ECCB 2016/2017 Annual Report

ECCB ANNUAL REPORT 2016/2017

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T he fixed exchange rate arrangement remained stable during the year, supported by strong foreign reserve accumulation and adequate domestic growth among ECCB member countries. As at 31 March 2017, the backing ratio was 97.39 per cent. This is the ratio of foreign assets to demand liabilities and it remained well above the statutory limit of 60.0 per cent and the operational target of 80.0 per cent. The fixed exchange rate arrangement has enabled stable prices to prevail in the ECCB member territories. During 2016, consumer prices decreased on average by 1.8 per cent compared with a decrease of 0.8 per cent in 2015. Prices have generally remained at low levels due to the historically low global commodity prices. In real terms, the Gross Domestic Product (GDP) of the ECCU grewby 2.2 per cent in 2016, a slightly slower rate when compared with the rate of growth in the previous year, of 2.6 per cent. This growth outcome was in line with an overall slowdown in global growth during 2016, including the region’s main trading partner, the United States of America. However, growth is expected to recover in 2017 as global output increases. Real GDP in the ECCU is projected to expand by 2.7 per cent in 2017 and 3.1 per cent in 2018, supported primarily by activity in the construction, hotels and restaurants, transport, storage and communication, real estate, renting and business activities sectors. The growth in money supply (M2) increased by 0.8 per cent in 2016 relative to the growth of 3.9 per cent observed in the previous year. The deceleration in the rate of growth in the money supply was due to declines in private sector time and foreign currency deposits, which decreased by 8.6 per cent and 3.9 per cent,

respectively. Similarly, domestic credit contracted by 8.9 per cent, a reflection of continued conservatism and risk aversion by the commercial banking sector as economic uncertainty persisted. The decline in credit was principally a consequence of reduced credit extension to the business community and the central government. In addition, tighter underwriting standards have resulted in an overall lower credit environment.

Chart I - ECCU selected indicators, per cent change

MACROECONOMIC SURVEILLANCE The principal objectives of the macroeconomic surveillance are to monitor developments in member territories; disseminate macro data and information via the publication of quarterly and annual economic and financial reviews; and prepare policy papers on issues relevant to fiscal and debt sustainability, and the growth and development of member states. To this end, technical assistance was provided to member countries in their preparation for missions of international organisations including: the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), a division of The World Bank.