1 3.7 4.1 1.8 6.8 ... _ Money Supply (Mtrns (%.n) ... ... ... ... .8 .1 .0 .1 .3 .7) ... Net Foreign Assets ($mn) ... ... ... ... ... 0.8 0.1 3.0 11.1 27.3 (19.7) 120.9) Table 1.16 : MON4TSEPFIAT: SELECTED INDICATORS, I 98o-9 i con't) Page 2 of 2 1880 1981 1 962 1983 1984 1866 1 980 1067 1986g 1968 1900 1301 III. Balance Of Paynunts JUS*mnt) I .Balance of Trade -. ... ... (18.6) (16.3), (16.6) (1A.) ( 71.7 (21.1) 131.3) (40.9) (33.1) Exports ffobI .. . . .0 1.6 2.0 2.3 356 2.3 1.3 1.15 1.0 Invorta kmt .. .. . (10.1) (1 6.0) (16.4) (18.1) (22.2) (23.4) (32.6) (42.4) (34.11 2. SwrvIce Accoturt . .. ... 4.9 4.9 8.3 2.7 3., 6.9 2.7 1.7 3.1 Exports . .. .. . ... ... 11.2 12.7 '16.8 17.0 191.6 190. Imports . . . . . . (6.6 (0.4) (9.6) (14.3) (16.9) (16.8) 3. InternaIoral Trnsfers (ne) .. . I. 1.0, 9.5s 10.6 9.6 9.9 13.4 40.4 19.6 14.0 Pf(vito M. . .. 1. ... ... 7.8 8.61 9.3 33.7 16.6 9.8 Officia . . . 1.6 -. ... 1.8 1.3 4.2 6.7 4.3 6.1 4. Cu,rwnt Acco4jt8alanc(II+ 2 +3) ... ... .. (2.0) (1.0) 0.4 13.5) 15.A) (1.8) 117 (19.3) (16S.3) S. Net Capita Movements ... ... ... .. .. ... 0.3 6.0 44.8) 19.0) 23.0 6.4 6. Chmige in Reserves ( - Mersave ., .. .. A1.) (1.7) (2.6) (1.0) (1.~3) 10.3) ID.3) 42.6 3.6 7 .CuwysntAcow,tSBalance s% of GOP ... ... ... (7.0) (3.1) 1.1 (10.0) (14.2) (4.2) 24.8 (31.7) (26.9) IV. Princ*al Exports (Iln) I 8.I.T.C Section 0 0.2 0.4 0.1 0.1 0.2 0.2 0.1 0.1 0.1 .. .. .. S.I.T.C Sect)ons (S + ) 1.7 3.4 3,0 4.3 1.4 1.1 2.s 6.6 3.5 . . V. Centfal Goverrvnet Operations (rin) Cuwysn P.evnues 14.7 1 8.0 19.8 20.9 21.6 24.0 26.0 26.0 26.8 30.6 39.1 42.2 Curynt E.xpendlture* 13.6 15.7 18.0 20.0 21.4 21.3 23.4 21.8 26.3 32.6 38.2 38.7 CuwrrenAcout Surplsi(Defic)t) 1.2 2.3 1,8 0.9 0.2 2.7 1.6 3.2 0.8 3.8 0.9 3.6 CapIttd ExpendIture 7.6 10.9 7.8 4.5 4.8 6.6a 8.7 9.7 5.7 14,1 16.7 14.0 OversRBiuaplual(Deficit) (6.3) (8.6) IS.8 (3.6) (4.4) (2.9) (7.1) (5.6) (6.2) (10.3) (14.81 (10.8) Curran Surxpkui(Deflck) as % of GO)P 2.1 3.6 2.5 1.2 0.2 3.1 1.7 3.1 0.4 3.0 0.6 2.6 Overall SurpkWs(Deficlt) as % of GOP (10.8) (13.3) (8.0) (4.6) (65.2) (3.3) (7.5) (8.41 (4.6) (8.0) (9.0) (7.8) VI. Domestic Credit by Soctor Wmrn) Total Domestic CredIt ... ... .. .. .. 30.1 30.6 30.2 32.8 40.0 80.2 93.3 Prlvgte Sector ... .. .. .. ... 24.9 27.5 29.6 34.6 44.8 82.9 96.6 Productiv Secoar' . . . ... ... ... ... ... ... .. .. ServIcs Secto rs .. .. .. ..... ... ... ... .,.. .. Pubic Sector .. .. .. ... ... 5.2 3.1 0.0 (1.7) (4.9) (2.5) (3.2) Centra Gvovernent (net) .. .. .. .. .. 3.6 1.8 40.6) (2.7) (5.13) (2.) (3.3) Ottwr Pubk Sc ator ... ... .. ... ... 1.6 1.6 1.6 1.0 0.6 0.3 0.1 VI. External Debt Outstanding (US4$mn) Totd ExternalDebt Outstandfri 1.6 2.0 2.4 2.7 3.0 3.7 3.0 3.4 3,6 3.4 3,0 3.4 Dowt sewlca 0.1 0.1 0.1 0.2 0.4 0.4 0.2 0.2 0.3 OA 0,s 0,4 lnters 0.1 0.1 0.1 0.1 0.3 0.1 0.1 0.1 0.1 0.1 0.2 0.2 Ano,tl2aio 0.0 0.0 0.0 0.1 0.1 0.3 0.1 0.1 0.2 0.3 0.3 0.3 Debt arsicea % of GOP 0.6 0.4 0.4 0.7 1.3 1.2 0.6 0.6 0.7 0.8 0.8 0.8 DOW bt8 ie as %of C;XM* Revenue 1.s 1.6 1.4 2.6 6.0 4.65 2.2 2.2 3.1 3.0 3.85 2.6 Debt Service Ratio 4.1 2.4 3.5 2.0 ... 9.3 1.6 1.2 1.7 2.2 2.6 2.0 Sorseeo: aIonal Goverments and Carkovism DevelopmeBn k w. Table 1.17: MONTSERRAT - LOW CASE - ACTUAL AND PROJECTED KEY KACROECONOMIC INDICATORS, 1992-2002 Actual PreL. Est. Projections 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 GDP Growth Rate 4.1 -2.0 2.0 3.0 3.0 3.0 3.0 2.0 2.0 2.0 2.0 GNP Growth Rate .. -1.8 1.9 2.7 3.2 3.1 2.9 1.7 1.9 2.0 1.9 GNP/Capita Growth Rate .. -1.3 2.1 2.4 2.8 2.6 2.4 1.2 1.4 1.5 1.4 Pvt.Cons/Capita Growth Rate .. 12.2 -4.9 1.4 -5.0 0.5 0.4 5.3 -1.1 -1.3 -0.7 TotaL DOD 1/ (in USS) 3.4 6.3 11.7 17.3 26.3 37.3 48.3 58.2 69.1 78.8 89.1 DOD/xGs 27 15.1 26.8 46.7 63.8 88.7 114.6 135.8 151.5 166.1 175.4 185.1 DOD/GDP 5.3 9.8 17.1 23.6 33.8 44.8 54.5 62.2 70.0 75.6 80.9 Debt Service (in USS) 0.4 0.2 0.3 0.9 1.1 1.5 2.0 2.6 3.3 3.4 4.0 Debt Service/XGS 1.8 0.9 1.3 3.3 3.7 4.7 5.6 6.8 7.9 7.5 8.4 Debt Service/GDP 0.6 0.3 0.5 1.2 1.4 1.9 2.2 2.8 3.3 3.2 3.7 Debt Service/Current Revenue 1.0 0.5 0.8 2.0 2.3 3.0 3.6 4.5 5.3 5.2 5.9 Interest/XGS 0.6 0.3 0.8 2.2 2.6 3.2 3.8 4.5 4.9 5.0 5.3 Interest/GDP 0.2 0.1 0.3 0.8 1.0 1.2 1.5 1.9 2.1 2.2 2.3 Gross Investment/GDP 3/ 41.2 25.0 30.0 30.0 35.0 35.0 35.0 30.0 30.0 30.0 30.0 Domestic Savings/GDP 3/ 7.5 -3.6 1.8 2.5 7.9 9.1 10.3 7.2 8.4 10.0 11.1 National Savings/GDP 3/ 17.3 8.1 14.4 14.8 17.2 16.3 16.8 11.7 12.3 13.4 14.1 Government Current Revenue/GDP 4/ 23.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 Government Current Expenditure/GDP 4/ 23.3 23.1 22.0 21.2 19.9 19.6 19.3 19.0 19.0 19.0 19.0 Goverrnent Current Account BaLance/GDP 4/ -0.3 -0.1 1.0 1.8 3.1 3.4 3.7 4.0 4.0 4.0 4.0 Export Growth Rate (GLNFS) .. 4.8 4.8 4.8 5.7 5.7 5.7 4.8 4.8 4.8 3.9 Exports/GDP (G&NFS) 34.3 35.7 35.8 36.0 36.8 37.8 38.7 39.7 40.7 41.7 42.4 Import GroWth Rate (GUNFS) .. -5.7 2.8 2.5 3.7 2.5 2.5 0.3 1.5 1.5 1.6 Imports/GDP (G&NFS) 68.0 63.4 62.4 61.9 62.5 62.4 62.2 61.5 61.5 60.9 60.3 Current Account (ULS)S/ -18.7 -14.5 -16.1 -16.6 -17.2 -18.8 -19.5 -19.5 -19.9 -19.3 -19.7 Current Account/GDP -29.7 -22.3 -23.3 -22.7 -22.1 -22.7 -21.9 -20.7 -20.1 -18.6 -17.9 Terms of Trade Index 100.0 100.5 101.2 100.8 100.5 100.1 99.8 99.3 98.9 99.0 99.2 1/ TotaL debt outstanding and disbursed includes INF debt. 2/ Exports of goods and services. 3/ Projections are in constant prices. 4/ Central Government. 5/ Current Account excludes net OfficiaL Transfers Source: Caribbean Development Bank. Table 1.18: WONTSERRAT - LOW CASE - ACTUAL AND PROJECTED BALANCE OF PAYMENTS, 1992-2002 ---------- (USS million) Actual Pre(. Est. Projections 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 A. Exports of Goods & NFS 21.8 23.1 24.5 26.3 28.7 31.4 34.3 37.1 40.2 43.5 46.6 1. Merchandise (FOB) 1.6 1.5 1.6 1.6 1.7 1.8 1.9 2.0 2.1 2.2 2.3 2. Non-Factor Services 20.2 21.6 23.0 24.7 27.0 29.6 32.4 35.1 38.2 41.3 44.4 B. Imports of Goods & NFS 43.2 41.0 42.8 45.3 48.7 51.9 55.2 57.6 60.7 63.5 66.4 1. Merchandise (CIF) 33.9 31.8 33.3 35.3 38.0 40.5 43.1 44.8 47.3 49.3 51.5 2. Non-Factor Services 9.3 9.2 9.5 10.1 10.7 11.4 12.1 12.7 13.4 14.2 14.9 C. Resource Balance -21.4 -17.9 -18.3 -19.0 -20.0 -20.4 -20.9 -20.4 -20.5 -20.0 -19.8 D. Net Factor Income -2.8 -2.7 -2.8 -3.2 -3.2 -3.4 -3.6 -4.0 -4.4 -4.6 -5.0 1. Factor Receipts 0.5 0.6 0.6 0.7 0.9 1.1 1.3 1.3 1.4 1.4 1.5 2. Factor Payments 3.3 3.2 3.4 3.9 4.2 4.5 4.9 5.4 5.8 6.1 6.5 (interest peyments - mIt) 0.1 0.1 0.1 0.5 0.7 0.9 1.3 1.7 2.0 2.2 2.5 E. Net Current Transfers 5.5 6.1 5.0 5.6 6.0 5.0 5.0 5.0 5.0 5.0 5.0 F. Current Account Balance -18.7 -14.5 -16.1 -16.6 -17.2 -18.8 -19.5 -19.5 -19.9 -19.3 -19.7 G. Long-Term Capital Infloi 8.0 11.2 16.8 17.2 21.1 23.3 22.8 22.2 22.7 22.3 21.5 1. Direct Investment 4.6 5.0 5.4 5.7 6.0 6.4 6.8 7.2 7.2 7.2 7.2 2. Official Capital Grants 3.5 4.0 6.0 6.0 6.0 6.0 5.0 5.0 5.0 5.0 4.0 3. Net LT Loans (DRS data) -0.1 2.1 5.4 5.5 9.1 10.9 11.0 10.0 10.5 10.1 10.3 a. Disbursements 0.2 2.3 5.5 5.8 9.4 11.4 11.6 10.8 11.8 11.2 11.8 b. Repayments 0.3 0.1 0.1 0.3 0.3 0.5 0.6 0.9 1.2 1.1 1.5 H. Total Other Item (net) 10.8 3.8 0.0 -0.1 -2.0 -2.0 -1.0 -1.9 -1.9 -2.2 -1.0 1. Changes in Net Reserves -0.1 -0.5 -0.7 -0.5 -1.9 -2.5 -2.3 -0.7 -0.9 -0.8 -0.8 1. Net Credit from the IMF 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2. Other Reserve Changes -0.1 -0.5 -0.7 -0.5 -1.9 -2.5 -2.3 -0.7 -0.9 -0.8 -0.8 (- indicates inrease) Shares of GDP (Current USS): 1. Resource Balance -33.7 -27.7 -26.6 -25.9 -25.6 -24.6 -23.5 -21.8 -20.7 -19.1 -17.9 2. Total Interest Payments 0.2 0.1 0.3 0.8 1.0 1.2 1.5 1.9 2.1 2.2 2.3 3. Current Account Balance -29.7 -22.3 -23.3 -22.7 -22.1 -22.7 -21.9 -20.7 -20.1 -18.6 -17.9 4. LT Capital InfLow 7.1 11.1 15.7 15.5 19.4 20.9 20.1 18.3 17.9 16.7 16.0 Memoranwa Item: GDP ( Mlne. of Current USS) 63 65 69 73 78 83 89 94 99 104 110 Foreign Exchange Reserves: 1. Gross Reserves fncl. GoLd 6.5 7.0 7.7 8.2 10.1 12.7 15.0 15.7 16.6 17.4 18.2 2. Gross Res.in Months of Imports 1.7 1.9 2.0 2.0 2.3 2.7 3.0 3.0 3.0 3.0 3.0 Source: Caribbean DeveLopaent Bank. TabLe 1.19: MONTSERRAT - HIGH CASE - ACTUAL AND PROJECTED KEY MACROECONOMIC INDICATORS, 1992-2002 Actual Prel. Est. Projections 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 GDP Growth Rate 4.1 -2.0 3.0 5.0 6.0 6.0 6.0 4.0 4.0 4.0 4.0 GNP Growth Rate . -1.8 3.0 4.7 6.3 6.3 6.2 4.0 4.2 4.2 4.2 GNP/Capita Growth Rate .. -1.3 3.2 4.4 5.9 5.8 5.7 3.5 3.6 3.7 3.7 Pvt.Cons/Capita Growth Rate .. -1.6 -4.1 -0.3 4.0 3.8 3.8 8.2 1.1 0.9 0.8 Total DCD 1/ (in USS) 3.4 6.2 12.0 17.5 23.5 29.7 35.2 37.6 40.0 39.8 38.5 DOD/XGS 2/ 15.1 25.1 44.2 57.9 69.2 77.8 82.1 79.7 76.8 69.6 61.1 DOD/GDP 5.3 9.5 17.3 23.2 28.4 32.7 35.4 35.1 34.7 32.1 28.8 Debt Service (in USS) 0.4 0.2 0.3 0.9 1.1 1.5 1.8 2.2 2.7 2.5 2.8 Debt Service/XGS 1.8 0.9 1.2 3.0 3.2 3.8 4.1 4.7 5.2 4.5 4.4 Debt Service/GDP 0.6 0.3 0.5 1.2 1.3 1.6 1.8 2.1 2.3 2.1 2.1 Debt Service/Current Revenue 1.0 0.5 0.7 1.9 2.1 2.6 2.9 3.4 3.8 3.3 3.3 Interest/XGS 0.6 0.3 0.7 2.0 2.3 2.5 2.7 2.9 2.8 2.5 2.3 Interest/GDP 0.2 0.1 0.3 0.8 0.9 1.0 1.1 1.3 1.3 1.2 1.1 Gross Investment/GDP 3/ 41.2 35.0 38.0 40.0 40.0 40.0 40.0 35.0 35.0 35.0 35.0 Domestic Savings/GDP 3/ 7.5 6.5 11.5 14.8 16.2 17.5 18.9 15.9 17.2 18.8 20.6 National Savings/GDP 3/ 17.3 18.2 24.0 26.8 28.8 30.1 31.3 28.1 29.4 31.1 32.7 Goverrnment Current Revenue/GDP 4/ 23.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 Government Current Expenditure/GDP 4/ 23.3 23.1 22.0 21.2 19.9 19.6 19.3 19.0 19.0 19.0 19.0 Goverruent Current Account Balance/GDP 4/ -0.3 -0.1 1.0 1.8 3.1 3.4 3.7 4.0 4.0 4.0 4.0 Export Growth Rate (G&NFS) .. 9.0 8.5 8.5 8.6 8.6 8.6 6.7 6.8 6.8 6.8 Exports/GOP (GLNFS) 34.3 37.2 38.1 39.0 39.9 40.8 41.7 42.7 43.8 44.8 45.9 Import Growth Rate (GLNFS) .. -3.7 3.0 4.6 5.1 5.2 5.2 2.2 3.4 3.4 3.4 Imports/GDP (GUlFS) 68.0 64.8 63.2 62.7 62.3 62.1 61.8 61.0 60.9 60.2 59.6 Current Account (USS)5/ -18.7 -14.5 -15.2 -15.4 -14.8 -14.6 -13.4 -12.3 -11.6 -10.0 -7.4 Current Account/GDP -29.7 -22.3 -22.0 -20.5 -17.8 -16.0 -13.5 -11.4 -10.1 -8.1 -5.5 Terms of Trade Index 100.0 100.4 101.2 101.0 100.6 100.3 99.9 99.4 99.0 99.2 99.3 1/ Total debt outstanding and disbursed includes IMF debt. 2/ Exports of goods and services. 3/ Projections are in constant prices. 4/ Central Government. 5/ Current Account does not include net official transfers. Source: Caribbean Development Bank. U' Table 1.20: OhTSERRAT - HIGH CASE - ACTUAL AND PROJECTED BALANCE OF PAYMENTS, 1992-2002 sn CUSS milLion) Actual PreL. Est. Projections 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 A. Exports of Goods & NFS 21.8 24.0 26.4 29.4 32.9 37.0 41.5 45.7 50.5 55.6 61.3 1. Merchandise 1.6 1.5 1.6 1.6 1.7 1.8 1.9 2.0 2.1 2.2 2.3 2. Mon-Factor Services 20.2 22.5 24.9 27.8 31.2 35.2 39.6 43.7 48.4 53.4 59.0 B. Imports of Goods & NFS 43.2 41.9 43.8 47.2 51.5 56.3 61.5 65.3 70.2 74.7 79.6 1. Merchandise 33.9 32.7 34.2 36.9 40.2 43.9 47.9 50.7 54.5 57.9 61.5 2. Non-Factor Services 9.3 9.2 9.6 10.3 11.3 12.4 13.6 14.6 15.7 16.8 18.1 C. Resource Balance -21.4 -17.9 -17.4 -17.8 -18.6 -19.3 -20.0 -19.6 -19.7 -19.1 -18.3 0. Net Factor Income -2.8 -2.7 -2.8 -3.2 -3.3 -3.3 -3.5 -3.8 -3.9 -3.9 -4.0 1. Factor Receipts 0.5 0.6 0.6 0.8 1.0 1.2 1.4 1.4 1.5 1.6 1.7 2. Factor Pay ments 3.3 3.2 3.4 3.9 4.2 4.5 4.8 5.2 5.4 5.5 5.7 E. Net Current Transfers 5.5 6.1 5.0 5.6 7.0 8.0 10.0 11.0 12.0 13.0 15.0 F. Current Account Balance -18.7 -14.5 -15.2 -15.4 -14.8 -14.6 -13.4 -12.3 -11.6 -10.0 -7.4 G. Long-Term Capital Inflou 8.0 11.1 16.0 16.0 17.0 17.6 16.3 13.3 12.8 11.2 8.5 1. Direct Investment 4.6 5.2 4.2 4.5 5.0 5.4 5.8 5.9 5.9 5.9 5.9 2. Official Capital Grants 3.5 4.0 6.0 6.0 6.0 6.0 5.0 5.0 5.0 5.0 4.0 3. Net LT Loans (DRS data) -0.1 2.0 5.8 5.5 6.0 6.2 5.5 2.4 1.9 0.3 -1.4 a. Disbursements 0.2 2.1 5.9 5.8 6.3 6.7 6.1 3.3 3.2 1.4 -0.1 b. Repay ents 0.3 0.1 0.1 0.3 0.3 0.5 0.6 0.9 1.2 1.1 1.3 H. Total Other Itesm (net) 10.8 3.8 0.0 0.1 -0.0 -0.0 -0.0 0.0 0.0 0.0 0.1 I. Chanoes in Net Reserves -0.1 -0.5 -0.9 -0.7 -2.2 -3.0 -2.9 -1.1 -1.3 -1.2 -1.2 1. Net Credit from the IMF 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2. Other Reserve Changes -0.1 -0.5 -0.9 -0.7 -2.2 -3.0 -2.9 -1.1 -1.3 -1.2 -1.2 (- Indicates Increase) Shares of GDP (Current USS): 1. Resource Balance -33.7 -27.6 -25.1 -23.7 -22.5 -21.3 -20.1 -18.3 -17.1 -15.4 -13.7 2. Total Interest Payments 0.2 0.1 0.3 0.8 0.9 1.0 1.1 1.3 1.3 1.2 1.1 3. Current Account Balance -29.7 -22.3 -22.0 -20.5 -17.8 -16.0 -13.5 -11.4 -10.1 -8.1 -5.5 4. LT Capital InfLow 7.1 11.0 14.5 13.4 13.3 12.8 11.4 7.8 6.8 5.0 3.4 Memorand.u I tm: GDP ( Mlne. of Current USS) 63 65 69 75 83 91 99 107 115 124 134 Foreign Exchanre Reserves: 1. Gross Reserves irct. Gold 6.5 7.0 7.9 8.5 10.7 13.7 16.6 17.6 18.9 20.1 21.3 2. Gross Res.in Mnths of lIports 1.7 1.9 2.0 2.0 2.3 2.7 3.0 3.0 3.0 3.0 3.0 Source: Caribbean Development Bank. Table 1.21: ST. KITTS AND NEVIS: SELECTED INDICATORS. 1980-91 Page 1 of 1 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 A. GENERAL INFORMATION Area (km sq): 269 Mid-year Population 1000) 43.3 43.9 44.8 45.7 44.8 44.0 43.7 43.4 44.4 43.0 42.9 41.8 Population Growth Rate 1%) ... 1.4 2.1 2.0 (2.0) (1.8) (0.7) (0.7) 2.2 (3.1) 10.2) (2.5) Unemployment Rate (%) ... ... ... ... ... ... ... ... ... ... ... Average Exchange Rate l$ per US$) 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 B. SOCIAL INDICATORS I. Vital Statistics Crude Birth Rate 27.0 25.9 29.2 23.9 24.1 23.3 23.0 21.8 21.3 23.6 23.1 ... Crude Death Rate 11.4 10.3 11.3 10.5 10.7 10.0 10.5 10.6 10.5 11.5 10.3 ... Infant Mortality Rate 53.0 45.7 42.8 41.2 27.8 30.2 39.7 22.7 24.4 22.2 19.7 ... Life Expectancy at Birth (years) Male 62.8 ... ... ... ... ... 63.5 ... ... ... ... ... Female 67.9 ... ... ... ... ... 69.8 ... ...... ... II. Education School Enrollment (No.) a/ Primary 7.149 7,074 7,120 6.902 6,902 6.765 6,564 6,457 6,331 6,196 6,105 ... Secondary 4.214 4,334 4,145 4,051 4,032 4,047 4,153 4,115 4,046 4,021 4,148 ... Pupil-Teacher Ratio a/ Primary 23.0 24.0 23.0 23.0 22.0 22.0 23.0 23.0 23.0 21.0 21.0 ... Secondary 16.0 16.5 15.0 15.0 14.0 15.0 15.0 15.0 14.5 14.0 15.0 Ill. Health and Housing No. Doctors per 1000 population 0.4 0.5 0.4 0.5 0.5 0.5 0.5 0.5 0.5 0.6 0.7 ... No. Dentists per 1000 population 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 ... Average Household Size 2.1 ... ... ... ... ... ... ... ... ... C. ECONOMIC INDICATORS II. Annual Change of Selected Indicators GDP - Constant Prices 1%) 3.9 5.1 6.3 (1.1) 9.0 5.6 6.2 7.4 9.8 6.7 3.0 6.8 Consumer Prices 1%) ... ... 5.9 2.3 2.7 2.2 0.4 0.9 - 5.4 4.2 ... Money Supply (Ml 1 (%) ... ... ... ... ... ... ... ... ... ... ... ... Net Foreign Assets ($mn) ... ... ... ... ... 36.7 12.3 47.8 6.0 (15.2) 7.9 (1.2) un La c-n Table 1.21 ST. KITTS AND NEVIS: SELECTED INDICATORS. 1980-91 (con't) Page 2 of 2 1980 1981 1982 1983 1984 1985 1988 1987 1988 1989 1990 1991 Ill. Balance Of Payments (US$mn) 1. Balane of Trade ... ... ... (33.9) (32.4) (31.8) (30.2) (42.0) (54.5) (81.8) (89.8) (87.8) Exports (fob) ... ... ... 17.4 19.5 21.8 25.2 28.0 27.4 28.6 27.7 29.2 Imports (cif) ... ... ... (51.4) (51.9) (53.8) (55.4) (70.0) (82.0) (90.2) (97.4) (97.0) 2. Service Account ... ... ... 7.8 10.4 14.3 12.8 18.9 17.3 11.0 13.1 24.2 Exports ... ... ... ... ... ... 35.0 44.4 52.2 54.9 58.0 71.8 Imports ... ... ... ... ... ... 122.2) (27.4) (34.9) 143.9) (44.9) 147.8) 3. Internationa Transfera net) ... ... ... 11.1 11.4 13.5 12.6 14.7 15.7 16.3 12.3 13.2 Private ... ... ... 7.4 ... ... 8.5 9.8 10.7 14.2 12.8 12.4 Official ... ... ... 3.7 ... ... 4.0 5.1 5.0 2.1 (0.5) 0.8 4. Current Account Balance (1+2+3 ... ... ... (15.0) (10.6) 14.0) (4.8) (10.4) (21.4) (34.3) (44.3) (30.4) 5. Net Cpital Movements ... ... ... ... ... ... 6.0 13.9 19.0 51.6 51.5 25.9 8. Change in Reserves I - incresse ... ... .. (1.4) (1.7) (1.7) (2.8) (0.3) 0.3 16.1) 0.1 (0.3) 7. Current Account Balance as % of GDP ... ... ... (25.8) (15.4) (5.4) (5.4) (9.8) 117.1) (24.2) (28.0) (17.8) IV. Principal Exports ($mn) Sugsr and Molasses 14.9 40.7 31.4 28.1 52.6 19.8 25.5 23.9 23.8 27.5 ... 30.7 Clothing 4.8 4.6 4.4 4.8 1.8 3.8 15.1 18.3 14.5 10.2 ... ... V. Central Govemment Operations (Smn) Current Revenues ... 55.4 51.1 48.0 50.6 49.1 82.3 73.0 79.3 93.0 108.1 94.7 Current Expenditures ... 58.7 62.6 58.6 54.1 58.0 58.9 69.5 78.5 85.4 105.7 104.1 Current Account Surplus/(Deficit) ... (3.3) (11.5) (8.8) (3.5) (8.9) 3.4 3.5 0.8 7.6 0.4 (9.4) Capital Revenue and Grants ... 8.8 8.6 12.2 8.0 15.2 1.9 3.1 1.9 8.2 3.2 9.8 Capital Expenditure ... 10.8 10.9 13.3 8.7 18.0 15.9 9.3 15.2 11.6 13.6 13.4 Overall Surplus/(Deficit) ... (7.1) (13.8) (9.7) (4.2) (11.7) (10.6) (2.7) (12.5) 4.2 (10.0) (13.2) Current Surplus/(Deficit) as % of GDP ... (2.2) (7.2) (5.4) (1.9) 14.4) 1.4 1.2 0.2 2.0 0.1 (2.0) Overall Surplus/l(Defict) as % of GDP ... (4.7) (8.7) (O.1) (2.3) (5.8) (4.3) (0.9) (3.7) 1.1 (2.3) (2.9) VI. Domestic Credit by Sector (Omn) Total Domestic Credit ... ... ... ... ... ... 202.1 162.7 237.4 305.7 334.5 374.5 Private Sector ... ... ... ... ... ... 102.7 122.7 170.3 224.2 232.1 263.5 Public Sector ... ... ... ... ... ... 99.4 40.0 67.1 81.5 102.4 111.0 Central Government (net) ... ... ... ... ... ... 41.2 37.7 58.6 81.8 87.9 79.4 Other Public Sector ... ... ... ... ... ... 58.2 2.3 8.5 19.7 34.5 31.6 VII. External Debt Outstanding (US$mn) Total External Debt Outatxnding ... ... ... ... 16.5 19.0 17.8 21.3 28.6 31.7 36.4 36.8 Debt Service ... ... ... ... 1.1 1.5 1.1 1.4 1.8 1.9 2.8 2.7 Interest ... ... ... ... 0.4 0.9 0.4 0.6 0.8 0.8 1.8 1.2 Amortization ... ... ... ... 0.7 0.6 0.6 0.8 0.9 1.1 1.0 1.5 Debt Service as % of GDP ... ... ... ... 1.6 2.0 1.2 1.3 1.3 1.3 1.8 1.6 Debt Service c % of Current Revenue ... ... ... ... 5.9 8.2 4.8 5.2 5.4 5.5 7.1 7.7 Debt Service Ratio ... ... ... ... ... 3.5 1.8 1.9 2.0 2.3 3.3 2.7 a/ Public schools only. Source: National Governments and Caribbean Development Bank. Table 1.22: ST. KITTS AND NEVIS - BASE CASE - ACTUAL AND PROJECTED KEY 4ACROECONOMIC INDICATORS, 1992-2002 ActuaL Prel. Est. Projections 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 GDP Growth Rate 3.0 2.0 2.0 2.2 2.2 2.4 2.5 2.5 2.5 2.5 2.5 GNP Growth Rate .. 2.3 2.2 2.6 2.6 2.6 2.6 2.5 2.6 2.5 2.5 GNP/Capita Growth Rate .. 1.8 1.7 2.1 2.1 2.1 2.1 2.0 2.1 2.0 2.0 Pvt.Cons/Capita Growth Rate .. -0.8 1.8 1.6 1.9 2.3 2.5 0.9 1.3 1.2 0.5 Total DOD 1/ (in USS) 44.1 48.2 53.9 61.5 72.2 86.5 103.6 123.2 144.2 166.5 190.5 DOD/XGS 2/ 37.2 38.8 41.7 45.2 50.2 56.8 64.4 72.1 79.4 86.6 93.6 DOD/GDP 22.8 24.1 25.5 27.6 30.9 35.2 40.0 45.2 50.3 55.2 60.0 Debt Service (in USS) 3.7 4.0 4.4 4.6 4.9 5.0 6.3 8.2 9.6 11.8 14.4 Debt ServicelXGS 3.1 3.2 3.4 3.4 3.4 3.3 3.9 4.8 5.3 6.1 7.1 Debt Service/GDP 1.9 2.0 2.1 2.1 2.1 2.0 2.4 3.0 3.4 3.9 4.5 Debt Service/Current Revenue 3.3 3.4 3.5 3.5 3.5 3.4 4.1 5.0 5.5 6.4 7.4 Interest/XGS 1.4 1.2 1.3 1.4 1.6 1.7 2.0 2.3 2.5 2.9 3.2 Interest/GDP 0.8 0.7 0.8 0.8 1.0 1.0 1.2 1.5 1.6 1.8 2.0 Gross Investment/GDP 3/ 24.3 25.0 25.0 25.5 26.0 26.0 26.0 26.5 26.5 26.5 27.0 Domestic Savings/GDP 3/ 10.5 12.0 11.6 11.3 10.8 10.3 9.7 10.0 10.1 10.4 11.2 National Savings/GDP 3/ 12.7 14.8 14.7 14.8 14.8 14.4 13.8 14.1 14.2 14.5 15.2 Goverrment Revenue/GDP 21.7 21.7 21.7 21.9 22.0 22.1 22.2 22.3 22.4 22.5 22.6 Governuent Expenditure/GDP 21.1 21.2 21.5 22.0 22.9 23.5 24.1 24.9 25.4 26.0 26.4 Deficit(-) or Surplus(+) 0.6 0.5 0.2 -0.1 -0.9 -1.4 -1.9 -2.6 -3.0 -3.5 -3.8 Export Growth Rate (G&NFS) .. 3.7 2.0 2.0 1.7 2.1 2.1 2.6 2.6 2.6 2.6 Exports/GDP (GUNFS) 59.7 60.3 59.2 59.1 59.1 59.4 59.6 60.1 60.6 60.9 61.2 Import Growth Rate (GINFS) .. 2.4 2.6 2.9 2.9 2.7 2.8 2.6 2.3 2.2 2.3 Imports/GDP (GULFS) 73.5 73.1 72.3 73.0 74.0 75.0 76.0 76.8 77.4 77.5 77.5 Current Account (LSS) -22.4 -20.2 -21.2 -23.2 -26.0 -28.5 -31.9 -34.4 -36.4 -37.6 -38.9 Current Account/GDP -11.6 -10.1 -10.0 -10.4 -11.1 -11.6 -12.3 -12.6 -12.7 -12.5 12.3 1/ Total debt outstanding and disbursed includes IMF debt. 2/ Exports of goods and services. 3/ Projections are in constant prices. Source: Caribbean DeveLopment Bank. L.n Ln Table 1.23: ST. KITTS AND NEVIS - BASE CASE - ACTUAL AND PROJECTED BALANCE OF PAYMENTS, 1992-2002 (USS million) Actual Prel. Est. Projections 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 A. Exports of Goods & NFS 115 121 125 131 138 16 154 164 174 184 194 1. Merchandise 33 34 35 36 38 40 42 44 47 49 51 2. Non-Factor Services 83 87 90 95 100 106 112 119 127 135 144 B. Imports of Goods & NFS 142 147 153 162 173 184 197 209 222 234 246 1. Merchandise 114 117 122 130 139 148 158 168 179 189 199 2. Non-Factor Services 28 30 31 32 34 36 38 41 43 45 48 C. Resource BaLance -27 -26 -28 -31 -35 -38 -42 -45 -48 -50 -52 D. Net Factor Income -8 -8 -7 -7 -6 -6 -6 -7 -7 -7 -8 1. Factor,Receipts 3 3 4 5 6 6 7 7 8 8 9 2. Factor Paysents 11 11 11 12 12 12 13 14 15 16 17 E. Net Current Transfers 12 13 14 15 15 16 17 18 19 20 21 F. Current Account BaLance -22 -20 -21 -23 -26 -29 -32 -34 -36 -38 -39 G. Long-Term Capital Inflou 31 27 28 30 34 38 41 43 45 47 48 1. Direct Investment 24 23 23 24 24 24 25 25 25 25 26 2. OfficiaL Capital Grants 1 1 0 0 0 0 0 0 0 0 0 3.Net LT Lons (ORS data) 1 4 6 8 11 14 17 20 21 22 23 a. Disbursements 3 7 8 10 13 17 20 24 26 28 31 b. Repayents 2 3 3 3 3 2 3 4 5 6 8 4. Other LT Inflows (net) 5 -1 -1 -1 -1 -1 -1 -1 -1 -0 -0 H. Total Other Item (net) 1 0 0 0 0 0 0 0 0 0 0 1. Capital Account Bltance 32 27 28 30 34 38 41 43 45 47 48 J. Overall Slance 10 6 7 7 8 9 9 9 9 9 9 K. Changes in Net Resrves -10 -7 -7 -7 -8 -9 -9 -9 -9 -9 -9 1. Net Credit fro the IMF 0 0 0 0 0 0 0 0 0 0 0 2. Other Reserve Chonges -10 -7 -7 -7 -8 -9 -9 -9 -9 -9 -9 (- Indicates Increase) Shares of GDP (Current USS): 1. Resource Balance -13.8 -12.8 -13.1 -13.9 -14.9 -15.6 -16.4 -16.7 -16.8 -16.6 -16.3 2. Total Interest Payments 0.8 0.7 0.8 0.8 1.0 1.0 1.2 1.5 1.6 1.8 2.0 3. Current Account Balance -11.6 -10.1 -10.0 -10.4 -11.1 -11.6 -12.3 -12.6 -12.7 -12.5 -12.3 4. LT Capital Inflow 15.9 13.3 13.2 13.6 14.5 15.3 15.8 15.9 15.8 15.4 15.1 Memorandum Ite_: GDP ( Nlns. of Current USS) 193 201 211 222 234 24 259 272 287 302 318 Foreign Exchange Reserves: 1. Gross Reserves Inc. Gold 26.2 32.7 39.3 46.3 54.3 63.3 72.3 81.3 90.3 99.3 108.3 2. Gross Res.in Months of Imports 2.1 2.5 2.9 3.2 3.5 3.9 4.1 4.4 4.6 4.8 4.9 Source: Caribbean Development Bank. Table 1.24: ST. KITTS AND NEVIS - ALTERNATIVE CASE - ACTUAL AND PROJECTED KEY MACROECONOMIC INDICATORS, 1992-2002 Actual Prel. Est. Projectionrs 1992 1993 1994 1995 1996 1997 1996 1999 2000 2001 2002 GDP Growth Rate 3.0 2.0 3.8 3.4 5.0 5.0 5.0 5.0 5.0 5.0 5.0 GNP Growth Rate .. 2.3 4.0 3.9 5.5 5.3 5.1 5.1 5.2 5.1 5.1 GNP/Capita Growth Rate .. 1.8 3.5 3.4 5.0 4.8 4.6 4.6 4.7 4.6 4.6 Pvt.Conr/Capita Growth Rate .. -0.8 4.1 1.8 5.3 4.1 3.9 3.3 3.2 3.2 2.5 Total DOD 1/ (in USS) 44.1 48.2 51.2 54.0 59.7 68.3 78.1 88.3 96.5 108.9 119.5 DOD/XGS 2/ 37.2 38.8 38.7 37.7 38.3 40.2 42.3 43.9 44.9 45.7 46.1 DOD/GDP 22.8 24.1 23.8 23.6 24.1 25.6 27.2 28.5 29.5 30.2 30.7 Debt Service (in USS) 3.7 4.0 4.4 4.5 4.6 4.5 5.6 6.9 7.5 8.7 10.3 Debt Service/XGS 2/ 3.1 3.2 3.3 3.1 2.9 2.6 3.0 3.4 3.4 3.7 4.0 Debt Service/GDP 1.9 2.0 2.0 2.0 1.8 1.7 1.9 '2.2 2.2 2.4 2.7 Debt Service/Current Revenue 3.3 3.4 3.5 3.3 3.1 2.8 3.2 3.7 3.7 3.9 4.3 Interest/XGS 2/ 1.4 1.2 1.3 1.2 1.3 1.2 1.3 1.5 1.4 1.5 1.6 Interest/GDP 0.8 0.7 0.8 0.8 0.8 0.8 0.9 1.0 1.0 1.0 1.1 Gross Investment/GDP 3/ ' 24.3 25.0 25.5 26.0 26.5 27.5 28.0 28.5 29.0 29.5 30.5 Domestic Savings/GDP 3/ 10.5 12.0 11.6 12.2 11.9 12.4 12.9 13.8 14.7 15.9 17.4 National Savings/GDP 3/ 12.7 14.8 14.8 15.9 16.1 16.8 17.4 18.4 19.5 20.7 22.2 Governeent Revenue/GDP 21.7 21.7 21.7 21.9 22.0 22.2 22.4 22.5 22.7 22.9 23.0 Governvent Expenditure/GDP 21.1 19.7 18.7 18.9 18.5 18.2 17.9 17.5 17.7 17.9 18.0 Deficit(-) or SurplusM+) 0.6 2.0 3.0 3.0 3.5 4.0 4.5 5.0 5.0 5.0 5.0 Export Growth Rate (GCNFS) .. 3.7 4.8 4.8 4.9 5.1 5.3 5.4 5.4 5.4 5.5 Exports/GDP (GUNFS) 59.7 60.3 59.8 60.5 60.8 61.3 61.9 62.6 63.3 63.8 64.4 Import Growth Rate (GUlFS) .. 2.4 5.9 4.2 5.7 5.6 4.9 4.6 4.5 4.5 4.7 Imports/GDP (GUlFS) 73.5 73.1 73.3 74.0 75.2 76.4 77.0 77.4 77.9 77.8 77.8 Current Acco.unt (USS) -22.4 -20.2 -22.5 -22.7 -25.5 -28.6 -30.7 -32.1 -33.1 -33.1 -33.5 Current Account/GDP. -11.6 -10.1 -10.5 -9.9 -10.3 -10.7 -10.7 -10.3 -9.9 -9.2 -8.6 1/ Total debt outstanding and disbursed includes INF debt. 2/ Exports of goods and services. 3/ Projections *re in constant prices. Source: Caribbean Development Bank. co lable 1.25: ST. KITTS AND NEVIS - ALTERNATIVE CASE - ACTUAL AND PROJECTED BALANCE OF PAYMENTS, 1992-2002 ---------- (USS milLion) Actual Prel. Est. Projections 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 A. Exports of Goods & NFS 115 121 129 139 150 I" 178 194 212 230 250 1 .erchwndise (FOB) 33 34 35 38 40 43 46 49 52 55 58 2. Non-Factor Services 83 87 93 101 110 120 132 145 159 175 192 B. Imports of Goods & NFS 142 147 158 170 186 204 221 240 260 280 303 1. Merchandise (CIF) 114 117 126 136 149 164 178 194 210 226 244 2. Non-Factor Services 28 30 32 34 37 40 43 46 50 54 58 C. Resource Balance -27 -26 -29 -31 -35 -40 -43 -46 -49 -50 -52 0. Net Factor Inco -8 -8 -8 -7 -7 -6 -7 -7 -7 -7 -7 1 Factor Receipts 3 3 4 5 6 6 7 7 8 8 9 2. Factor Pa ents 11 11 11 12 12 13 13 14 15 15 16 E. Net Current Transfers 12 13 14 1S 17 18 19 21 22 24 26 F. Current Account Balance -22 -20 -22 -23 -26 -29 -31 -32 -33 -33 -33 G. Long-Term Capital Inflow 31 27 29 30 34 38 40 41 42 42 42 1. Direct Investment 24 23 25 26 27 28 29 30 31 32 33 2. Official Capitat Grants 1 1 1 1 1 1 1 1 1 0 0 3. Net LT Lons (DRS data) 1 4 3 3 6 9 10 10 10 10 9 a. Disbursements 3 7 6 5 8 11 13 14 14 15 16 b. Repy ents 2 3 3 3 3 2 3 4 4 5 6 4. Other LT Inflows (net) 5 -1 0 -0 0 0 0 -0 0 0 -0 R. Total Other Items (net) 1 0 0 0 0 0 0 0 0 0 0 1. Capital Account Baance 32 27 29 30 34 38 40 41 42 42 42 J. overall Ba lnce 10 6 7 7 8 9 9 9 9 9 9 K. Changes in Net Reserves -10 -7 -7 -7 -8 -9 -9 -9 -9 -9 -9 1. Net Credit fro the IMF 0 0 0 0 0 0 0 0 0 0 0 2. Other Reserve Changes -10 -7 -7 -7 -8 -9 -9 -9 -9 -9 -9 C- indicates increase) Shares of GDP (Current USS): 1. Resource Balance -13.8 -12.8 -13.5 -13.5 -14.3 -15.0 -15.1 -14.9 -14.6 -14.0 -13.5 2. Total Interest Payments 0.8 0.7 0.8 0.8 0.8 0.8 0.9 1.0 1.0 1.0 1.1 3. Current Account Balance -11.6 -10.1 -10.5 -9.9 -10.3 -10.7 -10.7 -10.3 -9.9 -9.2 -8.6 4. LT Capital Inflow 15.9 13.3 13.5 13.0 13.6 14.1 13.8 13.2 12.6 11.7 10.9 Nemorwncm I ter: GDP ( Nlns. of Current USS) 193 201 215 229 247 267 287 310 334 360 389 Foreign Exchange Reserves: 1. Gross Reserves inc. Gold 26.2 32.7 39.3 46.3 54.3 63.3 72.3 81.3 90.3 99.3 108.3 2. Gross Res.in Months of imports 2.1 2.5 2.8 3.1 3.3 3.5 3.7 3.8 3.9 4.0 4.1 Source: Caribbean Development Bank. Table 1.26: ST. LUCIA: SELECTED INDICATORS. 1980-91 Page 1 of 1 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 A. GENERAL INFORMATION Area (km sq): 616 Mid-year Population ('000) 115.5 117.4 119.4 121.0 122.9 124.8 126.7 128.5 130.4 132.2 134.1 136.0 Population Growth Rate 1%) 1.6 1.6 1.7 1.3 1.6 1.5 1.5 1.4 1.5 1.4 1.4 1.4 Unemployment Rate 1%) 14.0 ... ... ... ... ... ... ... 20.0 ... ... Average Exchange Rate ($ per US$1 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 B. SOCIAL INDICATORS I. Vital Statistics Crude Birth Rate 34.1 32.9 33.9 33.6 33.8 33.8 30.8 29.8 27.4 27.8 26.1 26.9 Crude Death Rate 7.3 7.2 7.1 6.6 6.0 6.6 6.7 7.3 6.9 6.7 6.4 6.3 Infant Mortality Rate 24.3 23.8 22.7 26.1 17.1 23.6 21.5 20.3 19.3 15.8 20.3 18.6 Life Expectancy at Birth (years) Male 67.4 66.7 69.0 67.0 70.0 69.0 67.9 67.0 68.0 68.3 68.6 69.3 Female 71.8 72.2 72.0 75.0 75.0 76.0 73.7 75.0 74.0 73.9 74.4 74.0 II. Education School Enrollment (No.) Primary 30,391 30,766 31,785 32,107 32,383 32,273 32,400 32,809 32,649 32,636 32,402 32,221 Secondary 3,875 5,047 4,982 4,989 5,030 5,665 5,934 6,284 6,790 6,771 7,238 8,155 Pupil-Teacher Ratio Primary 30.5 30.4 32.3 29.6 29.3 29.8 29.4 31.0 26.6 29.3 28.8 27.4 Secondary 16.6 17.8 18.5 16.1 17.1 18.3 17.6 17.9 17.9 18.0 18.3 19.2 III. Health and Housing No. Doctors per 1000 population 0.3 0.4 0.4 0.4 0.4 0.4 0.3 0.4 0.4 0.5 0.4 0.5 No. Dentists per 1000 population 0.03 0.03 0.04 0.04 0.04 0.04 0.04 0.04 0.1 0.1 0.1 0.1 Average Household Size 4.6 ... ... ... ... ... ... ... ... ... ... 4.0 C. ECONOMIC INDICATORS II. Annual Change of Selected Indicators GDP -Constant Prices 1%1 (1.7) 4.8 2.2 4.3 6.7 9.1 15.0 1.7 13.5 8.5 3.9 1.6 Consumer Prices 1%) ... ... ... ... 1.2 0.0 2.2 7.0 1.4 3.7 3.8 6.2 kD Money Supply (Ml) (%) 18.7 5.0 12.0 (2.5) 4.0 11.9 37.7 20.8 17.2 12.5 7.8 5.5 Net Foreign Assets ($mn) 6.6 ... ... ... 13.9 62.4 59.5 42.4 29.7 (14.9) (1.7) 11.9 Tab. 1 .26 ST. LUCIA: SELECTED INDICATORS. 1980-91 Icon't) pe 2 of 2 1980 1981 1982 1983 1984 1986 198 1987 198 1909 1990 1991 l1. Bdioe Of Paymet (us*rrv1 1. Bdanoeof Trade ... ... ... 159.31 (70.91 173.01 (53.31 (77.2) (75.4) (128.93 (111.43 (151.11 Exports (fob ... ... ... 47.5 47.8 52.0 92.9 79.5 119.1 112.0 127.3 110.3 bor fcd ... ... ... (106.93 (118.73 1125.03 (136.21 f(156.7 0194.53 1240.91 1238.73 (261.4) 2. SevkceAccount ... ... ... 32.9 32.8 40.5 30.1 44.1 43.3 53.6 39.2 61.6 Exports ... ... ... ... ... ... 86.9 104.8 126.7 148.4 160.2 189.0 Inra ... ... ... ... ... ... 566.83 (60.7) (83.43 (92.83 (121.03 (124.53 3. kiteTmdanW Tran.fre JneQ ... ... 21.0 14.3 23.1 25.5 28.9 19.6 18.9 15.5 21.8 Private ... ... ... 13.7 ... 14.2 17.6 19.9 14.1 13.7 15.2 17.3 OfficiW ... ... ... 7.3 ... 8.9 7.9 9.0 5.4 6.3 0.3 4.5 4. Current AccoLnt Belmnce 01+2+31 ... ... ... (5.53 (23.83 (9.43 2.3 (4.33 (12.53 (5a.43 (56.73 (67.71 5. Not Capital Movwnw ... ... ... ... ... ... 7.8 14.1 10.0 53.9 55.4 61.9 6. Char.n inR_ ervI3 - incre ... ... ... (- 0-83 (4.83 (10.73 (5.73 1.83 (5.63 (4.63 (7.7) 7. Current Acoount Baencee % of GDP ... ... ... (4.03 (15.6) (4.31 0.9 1.65 (3.83 (15.23 (14.33 (15.83 IV. Principel Exports I$nml Bane 28.4 39.6 42.2 50.2 64.2 81.4 149.9 120.1 184.5 163.1 199.7 161.9 Pew r&PWwrBoard 7.0 15.1 14.2 11.8 13.2 13.5 15.4 18.8 23.3 17.2 16.4 10.8 B. w dAte 3.3 2.8 5.7 4.3 3.1 3.1 4.2 5.9 8.0 10.1 12.6 13.2 V. ContrW Govenmet Operations ($rmr Currnt Revenue en Gr 85.1 88.3 100.4 111.4 119.3 145.8 109.7 194.3 228.1 257.0 286.8 296.8 Current Expenditure 80.5 90.9 116.2 119.8 122.9 145.2 154.2 160.5 163.3 199.4 206.4 223.3 Current Account Surplus/lDefict) 4.6 (2.63 (9.83 (8.43 (3.63 0.6 15.6 33.8 64.8 57.6 60.4 73.5 CapitWRevenueandGrant 8.8 16.4 6.7 9.9 17.5 6.6 0.0 23.5 18.6 19.9 8.7 5.5 Capital Expenciture and Net Lendinr 30.6 34.8 23.3 18.2 24.7 28.0 43.3 63.2 57.3 62.9 63.8 72.3 Overd SurplusIDeficit) (26.03 (37.41 (33.1) (26.63 (28.33 (11.13 (27.83 4.1 26.1 14.6 5.3 6.7 Current Surplue/lDefldt) - % of GDP 1.6 (0.83 (2.73 (2.23 (0.93 0.1 2.2 4.4 7.3 5.7 5.6 6.4 OverdN Surplusl(Deficit - % of GOP 18.53 110.83 19.23 (7.13 (6.83 11.93 (3.93 0.6 3.0 1.5 0.5 0.6 VI. Dometc Credit by Sector l(rmn Total Donmetic Crex ... ... ... ... ... 349.9 386.4 400.2 581.9 626.4 681.4 Private Secor ... ... ... ... ... ... 276.5 311.4 411.7 527.3 589.6 634.4 Productive Sector ... ... ... ... ... ... ... ... ... S nec_ Somr ... ... ... ... ... ... ... ... ... ... .. .. OSher Sectors ... ... ... ... ... ... ... ... ... ... ... ... Public Sector ... ... ... ... , ... 73.4 75.0 48.5 54.6 36.8 47.0 Centra Govrwnmnt (net ... ... ... ... ... 71.4 72.2 45.5 44.0 22.2 35.6 Oth rPubecSor ... ... ... ... ... ... 2.0 2.8 3.0 10.6 14.6 11.4 VH. ExtemW Debt Outstandingq US$rm) TotWExtwna De Outdtandin 18.2 18.7 24.0 31.1 28.0 29.6 31.6 27.6 42.9 53.5 70.8 81.3 Debt Srvice 1.4 1.2 2.1 2.4 2.7 4.3 1.7 2.7 3.3 5.2 6.1 8.6 intwint 0.7 0.8 1.0 1.4 1.2 1.6 0.9 1.2 1.4 2.5 3.0 4.1 AorKdizdtkn 0.7 0.4 1.1 1.0 1.6 2.8 0.8 1.4 1.9 2.7 3.1 4.4 Deb* Srieo _ % of GDP 1.2 0.9 1.5 1.6 1.6 2.3 0.8 1.1 1.2 1.7 1.8 2.4 Deb Srvice _ % af Currnt Revenue 4.4 3.7 5.3 6.8 6.1 8.0 2.7 3.8 3.9 5.5 6.2 7.7 DebtSwviceRuto ... ... ... ... ... 4.0 1.0 1.5 1.3 2.0 2.1 2.9 Souro: NatonW Goveornm end Cwibben Deveopment Bnk. Table 1.27: ST. LUCIA - BASE CASE - ACTUAL AND PROJECTED MACROECONOMIC INDICATORS, 1992-2001 Est. Projections 1992 1993 1994 1995 1996 1997 1996 1999 2000 2001 ReaL Growth Rates: Gross Domestic Product (GDP) 6.6 3.0 0.0 0.5 1.5 2.0 2.5 2.5 2.5 2.5 Gross Domestic Income (GDY) 3.2 0.7 -0.5 1.4 1.3 1.9 2.4 2.3 2.3 2.5 Real per Capita Growth Rates: Gross Domestic Product (GDP) 4.4 0.9 -2.0 -1.6 -0.6 -0.1 0.4 0.4 0.4 0.4 TotaL Consumption -8.5 2.0 -1.0 3.3 -2.7 -1.9 -1.0 -1.1 -1.2 -1.2 Private Consumption -10.4 2.4 -1.3 4.1 -3.3 -2.3 -1.2 -1.4 -1.4 -1.5 Debt and Debt Service (LT+INF+ST): TotaL DOD (in US#) 88.8 116.8 134.4 158.8 182.2 202.9 220.6 236.0 248.2 258.6 DOD/GDP 18.4 23.2 26.4 30.3 33.1 35.0 35.9 36.3 36.0 35.5 DOD/Exports 1/ 25.5 33.1 38.1 44.1 47.2 48.9 49.5 49.4 48.4 47.2 Debt Service (in US$) 11.8 11.3 12.5 16.0 22.2 27.0 34.5 43.7 48.8 55.7 Debt Service/Exports 1/ 3.4 3.2 3.5 4.4 5.8 6.5 7.7 9.1 9.5 10.2 Debt Service/GDP 2.5 2.3 2.5 3.0 4.0 4.7 5.6 6.7 7.1 7.6 Interest Burden (LT+IMF+ST): Interest Paid 5.4 5.0 6.2 7.1 9.0 11.1 12.9 14.9 16.7 18.8 Interest/Exports 1/ 1.6 1.4 1.8 2.0 2.3 2.7 2.9 3.1 3.3 3.4 Interest/GDP 1.1 1.0 1.2 1.4 1.6 1.9 2.1 2.3 2.4 2.6 Gross Investment/GDP 30.0 30.0 30.0 26.0 26.0 26.0 26.0 26.0 26.0 26.0 Domestic Savings/GDP 14.7 11.7 10.2 6.9 8.6 10.1 11.1 12.3 13.4 14.7 National Savings/GDP 15.2 10.1 8.7 6.3 8.1 9.5 10.9 12.0 13.3 14.3 Goverrnetnt Current Revenue/GDP 31.4 28.0 26.5 24.0 25.0 25.0 25.0 25.0 25.0 25.0 Goverrnent Current Expenditure/GDP 20.0 19.4 19.4 19.4 19.4 20.0 20.0 20.0 20.0 20.0 Goverrment Current BaLance/GDP 11.4 8.6 7.1 4.6 5.6 5.0 5.0 5.0 5.0 5.0 Exports (GNFS) Growth 10.4 1.8 -0.8 -1.3 3.8 3.8 3.7 3.8 3.8 3.8 Exports (GNFS)/GDP 67.7 64.6 63.5 63.1 64.6 65.8 66.6 67.5 68.4 69.4 Imports (GNFS) Growth 1.0 3.1 0.4 -0.7 1.1 1.6 2.1 2.1 2.1 2.1 Inports (GNFS)/GDP 82.7 82.7 83.0 81.9 81.7 81.5 81.3 81.1 80.9 80.5 BOP Curr Acct (USS million) -70.2 -98.6 -106.9 -101.6 -97.1 -94.1 -91.7 -89.7 -87.0 -84.4 BOP Curr Acct/GDP -14.5 -19.6 -21.0 -19.3 -17.7 -16.2 -14.9 -13.8 -12.6 -11.6 1/ As percent of Exports of Goods, Services and Private Transfers. Source: Caribbean Development Bank. 0- Table 1.28: ST. LUCIA - BASE CASE - ACTUAL AND PROJECTED BALANCE OF PAYMENTS, 1992-2001 ------------ (USS million) Est. Projections 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 A. Exports of Goods & NFS 327 325 324 331 355 381 409 439 471 505 1. Merchandise 123 107 91 83 89 95 102 109 116 124 2. Non-Factor Services 204 219 233 248 266 286 307 330 355 381 B. imports of Goods & NFS 399 416 423 430 449 473 499 527 557 587 1. Merchandise 313 327 332 336 351 369 390 411 434 457 2. Non-Factor Services 86 90 91 94 98 103 109 116 123 130 C. Resource Balance -73 -91 -99 -99 -94 -91 -90 -88 -86 -82 D. Net Factor Income -15 -26 -27 -24 -26 -28 -30 -31 -33 -35 1. Factor Receipts 4 9 9 8 8 8 9 9 10 11 2. Factor Payments 19 35 36 32 34 36 38 41 43 45 E. Net Current Transfers 18 19 20 21 23 25 28 30 32 32 F. Current Account Balance 1. Before Official Grants -70 -99 -107 -102 -97 -94 -92 -90 -87 -84 2. Official Capital Grants 1 1 1 1 1 1 1 1 1 1 3. After official Grants -69 -98 -106 -101 -96 -93 -91 -89 -86 -83 G. Long-Term Capital Inflow 89 103 94 101 101 99 96 96 94 91 1. Direct Investment (net) 74 75 76 77 78 79 80 81 82 83 2. Net LT Loans (DRS data) 15 28 18 24 23 20 18 15 12 8 a. Disbursements 21 34 24 33 37 36 39 44 44 45 b. Repeyments Due 6 6 6 9 13 16 22 29 32 37 3. Other LT lnflows (net) 0 0 0 0 0 0 0 0 0 0 H. Total Other Items (net) -14 0 0 0 0 0 0 0 0 0 I. Changes in Net Reserves -6 -5 12 -1 -5 -6 -7 -8 -8 -8 1. Net Credit from the IMF 0 0 0 0 0 0 0 0 0 0 2. Other Reserve Changes -6 -5 12 -1 -5 -6 -7 -8 -8 -8 (- indicates increase) J. As Shares of GDP (current USS) 1. Resource Balance -15.0 -18.1 -19.4 -18.8 -17.1 -15.7 -14.7 -13.6 -12.5 -11.2 3. Current Account Balance -14.5 -19.6 -21.0 -19.3 -17.7 -16.2 -14.9 -13.8 -12.6 -11.6 5. LT Capital Inflow 18.4 20.4 18.4 19.3 18.4 17.2 15.9 14.8 13.7 12.5 K. GDP (Current USSN) 483 504 510 525 550 580 614 650 689 729 Source: Caribbean Devela ent Bank. TabLe 1.29: ST. LUCIA - ALTERNATIVE CASE - ACTUAL AND PROJECTED KEY MACROEC0NOMIC INDICATORS, 1992-2001 Est. Projections 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ReaL Growth Rates: Gross Domestic Product (GDP) 6.6 3.0 2.5 2.5 2.5 3.5 4.0 4.0 4.0 4.0 Gross Domestic Income (GDY) 3.2 0.7 2.1 3.5 2.4 3.4 4.0 3.9 3.9 4.1 ReaL per Capita Growth Rates: Gross Domestic Product (GDP) 4.4 0.9 0.4 0.4 0.4 1.4 1.9 1.9 1.9 1.9 Total Consumption -8.5 2.0 3.6 2.9 -1.1 -0.9 -0.0 -0.3 -0.4 -0.6 Private ConsuNption -10.4 2.4 4.4 3.9 0.2 0.4 1.3 0.9 0.6 0.4 Debt and Debt Service (LT+IMF+ST): Total DOD (in USS) 88.5 116.5 138.8 185.6 223.5 256.7 283.8 303.1 312.3 310.5 DOD/GDP 18.3 23.1 26.6 33.8 38.5 41.3 42.5 42.3 40.5 37.5 DOD/Exports 1/ 25.4 33.0 38.9 50.2 55.5 58.1 58.6 57.0 53.5 48.7 Debt Service (in USS) 11.8 11.3 12.4 16.3 24.4 31.8 45.9 59.7 68.7 78.3 Debt Service/Exports 1/ 3.4 3.2 3.5 4.4 6.1 7.2 9.5 11.2 11.8 12.3 Debt Service/GDP 2.4 2.2 2.4 3.0 4.2 5.1 6.9 8.3 8.9 9.5 Interest Burden (LT+INF+ST): Interest Paid 5.4 5.0 6.2 7.5 11.3 14.7 17.6 20.6 22.9 24.8 Interest/Exports 1/ 1.6 1.4 1.7 2.0 2.8 3.3 3.6 3.9 3.9 3.9 Interest/GDP 1.1 1.0 1.2 1.4 1.9 2.4 2.6 2.9 3.0 3.0 Gross Investment/GDP 30.0 30.0 30.0 30.0 29.0 29.0 29.0 29.0 29.0 29.0 Domestic Savings/GDP 14.7 11.7 8.6 7.4 8.6 10.5 12.0 13.7 15.4 17.4 MationaL Savings/GDP 15.3 10.1 7.6 5.7 6.4 7.8 9.1 10.5 12.1 13.8 Government Current Revenue/GDP 30.8 28.0 26.5 26.0 26.0 26.0 26.0 26.0 26.0 26.0 Goverrment Current Expenditure/GDP 19.7 19.4 19.0 18.5 18.0 18.0 18.0 18.0 18.0 18.0 Government Current BaLance/GDP 11.1 8.6 7.5 7.5 8.0 8.0 8.0 8.0 8.0 8.0 Exports (GNFS) Growth 10.3 1.8 -0.1 0.3 5.3 6.1 6.1 6.2 6.2 6.2 Exports (GNFS)/GDP 67.7 64.6 62.5 61.9 63.7 65.5 66.9 68.5 70.1 71.7 Imports (GNFS) Growth 1.0 3.1 3.5 3.2 2.0 3.3 3.8 3.7 3.7 3.6 Imports (GNFS)/GDP 82.7 82.7 83.5 84.1 83.8 83.7 83.7 83.6 83.5 83.2 BOP Curr Acct (USS million) -70.1 -98.5 -115.1 -131.0 -129.3 -129.9 -131.5 -131.4 -128.7 -124.2 BOP Curr Acct/GDP -14.5 -19.6 -22.0 -23.9 -22.3 -20.9 -19.7 -18.3 -16.7 -15.0 1/ As percent of Exports of Goods, Services and Private Transfers. Source: Caribbean Development Bank. L.I Table 1.30: ST. LUCIA - ALTERNATIVE CASE - ACTUAL AID PROJECTED BALANCE OF PAYMENTS. 1992-2001 ------------ (USS mitlions at Current Prices) Est. Projections 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 A. Exports of Goods & IFS 327 325 327 340 370 407 446 491 540 593 1. Merchandise 123 107 92 84 91 98 105 114 123 132 2. Non-Factor Services 204 219 235 255 279 309 341 377 417 461 B. Imports of Goods & NFS 399 416 436 462 486 520 558 599 644 688 1. Merchandise 313 327 343 364 383 409 439 471 506 540 2. Non-Factor Services 86 90 93 98 104 111 119 128 137 148 C. Resource BaLnce -73 -91 -110 -122 -116 -113 -112 -109 -104 -95 D. Net Factor Income -15 -26 -26 -31 -37 -42 -48 -53 -57 -61 1. Factor Receipts 4 9 9 8 9 9 10 11 12 12 2. Factor Payments 19 35 35 39 46 52 58 64 69 74 E. Net Current Transfers 18 19 21 22 24 26 28 30 32 32 F. Current Account Balance 1. Before Official Grants -70 -99 -115 -131 -129 -130 -131 -131 -129 -124 2. Official Capftal Grants 1 1 1 1 1 1 1 1 1 1 3. After Official Grants -69 -98 -114 -130 -128 -129 -130 -130 -128 -123 G. Long-Term Capital Inflow 89 103 105 137 136 139 141 142 140 136 1. Direct Investment (net) 74 75 83 91 98 106 114 123 131 139 2. Net LT Lonm (ORS date) 15 28 22 47 38 33 27 19 9 -4 a. Disbursements 21 34 28 55 51 50 55 58 55 50 b. Repayments Due 6 6 6 9 13 17 28 39 46 53 3. Other LT Inflows (net) 0 0 0 0 0 0 0 0 0 0 H. Totat Other Items (net) -14 0 0 0 0 0 0 0 0 0 1. Changes in Net Reserves -6 -5 9 -7 -8 -10 -11 -12 -12 -12 1. Net Credit from the INF 0 0 0 0 0 0 0 0 0 0 2. Other Reserve Changes -6 -5 9 -7 -8 -10 -11 -12 -12 -12 (- indicates increase) J. As Shares of GDP (current USS) 1. Resource Balance -15.0 -18.1 -21.0 -22.2 -20.1 -18.3 -16.8 -15.2 -13.5 -11.5 3. Current Account Balance -14.5 -19.6 -22.0 -23.9 -22.3 -20.9 -19.7 -18.3 -16.7 -15.0 5. LT Capital Inflow 18.4 20.4 20.0 25.0 23.4 22.4 21.2 19.8 18.2 16.4 K. GDP (Current USSN) 483 504 523 549 581 621 667 716 770 827 Source: Caribbean Development Bank. Table 1.31: ST. VINCENT AND THE GRENADINES: SELECTED INDICATORS. 1980-91 Page 1 of 1 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 A. GENERAL INFORMATION Area (km sq): 388 Mid-year Population ('000) 102.8 104.0 105.5 106.9 108.2 109.5 111.0 112.4 113.1 115.0 118.0 107.6 Population Growth Rate (%l ... 1.2 1.4 1.3 1.2 1.2 1.4 1.3 0.6 1.7 2.6 ... Unemployment Rate (%) 23.5 ... ... ... ... ... 30.0 ... ... ... ... 19.8 Average Exchange Rate ($ per US$) 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 B. SOCIAL INDICATORS I. Vital Statistics Crude Birth Rate ... 31.0 31.8 30.8 26.2 26.6 24.5 23.7 22.4 22.4 22.3 24.3 Crude Death Rate ... 7.4 7.1 7.3 6.5 6.0 5.9 5.8 6.3 6.3 6.0 6.1 Infant Mortality Rate ... 46.8 40.5 37.0 26.5 20.3 24.7 23.4 21.7 21.5 20.8 19.3 Life Expectancy at Birth (years) Male 65.6 ... ... ... ... ... 66.8 ... ... ... ... ... Female 70.9 ... ... ... ... ... 72.2 ... ... ... II. Education School Enrollment (No.) Primary 24,346 24,158 24,569 24,551 24,651 24,755 24,561 24,521 24,605 25,114 24,366 24,525 Secondary 5,421 5,329 5,123 5,170 5,501 5,875 6,535 6,358 6,774 6,822 6,909 6,934 Pupil-Teacher Ratio- Primary ... ... ... ... 19.6 19.5 19.5 19.5 17.9 22.5 18.8 22.4 Secondary ... ... ... ... 17.8 17.0 17.4 17.0 18.4 18.4 17.4 19.1 Ill. Health and Housing No. Doctors per 1000 population ... ... ... ... ... 0.3 ... 0.3 ... ... No. Dentists per 1000 population ... ... ... ... ... 0.02 ... 0.02 ... ... Average Household Size 4.8 ... ... ... ... ... ... ... ... ... 4.8 .- C. ECONOMIC INDICATORS 11. Annual Change of Selected Indicators GDP - Constant Prices (%l 3.4 3.2 5.8 5.1 9.7 4.5 7.2 6.3 8.6 7.2 7.1 4.6 Consumer Prices (%) 17.2 12.7 7.3 5.4 2.7 2.0 1.2 2.9 0.3 2.7 7.3 5.9 Money Supply (Ml) M%) ... ... ... ... ... ... ... ... ... ... ... ... Net Foreign Assets (Smn) ... ... ... ... ... 20.7 42.7 2.4 37.6 5.2 21.5 (13.1) ai Table 1.31: ST. VNICENT AND THE GRENADINES: SELECTED INDICATORS. 1980-91 (on't) Page 2 of 2 1980 1981 1982 1983 1984 1986 1986 1987 1988 1989 1990 1901 111. Balanc Of Paymea fUS$rnni 1. Baanoe of Trad ... ... ... 129.41 (22.6) (16.91 (12.9) 134.31 122.31 137.5) (37.01 162.5) Expoita (tob) ... ... ... 42.0 53.5 63.3 63.9 51.7 86.3 74.7 82.7 67.2 h'npo.t cl ... ... ... 171.4) (78.1) (79.21 (76.6) (86.01 1107.6) (112.2) 1119.8) 1119.7) 2. Servicea Aooount ... ... ... 8.0 5.8 7.7 (7.4) 4.7 12.6) 12.4) 2.4 12.4) Expots ... ... ... ... ... ... 31.3 43.4 43.7 45.4 62.0 60.6 Inpoft . ... ... ... ... ... 138.7) (38.7) 146.3) (47.6) 149.7) 152.91 3. hnteratIona Tranfer (ne) ... ... ... 20.3 9.5 17.1 17.9 16.6 17.4 21.4 29.2 31.1 Priv ..t.. ... ... ... ... 11.1 10.6 11.1 12.6 13.1 12.8 Officil ... ... ... ... ... ... 6.7 4.9 6.3 8.9 16.1 18.3 4. CunrrntAocouttSaanoe 1+2+31 ... ... ... (1.1) 17.3) 8.9 12.51 (14.11 (7.6) (18.4) 16.6) (23.81 5. Nt Capital Mo ... ... ... ... ... ... 7.7 17.9 4.2 18.2 2.6 21.8 6. Chon in Rw Ieiwe(I - Inroaee ... ... ... 0.0 (5.2) (5.0) 110.31 5.8 1.6 (1.0) (3.7) 3.8 7. CurrnntAcoount Balanco as %ofGDP ... ... ... (1.2) (7.1) 7.9 12.01 (9.9) (4.7) 110.6) 12.8) (11.4) IV. Prdipal Exports (himl Banoa 16.9 27.3 24.7 29.8 32.0 45.6 52.4 53.1 86.1 89.9 120.3 99.9 Eddoes end Dsheen 2.8 5.7 7.4 11.5 24.2 34.5 31.6 11.3 21.4 8.6 5.5 6.1 Flour 3.6 17.3 15.1 14.8 17.3 19.4 15.1 16.7 18.2 18.8 19.5 18.7 Swt Potatoes 1.3 0.8 0.7 1.2 3.0 11.0 15.4 6.0 10.8 5.1 3.7 3.6 Plbntelna 0.6 2.2 2.0 1.6 3.4 3.9 4.7 11.3 3.1 1.8 1.0 V. Central Gov13r0mnt Operons (lrnm Currnt Revnue and Grat 40.7 55.4 68.7 76.2 84.8 101.1 107.7 110.3 123.7 133.9 162.4 159.9 CunwntExpendLmrs 44.5 59.3 61.2 70.6 87.5 90.0 97.4 99.8 110.8 128.5 150.3 139.9 CuwrntAccountSurpkl/I(Defktlt (3.8) (3.9) 7.5 5.6 (2.7) 11.1 10.3 10.5 12.9 5.4 2.1 20.0 Capital Rv and Grants - - 12.5 19.5 19.5 37.5 26.4 Capitl Expendture 6.7 7.6 10.6 10.8 9.8 12.1 26.4 18.0 19.4 22.3 37.1 44.2 Overall Surplu/l(Defick) (10.5) (11.5) (3.1) (6.2) (12.5) (1.01 (3.6) 12.0 13.0 20.7 (8.6) (24.2) Curmrnt Supkn/(Deflctk) as % of GDP 12.4) 12.0) 3.3 2.2 (1.01 3.6 3.1 2.7 3.0 1.2 0.4 3.5 Overal Surplua/(Deflt) as % of GDP 16.6 (5.91 (1.41 (2.0) (4.5) (0.3) (1.1) 3.1 3.0 4.4 (1.6) 14.3) VI. Do mstic Crdit by Sector (lrnml Total Donmetl Crodit ... ... ... ... 172.9 174.6 168.1 191.1 217.5 262.2 272.1 300.4 Privat Sector ... ... ... ... 106.3 107.8 109.4 131.4 160.1 191.0 207.4 241.6 P dcti Secto ... ... ... ... ... ... ... ... ... ... ... Service Secto ... ... ... ... ... ... ... ... ... ... ... ... Other Sect.. . ... ... ... ... ... ... ... ... ... Publi Sector ... ... ... ... 67.6 66.8 68.7 59.7 57.4 71.2 64.7 58.8 Centrl Goverment Inet) ... ... ... ... 23.6 21.8 36.8 37.1 32.0 47.5 39.8 33.7 Otthr Publi Sector ... ... ... ... 44.0 45.0 21.9 22.6 26.4 23.7 24.9 26.1 VII. Extenal Debt Outatanding (US*rmnn Total Exterl Debt Outstandig 9.7 16.2 18.3 20.9 24.8 25.1 26.1 34.9 45.0 50.9 6.4 65.8 Debt Senvo 0.4 0.6 1.4 1.4 1.9 2.2 1.7 2.2 2.8 3.1 3.4 4.3 Interet 0.3 0.3 0.6 0.7 1.0 0.7 0.7 0.9 1.1 1.5 1.5 1.8 Amor.tzstton 0.1 0.3 0.8 0:7 0.9 1.5 1.1 1.3 1.7 1.7 2.0 2.5 De Servi as % of GDP 0.7 0.8 1.7 1.5 1.9 2.0 1.4 1.5 1.7 1.8 1.8 2.1 Dobt Service as % of Current Revenue 2.7 2.9 5.5 5.0 6.0 5.9 4.3 5.4 6.1 6.2 6.0 7.3 Debt Service Rat 1.6 1.6 3.0 3.0 3.2 2.7 1.8 2.3 2.2 2.6 2.5 3.7 Source: Natinl Governments and Caribbean Development Bank. TabLe 1.32: ST. VINCENT AND THE GRENADINES - BASE CASE - KEY INDICATORS, 1992-2000 PreL. Est. Projections 1992 1993 1994 1995 1996 1997 1998 1999 2000 GDP Growth Rate 5.0 2.0 0.5 1.0 1.5 2.0 2.3 2.8 3.0 GNP Growth Rate 5.0 2.4 2.7 1.1 1.6 2.2 2.4 3.0 3.2 GNP/Capita Growth Rate 4.1 1.5 1.9 0.3 0.8 1.3 1.6 2.2 2.4 Pvt.Corm/Capita Growth Rate 6.5 2.5 -0.7 -0.4 -0.4 0.8 0.7 1.5 1.9 Total DOD/in USS) 63.2 73.8 84.7 93.0 100.2 108.6 116.8 123.6 128.2 DOD/XGS 48.1 61.2 71.6 76.7 78.7 80.6 81.6 81.1 78.8 DOD/GDP 27.6 31.2 35.2 37.3 38.4 39.4 40.2 40.1 39.0 Total Debt Service (in USS) 4.7 4.8 5.5 6.5 6.8 7.2 8.1 8.4 8.9 Debt Service/XGS 3.6 4.0 4.6 5.3 5.3 5.4 5.7 5.5 5.4 Debt Service/GDP 2.1 2.0 2.3 2.6 2.6 2.6 2.8 2.7 2.7 Debt Service/Current Revenue a/ 7.9 8.1 9.5 11.3 11.3 11.9 12.7 12.4 12.3 Interest/XGS 1.4 1.5 1.9 2.2 2.4 2.5 2.6 2.6 2.6 Interest/GDP 0.8 0.8 0.9 1.1 1.2 1.2 1.3 1.3 1.3 Gross Investment/GDP 31.0 31.0 30.0 29.5 29.5 29.0 29.0 29.0 29.0 Domestic Savings/GDP 12.9 6.4 3.6 2.1 2.1 1.9 2.1 2.3 2.6 NationaL Savings/GDP 22.5 17.3 17.9 17.7 18.7 19.5 20.7 21.9 23.1 Current Revenue/GDP 26.0 25.0 24.0 23.0 23.0 22.0 22.0 22.0 22.0 Current Expenditure/GDP 21.8 24.0 24.5 25.0 25.0 25.0 25.0 25.0 25.0 Current Account BaLance 4.2 1.0 -0.5 -2.0 -2.0 -3.0 -3.0 -3.0 -3.0 Export Growth Rate (GUIFS) 3.8 -0.0 1.5 1.8 2.2 2.5 2.8 2.8 2.8 Exports/GDP (G&NFS) 55.5 49.0 47.2 46.6 46.7 46.9 47.2 47.4 47.5 Import Growth Rate (GLNFS) 4.1 2.0 0.1 0.8 1.4 1.6 2.1 2.4 2.6 Imports/GDP (GLNFS) 72.9 72.7 72.7 73.2 73.5 73.5 73.7 73.8 73.8 Current Account (USS) -17.9 -29.9 -26.6 -27.3 -26.2 -24.4 -22.6 -20.6 -18.6 Current Account/GDP -7.8 -12.6 -11.0 -11.0 -10.0 -8.9 -7.8 -6.7 -5.7 Term of Trade Index 105.1 86.4 77.0 71.8 70.0 68.8 68.3 68.3 68.3 Source: Caribbea Development Bank. 04 Table 1.33: ST. VINCENT AND THE GRENADINES - BASE CASE - BALANCE OF PAYMENTS PROJECTIONS, 1990-2000 Co ---------- (USS million) Prel. Est. Projections 1992 1993 1994 1995 1996 1997 1998 1999 2000 A. Exports of Goods & NFS 127 116 114 116 122 129 137 146 156 1. Merchandise (FOB) 71 57 51 49 49 51 53 56 59 2. Non-Factor Services 56 59 63 67 73 78 84 90 97 B. Imports of Goods & NFS 167 172 175 182 192 202 214 228 243 1. Merchandise (CIF) 143 148 150 157 165 174 185 196 209 2. Non-Factor Services 24 24 25 25 27 28 30 31 33 C. Resource Balance -40 -56 -61 -66 -70 -73 -77 -82 -87 D. Net Factor Income -14 -13 -9 -9 -9 -9 -9 -9 -9 1. Factor Receipts 4 5 5 5 5 6 6 6 7 2. Factor Payments 18 18 13 14 14 14 15 15 15 E. Net Current Transfers 36 39 43 48 52 58 63 70 77 F. Current Account BaLance -18 -30 -27 -27 -26 -24 -23 -21 -19 G. Long-Term Capital Inflow 19 30 31 29 28 26 25 23 21 1. Direct Investment 9 10 10 10 11 11 11 12 12 2. Official Capital Grants 7 10 10 10 10 7 5 4 4 3. Net MLT Loans (DRS data) 3 11 11 8 7 8 8 7 5 a. Disbursements 6 14 14 12 11 12 13 11 9 b. Repeyments 3 3 3 4 4 4 4 4 5 H. Total Other Items (net) -1 0 0 0 0 0 0 0 0 1. Changes in Net Reserves -1 -0 -4 -1 -2 -2 -2 -2 -2 Shares of GDP (Current US$): 1. Resource Balance -17.5 -23.6 -25.4 -26.6 -26.8 -26.6 -26.5 -26.4 -26.3 2. Total Interest Payments 0.8 0.8 0.9 1.1 1.2 1.2 1.3 1.3 1.3 3. Current Account Balance -7.8 -12.6 -11.0 -11.0 -10.0 -8.9 -7.8 -6.7 -5.7 4. LT Capital Inflow 8.3 12.7 12.9 11.5 10.6 9.5 8.4 7.4 6.4 Memoranr.m Item: GDP ( MLns. of Current USS) 229 237 241 249 261 275 291 309 329 Foreign Exchange Reserves: 1. Gross Reserves incL. GoLd 25 25 30 31 33 34 36 38 41 2. Gross Res. in Months Imports (G&S) 1.6 1.6 1.9 1.9 1.9 1.9 1.9 1.9 1.9 Source: Caribbean DeveLopment Bank. TabLe 1.34: ST. VINCENT AND THE GRENADINES - ALTERNATIVE CASE - KEY INDICATORS, 1990-2000 PreL. Est. Projections 1992 1993 1994 1995 1996 1997 1998 1999 2000 GDP Growth Rate 5.0 3.0 1.8 2.8 3.5 3.8 4.0 4.5 4.5 GNP Growth Rate 5.0 4.8 2.8 3.0 3.7 4.1 4.3 4.7 4.7 GNP/Capita Growth Rate 4.1 4.0 2.0 2.2 2.9 3.2 3.4 3.9 3.9 Pvt.Cons/Capita Growth Rate 6.5 2.3 -1.7 0.3 0.0 1.4 1.7 2.6 2.5 TotaL DOD/(in USS) 63.2 75.8 87.5 100.0 112.7 128.8 138.0 146.2 151.5 DOD/XGS 48.1 61.6 71.0 77.6 81.4 85.8 84.4 82.0 77.8 DOD/GDP 27.6 31.7 35.5 38.5 40.7 43.3 43.2 42.4 40.7 TotaL Debt Service (in USS) 4.7 4.8 5.6 6.5 7.0 7.6 8.7 9.0 9.5 Debt Service/XGS 3.6 3.9 4.5 5.1 5.1 5.0 5.3 5.1 4.9 Debt Service/GDP 2.1 2.0 2.3 2.5 2.5 2.5 2.7 2.6 2.5 Debt Service/Current Revenue 1/ 7.9 8.0 9.4 10.3 10.2 10.2 10.7 10.3 10.0 Interest/XGS 1.4 1.5 1.8 2.1 2.3 2.5 2.6 2.6 2.5 Interest/GDP 0.8 0.8 0.9 1.1 1.2 1.2 1.3 1.3 1.3 Gross Investment/GDP 31.0 31.0 32.0 32.0 33.0 33.0 33.0 33.0 33.0 Domestic Savings/GDP 12.9 7.1 5.8 5.0 5.9 6.5 7.4 8.2 9.1 NationaL Savings/GDP 22.5 19.2 19.9 20.1 21.8 23.1 24.7 26.1 27.5 Current Revenue/GDP a/ 26.0 25.0 24.0 24.5 24.8 25.0 25.5 25.5 25.5 Current Expenditure/GDP a/ 21.8 24.0 22.0 21.5 21.0 20.5 20.0 20.0 20.0 Current Account Batance a/ 4.2 1.0 2.0 3.0 3.8 4.5 5.5 5.5 5.5 Export Growth Rate (G&NFS) 3.8 2.5 3.8 4.6 5.2 5.2 5.2 5.3 5.3 Exports/GDP (G&NFS) 55.5 49.6 48.0 47.5 47.8 48.2 48.8 49.4 50.0 Import Growth Rate (G&NFS) 4.1 2.8 2.4 2.6 3.6 3.3 3.4 3.8 3.8 Imports/GDP (G&NFS) 72.9 72.5 73.2 73.8 74.3 74.2 74.1 74.0 73.8 Current Account (USS) -17.9 -25.7 -27.2 -28.8 -29.0 -27.6 -25.1 -22.6 -19.4 Current Account/GDP -7.8 -10.8 -11.0 -11.1 -10.5 -9.3 -7.9 -6.5 -5.2 Terms of Trade Index 105.1 86.0 75.8 69.9 67.2 65.5 64.8 64.5 64.3 ----.---------------. ---.--------------------.-------.-----..-----..---.--.-..--.-------------------------- ----------- 1/ CentraL Goverruent. Source: Caribbean DeveLopment Bank. '0y ~4 o Table 1.35: ST. VINCENT AND THE GRENADINES - ALTERNATIVE CASE - BALANCE OF PAYMENTS PROJECTIONS, 1990-200 ---------- (USS million) Est. Projections 1992 1993 1994 1995 1996 1997 1998 1999 2000 A. Exports of Goods & NFS 127 119 118 123 132 143 156 170 186 1. Merchandise (FOB) 71 59 53 52 54 57 60 64 69 2. Non-Factor Services 56 60 65 71 78 87 96 106 117 B. Iaports of Goods & NFS 167 173 180 192 206 221 237 255 275 1. Merchandise (CIF) 143 149 155 165 178 191 205 220 238 2. Non-Factor Services 24 24 25 26 28 30 32 35 37 C. Resource Balance -40 -55 -62 -68 -73 -77 -81 -85 -89 D. Net Factor Income -14 -10 -8 -8 -8 -8 -8 -7 -7 1. Factor Receipts 4 5 5 6 6 7 a 8 9 2. Factor Payments 18 15 13 14 14 15 15 16 16 E. Net Current Transfers 36 39 43 48 52 58 63 70 77 F. Current Account Balance -18 -26 -27 -29 -29 -28 -25 -23 -19 G. Long-Term Capital InfLow 19 32 33 34 36 37 29 27 24 1. Direct Investment 9 9 11 12 13 14 15 15 15 2. OfficiaL Capital Grants 7 10 10 10 10 7 5 4 4 3. Met NLT Loans (DRS data) 3 13 12 12 13 16 9 8 5 a. Disbursements 6 16 15 16 17 20 14 13 10 b. Repaynents 3 3 3 4 4 4 4 4 5 H. TotaL other Items (net) -1 0 0 0 0 0 0 0 0 1. Changes in Net Reserves -1 -6 -6 -6 -7 -9 -4 -5 -5 Shares of GDP (Current USS): 1. Resource Balance -17.5 -22.9 -25.3 -26.3 -26.5 -26.0 -25.3 -24.6 -23.8 2. TotaL Interest Payments 0.8 0.8 0.9 1.1 1.2 1.2 1.3 1.3 1.3 3. Current Account Balance -7.8 -10.8 -11.0 -11.1 -10.5 -9.3 -7.9 -6.5 -5.2 4. LT Capital InfLow 8.3 13.4 13.4 13.3 12.9 12.4 9.2 7.9 6.6 Memorandum Ite: GDP ( Mine. of Current USS) 229 239 246 259 277 297 319 345 372 Foreign Exchange Reserves: 1. Gross Reserves incl. Gold 25 31 37 43 49 59 63 68 73 2. Gross Res. in onths Iports (G&S) 1.6 2.0 2.3 2.5 2.7 3.0 3.0 3.0 3.0 Source: Caribbean DeveLopoent Bank. IBRD 2203. 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