IMF Executive Board Concludes 2009 Article IV Consultation with St. Vincent and the Grenadines

Public Information Notice (PIN) No. 09/63
May 20, 2009

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 May 15, 2009, the Executive Board of the International Monetary Fund (IMF) concluded the 2009 Article IV consultation with St. Vincent and the Grenadines.1


Following two years of strong growth, the economy has been negatively affected by the global slowdown and financial turmoil. Real output growth is estimated to have fallen from 7 percent in 2007 to around 1 percent in 2008, far below potential (estimated at 4½ percent). The tourism sector weakened owing to the U.S. and global growth downturn, and construction lost some dynamism owing to the completion of major phases in some public sector projects. Inflation, which peaked at 11.6 percent in September, declined to 8.7 percent by end-2008, reflecting declines in world food and fuel prices.

While still high, the external current account deficit improved modestly in 2008, as lower imports, resulting from the weakness in economic activity, offset the lower foreign exchange revenues from tourism and the larger food and fuel import bill. Private sector credit growth slowed to 3 percent in 2008, compared to 15 percent in 2007, reflecting the weakened economic activity, including lower demand from the household sector.

The banking sector has been largely unaffected by the global financial crisis and remains well capitalized. The ratio of nonperforming to total loans remained low and other financial indicators continue to point to banking soundness. However, strains from the fallout of the Trinidad and Tobago-based CL Financial Group have created uncertainty in the local financial system, and the international financial services sector has also suffered shocks. An update of a 2004 Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) assessment took place in February-March 2009.

The fiscal position continued to strengthen in 2008 and the overall deficit was reduced to 1.7 percent of GDP. Larger grants, efforts at tax arrears collection and one-off non-tax revenue were complemented by solid VAT performance to attain a primary surplus, the first since 2002. The VAT exceeded expectations from both the revenue and the compliance perspectives, surpassing replaced taxes, notwithstanding the growth slowdown. Lower capital expenditure helped contain total government spending. The public sector debt-to-GDP ratio declined to 67½ percent of GDP at end-2008.

The authorities have requested support under the Fund’s Exogenous Shocks Facility (ESF) to help the economy adjust to the tourism and foreign direct investment (FDI) shock. The authorities are requesting the rapid-access component of the ESF (SDR 3.735 million, 45 percent of quota). Fund financing is expected to partly offset the balance of payments impact as well as contribute toward the financing of the fiscal deficit.

Executive Board Assessment

Executive Directors noted that, following a period of brisk growth, St. Vincent and the Grenadines has been impacted severely by the global slowdown, leading to a marked decline in real GDP growth due to sharply weaker activity in the tourism and construction sectors. The balance of payments is adversely affected by declines in tourism receipts, foreign direct investment and remittances. Directors welcomed the authorities’ commitment to mitigate the impact of the external shock, with Fund support under the Exogenous Shock Facility, and to enhance the economy’s growth potential, while ensuring fiscal and debt sustainability.

Directors commended recent steps toward fiscal consolidation and the solid progress on social and poverty reduction goals. They welcomed the ongoing tax reform, including the recent establishment of a Tax Reform Commission, and the authorities’ commitment to maintain the integrity and stability of the VAT. Continued spending restraint through a prudent public sector wage policy and prioritization of capital expenditure will be important, particularly given the lower revenues due to the external shock. Directors encouraged reforms to support medium-term fiscal consolidation, including tax and customs reform, civil service reform, and adoption of a medium-term expenditure framework.

Directors noted the staff’s assessment that the real exchange rate appears broadly in line with macroeconomic fundamentals. Looking forward, they encouraged steps to improve external competitiveness, including by easing infrastructure bottlenecks and institutional rigidities, and lowering the cost of doing business.

Directors noted that the construction of a new international airport is necessary to further develop the tourism industry and improve medium-term growth potential. They stressed the importance of sustained fiscal consolidation and timely availability of concessional financing to accommodate the airport project without compromising debt sustainability. Directors also noted that a more flexible timetable for implementation of the project, to the extent technically feasible, would help alleviate a possible financing bottleneck in 2009, given the tight liquidity environment.

Directors emphasized that improving the regulatory and supervisory framework for nonbanks is a high priority, particularly in light of the recent shocks to the region’s offshore and insurance sectors. They encouraged the authorities to establish a single regulatory unit for domestic nonbanks and the international financial service sector. Directors welcomed the authorities’ efforts to coordinate with other regional governments to address the regional financial turmoil resulting from the fallout of the Trinidad and Tobago-based CL Financial Group.

St. Vincent and the Grenadines: Selected Economic Indicators, 2004–09

          Est. Proj.


2004 2005 2006 2007 2008 2009
  (Annual percentage change, unless otherwise specified)

Output and prices


Real GDP (factor cost)

6.8 2.6 7.6 7.0 0.9 0.1

Nominal GDP (market price)

8.3 7.5 11.9 9.7 10.0 3.5

Consumer prices, end of period

1.7 3.9 4.8 8.3 8.7 2.9

Consumer prices, period average

3.0 3.7 3.0 6.9 10.1 4.2

Banking system


Net foreign assets 1/

15.7 -4.6 4.5 -8.1 3.2 -3.4

Net domestic asses 1/

-2.0 11.0 3.0 15.2 -0.7 5.6

Of which: Credit to private sector 1/

0.8 4.3 11.1 12.4 2.6 1.2

Broad money

13.7 6.4 7.5 7.1 2.5 1.3
  (In percent of GDP, unless otherwise specified)

Public sector


Central government finances


Total revenues and grants

29.5 29.5 30.1 30.9 32.4 29.8

Total expenditure and net lending

33.1 35.1 34.0 34.6 34.1 33.7

Current expenditure

25.9 27.1 26.4 25.6 26.6 26.2

Capital expenditure

7.1 8.0 7.5 8.9 7.5 7.5

Overall balance

-3.6 -5.6 -3.9 -3.6 -1.7 -3.8

Of which: Primary balance

-1.1 -2.6 -0.7 -0.6 1.2 -0.9

Gross public sector debt 2/

78.6 80.2 77.5 69.5 67.5 73.2

External sector


External current account

-24.8 -22.3 -24.1 -35.1 -33.7 -28.9

Stayover arrivals (percentage change)

10.4 9.5 2.6 -8.1 -6.1 -14.0

Public sector external debt (end of period)

52.9 52.0 46.4 37.0 35.0 37.2

External public sector debt service


(In percent of exports of goods and services)

11.6 11.6 13.4 12.8 13.6 18.5

Real effective exchange rate (- = depreciation)


(Annual percentage change)

-3.5 0.0 -0.6 0.3 3.7 ...

External terms of trade (- = depreciation)


(Annual percentage change)

-8.1 4.4 1.3 -13.8 -7.3 2.0

Sources: ECCB; Ministry of Finance and Planning; and Fund staff estimates and projections.
1/ Annual changes relative to the stock of broad money at the beginning of the period.
2/ Net of intra-public sector debt (mainly central government debt to the National Insurance Scheme (NIS).

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. 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.


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