By Judith Ugwumadu | 27 October 2014

The International Monetary Fund is encouraging Caribbean governments to reform their tax policies to encourage greater private sector investment in an effort to boost economic growth. 

The proposal comes after a two-day high-level forum, Unlocking economic growth, in Montego Bay, Jamaica to discuss possible improvements in energy provision, tax regimes and the financial sector.

On tax regimes, it was concluded that any changes needed to find the right balance between attracting foreign investment and revenue raising. There was agreement that tax incentives in the for foreign direct investment into the region had eroded the tax base for social spending.

The IMF said: ‘There is a need to re-examine the effectiveness and usefulness of these incentives and determine a more optimal tax regime.

‘Moreover, there was recognition that tax competition can be costly to the entire region, and that greater cooperation to limit harmful intra-regional tax completion is desirable.’

The meeting was attended by finance ministers, private sector representatives from the region and officials from the IMF, World Bank, the Inter-American Development Bank and the Caribbean Development Bank.

Participants at the meeting also highlighted the need for a comprehensive energy strategy for the Caribbean, to overcome high costs. They also stressed the need for a robust financial sector to safeguard financial stability and play a role in the real economy.

IMF deputy managing director Min Zhu said: ‘I am encouraged by the commitment of Caribbean officials to find meaningful reforms to strengthen the effectiveness of these important levers for growth.

‘The IMF looks forward to continuing its collaboration with the Caribbean on tax and financial issues, including helping the authorities [bring] these into a clear policy agenda.’