Public Information Notice: IMF Concludes Article IV Consultation with St. Vincent and the Grenadines

December 10, 1999

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On November 10, 1999, the Executive Board concluded the Article IV consultation with St. Vincent and the Grenadines.1


Since 1990 St. Vincent and the Grenadines has reduced its dependence on banana exports, which are undergoing a reduction in preferential access to the European Union (EU) market. The government has attempted to promote diversification through several actions, including public investment in infrastructure, technical assistance, fiscal incentives, and new laws promoting offshore activities. In recent years, it has also made substantial efforts to boost productivity in banana production. The government has maintained sound macroeconomic policies, achieving overall fiscal surpluses (including official grants) for most years since 1995. Monetary and exchange rate policies are handled by the Eastern Caribbean Central Bank (ECCB), which has kept the currency unchanged since 1976.

During 1990-98 real annual GDP growth and inflation averaged 4 and 3 percent, respectively. Tourism's importance to the economy grew, and agriculture's fell, with other sectors' contributions remaining relatively stable. In 1999, real GDP growth and inflation are expected to slow to about 4 and 2 percent, respectively. The overall public sector surplus is expected to increase slightly to about 1 percent of GDP.

Over the medium term, the authorities' goal is to maintain a high level of public sector savings to attract donor support, generate funds for public investment, and reduce the public external debt in relation to GDP. The government will no longer guarantee private external debt.

Executive Board Assessment

They commended St. Vincent and the Grenadines for its track record in maintaining reasonable economic growth and low inflation, noting in particular the high level of public savings and strong overall fiscal position. They stressed that the key challenge for St. Vincent and the Grenadines was to maintain macroeconomic stability and strengthen economic diversification in order to generate employment and growth, and reduce poverty.

Directors endorsed the authorities' medium-term fiscal objectives and saw merit in setting the overall balance of the public sector in line with the surpluses of the National Investment Scheme (NIS). They stressed that a strong fiscal position was critical in view of St. Vincent and the Grenadines' vulnerability to external and weather-related shocks and its participation in a currency union. In this regard, Directors suggested gradually trimming the government wage bill in relation to GDP and reviewing water and electricity rates. They also stressed that any large infrastructure projects, such as the proposed airport, should be financed on terms consistent with the authorities' goal of keeping public external debt and debt service manageable.

Directors noted that the banking system suffers from a relatively high level of nonperforming loans and a low level of provisioning. They urged the authorities, together with the Eastern Caribbean Central Bank (ECCB), to maintain strong supervision of onshore banks. Directors also expressed concern that the growth of offshore financial activities was straining the capacity of the supervisory authorities to combat money laundering. They welcomed the authorities' intention to increase staff overseeing offshore activities, and encouraged further consideration of the proposal to let the ECCB supervise offshore banks. In this connection, Directors noted the ECCB's request for a financial system stability assessment (FSSA), and called upon staff to give this request due consideration.

Directors welcomed the progress made in diversifying the economy, but questioned whether the use of several different fiscal incentives was facilitating the needed improvement in competitiveness. They suggested scaling back, simplifying, and reducing the discretionary nature of the tax and import duty exemptions, which diminish fiscal revenues and encourage an inefficient allocation of resources. Directors also recommended the establishment of clear rules for granting incentives and approving foreign direct investment projects. Directors commended the authorities for reducing the maximum external tariff, and noted their intention to remove price controls on motor vehicles and motor vehicle parts. They urged the authorities to phase out the remaining price controls.

Directors noted that the deficiencies in economic statistics impeded the conduct of surveillance, particularly in the area of the public finances, but were encouraged by the authorities' interest in addressing statistical weaknesses.

Directors welcomed the authorities' intention to participate in the pilot project for the release of Article IV consultation reports.

St. Vincent and the Grenadines: Selected Economic Indicators 1996-1998

1995 1996 1997 1998

(Annual percentage change)
Real economy
Real GDP 7.6 1.5 3.7 5.2
Inflation (end of period) 3.1 3.6 0.8 3.3
Money and credit
Broad money 8.0 4.4 13.7 16.1
Credit to private sector 20.3 14.4 8.3 8.8
(In percent of GDP)
External sector -18.7 -9.4 -16.8 -14.0
External current account -0.1 0.1 0.3 2.4
Overall balance
Public finance
Savings 6.3 7.5 8.4 8.5
Investment 6.0 6.9 11.5 13.8
Overall balance 0.6 1.8 -0.9 0.3
External debt 53.5 52.0 51.0 52.6

Source: Ministry of Finance; Eastern Caribbean Central Bank, and IMF staff estimates.

1Under 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. 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. In this PIN, the main features of the Board's discussion are described.


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