BASSETERRE, ST. KITTS, APRIL 19th, 2016 (PRESS SEC) – Mr. Timothy Antoine, the Governor of the Eastern Caribbean Central Bank (ECCB), made a presentation to Prime Minister Dr. the Honourable Timothy Harris and Cabinet members yesterday, April 18th.
The ECCB Governor’s presentation focused on the fiscal health of the local economy in relation to the Eastern Caribbean Currency Union (ECCU).
As at December 2015, St. Kitts and Nevis’ debt-to-GDP ratio stood at 61.64% compared to 76.04% for the eight-member ECCU as a whole. The ECCB debt-to-GDP ratio target is 60%. St. Kitts and Nevis is on track to meet this goal by year-end.
The Central Bank Governor congratulated the Federal Government of St. Kitts and Nevis in advance of the imminent milestone.
“That is an important milestone coming from where you were not so long ago at 150% or more. Now, the question is, ‘How will St. Kitts and Nevis proceed once you hit the target?’ It is a very important question,” the ECCB Governor said, adding, “How are you going to ensure that going forward you do not find yourself in the same situation in three or four or 10 years time? What steps will you take?”
Governor Antoine stated that one of the things the ECCB strongly encourages, and can assist St. Kitts and Nevis with, is the adoption of fiscal rules. This would require the passage of Fiscal Responsibility Legislation. Fiscal rules set targets for debt-to-GDP ratio and the public sector wage bill as a percentage of GDP, etc.
The Central Bank Governor said, “The Legislation would also say that, in the event of a natural disaster, there will be a period where you can deviate from the fiscal rule to allow you time to recover, and then you must get back on track. It would include an oversight committee by Parliament called the Fiscal Responsibility Oversight Committee, to ensure that government is doing what it says it is doing.”
Government Antoine added, “Prime Minister and members of Cabinet, I want to strongly implore you to consider that. You are in a good spot, and now is a good time.”
Governor Antoine also raised the point that the low loans-to-deposit ratio for banks in St. Kitts and Nevis as compared to banks in the ECCU as a whole belies the “good spot” that St. Kitts and Nevis is really in, particularly as it relates to its stellar private sector credit growth. Growth in private sector credit rose to 3.17% in St. Kitts and Nevis, but registered a decline of 6.1% throughout the ECCU last year.
As at December 2015, St. Kitts and Nevis’ loans-to-deposit ratio stood at 37.49% compared to 64.76% for the ECCU. A loans-to-deposit ratio of 0.37 (37%) indicates that a bank lends 37 cents to customers for every dollar that it brings in as deposits.
“There is an explanation for this that we need to point out,” the Central Bank Governor said. “When the land for debt swap was done, loans on the books were exchanged for land, so those loans came off the books. So St. Kitts and Nevis’ loans to deposit ratio is particularly low, and that’s the main reason. That is an important explanation.”
Mr. Antoine added, “Banks take deposits then they need to convert them into loans. When banks are not doing that at an efficient rate – and an efficient rate, we [the ECCB] believe, is up to 75% to 85% – then that means that they are not as efficient as they ought to be. So loans-to-deposit ratio is an important metric for banks.”
Yesterday’s meeting was the first in a series that will be held between the Cabinet and the new Central Bank Governor.
Accompanying the ECCB Governor to the meeting with the Cabinet were Ms. Maria Barthelmy, Adviser in the Governor’s Immediate Office; Mrs. Merlese O’Loughlin, Director of the Legal Services Department at the Central Bank, and Ms. Karen Williams, Director of its Research Department.