St. Vincent & the Grenadines is a member of the Organization of the Eastern Caribbean States and the eight of the nine member states of the OECC have adopted the East Caribbean Dollar as (XCD) as their common currency. Hence the currency of Grenadines & St. Vincent is also the East Caribbean Dollar (XCD). The XCD has been pegged to the United States Dollar (USD) since July 7, 1976 and the pegged exchange rate is 1 USD = 2.70 XCD. I expect that 1 USD = 2.70 XCD peg will be maintained for the forecasted period up to 2015

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St. Vincent & the Grenadines (ECCU)– Currency Forecast Report
Forecasts for East Caribbean Dollar (XCD)
Currency
2013
2014
2015
USD/ XCD
2.70
2.70
2.70
1. Summary:
St. Vincent & the Grenadines is a member of the Organization of the Eastern Caribbean
States and the eight of the nine member states of the OECC have adopted the East Caribbean
Dollar as (XCD) as their common currency. Hence the currency of Grenadines & St. Vincent is
also the East Caribbean Dollar (XCD). The XCD has been pegged to the United States Dollar
(USD) since July 7, 1976 and the pegged exchange rate is 1 USD = 2.70 XCD.
I expect that 1 USD = 2.70 XCD peg will be maintained for the forecasted period up
to 2015. One of the primary objectives of the East Caribbean Central Bank (ECCB) is to
maintain the pegged exchange rate. In spite of the major macro headwinds for the OECC
members such as the rise in Debt to GDP ratio, rise in oil prices, rising current account
deficits, slowdown in tourism and exposure to acute storms in the Caribbean area, I believe
that the ECCB has sufficient foreign assets & reserves of 1.1 billion USD to be able to
maintain the peg in the near future till 2015. At the end of March 31, 2012 the percentage of
foreign reserve assets to demand liabilities was 96.63%. The reserves are much higher than
the required mandate of the ECCB Act 1983, that reserves be not less than 60% of notes and
coins in circulation, and other demand liabilities. It should be noted that ECCU remains
extremely susceptible to natural disasters such as hurricanes which not only destroy
infrastructure but also agriculture capacities. Natural disasters are completely uncalled for and
major one could surely lead to unforeseen and unpredictable circumstances. It could lead to
reduction in tourism the primary component of GDP.
However caution should be exercised. The current account deficit remains significantly
high year over year. Looking over and beyond 2015, I believe that the macro headwinds
especially the Debt to GDP Ratio over 100%, and declining fiscal revenues, which lead to
difficulties in servicing debt of member nations, are certainly coming in the way of long run
stability of the established peg. Both Antigua & Barbuda and St Lucia countries contributing
around 44% of GDP of ECCU region have extremely high levels of debt to GDP ratios. Any
fundamental weakness in these countries can lead to revaluation of the peg. With only tourism
driving the economy I foresee major challenges ahead. Reductions in tourism will lead to higher
unemployment, and restoring fiscal balance and debt to GDP ratio will be major challenges.
*References provided in the reference section

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2. St. Vincent & Grenadines: An Introduction
1. Geography & Demographics
St. Vincent and the Grenadines is a small island in the Caribbean’s. It is located north of
Trinidad and Tobago and between the Caribbean Sea and the North Atlantic Ocean As of July
2012 the population the population of the country was 103,537 (CIA World Fact Book) and the
median age of the population is 30.7 years.
2. Economy
The gross domestic product in 2012 was 720 million in US Dollars. The GDP of St.
Vincent & Grenadines comprises about 12-13% of the ECCB region. The economy is primarily
driven by agriculture (especially banana production), tourism, and construction activity and
remittance inflows. Tourism comprises of around 15% of GDP and the Global Financial Crises
of 2008-2009 had a severe impact on the reduction of tourism in the country. St. Vincent &
Grenadines has a 68% gross government debt as a % of GDP.
*Note: Since I am forecasting the exchange rate, and St. Vincent & Grenadines has adopted
the Eastern Caribbean Currency Union, I would like to evaluate the Union as a whole to
provide projections.
3. Eastern Caribbean Central Union: Evaluation of XCD
3.1 Eastern Caribbean Central Bank
The Eastern Caribbean Central Bank is the monetary authority for a group of eight island
economies namely - Anguilla, Antigua and Barbuda, Commonwealth of Dominica, Grenada,
Montserrat, St Kitts and Nevis, St Lucia, and St Vincent and the Grenadines. The ECCB is
responsible for the issuance of an unrestricted single common currency, maintaining a common
pool of foreign exchange reserves and deciding on the ECCB’s monetary policy.
By maintaining adequate foreign reserves available for consumers and investors the
ECCB has been able to maintain a strong and a stable currency. This includes setting limits
for government borrowing and the extension of credit to governments and commercial banks by
the ECCB.
*References provided in the reference section

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Foreign Reserves Ratio
Reserve Rate
2010
2011
2012
Required Reserve Rate
60%
60%
60%
Actual Foreign Backing Reserve
93.93%
95.53%
96.63%
* Source ECCB
Based on the data above, I believe that the ECCB has been doing a fair job in its prime
objective of a stable dollar by maintaining adequate reserves. With such high reserve ratios, the
ECCB has sufficient reserves in its armory to protect the member states from adverse shocks.
More than inflation targeting ECCB’s main focus is the stability of the XCD. ECCU’s
stability is dependent on the stability of the East Caribbean Dollar. The savings rate and discount
rate has been quite stable and on March 31, 2012 they were 3.0% and 6.5% respectively.
3.2 Key Economic Indicators
East Caribbean Currency Union: Main Economic Indicators
Year
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
(expected)
2014
(expected)
Current
Account
Deficit
(1455.91)
(2170.51)
(3331.92)
(4199.93)
(4665.25)
(2964.67)
(2879.68)
(2616.04)
(2463.92)
Capital Account
Surplus
1763.99
2181.87
3602.67
4299.92
4416.30
3504.12
3451.22
3833.70
2579.00
GDP
Growth
Rate
6.38%
8.71%
10.27%
11.45%
5.22%
-4.16%
-1.47%
0.79%
1.70%
Inflation
Rate
2.38%
3.05%
3.65%
3.51%
6.52%
0.77%
3.33%
3.71%
-
(2644.36)
2644.00
3.40%
-
12996.88
(2700.77)
2735.00
4.24%
-
13548.09
Fiscal
Account
(65.07)
81.15
298.72
457.74
223.09
(153.49)
(33.74)
(9.28)
GDP
(ECCU)
9237.38
10041.83
11073.13
12341.24
12985.72
12445.29
12262.03
12359.17
12569.12
Fiscal to
GDP
0.7044%
0.8081%
2.6977%
3.7090%
1.7180%
1.2333%
0.2752%
0.0751%
* Collated Individual from individual files provided by ECCB.
The ECCU tends to run current account deficits on year on year basis. There is a high
variability in the GDP growth rate as tourism is the highest GDP contributor. The financial crises
that plagued U.S & Europe had a clear effect on the GDP growth rate of the ECCU in the years
2008 – 2009. The region is certainly bouncing back as the GDP growth is increasing from years
*References provided in the reference section

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2012 -2014. ECCU was running a BOP surplus from 2009 to 2012 but in 2012 the BOP has
started to adjust and moving towards no overall surplus or deficit.
3.3 Debt to GDP Ratio of ECCU Member Nations
ECCU Members ( 2012)
Anguilla
Antigua & Berbuda
Dominica
Grenada
Montserrat
St. Kitts & Nevis
Saint Lucia
St Vincent &
Grendaines
Public
Debt % of
GDP
Gross Govt
Debt % of
GDP
130.00%
78.00%
97.76%
72.26%
105.38%
200 %
77%
144.91%
78.69%
90.00%
68.30%
* Availability of data limited
Public Debt and Government remains one of the prime concerns for the ECCU. In 2008
the debt to GDP ratio was 89.5% while in 2007 it was 92.6%. In 2008 both Grenada and St. Kitts
and Nevis had debt levels exceeding 100%.
The Debt situation is only getting worse in the Caribbean region as indicated by the
data from year 2012. Most countries in the region are edging towards debt levels higher than
100%. In ECCU the ratio between debt service and current fiscal revenue is as high as 25%.
This situation is primarily alarming.
3.4 GDP Contribution by each member
GDP Contribution by ECCU Members
ECCU Members
Anguilla
Antigua & Barbuda
Dominica
Grenada
Montserrat
St. Kitts & Nevis
Saint Lucia
St Vincent &
Grenadines
% of GDP
5.1007%
21.7109%
8.7098%
14.1964%
1.0884%
13.7748%
22.5198%
12.8991%
Antigua & Barbuda and St Lucia together contribute 44% of the GDP of the ECCU
region. They hold a significant key to the sustainability of the XCD. Any weakness in their
economies or failure to pay debts can lead to problems in maintaining the peg.
*References provided in the reference section

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Conclusion
To reiterate what has been captured in the summary, in the short run I expect that the peg
to the USD will be maintained. The exchange rate 1 USD = 2.70 XCD will be maintained to
2015. Primary risks at this point remain of a completely unpredictable and massive natural
disaster hits the Caribbean islands or the disintegration of EURO and a massive downward
spiral. In the long run I certainly see debt to GDP ratios, and dependency primarily on tourism a
major issue.
*References provided in the reference section

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References:
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Mar. 2013. http://www.gocurrency.com/countries/east_caribbean
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<http://www.eccb-centralbank.org/Statistics/index.asp>.
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<http://www.eccb- centralbank.org/Statistics/index.asp>.
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Economies of Latin America and the Caribbean ▪. N.p., n.d. Web. 5 Mar. 2013.
www.cepal.org/publicaciones/xml/2/45452/ECCU.pdf
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*References provided in the reference section

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10. "The World FactBook." Central Intelligence Agency. N.p., n.d. Web. 4 Mar. 2013.
<https://www.cia.gov/library/publications/the-world-factbook/geos/av.html>.
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*References provided in the reference section