ECCB: Economic Activity Adversely Impacted By Higher Inflation Levels

(CMC) – The St Kitts-based Eastern Caribbean Central Bank (ECCB) says monetary conditions within the Eastern Caribbean Currency Union (ECCU), “remain accommodative” and that member countries are recovering slowly from the coronavirus (COVID-19) pandemic.

In addition, it said that the islands have continued with some policy interventions they introduced to help mitigate the impact of COVID-19.

The ECCB in its report to the 102nd meeting of the ECCB Monetary Council held here over the last weekend focused on the ongoing economic recovery both globally and within the ECCU, as well as on the impact that the war in Ukraine and associated economic sanctions are having on this recovery.

A statement issued by the ECCB noted that as a consequence of these global issues “member countries of the Eastern Caribbean Currency Union have taken several policy actions including subsidising fuel prices, resulting in a loss of revenue, in an effort to limit the impact of rising costs on citizens and residents.

“Overall monetary conditions in the ECCU remain accommodative. Monetary and credit conditions improved during the first half of 2022, with growth in private sector credit being positive,” the ECCB said, noting that the ECCU’s stock of international reserves expanded to a level 12.1 per cent higher than pre-pandemic levels.

It said at the end of June 2022, the total foreign exchange reserves of the ECCB amounted to EC$5.3 billion (One EC dollar=US$0.37 cents) and that from the period March 2020 to June 2022, the average monthly foreign reserves backing ratio was 96.4 per cent.

“To put this in context, the statutory requirement is 60 per cent,” the ECCB said with the Council chaired by St Lucia’s Prime Minister Phillip J Pierre, agreeing to maintain the minimum savings deposit rate at two per cent and maintain the Central Bank’s discount rate at two per cent for short-term credit and 3.5 per cent for long-term credit.

The Minimum Savings Rate (MSR) is the lowest rate that commercial banks can offer on savings deposits.  The Central Bank’s Discount Rate is the rate at which the ECCB lends to governments and commercial banks.

The ECCB statement said that the Monetary Council was advised that the banking system remained stable, with overall credit extension to the private sector exhibiting resilience throughout the pandemic.

“Moreover, the banking system maintained its high degree of liquidity and capital buffers remained at robust levels. The Non-Performing Loans Ratio increased marginally to 11.8 per cent, this is well above the five per cent regulatory minimum requirement.”

The Council, whose members are from Antigua and Barbuda, Dominica, Grenada, St Lucia, St Vincent and the Grenadines, St Kitts-Nevis, Montserrat and Anguilla, was informed that activity on the Regional Government Securities Market (RGSM) showed notable improvement during the first half of the year.

“New investment flows into the market increased by 23.4 per cent or EC$102.3 million when compared with the corresponding period (January to June 2021).  This is a welcome sign as the market continues to recover from the effects of the COVID-19 pandemic.

Council was also apprised that the number and amount of moratoria loans have continued their steady decline.

“This is an important signal from the banking sector, likely reflecting improving confidence. As of March 31, 2022, the end date of the ECCB’s regulatory waivers for the COVID-19 Loan Moratoria Programme, commercial banks had 1,150 loans on moratoria, with total outstanding balance of EC$741.1 million representing 5.4 per cent of total loans.

“This compared favourably to about 40 per cent in September 2020 with a value of EC$5.2 billion.  The COVID-19 loan repayment deferral programme created the necessary space for financial institutions and borrowers to restructure loan facilities without incurring defaults,” the ECCB noted.

It said that in furtherance of the Council’s expressed support for uniform financial legislation in the ECCU, the Monetary Council encouraged the relevant member governments to enact the proposed amendments to the Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) legislation, to confer authority on the Eastern Caribbean Central Bank (ECCB) for AML/CFT supervision for its licensees at the earliest opportunity, particularly in light of the FATF 4th Round of AML/CFT Mutual Evaluations.

It also called on the countries to enact the proposed amendments to the Banking Act, 2015 in St Kitts and Nevis and St Lucia and enact the harmonised Credit Reporting Bill in Anguilla and St Lucia, to allow for the operation of the credit bureau regionally.

To date, the ECCB has AML/CFT supervisory authority in Antigua and Barbuda, Grenada, St Lucia, St Vincent and the Grenadines and Dominica.

The weekend ECCB Monetary Council was also informed that the recovery is spreading, albeit slowly, throughout various sectors of the ECCU’s economy.

Cruise ship arrivals and stay-over levels have increased relative to the end of December 2021, and ECCU member countries have opened with minimal restrictions for travellers.

Cruise arrivals rose to 656,011 at the end of March 2022 and is expected to continue increasing in 2022, as COVID-19 protocols continue to ease.

The recovery in tourism is hampered by ongoing challenges with air connectivity in the region.  The construction sector also continues to recover, bolstered by capital investment by member governments.

The ECCB said economic activity in 2022 is being adversely impacted by higher levels of inflation due to the war in Ukraine and associated economic sanctions, higher energy prices, supply chain disruptions and low air transport connectivity.

“For example, stay-over arrivals from the Caribbean – which averaged 20.0 per cent of total stay-over arrivals in 2019 – averaged only 6.5 per cent in March 2022. This lower level of arrivals from the Caribbean is indicative of the air connectivity challenge within the ECCU.”