BASSETERRE, ST. KITTS, OCTOBER 3rd, 2016 (PRESS SEC) – Prime Minister Dr. the Honourable Timothy Harris will attend the Commonwealth Finance Ministers Meeting at the International Monetary Fund (IMF) headquarters in Washington, D.C., this Thursday, October 6th. There, the Prime Minister of St. Kitts and Nevis and his counterpart finance ministers from the other 52 member countries of the Commonwealth will discuss issues of global financial importance, such as de-risking.
Global banks’ withdrawal of correspondent banking relationships – the practice referred to as de-risking – has lowered business and investor confidence, and increased the concerns of the region’s leaders that decades of consistent economic gains in the Caribbean are being undermined, thereby threatening their countries’ financial inclusion on the world economic stage.
Commonwealth Central Bank Governors will also consider the matter of de-risking when they meet in Washington, D.C., this Wednesday, October 5th, ahead of the Finance Ministers Meeting. The Central Bank Governors will have the opportunity to engage with the U.S. Treasury on the pressing matter. At last year’s Commonwealth Central Bank Governors Meeting, international and national policy actions to protect the flow of remittances to developing countries were debated, in light of de-risking actions being taken by large international banks.
Correspondent banking enables cross-border financial activity by allowing a respondent bank to enter into an agreement with a correspondent bank so that it can execute payments on behalf of the respondent bank and its customers. Correspondent banking transactions that have been particularly affected by de-risking practices throughout the world are U.S. dollar wire transfers, remittances and trade finance, including money or value transfer services.
In the Caribbean region, at least 16 banks across five countries have lost all or some of their correspondent banking relationships, as of May 2016. Prime Minister Harris and his Caribbean colleagues have sounded the alarm on the potentially devastating socio-economic effect of having international banks pull the plug on relationships with Caribbean banks. For instance, remittances (money sent back home by Kittitians and Nevisians who live abroad) to St. Kitts and Nevis in 2014 made up 6.1 percent of Gross Domestic Product (GDP), according to the World Bank Group.
At Thursday’s meeting, Dr. Harris and his peers from the 53-member Commonwealth – whose membership comprises 31 countries that are classified as small states – will also focus on practical action to increase access to climate finance, in order to assist countries with disaster risk management and climate change adaptation, and new financial instruments that are available to help countries deal with climatic shocks.
The Prime Minister of St. Kitts and Nevis has called on the G7, G20 and the International Financial Institutions to collectively reevaluate how levels of official development assistance or ODA funding are determined and distributed to Small Island Developing States.
Dr. Harris argues that the per capita income approach, which is currently the most important criterion used in development cooperation funding, is an impediment to Small Island Developing States in securing ODA funding and IMF loans. “Any new formula must include vulnerability and resilience indices,” Prime Minister Harris has said.
The per capita income approach considers a process called graduation, which occurs when Small Island Developing States are upgraded by the Organization for Economic Cooperation and Development (OECD), the World Bank and other international organizations. Having graduated to a higher income level, Small Island Developing States are no longer eligible for the preferential borrowing rates they previously had access to when they were at a lower income classification.
The 2016 Annual Meetings of the Boards of Governors of the IMF and the World Bank Group are also being held this week in Washington, D.C. The Annual Meetings provide central bankers, ministers of finance, private sector executives and academics the opportunity to discuss progress on the work of the IMF and the World Bank Group. Topics discussed at these annual meetings focus on international finance and development in relation to issues such as aid effectiveness, economic growth, global financial stability, jobs, poverty eradication, and the world economic outlook.