The 47th edition of the Annual Monetary Studies Conference which represented an important gathering of revered economists locally and regionally gives us much to reflect on when it comes to the resilience of Guyana’s economy and that of its Caribbean counterparts. It also gives us a candid look at what is needed to improve the Region’s financial services sector.
This conference could trace its lineage to the creation of the Regional Programme of Monetary Studies (RPMS) in 1968 as a partnership between the central banks of CARICOM and the Universities of the West Indies and Guyana.
The birthing of the Regional Programme of Monetary Studies was to facilitate high quality research in monetary, financial and central banking issues in the region. Over the years, the Programme has adapted and evolved, making it relevant to the current environment.
The foundation of this process started with the Caribbean Centre for Monetary Studies (CCMS) in May 1995, with a broader financial sector mandate. Then, in May 2008, the Caribbean Centre for Money and Finance (CCMF) was formally launched.
These changes were in keeping with the trust to focus on research that is relevant and timely and with applicability to the region’s financial issues . The changes made in 2008, also came at the time of the global economic and financial crisis, when the developed world was searching for solutions to the problems caused by the collapse of some of the world’s biggest banks and financial institutions. And no one can forget the impact of that crisis on the financial system in the region and the recovery from that crisis in not over yet .
Policymakers in CARICOM sought desperately for a regional solution to what was seen as a regional problem, and it was out of those discussions and dialogue that the Central Banks in the region now produce their financial stability report – a tribute to the work that started following the crisis that led to the collapse of one of the largest insurance company in the region.
The Caribbean Centre for Money and Finance, as the premier research centre on financial matters, did its fair share of research on the topic and was instrumental in spearheading research on the inter-connectedness of firms and institutions and the impact on the region.
The Caribbean Centre for Money and Finance builds on the solid foundation of the Regional Programme of Monetary Studies (RPMS) and the Caribbean Centre for Monetary Studies (CCMS).
In addition to meeting its objective of facilitating high quality research in monetary, financial and central banking issues in the region, it has recently extended its research agenda to areas such as investment, securities, insurance and other financial sector issues.
The CCMF and this Conference, in particular, have built up a formidable body of research and expertise in Caribbean money and finance. This expertise is now even more important, given the very challenging international economic environment in which the region finds itself.
Indeed, over the last decade the Conference has explored a plethora of themes, including Regional economic integration: issues and challenges and Economic transformation in a post-independent Caribbean.
These themes have all focused on the pressing issues of the day – issues with which the region has had to grapple in its quest for growth and development.
The theme for 2015’s conference was entitled “Financial Development and Economic Growth”. Speaking to the issues stemming from that topic in a Guyana perspective was Finance Minister, Winston Jordan. He noted that conventional wisdom points to a correlation between financial development and a country’s resilience and growth.
He said that CARICOM, as a region, has not been performing as well as other developing regions and one of the main reason is the stranglehold of debt and debt service payments. Jordan opined that this has been acknowledged at all levels and the focus is now on strategies to reduce that debt to manageable levels.
Despite best efforts, however, he said that countries have not been able to significantly reduce their debt levels, resulting in an increasing share of governments’ revenue being devoted to debt servicing.
In this challenging international economic environment, the Finance Minister stated that the outlook for the CARICOM region is mixed. He said that the major forces that will drive the performance of the region include commodity price trends, a stronger US economy and related exchange and interest rate dynamics.
He asserted that commodity-based producers, including natural resources-based producers such as Guyana, Suriname and Trinidad and Tobago are expected to face increased challenges as commodity prices soften while the services-based economies rebound based on improved tourism outturns and lower fuel costs.
He revealed that the average rate of economic growth in the region improved from 1.9 per cent in 2013 to 2.1 per cent in 2014. Jordan said that this was driven mainly by better tourism outturns in all service-dependent economies where the average growth improved from 1.3 per cent to 1.8 percent in this period.
Jordan expressed, “How long these service dependent economies will continue to turn positive growth is unsure, especially given the recent attacks and threats by the correspondent banks to sever or curtail services to the small financial institutions in our region.”
The economist noted however that it is important for the region’s economists to create a mechanism or recommendations which will allow the region to still enjoy continued access to the markets of the developed countries and the banks will not be adversely affected.
The Finance Minister said that correspondent banking is a business and not a service and the CCMF is now given the challenge to see how best the region can continue to be productive business partners with its foreign correspondents. He said that out of every challenge is some opportunity and it is for the CCMF to find the opportunities out of the recent challenges to ensure the survival of the financial services sector in the region.
The Finance Minister expressed, “The commodity-producing economies on the other hand recorded weaker growth of 2.5 percent in 2014, down from the 3.2 percent achieved in 2013 partly because of the drastic drop in commodity prices in the latter part of 2014. We in Guyana have not been spared the backwash of weakening global economic performance. For the first time in recent memory, the six pillars that have been the foundation of the economy’s upbringing, namely sugar, rice, bauxite, gold, diamonds and timber, have all suffered major setbacks. Even a seventh pillar, remittances, which account for upwards of 25 percent of GDP, have also recorded decline.”
The politician added, “Remittances are critically important for poverty reduction across the region and every effort must be made to ensure that the region continues to have access to that flow.”
The Finance Minister said, too, that one of the most intractable problems at the moment is the weakness of the Regions external accounts.
He said, “The region’s average performance in this area deteriorated, with the average deficit on the current account increasing from 8.6 percent of GDP to 9.2 percent of GDP between 2013 and 2014. In fact, only Trinidad and Tobago recorded a surplus of 4.8 percent of GDP in 2014 but even in her case, the performance had deteriorated from a surplus of 7 percent of GDP in 2013. In all other countries, deficits were recorded in 2014 but the tourism-based economies of Jamaica, Barbados and the Eastern Caribbean Currency Union (ECCU) were able to reduce their deficits relative to 2013.”
He said that the obvious solution to this mostly deteriorated performance is persistent and sustained growth of the region’s economies while steadily reducing or managing macroeconomic and financial vulnerabilities.
The Finance Minister said that an important area for action is the strengthening of the fiscal accounts which is key to rebalancing the external accounts.
He said that service-based economies should use lower commodity prices, in particular the very low fuel prices, to accelerate the fiscal consolidation process with a view to improving debt sustainability.
Moreover, although commodity producers may have lower debt burdens, Jordan commented that lower commodity prices require a disciplined policy framework to shore up revenues and prevent similar sustainability issues from developing.
Jordan intimated that the fiscal consolidation that this implies in some cases requires increasing the efficiency of government expenditure programmes to weed out waste, without compromising the level of services provided to citizens and businesses.
In other cases, the Finance Minister said that it requires significant adjustment of expenditure priorities and enhanced revenue collection so as to increase the fiscal space for undertaking growth-inducing projects.
Additionally, the economist expressed that stronger macro-prudential frameworks are necessary to remove the major drag on growth implied by high levels of non-performing loans.
He stressed that these policies are necessary, but not sufficient, conditions for the resumption of strong sustainable growth. Jordan stated that it also requires an improvement in competitiveness which implies a range of actions in connected areas, including the improvement of the business environment, increasing labour productivity and improving the quality of public infrastructure.
Importantly, the Finance Minister said that the region also needs to strengthen the legal and regulatory frameworks for financial risk assessment and mitigation to deal with any financial vulnerabilities which can threaten the resumption of sustainable growth in the Caribbean.