ECCB 2015/2016 Annual Report

EASTERN CARIBBEAN CENTRAL BANK

R eview of P erformance

The activities of the ECCB during the financial year 2015/2016 reflected the Bank’s statutory mandate, as prescribed in Article 4 of the ECCB Agreement Act 1983 (Amended) and centered around three key strategic areas: 1) Financial Sector Stability, 2) Fiscal and Debt Sustainability, and 3) Growth and Development. The activities depicted the services and functions of the Bank to fulfil its role as a banker to the governments and commercial banks; guardian of the payments, settlement and clearance systems; and provider of technical and statistical support services. The relatively weak global growth performance, uncertainty in international financial markets characterised by low interest rates, together with a number of domestic macro-economic and financial issues, provided a challenging environment for the execution of the Bank’s work programme. Notwithstanding the challenging macroeconomic and financial landscape, the Bank achieved some important work programme milestones, particularly with respect to preserving the strong EC dollar policy and reducing vulnerabilities in the financial sector. Economic growth in the currency union was positive in 2015, albeit at a moderate pace. On balance, fiscal performances improved, driven by higher tax revenues and an increase in flows associated with the Citizen by Investment programme. As a result, there was a reduction in the debt stock although it remained relatively high in some member states. The Bank also made significant advances in providing policy advice to member states, through its evidence-based research work.

One of the primary responsibilities of the ECCB is the management of monetary policy which is organised around the maintenance of a fixed exchange rate for the common currency, the EC dollar, which is pegged to the US dollar. In this respect, reserve management is critical for ensuring preservation of capital and meeting liquidity needs for Balance of Payments transactions. Over the review period, the foreign reserve portfolio performed positively and monetary and credit conditions remained stable. During the year, the backing ratio averaged well above 90.0 per cent, significantly higher than the statutory and operational benchmarks of 60.0 per cent and 80.0 per cent respectively, and financial markets remained liquid. However, concerns about the stagnation in credit growth prompted the Monetary Council to reduce the statutory Minimum Savings Rate to 2.0 per cent from 3.0 per cent, effective 1 May 2015. In collaborationwith international financial institutions, the Bank was able to achieve some major targets in its attempt to improve the regulatory and supervisory framework for licensed financial institutions in the landscape, the Bank achieved some important work programme milestones, particularly with respect to preservation of the strong EC dollar policy and reducing vulnerabilities in the financial sector. Notwithstanding the challenging macroeconomic and financial

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ECCB A nnual R eport 2015/2016