MORE BAD NEWS…Standard & Poor’s Downgrades Grenada Further

As Grenada prepares for some stiff belt-tightening measures from the Keith Mitchell-led New National Party (NNP) government in St. George’s, there is further bad news for the cash-strapped island.

Credit rating agency, Standard & Poor’s has further downgraded Grenada to SD/-SD, which is among the lowest one can get from the well-respected organisation.

In its latest report on the Spice Isle, Standard & Poor’s does not hold out much hope for increased economic and financial activities in the country within the foreseeable future under the Mitchell administration which is trying to put together its own so-called Structural Adjustment programme to arrest the economic and financial crisis now engulfing the island.

“With limited financing options and continued expected weakness in the mainstay tourism sector, improving economic prospects will be a difficult task for the government”, the report said.

“We expect economic growth will pick up only incrementally to an estimated 0.5% of GDP this year. However, we project that weak tourism inflows will depress Grenada’s medium-term growth prospects to 1% on average through 2015”, it added.

Standard & Poor’s is also predicting that Grenada will take more than eight months to successful engage in debt re-structuring of the island’s estimated EC$2.3 billion national debt due to the complex nature of the debts and the creditors involved.

The report said: “The structure of Grenada’s debt is more complex than that of Belize – which completed a rescheduling of its more than US$500 million bonded debt in March 2013. We expect that this, as well as the engagement of official creditors, will prolong Grenada’s restructuring process longer than the roughly seven months it took Belize”.

The internationally-recognised credit rating agency also alluded to the approximately 80 million E.C dollars that Grenada owes to Taiwan after the Mitchell government kicked out the Republic of China on Taiwan after Hurricane Ivan in September 2004 to open ties with Mainland China in the face of a lucrative offer.

“Grenada’s recent history of debt rescheduling, an unsettled bilateral debt dispute, and continued tax concessions constrain our view of its debt payment culture”, Standard & Poor’s said in the 22-page report.

As a Public Service, THE NEW TODAY reproduces some of the major highlights contained in the report:

The ratings on Grenada reflect the government’s ongoing efforts to restructure a
portion of it public debt, including its 2025 bonds.

Grenada’s weak medium-term growth prospects, its reliance on external funds to finance recurrent large current account deficits, its large debt stock, limited fiscal flexibility, and lack of monetary policy flexibility further constrain the rating.

In March 2013, the government of Grenada announced plans to negotiate a comprehensive restructuring of its public debt, which totaled more than 110% of GDP at the end of 2012.

Grenada’s net general government debt was 87% of GDP at the end of 2012. The government also stopped debt service on its bonds due in 2025, including both the US$193 million and Eastern Caribbean dollar (XC$) 184 million portions (34% of GDP in 2012).

The government has committed to servicing its treasury debt (13% of GDP) issued on the regional securities exchange, which supports its short-term liquidity and mitigates confidence risks for the Eastern Caribbean Currency Union (ECCU) financial institutions.

A cash shortfall during the second half of 2012 caused the Grenadian government to delay a coupon payment on its 2025 bonds until it raised US$4.4 million in short-term funds on the regional government securities market and made payment in October.

Standard & Poor’s Ratings Services expects that a restructuring package could be anchored by an International Monetary Fund (IMF) program, such as those pursued by other (not rated) ECCU members – St. Kitts and Nevis (2012) and Antigua and Barbuda (2010) – in their recent debt restructurings. In each case, the government negotiated an IMF agreement that provided an updated debt sustainability framework, then it negotiated with bilateral Paris Club creditors and commercial creditors successively.

In May, some creditors holding more than 75% of the 2025 bonds by value formed a steering committee and an ad hoc committee to facilitate debt negotiations.

The government of the New National Party (NNP) has a firm legislative mandate to negotiate a debt restructuring. The NNP swept parliamentary elections in February, winning a full majority of the 15 parliamentary seats in the lower chamber for five years.

The Grenadian economy – which has per capita GDP of $7,800 and is highly concentrated on tourism – has contracted a cumulative 7.7% since the 2008 U.S. financial crisis.

We expect the renovation and expansion of an upper-market hotel and the start of some public-sector capital projects during 2013 will foster 0.5% economic expansion this year.

The hotel opening in December and the possible start of a new grant-financed athletic stadium will foster projected 1% growth in 2014-2015. However, we expect prolonged economic weakness in Europe and the slow pace of the U.S. recovery will continue to dampen Grenada’s tourism and economic prospects over the next few years.

We expect real per capita GDP will expand by less than 1% annually through 2015.

Grenada’s weak external position remains a critical constraint to its creditworthiness. Grenada renders high, persistent current account deficits in excess of 20% of GDP.

It relies heavily on external financing – more than 180% of current account receipts (CAR) and usable reserves – sourced by external lenders, non-resident deposits, foreign equity investors, and donors to finance capital and consumer goods and services imports.

As international capital markets tightened after 2008, tourism revenues, net foreign direct investment (FDI), and grant inflows declined, causing Grenada to increase its net external borrowing.

The country’s external debt net of liquid assets rose to more than 220% of CAR in 2012 from just over 150% in 2006. Grenada’s membership in the ECCU, whose foreign reserves backed 96% of the union’s monetary base at the end of August, bolsters its external liquidity through access to pooled foreign exchange reserves.

Grenada has material external data inconsistencies, reflecting limited resources to publish an international investment position.

A large government debt burden, rising interest expense, and a narrow tax base limit Grenada’s capacity for counter cyclical fiscal policy, largely related to externally financed projects.

First, persistent government deficits before and after 2008 have contributed to the rise of Grenada’s net general government debt to 87% of GDP last year, which is greater than many Caribbean peers’.

The high share of foreign-currency-denominated debt (more than 55%) further
increases its fiscal vulnerability.

Second, Grenada’s government interest burden, which totaled 16% of revenues in 2012, has risen in recent years (reflecting the step-up interest rate structure of its 2025 bonds), increasing its expenditure rigidity.

Third, tax concessions to a local university and some tourism operators narrow the Grenadian tax base.

We expect that external disbursements will fund much of the government’s capital works program for the near term.

Grenada lacks monetary policy flexibility as a member of the ECCU, a monetary union with a quasi-currency board arrangement.

Its unilateral peg to the U.S. dollar engenders low and stable inflation, except during periods of sharp international fuel or food price rises.

The ECCU has open financial and capital accounts, and Canadian and Trinidadian banks have a strong financial presence, as do foreign investors in the hotel sector.

Grenada benefits from the ECCU’s regional government’s securities market and the private-sector securities exchange, which provides its eight member countries and territories access to greater local currency capital market financing and liquidity than they would have as small independent, bank-dominated societies.

The government included its XC$184 million 2025 bonds in its announced restructuring plans. Therefore, we lowered our local currency issuer ratings on Grenada to ‘SD’ in March 2013 (along with the foreign currency ratings).

The transfer and convertibility assessment reflects Standard & Poor’s view that the risk of the ECCU restricting access to foreign exchange that Grenada needs for debt service is commensurate with ‘BBB-‘ risk.

The ‘BBB-‘ risk assessment reflects our view of ECCU’s limited use of foreign exchange restrictions during periods of stress, as well as its current and expected policy stance.

Institutional And Governance Effectiveness: Grenada Plans A Comprehensive
Debt Restructuring And Remains In Default On Its 2025 Bonds

The government of Grenada announced in March its plans to restructure the public debt, the second restructuring in a decade.

Grenada restructured its commercial debt in 2005 and its Paris Club debt in 2006 following extensive hurricane damage in 2004-2005.

The island has a stable political system, which two parties have dominated since the return to democracy in 1984.

The current NNP government holds a strong parliamentary majority with a five-year mandate.

The government of Grenada announced plans in March to negotiate a comprehensive restructuring of its public debt, which totaled more than 110% of GDP at the end of 2012. It also stopped servicing its bonds due in 2025, including both the US$193 million and XC$184 million portions (34% of GDP in 2012).

The government has committed to servicing its treasury debt (13% of GDP) issued on the regional securities exchange, which supports its short-term liquidity and mitigates confidence risks for the ECCU financial institutions.

We expect that a restructuring package would be anchored by an IMF program, such as those other (not rated) ECCU members – St. Kitts and Nevis (2012) and Antigua and Barbuda (2010) – have utilized in their debt restructurings.

In each case, the government negotiated an IMF agreement that provided an updated debt sustainability framework, then it negotiated with bilateral Paris Club creditors and commercial creditors successively. Grenada has two previous extended credit facility (ECF) agreements with the IMF.

It completed the first ECF (2006-2010) after two hurricanes destroyed much of the island’s infrastructure and agricultural production in 2004-2005, and the second (2010-2013) foundered under prolonged economic weakness.

Some creditors holding more than 75% of the 2025 bonds by value formed a steering committee and an ad hoc committee in May to facilitate debt negotiations.

The structure of Grenada’s debt is more complex than that of Belize – which completed a rescheduling of its more than US$500 million bonded debt in March 2013.

We expect that this, as well as the engagement of official creditors, will prolong Grenada’s restructuring process longer than the roughly seven months it took Belize.

Of Grenada’s public debt, 32% is domestic and 68% is external. As of March, 31% of the external debt is owed to multilateral financial institutions, 10% is bilateral (excluding PetroCaribe debt), and 37% is commercial.

The NNP, led by former Prime Minister Keith Mitchell, swept parliamentary elections in February 2013, winning an absolute majority of the 15 parliamentary seats in the lower chamber for up to five years.

The previous NNP government held legislative majorities during most of 1995-2008. After suffering several cabinet defections in 2012-2013 and the loss of its parliamentary seats, the National Democratic Congress (NDC) Party remains the strongest potential opposition.

However, leadership of the organisation is fragmented, and a new party head has not been selected.

The NNP government has a firm legislative mandate to negotiate an IMF program and a debt restructuring. Its parliamentary majority will facilitate the passage of key legislation in the near term, but the lack of an effective opposition also could undermine the legitimacy for difficult fiscal measures further into the government’s five-year term if broader political consultation is not undertaken.

The electorate returned the NNP to power with a strong mandate to jump-start the economy – unemployment anecdotally is 25%-40% – in part supported by the perception of greater unity and capacity to govern more cohesively.

The NNP lost its majority in 2008, in part based on corruption allegations and social disapproval of the party’s centralised decision-making.

With limited financing options and continued expected weakness in the mainstay tourism sector, improving economic prospects will be a difficult task for the government.

Grenada has a stable Westminster-style government system, which has been dominated by the two traditional parties, the NNP and the NDC, since the return to democracy in 1984. Shortly after gaining independence from the U.K.

In 1974, Grenada suffered a tumultuous political period during 1979-1983. Following the restoration of the representative parliamentary government through elections in 1984, the country has had seven stable political transitions.

The country has active media, including commentary from both local and foreign expatriates, but fiscal and economic reporting is less frequent than in higher-rated Caribbean peers, such as Barbados and Aruba.

The Grenadian judicial system, based on English common law, benefits from the British legal tradition and access to the Privy Council in London as the final appellate court.

The legal process, however, can be slow. For example, judicial delays prolonged
the liquidation of a troubled bank taken under conservatorship during the financial crisis.

Grenada’s recent history of debt rescheduling, an unsettled bilateral debt dispute, and continued tax concessions constrain our view of its debt payment culture.

Grenada restructured its domestic and external debt after two hurricanes devastated the island’s infrastructure and agricultural production in the mid-2000s.

Shortly after the hurricanes, Grenada switched its diplomatic recognition of China to the People’s Republic of China from the Republic of China.

As a diplomatic demarche, the Export-Import Bank of the Republic of China subsequently refused to restructure $20 million in outstanding obligations with the rest of Grenada’s Paris Club debt in 2006. (The Government of Grenada continues to recognize the debt obligation among its external debt.)
The Export-Import Bank continues to litigate through the U.S. Courts.

Economic Analysis: Weak Tourism Weighs On Growth Prospects

*Grenada has a small, open, and tourism-dependent economy with $7,800 in per capita GDP.

*Weak U.S., U.K., and European tourism has depressed investment and economic growth below that of more diversified peers, and real per capita growth has not been greater than 1% since 2007.

*The Caribbean island of a little more than 100,000 residents remains vulnerable to hurricanes and other natural disasters as well as external economic shocks.

Grenada’s economic growth has been volatile since 2001. Hurricanes destroyed much of the island’s infrastructure and agricultural production in 2004-2005, and the economy has contracted a cumulative 7.7% since the 2008 U.S. Financial crisis.

GDP has expanded at a 1.6% average annual rate, with positive out turns in only half of the past 12 years. The formal Grenadian economy is highly concentrated on tourism, which has experienced prolonged weakness since 2008.

St. George’s University, a medical and veterinary school located in Grenada with a high proportion of U.S. And Canadian students, is an important local institution, representing roughly 30% of economic activity based on local anecdotes.

It provides middle-to-upper-income professional salaries and fosters consumption by foreign students. In addition, the university has expanded in recent years and remained profitable, providing an important stabilizing factor for the Grenadian economy.

Because the university is exempt from corporate income tax, it is not counted in GDP and the latter is likely understated. (The department of inland revenues sources much of Grenada’s economic survey data.)

Thus, although GDP is likely under-reported, the government’s tax base remains narrowly concentrated on tourism and agricultural exports, increasing risks to the government’s fiscal position.




We expect economic growth will pick up only incrementally to an estimated 0.5% of GDP this year. However, we project that weak tourism inflows will depress Grenada’s medium-term growth prospects to 1% on average through 2015.

A slow U.S. recovery, fiscal austerity measures in the U.K., and prolonged economic weakness in Europe, as well as higher fuel costs, have depressed the number and average expenditure of mult-day visitors and cruise-ship passengers to Grenada in 2012 and 2013.

This year, we expect increased public-sector capital investment via an externally financed public works program and the expansion of the Sandals La Source Hotel to propel positive 0.5% growth this year.

Work on the Sandals property is picking up. Sandals is investing $80 million to $100 million to renovate and expand the luxury property, doubling the room capacity to 225 rooms. Local accounts confirm the hotel is on schedule to open in December, in time for the Caribbean’s peak tourism season (November to April).

The renovation will improve FDI flows to Grenada and will provide nearly 500 short-term construction jobs this year. Another private hotel, Bacolet Bay Resort, has resumed renovation, and construction of the new National Insurance Scheme building continues.

In addition, the government expects greater public-sector stimulus in the second half of the year as phase two of the Agriculture Feeder Roads Project (funded by multilateral development loans) and construction is expected to begin on a new athletic and football stadium (funded by Chinese grants).
Work on the latter could slip to 2014, but we expect these projects will be sufficient to propel slight positive growth during 2013.

Plans to build low-income housing units (a second such project that China plans to finance with grants to Grenada) are also in the pipeline.

The Grenadian economy contracted during the first quarter of 2013, according to preliminary (unquantified) estimates from the Eastern Caribbean Central Bank (ECCB).

This follows 0.8% annual economic contraction and weak tourism activity in 2012. However, we expect that the Sandals expansion during 2013 and the start of some government infrastructure projects (which the spring elections delayed) will spur greater activity in the second half of the year.

Construction – an important sector for employment–activity decreased 15% in 2012, down for the fifth consecutive year. Nonetheless, domestic credit from commercial banks receded 0.5% in the first quarter as household and business demand for credit remained diminished.

The number of arriving tourists was down 19% for the first three months of 2013 versus the same period last year, while total visitor spending was 4% lower.

The number of stay-over tourists -who spend more than cruise-ship passengers (on hotels and restaurants) – has been relatively stable since 2011.

Stay-over arrivals from the U.S. And Canada rose by 13% and 60%, respectively, in the first quarter of 2013 versus 2012, largely offsetting continued declines in U.K., European, and Caribbean visitors.

Overall cruise passenger arrivals remain low, following a 22% decline in 2012 and the loss of year-round Carnival Cruise Line visits.

External Analysis: Grenada Has One Of The Largest Net External Liability
Positions Among Rated Sovereigns

*Grenada relies extensively on foreign capital to finance its large current account deficits. We expect its gross external financing needs will exceed 180% of CAR and usable reserves over the next two to three years.

*As part of a monetary union, Grenada has access to pooled foreign exchange reserves, bolstering its external liquidity. However, the country’s own imputed reserves cover less than one month of current account payments after netting the monetary base.

*At more than eight times its annual foreign exchange earnings, Grenada’s net external liabilities are among the highest for rated sovereigns.

As a small, open economy, Grenada runs large current account deficits–more than 25% of GDP – that increase its vulnerability to external shocks.

The country relies significantly on foreign capital to finance this structural trade gap.

Grenada’s large external financing needs typically exceed 180% of CAR and usable reserves.

Stay-over tourism, the island’s main-stay industry, plummeted in the wake of the 2008-2009 financial crisis and has not recovered since. The resulting fall in foreign exchange receipts and reliance on external financing increased Grenada’s narrow net external debt to more than 240% of CAR in 2012 from 160% in 2008.

Net external liabilities, a broader measure of external risk, are large for Grenada – totaling 800% of CAR and 200% of reported economic production.
Public-sector external debt is the greatest external liability, representing over 200% of CAR. Grenadian commercial banks’ external debt remains small on a net basis, but it has risen to 37% of CAR in recent years from 5% in 2007.

ECCB does not publish general (or non financial) private-sector external debt statistics, and our external liabilities estimates are likely understated.

Membership in the ECCU provides Grenada with more external liquidity than that implied by its imputed reserves.

The ECCU functions as a quasi-currency board, backing 96% of the monetary base with foreign exchange reserves. The pooling of foreign exchange reserves provides external liquidity and greater confidence for external transactions for the individual member countries.

On an individual basis, Grenada’s external liquidity would be quite limited. Grenada’s (imputed) foreign exchange reserves (as of April) cover less than one month of current account payments (which includes imports and external debt service) after netting the national monetary base.

Grenada’s external accounts statistics present material data inconsistencies. Its chronic high current account deficits may be overstated, given measurement problems and the exclusion of the university from most fiscal and economic metrics.

Similar to many Caribbean peers, Grenada and the ECCB do not publish an international investment position or private non financial external debt statistics.

Fiscal Analysis: A Large Public Debt And Rising Interest Burden Constrain
Fiscal Flexibility

*The government of Grenada intends to restructure its large debt burden. Net general government debt totals 87% of GDP.

*The step-up interest rate feature of Grenada’s 2025 bond and increased local currency issuance raised Grenada’s interest expense – to more than 16% of government revenues in 2012 from 11% the previous year – reducing the government’s expenditure flexibility.

*We expect that general government debt will rise 3% per year, on average, over the next few years, financed primarily by multilateral financial institutions.

Fiscal flows

We expect Grenada will run a 3% general government deficit this year. The weak domestic tax base and limited external financing will likely restrain expenditures and generate low fiscal deficits over the medium term until the tourism outlook improves.

Despite sustained revenue generation of the value-added tax (VAT) introduced in 2010, we expect Grenada’s central government revenues will average 21%-22% of GDP over the medium term.

Long-standing corporate income tax concessions to the university (in exchange for 800 local student scholarships), some corporate income tax concessions in the tourism sector, and some construction-related exemptions will continue to narrow the government’s tax base and limit the government’s ability to raise revenues.

On the expenditure side, we expect central government expenditures will total 25% of GDP this year. The government has announced plans to increase public-sector infrastructure investment this year.

We expect capital spending will under-perform budget expectations this year because spring elections delayed the start of the policy cycle. In addition, the government has announced retroactive payment (2009-2012) to public-sector employees to compensate them for a four-year wage freeze.

The initial payments were scheduled for August and November 2013, and the government will announce the other two payment dates in 2014.

We expect the government will likely reduce capital expenditures to partially accommodate these salary payments.

Debt

Persistent government deficits before and after 2008 have contributed to the growth of Grenada’s public debt.

Net general government debt rose from 67% of GDP in 2006 to 87% in 2012, a level that surpasses that of many Caribbean peers.

Gross central government debt totals 95% of projected 2013 GDP, and total public-sector debt totals 112% of GDP.

The structure of Grenada’s debt is less favorable than those of some higher-rated peers.

Of Grenada’s central government debt, the majority, 65%, is external – of which 31% is owed to multilateral financial institutions, 10% is bilateral (excluding PetroCaribe debt), and 37% is commercial (predominately the 2025 bonds).

The market terms and step-up interest rate feature of the bonds have increased Grenada’s government interest burden and reduced fiscal flexibility.

The share of foreign-currency-denominated debt is large (upwards of 55% of general government debt), which is another vulnerability of the country’s external liquidity.

By contrast, the Dominican Republic (2005), Fiji, Pakistan (1999), and Belize (2006-2007 and 2012-2013) – many of which have defaulted on sovereign commercial debt in recent years (indicated in parentheses) – currently have lower net general government debt burdens (relative to their GDP) than Grenada.

Similar to Jamaica, Belize, and the Dominican Republic, Grenada has a proportionally large stock represented by external commercial bonds denominated in foreign currency, which increases foreign currency risk should the government devalue (in the case of a fixed exchange regime) or the currency depreciate (a flexible or floating exchange regime).

The external debt stocks are also large for most of these small countries, reflecting the inability of governments to finance recurrent deficits in their shallow domestic capital markets. Multilateral and PetroCaribe debt provides Grenada concessional terms, similar to most low-income sovereigns.

Grenada’s central government domestic debt is predominantly short term, reflecting a lack of demand for longer-dated government paper while the government remains in default on its local currency 2025 bond.

Grenadian treasury bills issued on the regional government securities exchange total 13% of GDP and are principally held by local Grenadian and ECCU banks, credit unions, insurance companies, and the Grenada National Insurance Scheme.

The Eastern Caribbean Regional Government Securities Market (RGSM) provides Grenada and other ECCU-member governments greater local currency liquidity and lower-cost financing than any of the eight members could achieve independently among their own domestic bank-dominated financial systems.

RGSM market capitalization totals approximately 50% of Grenada’s GDP. Although the majority of instruments are short-term treasuries, neighbors such as the government of St. Lucia are able to issue maturities of up to five years at 7% (as of December 2012).

Treasuries of 365 days had a 6.2% weighted-average interest rate at the end of 2012. Secondary market activity for ECCU-member government bonds, however, is limited, as many purchasers hold the instruments to maturity.

Monetary Policy Analysis: Grenada’s Participation In The ECCU Precludes
Monetary Policy Flexibility

*Grenada lacks monetary policy flexibility as a member of the ECCU.

*We expect low inflation-with average annual consumer price increases of 2%-3%–over the next two years, absent an energy price shock.

Grenada is a member of the Eastern Caribbean Currency Union, an eight-member monetary union that uses a quasi-currency board arrangement to peg the Eastern Caribbean dollar 2.7-to-1 to the U.S. dollar.

The ECCB is the central bank of Grenada and the other seven members of the monetary union. The quasi-currency board arrangement engenders low and stable inflation, except those years of sharp international fuel or food price rises.
We expect the slow U.S. recovery and Grenada’s weak economy will limit consumer price rises.

ECCB lacks monetary policy flexibility. The nature of the ECCU’s quasi-currency board arrangement obliges it to back the monetary base with foreign exchange reserves, inhibiting the use of expansionary monetary policy.

Established in 1981, the ECCB is operationally independent and enjoys strong support of the ECCU Monetary Council, composed of the ministers (or permanent secretaries) of finance of its eight members.

Through an eight-point growth and stabilisation program as well as external assistance from the IMF and international partners, several member countries have undertaken measures to reduce their debt and to improve their fiscal policy coordination.

Through the regional exchanges, the ECCB and ECCU-member governments have fostered local-currency capital market development. However, the central bank lacks effective instruments to target interest rates.

Low and stable inflation further bolsters the credibility of the currency regime. Through the global financial crisis and the following recessions among many of its members, the ECCU has maintained foreign exchange reserves backing nearly 100% of the total ECCU monetary base.

ECCB has effectively intervened in several indigenous banks since the early 1990s to prevent a systemic banking crisis.

Although the ECCB lacks the reserves to provide large sums of emergency liquidity that a larger central bank with monetary policy flexibility could, it has effectively intervened and resolved several troubled banks in the ECCU.

In August, the ECCB intervened in two Anguilla banks with the support of the local government authorities. The banks were placed under conservatorship with ECCB until they can be merged with another institution or their nonperforming assets can be wound down.

Grenada has a bank-dominated financial system financed largely by deposits. The financial system comprises foreign banks (i.e., whose capital is foreign-owned), indigenous banks, credit unions, and insurance companies.

Domestic credit increased substantially before the 2008 financial crisis. However, it has slowed since as a result of the country’s economic recession.

Commercial bank and credit union claims (also called other depository corporation claims) on the private sector remain large -87% of GDP – reflecting the importance of banks for financial intermediation on the island.

Weak tourist receipts have depressed private-sector demand for credit since 2008. (Thus, the increase in the ratio of other depository corporation claims per GDP is driven by the shrinking economy rather than credit growth.)

Dollarisation of the financial system appears low, as measured by the 6% hard currency share of resident deposits.

However, ECCB does not yet publish data on the foreign-currency-denominated share of commercial banks’ loans to residents. Interbank ties – through securities and cross-ownership – are also sizable for the ECCU banks.

The IMF has also expressed concern regarding the large share of government ownership of indigenous banks and the higher share of government lending (or securities held by) by the ECCU indigenous banks.

Foreign bank branches and subsidiaries tend to maintain lower local government exposures, and they are often better capitalized than their indigenous bank peers in the ECCU.

The ECCU established an Eastern Caribbean Securities Exchange to foster private-sector capital market development.

At least one company has successfully issued a bond with a 10-year maturity. However, turnover of the private-sector exchange remains low, and private-sector debt market capitalization in the ECCU remains low.

 

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