IMF Executive Board Concludes 2016 Article IV Consultation with St. Vincent and the Grenadines
July 19, 2016
On July 13, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation 1 with St. Vincent and the Grenadines.
St. Vincent and the Grenadines’ recovery from the global financial crisis was hampered by a series of natural disasters, sluggish global demand and slow implementation of key infrastructure projects. Economic activity appears to have recovered in 2015—led by strong tourism inflows and a rebound in construction—while inflation has trended down due to falling food and fuel prices. Lower oil prices have also narrowed the current account deficit. The commercial banking sector appears to remain solid, enabling a modest uptick in credit to the private sector that has been supportive of economic recovery.
The new airport, now foreseen for completion in 2016, is expected to sustain the near-and medium-term economic growth. Real GDP is projected to expand by 2.2 percent in 2016 and reach 3.1 percent over the medium-term as tourist arrivals are boosted by greater airlift capacity and construction expands tourism infrastructure. The current account deficit is expected to narrow gradually, as tourism inflows increase. Additional imports to supply tourism services are expected to be financed by foreign direct investment.
Public debt, at 74 percent of GDP at end-2015, has steadily increased since 2008, owing largely to the impact of the global financial crisis, construction of the new international airport and rehabilitation spending in response to three back to back natural disasters. The authorities have committed to reducing public debt to the Eastern Caribbean Currency Union target of 60 percent of GDP by 2030. They have made some progress towards consolidating the fiscal position since 2013, with a reduction of the primary deficit from 5 percent of GDP to an estimated 1.1 percent of GDP in 2015. Despite the new tax policy measures provided in the 2016 budget and the envisaged improvement in the primary balance, higher interest costs are expected to leave the fiscal position unchanged from 2015.
Executive Board Assessment 2
Executive Directors welcomed the incipient economic recovery and improved external and fiscal positions in St. Vincent and the Grenadines. They observed that the outlook is positive, particularly with prospects for the entry in operations of the new international airport and the development of geothermal energy, and risks are balanced. However, to bring public debt on a downward trajectory and improve competitiveness to underpin strong medium‑term growth, Directors stressed the importance of strengthening the macroeconomic policy framework and pursuing critical structural reforms.
Directors welcomed the authorities’ commitment to achieve the ECCU‑wide public debt target of 60 percent of GDP by 2030, and underscored the importance of an ambitious yet credible medium‑term fiscal consolidation to meet the debt target and build some buffers against natural disasters. In this regard, they took positive note of the authorities’ willingness to adopt additional measures to support medium‑term adjustment. They saw scope to further broaden the tax base, including by streamlining tax expenditure; continue to restrain the wage bill; and improve the sustainability of the public pension scheme and the national insurance service. They stressed that structural fiscal reforms would also be crucial to support adjustment, and recommended accelerating and sustaining revenue administration and public financial management reforms, while limiting contingent liabilities from public‑private partnerships.
Directors noted that St. Vincent and the Grenadines has relatively sound banks and leads the region in the supervision of credit unions. They encouraged the authorities to continue to strengthen supervision of the nonbank financial sector and monitor the offshore banking sector, as well as continue to align the AML/CFT regime with international standards.
Directors highlighted the need to buttress competitiveness to leverage the growth‑enhancing impact of major infrastructure projects. Enhancing the business environment, lifting labor productivity through skills upgrading and matching, ensuring access to credit for small businesses, and further trade facilitation are among critical priorities to promote private investment, diversification, and job creation. Efforts to improve resilience to natural disasters will also be paramount.
St. Vincent and the Grenadines: Selected Social and Economic Indicators, 2012–17 1/
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2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
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Projections |
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(Annual percentage change, unless otherwise specified) |
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Output and prices |
|
|
|
|
|
|
|
Real GDP (factor cost) |
1.3 |
2.3 |
-0.2 |
1.6 |
2.2 |
3.1 |
|
Nominal GDP (market prices) |
2.5 |
4.0 |
1.3 |
3.7 |
3.6 |
4.5 |
|
Consumer prices, end of period |
1.0 |
0.0 |
0.1 |
-2.1 |
1.1 |
1.7 |
|
Consumer prices, period average |
2.6 |
0.8 |
0.2 |
-1.7 |
0.1 |
1.1 |
|
Banking system 2 / |
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|
|
|
|
|
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Net foreign assets |
1.4 |
7.2 |
1.1 |
1.7 |
7.6 |
7.4 |
|
Net domestic assets |
5.2 |
1.4 |
8.4 |
3.1 |
-4.7 |
-4.5 |
|
Credit to private sector |
3.2 |
1.1 |
-0.2 |
1.7 |
2.2 |
2.9 |
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Central government finances (in percent of GDP) |
|
|
|
|
|
|
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Total revenue |
26.1 |
26.9 |
29.2 |
27.9 |
28.7 |
28.5 |
|
Tax revenue |
23.0 |
21.6 |
23.9 |
23.6 |
24.1 |
24.3 |
|
Grants |
0.7 |
1.3 |
2.0 |
1.2 |
2.5 |
2.1 |
|
Total expenditure and net lending |
28.0 |
33.0 |
32.2 |
29.9 |
30.7 |
30.7 |
|
Current expenditure |
26.2 |
25.2 |
25.8 |
25.1 |
26.0 |
26.3 |
|
Wages and salaries |
13.0 |
12.9 |
12.6 |
12.6 |
12.7 |
12.5 |
|
Interest |
2.4 |
2.5 |
2.3 |
2.2 |
2.5 |
2.8 |
|
Capital expenditure |
1.8 |
7.8 |
6.4 |
4.9 |
4.7 |
4.3 |
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Overall balance |
-1.9 |
-6.2 |
-3.0 |
-2.1 |
-2.1 |
-2.2 |
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Overall balance (excl. grants) |
-2.6 |
-7.5 |
-5.0 |
-3.3 |
-4.6 |
-4.3 |
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Primary balance |
0.4 |
-3.7 |
-0.7 |
0.1 |
0.4 |
0.6 |
|
Primary balance (excl. grants) |
-0.2 |
-5.0 |
-2.7 |
-1.1 |
-2.1 |
-1.5 |
|
External sector (in percent of GDP) |
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|
|
|
|
|
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External current account |
-27.6 |
-30.9 |
-29.6 |
-24.8 |
-21.3 |
-20.1 |
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Exports of goods and services |
27.5 |
25.2 |
25.1 |
24.6 |
25.0 |
26.1 |
|
Imports of goods and services |
57.9 |
58.1 |
56.5 |
50.6 |
47.5 |
46.7 |
|
Stayover arrivals (percentage change) |
0.7 |
-3.5 |
-1.4 |
6.6 |
6.0 |
9.0 |
|
Public sector external debt (end of period) |
40.5 |
42.3 |
45.3 |
43.2 |
47.3 |
44.5 |
|
External public debt service |
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(In percent of exports of goods and services) |
15.2 |
16.8 |
17.7 |
16.1 |
20.7 |
20.2 |
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Memorandum items (in percent of GDP) |
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|
|
|
|
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Gross public sector debt 3/ |
72.0 |
74.7 |
79.5 |
73.4 |
80.1 |
81.5 |
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Nominal GDP (market prices; in millions of EC$) |
1,871 |
1,946 |
1,970 |
2,044 |
2,118 |
2,212 |
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Sources: ECCB; Ministry of Finance and Planning; and Fund staff estimates and projections. |
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1/ Projections established at the end of the 2016 Article IV consultation mission in March 2016. 2/ Annual changes relative to the stock of broad money at the beginning of the period. |
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3/ From 2016, reflects additional debt contracted with PetroCaribe but not previously recorded (EC$ 112 million or 5.3 percent of GDP in 2016). |
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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 and private sector participants 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.
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