Press Release: IMF Statement at the Conclusion of the 2007 Article IV Consultation Discussions with St. Vincent and the Grenadines
November 27, 2007Press Release 07/277
An International Monetary Fund (IMF) staff mission issued the following statement on November 8, 2007 in Kingstown:
"An IMF staff mission led by Ms. Catherine Pattillo, Deputy Division Chief in the Western Hemisphere Department, visited St. Vincent and the Grenadines during October 25-November 8 to conduct the 2007 Article IV Consultation discussions. The discussions covered economic developments and policies, as well as the medium-term economic outlook. The mission received excellent cooperation and benefited from a constructive exchange of views with Prime Minister Dr. Ralph Gonsalves, opposition leader Arnhim Eustace, Director General of the Ministry of Finance and Planning Maurice Edwards, other senior government officials, as well as representatives from the private sector, financial sector, farmers, and trade unions.
"Macroeconomic outcomes in St. Vincent and the Grenadines have strengthened significantly in recent years, with growth attaining a 10-year high of about 7 percent in 2006. The near-term outlook is also broadly favorable. Economic growth in St. Vincent and the Grenadines is expected to remain strong in 2007 at just over 6½ percent, due largely to the strong performance of the construction sector. Inflation has risen, partly reflecting the sharp rise in international commodity prices, including food and oil. Important tax reforms have been implemented—notably the introduction of the VAT in May 2007—and efforts are ongoing to control expenditures. These have contributed to a welcome strengthening of the fiscal position.
"Looking ahead, St. Vincent and the Grenadines now faces the challenge of continuing its rapid growth performance of recent years to further reduce poverty and raise income levels. This will require continuing efforts to enhance the country's underlying growth potential as well as to build up cushions against the significant vulnerabilities to which it remains exposed: in particular, dependence on imported oil, the erosion of trade preferences in bananas, and natural disasters. Against this background, the IMF mission discussed the importance of further strengthening the fiscal position, creating a favorable investment climate for the private sector, expanding remittance and investment flows from St. Vincent and the Grenadines' large overseas population, and addressing air transportation links and other structural bottlenecks in the economy.
"The mission shared the authorities' view that developing and diversifying the tourist industry will require overcoming impediments, including limited international air transportation links. The mission encouraged the authorities to adopt a prudent fiscal stance over the medium term, and to address priority infrastructure needs while ensuring debt sustainability. Continued efforts to mobilize grant and concessional financing for large infrastructure projects should help keep public debt and debt servicing on a downward path, enlarging the fiscal space available to pursue social and poverty-reducing goals. The mission commended the government on the introduction of a value-added tax to replace several indirect taxes in May 2007. This is an important reform, which will place fiscal balances on a firmer footing over the medium term. Ongoing enhancements to customs administration are welcome and expected to strengthen efficiency and revenue potential.
"The mission observed that prudential indicators point to a strengthening of the country's banking sector, and welcomed the steps taken to enhance the regulation and supervision of both bank and nonbank financial intermediaries, including the offshore financial sector.
"The economy's rebound since 2001 is likely to have reduced unemployment, but poverty and social needs of vulnerable groups remain areas of concern, especially given the erosion of preferential access for exports of bananas to the European Union. The mission welcomes the government's initiation of a household expenditure study and poverty assessment, which will be used to guide public policy in this area. The mission recommends that the coordination of poverty-alleviating social programs be enhanced to ensure efficient services targeted to the most needy and vulnerable groups, ultimately through the creation of a formal social safety net.
"The mission thanks the government and the people of St. Vincent and the Grenadines for their warm hospitality, and wishes them every success in their ongoing efforts to raise economic growth, and reduce poverty and unemployment."