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With a total population of approximately 600,000 inhabitants and an average literacy rate of 94.3 percent, the Organization of Eastern Caribbean States (OECS), whose independent member states are Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, St. Lucia and St. Vincent and the Grenadines, boasts one of the most highly-educated populations in the world. Its population, predominantly comprised of Afro-descendants, Europeans, Amerindians, and Syro-Lebanese, occupy a total landmass of about 2800 square km. These six small states have made considerable strides in overall poverty reduction and political stability but still face several significant development constraints.

Heavily dependent on tourism, agriculture and offshore banking, the OECS countries experienced a strong decade of economic growth in the 1980s (5.9 percent per year). This was followed by a steady decline in growth in the early 1990s due to poor management of public revenues, failing performance in the export sector, inefficient private sector policies and contraction of private investment and declining tourism.

In the late 1990s, attempts by the OECS governments to offset the slowdown through an expansionary fiscal policy, financed largely by expensive commercial borrowing, created persistent fiscal deficits and skyrocketed public sector debt to some of the highest levels in the world, at more than 100 percent of their Gross Domestic Product (GDP) by 2004.

In the early 2000s, the macroeconomic performance and GDP growth rates of the OECS countries improved thanks to a resurgence in tourism and an emphasis on private sector development and economic diversification. By 2008, the debt to GDP ratio stood at roughly 90 percent, on average.

The decline in tourism revenues was exacerbated by the events of September 11, 2001 in the United States, natural disasters and a weakening global economy.

Impact of the global financial crisis

The OECS countries have been hard hit by the global financial crisis. Since 2008 tourism revenues, Foreign Direct Investment (FDI) inflows and remittances have been declining in all countries, though the extent of the decline differs across countries. The Eastern Caribbean Central Bank (ECCB) reported that in the Eastern Caribbean Currency Union (ECCU) economies, which includes the OECS members and the two small states of Anguilla and Montserrat, travel receipts fell by 10 percent in 2008, in sharp contrast to an 11.1 percent increase in 2007. FDI decreased by 29.1 percent, consistent with the slow-down in direct investment-related construction activity in some member countries. By contrast, an increase of 14.6 percent was recorded for FDI in 2007. Travel receipts and foreign direct investment have accounted for, on average 27.5 percent and 22.5 percent of GDP respectively between 2005 and 2008.

The credit tightening in financial markets is further constraining economic activity in the region. GDP growth slowed to 2.5 percent in 2008 and is expected to remain flat in 2009. Unemployment is on the rise with considerable social implications. The financial sector is reported to be in relatively good shape.

However, the impact of the crisis on the financial sector has revealed weak regulation and supervision, and this has led to heightened vulnerabilities of the non-banking financial sector.

Social indicators

The OECS countries have performed well in terms of social issues. The countries have all nearly reached their Millennium Development Goals (MDGs) and their GNI per capita (in US$) remains high.

Nearly all OECS countries achieved universal primary enrollment and completion since 2001. Enrollment rates in the secondary education sector are also high, ranging from 78 percent in Grenada and 80 percent in Saint Lucia, to 95 percent in Saint Vincent and the Grenadines, and 100 percent in Saint Kitts and Nevis in 2009. Infant mortality rates are among the lowest in the world, ranging from nine to 17 per 1,000 births in recent years.

The HIV/AIDS epidemic has receded and progress is being made in expanding the provision of retroviral drug therapy. The countries have also performed well in facilitating access to water and electricity. The population with access to electricity and piped water exceeds 95 percent.

Challenges ahead

The OECS countries’ high external debt and limited fiscal space need continued attention because they dampen countries’ efforts to strengthen macro-economic stability for economic growth and poverty alleviation. In addition to the challenges exacerbated by the global financial and economic crisis, the OECS countries continue to face challenges in traditional areas of focus for World Bank intervention in this sub-region, namely: education, health, and disaster risk vulnerability. Furthermore, as the OECS countries deepen their regional integration, from a regional free trade area to an economic union, they will require further support to strengthen existing regional institutions and establish new regional bodies, where appropriate.

The 2006-2009 Country Assistance Strategy focuses on (i) stimulating growth and improving competitiveness; and (ii) reducing vulnerability by promoting greater social inclusion and strengthening disaster risk management. Existing projects support public sector modernization, telecommunications, catastrophe risk insurance and disaster risk management, education and skills enhancement, HIV/AIDS prevention and control, social protection and environmental management (with support from the Bank-administered Global Environment Facility - GEF). A new OECS Country Assistance Strategy for the fiscal years 2010-2014 is presently under preparation. The strategy will continue to focus on leveraging regional approaches, improving resilience and improving competitiveness.

As of the end of August 2009, the active portfolio had a total of 14 projects for a total of US$80 million, of which US$41.7 million had been disbursed. This includes: US$34.7 million in credits from the International Development Association (IDA), US$37.9 million in loans from the International Bank for Reconstruction and Development (IBRD) and a US$3.7 million grant from the GEF. For more information on Bank projects in the OECS, click on the following links: OECS Regional, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines. There are currently no active projects in Antigua and Barbuda.

Recently approved projects include: The OECS E-Government for Regional Integration Program, consisting of three zero-interest credits totaling US$7.2 million for the Commonwealth of Dominica, Grenada and St. Lucia. This program will help harmonize regional e-government frameworks and applications by automating and pooling resources across the region, resulting in time- and cost-savings for governments, businesses and private citizens. Two zero-interest credits for the OECS Skills for Inclusive Growth Projects being implemented in Grenada (US$3.0 million) and St. Lucia (US$3.5 million) to increase youth employment by providing private sector-driven training, will improve the knowledge and skills of beneficiaries to help youth transition to the labor market. A US$1.9 million zero-interest technical credit to Grenada to support the Government’s efforts aimed at improving the local business environment through private-sector led growth. The Grenada Technical Assistance Credit is supporting the modernization of key public sector institutions, such as Customs, and the implementation of an export strategy.

Regional projects under preparation include: the OECS Sustainable Financing and Management of Marine Resources Project financed by the GEF, the OECS Regional Energy Planning and Regulation Authority Project to improve the efficiency of the electricity sector in the region, and the OECS Disaster Vulnerability Reduction Project.

Three country specific projects are also under preparation and cover economic governance and public expenditure issues as well as social protection. They are: the St. Vincent and the Grenadines E-Governance for Regional Integration Project, and the Economic and Social Development Policy Loans for Grenada and St. Lucia.

The Grenada Hurricane Ivan Emergency Recovery Project (2004-2009) was designed to deal with the widespread destruction caused by Hurricane Ivan, a Category 3 storm, which struck the Caribbean island in September 2004. The US$10 million project in loans and credits supports the rehabilitation and reconstruction of schools and recovery activities in the health sector. By June 2009, all five of the island’s health facilities were restored to pre-hurricane conditions and 18 schools of 19 target schools were rehabilitated or reconstructed.

The US$8 million Education Development Project (2003- present) sought to increase equitable access to secondary education and improve the quality of teaching and learning though the construction of new schools in under-served areas, as well as through the expansion, upgrade and rehabilitation of existing facilities. As a result more than 2,300 new places in secondary schools were added through the construction of two new schools and the expansion of four others; the transition rate from primary to secondary school increased from 54 percent in 2000 to 97 percent in 2007; and the net enrollment rate in secondary schools rose from 64 percent in 2000 to 81 percent in 2007.

CONTACTS:

Rolande Pryce
OECS Country Officer
email: rpryce@worldbank.org

Alejandro Cedeno
Senior Communications Officer
Tel: (202) 473-3477
email: acedeno@worldbank.org