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Fiscal discipline key in enticing foreign investors - CDB president

Published:Friday | September 4, 2015 | 4:44 PMMcPherse Thompson
CDB president Dr Warren Smith


Healthy public finances and the maintenance of fiscal discipline will send the right signal to potential private investors and help to renew their confidence in the Caribbean region, says the president of the Caribbean Development Bank (CDB).

However, an improvement in the health of the public finances will not by itself stimulate needed private investment and bring about the transformation needed for sustained economic growth, Dr Warren Smith said at a growth forum at the St Kitts Marriott.

Without mentioning any by name, Smith applauded countries in the region that are promoting sound fiscal policy and putting appropriate enforcement mechanisms in place, saying that such efforts augur well for enhanced fiscal stability and the creation of an environment that is conducive to private investment.

Nevertheless, "the dynamism of our small business sector, in particular, is being stymied," the CDB president said Thursday on the first of the two-day Caribbean Forum on Financing Growth organised by the International Monetary Fund (IMF).

Citing the results of the World Bank's Doing Business surveys, he said the arrangements for businesses to operate in the Caribbean are less than satisfactory.

"Much work remains to be done to strengthen legislative and regulatory frameworks, improve business support and training services, lower interest rates, and increase access to credit," the CDB president said.

"Public policy must, therefore, give due consideration to creating the enabling environment and supporting regulatory framework that will foster entrepreneurship and the emergence of a vibrant business sector."

Turning to another focus of the discussions, he told the forum that protracted weaknesses in segments of the indigenous banking system have undermined the soundness of the region's financial sector.

"We are, therefore, encouraged by the progress now being made to rationalise and strengthen these important components of the region's financing architecture so that they can deepen their contribution to the growth of the local private sector," said Smith.

"The acceleration of initiatives to strengthen bank regulatory and supervisory frameworks also demonstrate a recognition of the indispensable role which the local financial institutions will have to play in financing growth and poverty reduction."


a new unit

Smith said the CDB, the Inter-American Development Bank and the World Bank recently established a new unit to build public-private partnerships (PPPs) capacity across the region, noting that in the context of high indebtedness, borrowing member governments are increasingly showing interest in PPPs for financing renewables.

In 2014, the CDB financed a major study on PPPs in the Caribbean which estimated that about US$21 billion will be needed over the next decade to bring electricity, transport, water and sanitation services to acceptable international standards across the Caribbean.

"The sheer magnitude of these requirements might appear daunting but not insurmountable," he said. "With the correct policy posture and cooperation between all of the key players - public sector, private sector and development partners - these requirements can be met, and this critical component of a sustainable growth path for the Caribbean can be put in place."

Smith said they can expect that the public sector will continue to play a major role in financing growth. However, fiscal accounts have been under significant pressure and therefore achieving the objectives could involve expenditure cutbacks and a greater effort to redirect available financial resources towards the private sector.

Deputy managing director of the IMF, Min Zhu expressed confidence that the Caribbean Growth Forum, now in its fourth year, will contribute to stronger cooperation and better outcomes for the region over time.

The Forum is a key platform for the IMF for listening, for expanding their mutual understanding, and for collaborating, Min Zhu said. "These are essential ingredients for advancing together solutions to the key challenges facing the region," he added.

While the 2014 conference programme focused on unleashing growth, this year the forum facilitated an exchange of views on the economic challenges facing the Caribbean.

It addressed three specific issues that are critical for growth, which were flagged to the IMF at the 2014 Forum in Montego Bay, Jamaica: reducing energy costs, financing infrastructure, and improving access to credit for the productive sector.