PPT SEA Proposal for debt relief among Caribbean SIDS MONCOM
Transcript of PPT SEA Proposal for debt relief among Caribbean SIDS MONCOM
A proposal for debt relief
among Caribbean SIDS
17th Meeting of the Monitoring Committee of the CDCC17th Meeting of the Monitoring Committee of the CDCC
among Caribbean SIDS
Antonio Prado
Deputy Executive Secretary
Emerging challenges
• Region has experienced lower GDP growth since
the post crisis period with an average of 1.2% in
2014.
• ECLAC projects that in 2015 growth will be 2.2% but
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ECLAC projects that in 2015 growth will be 2.2% but
many countries will be in the 1% range.
• Low growth has generated high levels of
unemployment especially among young people.
• Fiscal challenges limit governments’ ability to
maintain social protection programs.
Low Growth and High
Unemployment
8
10
12
14
16
AVERAGE GDP GROWTH AND UNEMPLOYMENT FOR THE CARIBBEAN, 2005-2015
(Percentage)
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-6
-4
-2
0
2
4
6
8
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Unemployment Growth rate
High debt levels and debt service
costs
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costs
Debt service costs for Caribbean
economies are high CARIBBEAN DEBT BURDEN, 2013
(Percentl)
ATG
BRB
GRD
JAM
LCA40
50
60
70
To
tal
de
bt
serv
ice
pa
ym
en
t
(Pe
rce
nt
of
Go
ve
rnm
en
t re
ve
nu
e)
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BHS
BLZ
DMA
GRD
KNA
LCA
VCTAverage
-10
0
10
20
30
0 5 10 15 20 25 30 35 40 45 50
To
tal
de
bt
serv
ice
pa
ym
en
t
(Pe
rce
nt
of
Go
ve
rnm
en
t re
ve
nu
e)
External debt service payments
(Percent of Exports of Goods and Services)
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figuresNote: Size of bubble represent total public debt as a percent of GDP.
].
The levels and composition of public debt is
highly heterogeneous among Caribbean SIDS
TOTAL PUBLIC DEBT COMPOSITION, 2013
(Percentl)
64
53 3742
66
80
100
120
140
160
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7262 69
60
36
1227
4022
51
1632
168
66
6750
3753
19
42 5
1922 4
0
20
40
60
Highly Indebted Moderately Indebted Less Indebted
Domestic External
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures
].
For Caribbean countries aggregated multilateral and
bilateral debt represent 40% and 14% of total external
debt
COMPOSITION OF TOTAL EXTERNAL DEBT, 2013
(Percentl)
70%
80%
90%
100%
EXTERNAL DEBT COMPOSITION 2013
(Percent)
PPG,
bilateral
14%
TOTAL EXTERNAL DEBT COMPOSITION 2013
(Percent)
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0%
10%
20%
30%
40%
50%
60%
70%
BLZ DMA GRD GUY JAM LCA VCT
PPG, bilateral PPG, multilateral
PPG, private creditors
PPG,
multilateral
40%
PPG, private
creditors
46%
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures
].
For Caribbean countries aggregated multilateral
and bilateral debt represent 40% and 14% of
total external debtBILATERAL AND MULTILATERAL CONCESSIONAL DEBT, 2013
(Percentl of external debt stock PPG)
60.0
70.0
80.0
90.0
100.0
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0.0
10.0
20.0
30.0
40.0
50.0
BLZ DMA GRD GUY JAM LCA VCT
PPG, bilateral concessional (percent of External debt stock PPG)
PPG, multilateral concessional (percent of External debt stock PPG)
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures
].
WHY SHOULD CARIBBEAN COUNTRIES
RECEIVE DEBT RELIEF?
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The Debt problem in the
Caribbean is a regional problem
• The debt problem is regional and the
adjustments programs in place impact
negatively on regional trade and weaken the
motivation for integration.
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motivation for integration.
• High debt also constrains domestic and
regional efforts to build economic resilience.
Why should Caribbean countries receive
debt relief? Five reasons
1. Given the debt burden, the fiscal adjustment
needed to achieve fiscal sustainability is very large
and unsustainable.
2. Caribbean’s debt problem was not created from
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2. Caribbean’s debt problem was not created from
either policy missteps, excessive fiscal profligacy
or the international financial crisis but rather has
its roots in external shocks, compounded by the
inherent structural weaknesses and vulnerabilities
confronting Caribbean SIDS.
Why should Caribbean countries receive
debt relief?
3. Caribbean economies have limited access to concessional
external finance since they are defined as Middle Income
countries.
4. For Caribbean SIDS, current debt challenge will make it
difficult for them to address the demands of the SDGs.
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difficult for them to address the demands of the SDGs.
5. High debt burdens, which on average have increased in the
wake of the crisis, also affect sovereign credit rating and
have led to higher sovereign risk premia in international
capital markets which mean higher borrowing costs for
Caribbean SIDS.
A DEBT PROPOSAL FOR THE CARIBBEAN
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A debt proposal for the Caribbean
We propose a strategy of debt relief that would
create more fiscal space and help member
states can be constructed around two axes:
a) Forgiveness of multilateral concessional debt
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a) Forgiveness of multilateral concessional debt
b) The creation of a resilience fund
Forgiveness of multilateral
concessional debt The multilateral debt relief proposal involves three actors: The
multilateral institutions, donor countries and small states
debtor countries.
ECLAC proposes that multilateral institutions gradually write
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ECLAC proposes that multilateral institutions gradually write
off 100 percent of small states multilateral debt stock,
contingent on approval from donors. The forgiveness of
multilateral debt is meant to ease the burden on the liquidity
constraints, as well as address the potential solvency risk.
Forgiveness of multilateral
concessional debt
At the same time bilateral donors should be asked to
participate. More benefits can be had if the debt is
reduced at a considerable discount. ECLAC proposes
that countries benefitting from debt relief be
required to make annual payments of existing
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required to make annual payments of existing
multilateral concessional debt service in local
currency into a Caribbean Resilience Fund over a
period of 10 years.
The creation of a Resilience Fund
The Caribbean Resilience Fund would be
managed by an institution such as the
Caribbean Development Bank. Caribbean
small states can access the Fund to finance
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small states can access the Fund to finance
projects and activities that have been
deemed to be growth-promoting, poverty-
reducing or environmental-protecting.
The creation of a Resilience and
Stabilization Fund
The Fund will be targeted at resilience building
activities and eligibility would be based on the level of
indebtedness and liquidity constraints faced by
member states. These criteria would be developed in
concert with member states, the multilateral/bilateral
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concert with member states, the multilateral/bilateral
creditors/donors and the managing institution. This
fund would have two components.
1.Caribbean resilience fund
2.A macroeconomic and stabilization fund
The creation of a Resilience Fund
The resilience fund would focus on:
1. Disasters: This component will provide more certain
financial resources for disaster relief and disaster risk
reduction projects. It should be focused on the recovery of
economic activity as well as the reconstruction process
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economic activity as well as the reconstruction process
after a disaster with emphasis on infrastructure projects
with disaster risk reduction elements. These resources
should be complementary to other initiatives in the region
such as the Caribbean Catastrophic Insurance Facility
(CCRIF)
The Creation of a Resilience Fund
Social development
2. Social development: Education, health, and public
safety and security are essential public goods for
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safety and security are essential public goods for
which the governments of highly indebted
Caribbean small states have struggled to
adequately finance. Dedicating resources for these
areas would be vital to the attainment of
sustainable development in the Caribbean.
The creation of a Resilience Fund
3. Climate change: This tranche will finance
infrastructure projects including climate
adaptation and mitigation measures. Given
the difficulties in accessing the Global
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the difficulties in accessing the Global
climate change and other funds, this would
be a considerable benefit to Caribbean SIDS.
The macroeconomic and
stabilization fund
It would be a countercyclical fund for addressing negative
external shocks. It should be managed by a prestigious
Institution such as the Caribbean Development Bank. The fact
that the region is ineligible for financing to address such
shocks, forces member states to borrow at market rates. This
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shocks, forces member states to borrow at market rates. This
Fund should provide mechanisms and financial instruments
that help countries under those conditions.
Concluding thoughts
• Caribbean member states recognise that the
SDG agenda must be theirs but they need
partnerships on the journey.
• Debt reduction will create a level playing
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• Debt reduction will create a level playing
field for Caribbean SIDS to pursue the SDGs.
• The proposal derives from the principle of
shared but differential responsibility and
poses no systems risks to financial markets.