Press Release: IMF Statement at the Conclusion of the 2009 Article IV Consultation Discussions with St. Vincent and the Grenadines
February 23, 2009Press Release No. 09/47
February 23, 2009
An International Monetary Fund (IMF) staff mission issued the following statement on February 12, 2009 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 January 30–February 12 to conduct the 2009 Article IV Consultation discussions. The discussions covered economic developments and policies, as well as the near-term risks and medium-term outlook. The mission received excellent cooperation and benefited from a constructive exchange of views with Prime Minister Dr. Ralph Gonsalves, Leader of the Opposition 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.
“Following two years of brisk growth, the highest in a decade, key macroeconomic indicators deteriorated in 2008 amidst the global economic downturn. Economic growth is estimated to have fallen from 7 percent in 2007 to around 1 percent, due to sharply weakened activities in the tourism and agriculture sectors. Inflation rose sharply in the first three quarters of 2008, reflecting higher world fuel and food prices, but declined to 8.7 percent at the end of the year as these prices eased. Consistent with a slowing economy, private sector credit growth declined to about 3 percent in 2008.
“The central government’s fiscal position has been strengthening since 2005. In 2008 the fiscal deficit was lowered to 1.7 percent of GDP and a primary surplus achieved. Larger grants and continued improvements in tax administration complemented the solid VAT performance. The VAT, which was introduced in May 2007, has exceeded expectations from both a revenue and compliance perspective. Total expenditure declined as a percentage of GDP as lower capital expenditure also made room to reinforce the social safety net to protect vulnerable groups.
“The income and corporate tax reforms implemented in 2008 and continued in 2009 aim to reward efforts and enhance the competitiveness of the economy, providing timely support to economic activity. The mission commends the government on the establishment of a Tax Reform Commission, which aims to make a set of comprehensive recommendations by end-2009, including enhancing legislation and revamping the tax incentive system to broaden the tax base. Ongoing improvements to customs administration are also expected to strengthen revenue potential and efficiency.
“The government has made progress in fiscal consolidation in recent years but faces a challenging environment. The global economic downturn and financial crisis have weakened growth prospects for 2009. Most of St. Vincent and the Grenadines’ tourism-source countries are projected to suffer recessions in 2009, significantly dimming the prospects for the tourism sector. Declining tourism-related receipts, remittances and lower foreign direct investment will adversely affect output growth and constrain banking sector liquidity. In this context, the IMF mission discussed the importance of steps to improve competitiveness, enhance the business climate by reducing the cost of doing business, and address tourism-related infrastructure constraints. The mission shared the authorities’ view that construction of a new international airport is necessary to develop the tourism industry further. To avoid compromising the efforts to put debt on a downward path, there is a need for sustained fiscal consolidation, in conjunction with continued availability of concessional financing (including in-kind grants) for the airport project. The mission encouraged the authorities to continue efforts to minimize the need for bridge commercial financing in the face of tightened global and domestic credit availability in 2009, including through mobilizing more grant and concessional resources and being flexible with the construction timetable, to the extent technically feasible.
“The mission welcomed recent steps toward consolidating the regulation and supervision of domestic nonbank financial intermediaries in the Ministry of Finance. In view of developments in the global financial system, further strengthening regulation and supervision of the domestic financial system, including both domestic banks and non-banks and the offshore financial sector, is a top priority.
“The government has made solid progress in pursuing social and poverty reduction goals. The mission welcomes the ongoing efforts to mitigate the hardships faced by vulnerable groups through social programs. The country poverty assessment report, due in mid 2009, will provide an important tool to enhance the strategy for alleviating poverty and to improve further the effectiveness of social programs.
“The mission thanks the government and the people of St. Vincent and the Grenadines for their excellent cooperation and warm hospitality, and wishes them every success in their ongoing efforts to restore economic growth, and reduce poverty and unemployment.”