The Eastern Caribbean Currency Union (ECCU) continues to provide a strong anchor for macroeconomic stability in a shock-prone region. Post-pandemic growth has been supported by tourism and construction, while inflation has moderated in line with global trends. Over the medium term, ECCU economies are expected to converge toward modest pre-pandemic average growth, with downside risks dominating amid elevated global uncertainty. To manage these risks while supporting resilient long-term growth and safeguarding the quasi-currency board, policies should prioritise stronger fiscal sustainability and accountability aligned with the regional debt target, alongside measures to strengthen financial system resilience and intermediation. Structural reforms should focus on improving trade connectivity and competitiveness, addressing skills mismatches, enhancing regional frameworks to scale up transformative capital investment, and strengthening regional data provision to support evidence-based policymaking.
The ECCU region has sustained a robust post-pandemic expansion
USA / ST KITTS – Strong tourism arrivals and ongoing infrastructure investment supported regional growth at an estimated 3.0 percent in 2025. Inflation further moderated in line with global fuel and food trends, with so far limited direct impact from shifts in US trade policies. Fiscal outcomes, however, have lagged economic performance. With union-wide public debt reduction stalling, partially reflecting the impact of recurring external shocks, several members are increasingly at risk of not meeting the 60 percent of GDP regional public debt target by 2035.
The financial system remains broadly stable, but there are legacy bank balance-sheet weaknesses and vulnerabilities in the nonbank sector, where supervision remains fragmented. The ECCU’s external position is assessed as weaker than the level implied by fundamentals and desirable policies, while financing of persistently elevated current account deficits remains heavily dependent on continued foreign direct investment inflows. Nonetheless, the ECCB’s reserve position has remained stable and the currency-backing ratio high, supporting confidence in the union.
Looking ahead, economic momentum is expected to moderate, with risks tilted to the downside. With tourism operating near full capacity, average regional growth is expected to slow to around 2½ percent over the medium term amid persistent productivity constraints, adverse demographic trends, and limited fiscal space for public investment. The outlook is subject to sizeable downside risks as evolving trade and travel barriers and ongoing geopolitical tensions amplify the region’s long-standing vulnerabilities, notably its heavy dependence on tourism and imports, exposure to natural disasters, persistently high public debt, and reliance on uncertain Citizenship-by-Investment (CBI) inflows.
Enhancing fiscal frameworks and policy coordination to strengthen fiscal sustainability and bolster the union’s stability and resilience
Uneven progress in debt reduction underscores the need to strengthen union-wide institutional mechanisms to reinforce fiscal sustainability and resilience. Union-wide attainment of the 60 percent of GDP regional debt target remains elusive and increasingly at risk by the 2035 target date. While this partly stems from the region’s high exposure to recurrent external shocks and sizeable social and development investment needs, it also reflects that most ECCU members have not yet operationalised national fiscal frameworks that effectively align their annual budgets with the regional debt target.
A union-wide, time-bound commitment to implementing such rules-based frameworks, grounded in harmonised design principles, would strengthen fiscal discipline, support sustained debt reduction, and better equip the union to navigate future shocks. This should be complemented by more robust peer reviews of members’ fiscal performance and debt reduction strategies at the ECCB Monetary Council, strengthened public accountability through the establishment of independent oversight committees, a clearer specification of the public debt target perimeter, and collaborative efforts to address data gaps and strengthen technical capacity underpinning macro-fiscal projections.
Deeper policy coordination would help preserve space for priority investment amid ongoing debt reduction and recurrent shock-related spending pressures. Priorities include scaling back costly tax exemptions—especially in tourism—and strengthening social safety nets to reduce reliance on distortionary, untargeted fiscal responses to shocks. The effectiveness of the layered post-disaster financing frameworks after Hurricane Beryl (2024) offers important lessons to strengthen the union’s collective fiscal resilience to natural disasters.
In the longer term, further centralisation of fiscal accountability, funding and risk-contingency mechanisms would future-proof the union’s resilience and development prospects. Over time, as sovereign funding structures mature and impose greater market discipline on public finances—including through a transition toward market-based debt issuance—moving to a centralised fiscal oversight and accountability framework would help underpin confidence. This could open avenues for pooled financing to help overcome constraints stemming from members’ small scale and high vulnerability to shocks, including in rebuilding access to international capital markets. Similarly, a regional stabilisation fund could reinforce national contingency frameworks and safeguard fiscal continuity in periods of stress.
Strengthening financial system resilience and intermediation
The ECCB should ensure compliance with prudential standards in the banking sector and strengthen incentives to write off unrecoverable non-performing loans (NPLs). Banks currently meet the overall regulatory provisioning and capital requirements, but the system-wide NPL ratio is above the ECCB’s benchmark of 5 percent with the bulk of impaired loans overdue for several years. The ECCB should enforce full regulatory provisioning for long-dated NPLs and introduce a uniform time limit for write-offs.
This would also incentivise banks to participate in the underutilised Eastern Caribbean Asset Management Corporation, complemented by additional capitalisation to expand its capacity and transaction volumes. National reforms to insolvency, debt enforcement, foreclosure, and real-estate cadaster frameworks would support reductions in NPLs and complement the ECCB’s work on harmonised insolvency legislation. To the extent that additional capital would be required, the ECCB should mandate detailed, time-bound, and credible capital restoration plans, and enforce their implementation. The ECCB should assess whether banks can rebuild capital through retained earnings where profitability is weak and, if not, pursue recapitalisation, restructuring, or resolution.
The transition to the new Basel II/III framework should continue and could require banks to hold additional capital. A targeted internal assessment of bank assets—focusing on real estate, foreign investments, local sovereign exposures, internal risk models, and concentration—could complement the ongoing introduction of ICAAP while informing Pillar 2 add-ons and capital buffers. In parallel, the ECCB should continue strengthening the regional financial safety net, including the resolution framework, to complement the new deposit insurance scheme.
The Eastern Caribbean Financial Standards Board should be established promptly to ensure risk-commensurate regulation in the nonbank sector. Harmonised minimum standards can simplify operations across jurisdictions, as well as ensure an even playing field in the region. Common standards should eliminate scope for regulatory arbitrage between banks and non-bank deposit-taking financial institutions. Given the growing role of credit unions in the financial system, it is important that the ECCU sets an expedited timeline for introducing prudential standards for credit unions. In the interim, national authorities should enforce capital requirements, ensure that a regulatory provisioning backstop is in place where needed, and move towards risk-based supervision.
Closer coordination between regional supervisors—for example, under the aegis of the ECCB Regulatory Oversight Committee until the Financial Standards Board is operational—can help spread good supervisory practice, including reporting on delinquent and restructured loans. Insurance supervisors should improve monitoring and reporting of reinsurance coverage and risks, particularly for property insurance.
Regional and national efforts should continue to support sustainable credit growth. In addition to NPL reduction efforts, full participation of both banks and credit unions in the regional credit bureau is important to close information gaps. The Eastern Caribbean Partial Credit Guarantee Corporation and national programs should continue to expand micro firms’ access to finance with better coordination and close oversight of risk-sharing. Authorities should intensify financial literacy initiatives to alleviate demand-side constraints in accessing bank credit and make full use of credit guarantee programs available. Rapid credit growth in some higher-risk sectors, such as real estate investment, may warrant prudential measures to contain emerging risks.
Bolstering long-term growth
Regional growth potential has declined over recent decades, reflecting diminishing contributions from productivity as well as human and physical capital. This stems from structural impediments to efficiency, including barriers to credit and productive investment, burdensome administrative processes, and labor skills gaps and mismatches. A coordinated regional strategy to ease constraints across these dimensions is essential to raise resilient growth prospects.
Deeper trade integration offers the region a pathway to stronger growth and reduced vulnerability, but connectivity constraints presently limit this potential. Expanding trade links into new markets can diversify risks, lower input costs, and expand economic opportunities, which is especially relevant for the ECCU where trade is highly concentrated—across both import sources and export markets—with a heavy reliance on the U.S. Empirical evidence indicates significant untapped trade potential, as ECCU countries under-trade with partners outside the Caribbean, largely due to connectivity constraints. Scarce shipping links and small market size raise import costs, while tourism-dependent exports face airlift constraints and reliance on regional hubs.
Stronger policy coordination across ECCU jurisdictions could help alleviate these barriers. In the near term, this would entail regionally coordinated efforts to improve institutional efficiency, including harmonising customs procedures, operating a unified single-window platform, and adopting mutual recognition agreements. Over the longer term, new (or updated) trade agreements and strategic investment in airlift and shipping can boost connectivity. These measures should be paired with broader reforms to ease bottlenecks to innovation and efficiency, including by digitalising public services, harmonising modern licensing, legal, and institutional frameworks, and maintaining an open and predictable trade environment.
Regional initiatives to broaden and upgrade human and physical capital should proceed in parallel. Skills shortages remain a key constraint on growth potential; priorities include modernising regional education and vocational certification frameworks to align with in-demand skills and reducing labour-mobility frictions, including through the wider adoption of unrestricted movement across CARICOM. Common policies can help overcome barriers to scaling productive investment.
The harmonised strengthening of CBI regimes through the Eastern Caribbean Citizenship by Investment Regulatory Authority is critical to safeguard these flows, but also an important opportunity to enhance the programs’ transparency and accountability across all investment options. Investment-pooling mechanisms should be explored to overcome small-market scale constraints, shallow financial markets, and limited fiscal space, including through the Resilient Renewable Energy Infrastructure Investment Facility to support diversification into lower-cost renewable energy.
Strengthening data provision
Greater leveraging of synergies in regional data collection and processing could help address persistent resource and capacity gaps that hamper surveillance. National accounts, external sector statistics, and fiscal data are subject to delays, limited coverage and frequency, and cross-country inconsistencies, which somewhat hamper surveillance. Notwithstanding incremental progress addressing such gaps with IMF/CARTAC and development partner technical assistance, a concerted regional effort is needed to overcome underlying capacity and resource constraints to data compilation, standardisation, and dissemination.
Building on ongoing efforts to modernise statistical infrastructure, priorities include greater centralisation and shared platforms to reduce duplication and better leverage limited resources, alongside addressing gaps in inter-agency cooperation and data system integration. Greater transparency of CBI flows is critical to improve the accuracy of economic data and strengthen assessments of regional vulnerabilities.
The IMF team thanks the authorities and private sector counterparts for their warm hospitality and insightful and constructive discussions.
