Notwithstanding the guardedly positive assessments of the 2010 and 2011 reviews, some CDB Board members still questioned the effectiveness of PBL and the extent to which outputs and outcomes were being achieved.  This concern was prompted in part by the waivers sought and granted to certain BMCs, as well as questions about whether the conditions attached to the PBOs had been commensurate with the gravity of the fiscal, debts and broader macroeconomic situations. 

Terms of Reference

A study was commissioned, again with an individual expert, with the following terms of reference:

  • Review the rationale and considerations underpinning the current policy-based lending framework.
  • Assess the effectiveness of CDB’s policy-based interventions (loans and TA) in support of policy reforms and institutional changes in its BMCs.
  • Assess the institutional capacity of CDB to design and supervise effective policy-based interventions.
  • Identify lessons learned and opportunities for improvement in policy-based operations and recommend other instruments CDB should consider in support of fiscal and debt management in its BMCs if policy-based interventions are not considered the most effective instrument.

The assessment was based on key informant interviews (CDB staff and members of the Board of Directors), a document review, and a comparison between the PBL policies at CDB and those at other MDBs.

Conclusions and Recommendations          

The review concluded that there was both demand- and supply-side appetite for further policy-based lending.  However, improvements were needed in supervision and monitoring, and questions had been raised as to whether in, certain situations, PBOs had delayed necessary IMF-supported adjustment by BMCs and/or whether the reform agendas as designed and implemented had been sufficiently robust, given the regression that appeared to have occurred in certain cases.  

The review recommended that;

(i)The limit on PBL be raised to 33% of loans outstanding (from 20%), with the tenor on individual loans reduced to 10 years (which was a better match with the time period of reform completion).

(ii)The operational guidelines be revised to specify conditions under which the Board could be asked to approve waivers, deferrals, and scope revision of PBL conditions.

(iii)PBL not be offered to borrowing members in the absence of either an IMF Stand-By Arrangement, or an IMF opinion on the adequacy of a “home grown” program of adjustment.More generally, ensure greater collaboration with the IMF, World Bank, and IDB in design, supervision, and monitoring of PBL operations.

Findings

The assessment summarized CDB PBL operations (Table 5.4).

Table 5.4. Summary of Caribbean Development Bank Policy Based Lending Operation

Country

Policy-Based Lending

Comment

Anguilla (2010)

$55 million (OCR 100%); for debt restructuring

PBL objectives achieved; strong political commitment via governor of the territory

Antigua and Barbuda

(2009)

$30 million (OCR 100%) in three tranches (one tranche undisbursed at July 2012)

In progress; high completion rate of conditions; effected in conjunction with IMF Stand-By Arrangement (SBA)

Barbados

(2010)

$25 million (OCR 100%) single tranche to “ease fiscal strain” and protect social gains

This was an ex post PBL (conditions already fulfilled); no conditions related to foreign exchange outlook given debt profile; rating downgrade in July 2012; concerns remain

Belize

(2006)

$25 million (OCR 60%, SFR 40%) in two tranches to close fiscal financing gap and facilitate debt restructuring

Policy conditions set by CDB were achieved, but the country has since regressed and another debt restructuring is imminent

Grenada

(2009)

$12.8 million in three (originally two) tranches (OCR 37.5%, SFR 62.5%) to strengthen economic management and social policy frameworks

In progress at June 2012; most conditions were marked “achieved” with minor delays in some instances, but the fiscal situation has deteriorated; this has been attributed to adverse external factors; waiver granted

Jamaica

(2008)

$100 million (OCR 70%; SFR 30%) in three tranches as part of a program with other MDBs to improve “debt dynamics” and economic management

Loan conditions were marked “achieved;” however, Jamaica has since regressed and is reportedly engaging with the IMF for a new SBA

St Kitts and Nevis 

(2006)

$20 million (OCR 60%, SFR 40%) to improve “debt dynamics” by replacing high-cost debt

Some reforms achieved, but PBL objectives not fully realized owing to global crisis; full disbursement, although three conditions remain unmet

St Lucia

(2008)

$45 million (OCR 60%, SFR 40%) in three tranches to build institutional capacity and expand fiscal space

Most conditions not satisfied but in an advanced stage of completion; waivers approved

St Vincent and the Grenadines (2009)

$25 million in two tranches (OCR 64%, SFR 36%) to preserve fiscal and debt sustainability

Three conditions outstanding at June 2012

St Vincent and Grenadines

(2010)

$37 million, single tranche (OCR 100%); sector PBL to restructure and divest the National Commercial Bank of SVG and maintain domestic financial stability

Conditions achieved

CDB = Caribbean Development Bank, IMF = International Monetary Fund, MDB = multilateral development bank, OCR = ordinary capital resources, PBL = policy-based lending, SBA = Stand-By Arrangement, SFR = Special Funds Resources, SVG = the Bank of Saint Vincent & the Grenadines was formerly known as the National Commercial Bank (SVG),

Source: CDB, SDF-8 A Framework for the Continuation of Resources to Address Fiscal Distress,          Annex, SDF 8/3 –NM-2-1