CDB 2017 Caribbean Economic Review and 2018 Outlook

Page 14

14 |

2017 CARIBBEAN ECONOMIC REVIEW AND 2018 OUTLOOK

MONETARY DEVELOPMENTS AND FINANCIAL STABILITY

OUTLOOK

Monetary conditions in the BMCs were consistent with the anemic real GDP growth. Generally, monetary growth slowed in 2017, consistent with sluggish domestic credit growth in The Bahamas; Barbados; Eastern Caribbean Currency Union; Suriname; and Trinidad and Tobago. Jamaica was an exception, where an easing of credit conditions underpinned household and private-sector credit growth.

As small open economies, the BMCs’ prospects partly depend on developments in the global economy. The IMF is forecasting that global growth will increase in both 2018 and 2019 to 3.9%, from 3.7% in 2017, reflecting existing growth momentum and tax policy changes in the United States (U.S.)5. However, the Fund warns against complacency, citing medium-term downside risks, such as a correction in financial markets; inward-looking policies; geopolitical tensions; and political uncertainty in some countries.

Generally, the regional banking system remains relatively stable. Bank capitalisation continued to be satisfactory, with capital adequacy ratios above prudential guidelines. However, some vulnerabilities persisted across BMCs, with high (albeit declining) levels of non-performing loans (NPLs) and increasing supervisory costs; both of which are drags on banks’ profitability. Expectations are that high levels of liquidity will be maintained over the medium term, given the uncertain economic environment. Furthermore, modest improvements in credit quality indicators are expected, as banks ratchet up efforts to address the NPLs on their balance sheets. The loss of correspondent banking relationships continued to pose a threat to the stability of some domestic banks, amidst tighter lending conditions and increased oversight for anti-money laundering and combating the financing of terrorism.

At the regional level, exposure to the global risks are high, but there are also the known risks associated with natural disasters and other weather-related events. The increasing frequency and intensity of these events highlight the need to improve resilience. Economies heavily reliant on financial services will continue to face levels of scrutiny from the international community regarding the use of offshore financial centres for tax avoidance. U.S. corporation tax reform could also mean profits being repatriated from offshore, with a possible effect on revenues in the Caribbean. These reforms may also lead to higher U.S. interest rates and appreciation of the U.S. dollar, further undermining the competitiveness of the fixed-exchange-rate tourist destinations6. On the upside however, the same reforms could increase disposable incomes, leading to a positive impact on tourism and remittances. While the Region cannot influence any of these events, it can take mitigating actions to lessen their impacts and build resilience. By increasing their resilience, BMCs can put themselves in a position to ensure that vulnerabilities are reduced, so that growth is sustained and inclusive. With these considerations in mind, CDB is projecting regional economic growth of 2% for 2018, to which all BMCs are expected to contribute. Returns to positive growth are forecast for Suriname and Trinidad and Tobago, driven by recovery in the energy sectors, and in Suriname's case, gold. Higher gold output

5 IMF World Economic Outlook Update – January 2018. 6 Although recent pronouncements by the US Administration suggests that the Administration would welcome a weaker dollar.


Turn static files into dynamic content formats.

Create a flipbook
Issuu converts static files into: digital portfolios, online yearbooks, online catalogs, digital photo albums and more. Sign up and create your flipbook.
CDB 2017 Caribbean Economic Review and 2018 Outlook by Caribbean Development Bank - Issuu