Financial constraints on economic development: Theory and policy for developing countries

This article contains a theoretical and policy analysis of the financial constraints on economic development in developing countries. Following a Keynesian interpretation, it concludes that financial policies are needed to relieve these constraints, given the natural tendency of financial systems to operate in ways that are dysfunctional to economic development. It then proposes three lines of policy that take account of the special characteristics of developing countries: resource allocation policies targeted at segments of strategic importance for economic and financial development; policies to control financial and external fragility; and compensatory policies of a more interventionist cast, in particular directed credit programmes for both public- and private-sector lending to complement resource allocation policies, and countercyclical regulatory barriers so that fragility can be better controlled.

Latin America and the Caribbean: options to reduce the debt burden

This document contains the Secretariat's considered point of view, as perceived from a Latin American and Caribbean vantage point, on how the debt overhang could be dealt with constructively and consensually. In the absence of better and more equitable management of the problem, it is difficult to see how development can be put back on track in the present decade.

Public debt sustainability in the Caribbean

This paper analyses public debt in the most indebted Caribbean countries – i.e. Barbados, Belize, Guyana, Jamaica, Antigua and Barbuda, Dominica, Grenada, and St. Kitts and Nevis – from the standpoint of its sustainability. A level of debt is deemed to be sustainable when the debt-to-GDP ratio remains constant or declines. The concept of sustainability is closely linked to that of solvency. A government is solvent if the net present value of its future primary balances (i.e. that excludes interest payments) is equal to or greater than the present value of public debt stock. It can be demonstrated that if the debt-to-GDP ratio is not on an explosive path, that it either stable or decreasing, the solvency condition holds. It is worth noting that the concept of fiscal sustainability addressed in this paper differs from that of optimality of public debt. The analysis that follows is intended to determine whether the service of the current debt levels is consistent with the fiscal stance. Therefore, it does not set out to identify the target debt level based on any optimality criteria. The next section presents the main features of different theoretical approaches to analyse public debt sustainability.1 Section II discusses the situation of public debt in the Caribbean countries showing different indicators; Section III analyses debt sustainability in countries with access to market financing; Section IV does the same in Guyana – a country dependent on concessional financing and, as such, included in the Highly Indebted Poor Countries (HIPC) Initiative – and the countries of the Eastern Caribbean Currency Union (ECCU). Sections V and VI go beyond debt levels as determinants of fiscal sustainability, highlighting the importance of the currency composition of debt and the variability of fiscal revenue. The last section concludes.

Economic Survey of the Caribbean 2015: Balancing economic recovery and high debt in the Caribbean

The survey provides an overview of the economic performance for 2014 of the Bahamas, Barbados, Belize, Guyana, Jamaica, Suriname, Trinidad and Tobago plus the eight member states of the Eastern Caribbean Currency Union (ECCU) and the outlook for 2015. Data were collected from a review of reports from national governments and through interviews with government officials in each of the countries analyzed.