IMF Deputy Managing Director Murilo Portugal's Statement at the Conclusion of his Visit to St. Kitts and NevisPress Release No. 08/23
February 11, 2008
Mr. Murilo Portugal, Deputy Managing Director of the International Monetary Fund (IMF), issued the following statement today after the conclusion of his visit to St. Kitts and Nevis during February 8-10, 2008, where he met with the Finance Ministers of the Eastern Caribbean Currency Union (ECCU) and the St. Kitts and Nevis authorities:
"This has been my first visit to the Eastern Caribbean region as Deputy Managing Director of the International Monetary Fund. I am very grateful for this opportunity and want to thank ECCU Prime Ministers, Finance Ministers, and the Governor of the Eastern Caribbean Central Bank for their gracious hospitality and their very frank and open discussions.
"My discussions with the authorities focused on the economic prospects, opportunities, and challenges facing the ECCU.
"In recent years, the ECCU region has benefited from the record global expansion, and most countries enjoyed growth rates not seen in a decade. Activity was driven by construction spending for the 2007 Cricket World Cup, and a significant expansion in tourism capacity. Inflation has remained low and well anchored by the regional monetary arrangement overseen by the Eastern Caribbean Central Bank. The inflationary pressures that have emerged due to the strong economic activity and higher world oil and food prices should be temporary. Despite higher revenues, however, limited progress has been made towards fiscal consolidation, and the regional debt ratio remains above 100 percent of GDP.
"In the wake of several years of strong growth in global and regional economies, my visit is taking place at a time of greatly increased uncertainty about the global outlook. Our forecast is for a soft landing of the ECCU economy in 2008, but there are important downside risks. Turbulence in U.S. asset markets and slowing global growth could weaken the outlook in the tourism and construction sectors. Efforts to sustain rapid growth are thus particularly important, and I was encouraged to learn about ongoing reforms intended to improve the investment climate, financial market development, and continuing regional integration. Regional integration continues apace, as evidenced by the approval of the Organisation of Eastern Caribbean States Economic Union Treaty in 2007.
"I am pleased to note the ECCU governments' commitment to fiscal consolidation, with important reforms to place fiscal balances on a firmer footing underway in many countries-including through the introduction of value-added taxes and efforts to overhaul government expenditures, focused on enhancing efficiency of capital spending and civil service reform. These efforts will be key to lowering debt levels and strengthening the currency union.
"My visit to the region is evidence of the increasing importance that the Fund has been placing on the role of regional arrangements in the surveillance process. In fact, last week the IMF's Executive Board completed the 2007 Discussions on the Common Policies of the ECCU. These discussions augment the work of the individual country Article IV consultations and cover those issues that cut across the currency union. A report reflecting these discussions will be published shortly; the reports for 2005 and 2006 are publicly available on the IMF website.
"During my visit, I also had the opportunity to have a constructive and very helpful exchange of views with Deputy Prime Minister Condor and Premier Parry on recent economic developments, current policies, and future prospects and challenges in St. Kitts and Nevis.
"Macroeconomic outcomes in St. Kitts and Nevis have strengthened markedly in recent years. Growth has rebounded, foreign direct investment accelerated, and fiscal balances improved. While these developments have helped contain indebtedness, public debt remains high at about 180 percent of GDP at end-2007.
"There is a consensus that a small island economy, such as that of St. Kitts and Nevis, is vulnerable to risks and that the high debt level constrains the room for maneuver in the event of an adverse shock. The authorities have stressed their commitment to mitigating these risks, by placing public debt on a solid downward path, while maintaining macroeconomic stability and strengthening growth. Important reforms have been undertaken, including closing the loss-making sugar industry and strengthening revenue mobilization. Efforts are ongoing to reform the tax system, contain public expenditures, move forward with land sales, and improve the business climate.
"I wish the governments and people of the Eastern Caribbean Currency Union every success in their efforts to achieve strong, sustainable growth and continued social advances."