IMF Executive Board Concludes 2023 Article IV Consultation with St. Kitts and NevisMarch 31, 2023
Washington, DC : On March 15, 2023, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with St. Kitts and Nevis.
St. Kitts and Nevis’ economic growth rebounded strongly in 2022 despite global headwinds. GDP is estimated to have grown by 9 percent in 2022 after contracting 14.5 percent in 2020 and 0.9 percent in 2021. The lifting of all COVID-related travel restrictions in August 2022 sparked a strong rebound in the tourism sector and across the economy. The authorities’ proactive policy response, facilitated by the fiscal buffers accumulated from a decade of prudent fiscal policy, helped shelter domestic prices from high global energy and food prices. These measures nonetheless took a heavy toll on fiscal accounts in 2022. The primary balance ex-CBI revenue and land buybacks, an indicator of the underlying fiscal stance, deteriorated to a deficit of 17 percent of GDP (vs. 15 percent in 2021). Large CBI inflows in 2022 helped finance this expansion, keeping public debt below the ECCU regional target of 60 percent of GDP.
Return to the pre-pandemic activity level is expected by end-2024, and beyond that, growth should converge towards its medium-term path. The budget is expected to be broadly balanced through 2025 and then go into deficits—predicated on current policies. Risks to the outlook are tilted to the downside in the short term, but with some upside potential in the medium term. Downside risks primarily stem from a global slowdown, particularly in the United States, global inflation, and sustained commodity price volatility from lingering geopolitical uncertainty. The growing dependance on volatile and uncertain CBI revenue is a major source of vulnerability. But prospects for an acceleration of the transition to renewable energy and increased investment in resilience by the broader public sector could represent a material upside risk.
The authorities are committed to maintaining a prudent fiscal stance going forward. Small budget surpluses are planned for the next three years, supported by the phasing-out of electricity price subsidies and streamlining of income support measures. They reiterated their intention to undertake structural fiscal policy changes to reduce dependency on CBI revenues over the medium term. They also remain committed to investing in natural disaster resilience and climate change adaptation.
Executive Board Assessment [2]
The strong economic rebound in 2022 was moderated by tighter global financing conditions and high fuel and food prices. While proactive policies facilitated by accumulated buffers helped keep inflation under control, the fiscal measures have weighed on public finances. Strong Citizenship-by-Investment (CBI) flows cushioned the impact of higher expenditures on public debt but also increased reliance on these revenues. Looking ahead, as risks are tilted to the downside in the short run, Directors encouraged the authorities to pursue prudent fiscal policies, ensure financial stability, and implement ambitious structural reforms to boost sustainable and inclusive growth.
Directors concurred that the fiscal stance should be tightened to entrench debt sustainability, and noted the importance of the planned phasing-out of electricity price subsidies and other crisis-era support measures. Containing current expenditures, notably the wage bill, will help create space for sustainable investment. Directors called for reducing dependence on CBI revenue, which would require an overhaul of the taxation framework, including reducing tax expenditures, streamlining VAT, reforming property taxes, and introducing a progressive personal income tax.
Directors emphasized the need for structural policies to strengthen competitiveness, labor market development, and diversification. They recommended higher resilient infrastructure spending and an optimal insurance framework against natural disaster risks, and endorsed the authorities’ strategy to transition toward renewable energy. They supported the plan for a sovereign wealth fund to finance resilient investment and ensure adequate fiscal buffers. Directors welcomed efforts to improve the delivery and access to education and vocational training, which should be complemented by active labor market policies, to reduce skills mismatches and promote job opportunities.
Directors called for a re-assessment of the business model of the systemically important bank, noting that further progress is needed to de-risk its investment portfolio and reduce NPLs. They stressed the importance of ring-fencing public sector deposits from risks in any single bank. Close monitoring of credit unions and continuing to advance the AML/CFT agenda would be important.
[1] Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm .
St. Kitts and Nevis: Selected Social and Economic Indicators, 2019–28I. Social, Geographic and Demographic IndicatorsArea (sq. km)269.4Headcount Poverty (percent, 2008)23.7Income inequality (Gini coefficient, 2008)0.38PopulationTotal (thousands, 2021 est.)53.5Health and nutritionRate of growth (percent per year, 2021)0.66Calorie intake (per capita a day, 2011)2,452Density (per sq. km., 2021)198.8Physicians (per 1,000 people, 2018)2.8Net migration rate (per thousand, 2014 est.)1.2Access to safe water (percent, 2011)98.9AIDS incidence rate (per 100,000, 2016)33.9Population characteristicsLife expectancy at birth (years, 2021)71.7Gross domestic product (2021)Infant mortality (per thousand live births, 2020)12.6(millions of U.S. dollars)860.8Under 5 mortality rate (per thousand, 2020)15.0(millions of E.C. dollars)2,324Adult literacy rate (percent, 2009)97.8(US$ per capita)16,076.7II. Economic and Financial Indicators, 2019—28Est.Proj.2019202020212022202320242025202620272028(Annual percentage change, unless otherwise specified)National income and pricesReal GDP (market prices) 1/4.0-14.5-0.99.04.53.83.02.72.72.7Real GDP (factor cost) 1/4.8-13.4-0.111.25.02.52.72.72.72.7Consumer prices, end-of-period-0.8-1.21.93.82.62.02.02.02.02.0Consumer prices, period average-0.3-1.21.22.72.32.02.02.02.02.0Real effective exchange rate appreciation (+) (end-of-period)0.8-0.9……………………Money and credit 2/Broad money5.6-8.18.96.95.75.14.95.36.28.2Change in net foreign assets6.5-0.49.12.52.52.52.42.32.22.9Net credit to general government-9.5-18.4-4.8-0.9-0.6-0.7-0.70.00.92.0Credit to private sector1.51.14.13.43.23.02.72.52.52.5Nonperforming loans to total gross loans24.023.520.922.0………………(In percent of GDP)Public sector 3/Total revenue and grants37.435.050.451.543.641.539.137.035.433.8o/w Tax revenue18.518.819.019.018.718.618.218.118.017.9o/w CBI revenue14.811.323.325.819.017.015.013.011.510.0Total expenditure and net lending38.138.144.854.843.040.938.837.637.137.0Current expenditure26.130.636.539.937.635.733.832.732.532.3Capital expenditure and net lending12.07.58.314.95.45.25.04.84.64.6Primary balance0.5-1.76.8-2.12.12.11.91.0-0.1-1.6Overall balance-0.7-3.15.6-3.30.60.50.3-0.5-1.7-3.2Overall balance (excl. land buy back)3.5-3.15.6-3.30.60.50.3-0.5-1.7-3.2Overall balance (less CBI revenue) 4/-19.2-21.8-13.4-22.3-18.1-18.0-17.9-18.7-19.7-21.1Total public debt (end-of-period)54.368.068.958.455.353.351.750.951.453.4Public debt service (percent of total revenue and grants)5.46.84.14.65.86.16.26.46.76.6General government deposits (percent of GDP) 5/24.821.630.324.024.024.024.024.024.024.0External sectorExternal current account balance-5.8-10.9-5.8-5.0-3.6-2.8-1.9-1.3-1.3-1.3Trade balance-28.44.0-26.2-31.5-30.1-29.6-29.0-28.3-27.2-26.2Services, net24.219.424.029.529.730.130.330.329.128.0o/w Tourism receipts32.612.117.818.621.524.626.627.426.826.3FDI (net)4.50.33.33.85.65.45.04.64.34.0External public debt (end-of-period)12.715.214.69.59.39.39.59.810.310.9(In percent of exports of goods and nonfactor services)External public debt service2.82.90.53.02.72.62.52.42.21.9External public debt (end-of-period)25.538.032.118.117.717.718.219.120.722.5Memorandum itemsNet international reserves, end-of-period(in millions of U.S. dollars)346.3365.4312.8250.5247.1244.9243.1241.4239.6251.6(in percent of broad money)32.235.628.021.019.618.417.416.415.414.9Holdings of SDRs, in millions of U.S. dollars16.817.828.828.828.828.828.828.828.828.8Nominal GDP at market prices (in millions of EC$)2,9912,3882,3242,6282,8372,9733,1153,2653,4213,586Sources: National authorities, ECCB, UNDP, World Bank; and IMF staff estimates and projections.1/ In June 2021, the National Statistics Office revised historical GDP series.2/ The series for monetary aggregates have been revised consistent with the 2016 Monetary and Financial Statistics Manual and Compilation Guide.3/ Consolidated general government balances. Primary and overall balances are based on above-the-line data.4/ Excludes CBI budgetary fees, and Investment proceeds and CBI due diligence costs.5/ Includes only central government deposits at the commercial banks.
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