## 1vctea2024001

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### Context and structural vulnerabilities
- Robust recovery from the pandemic and 2021 volcanic eruptions supported by two IMF RCF disbursements and financing from other IFIs; output returned to pre-pandemic level by 2022.
- Significant pipeline of public and private investment: post-volcanic reconstruction, port modernization project, newly opened Sandals Resort.
- Key vulnerabilities:
  - Public debt remains elevated.
  - High exposure to natural disasters and climate change.
  - Rapidly ageing population straining pension system and growth prospects.
  - Recent shocks likely disproportionately impacted the vulnerable.
- Government reform agenda ahead of November 2025 general elections: infrastructure upgrades, resilience building, digitalization, pension and education reforms, strengthening social assistance and fiscal institutions.

### Recent macroeconomic developments
- Growth and employment
  - Real GDP growth: 3.1 percent in 2022; 5.8 percent in 2023.
  - Formal employment surpassed pre-pandemic levels in 2022 and continued to grow in 2023.
  - Stayover arrivals approached pre-pandemic levels in 2023; improved airlift supported recovery.
  - Agriculture contracted in 2023 due to lingering volcanic eruption effects and historic high temperature.
- Inflation and wages
  - Inflation peaked at 7.5 percent y/y in late 2022; fell to 4.8 percent as of April 2024.
  - Minimum wage increased by an average of about 26 percent (effective March 2024).
- External sector
  - Current account deficit narrowed to 17.6 percent of GDP in 2023 from 22.2 percent of GDP in 2021 (preliminary).
  - Gross international reserves adequate at about 5 months of imports; imputed reserves in 2023: 26 percent of GDP (equivalent to 5 months of imports and 45 percent of broad money).
  - External position assessed as moderately weaker than level implied by fundamentals and desirable policies.
- Fiscal developments
  - Primary deficit rose to 9.2 percent of GDP in 2023 from 4.7 percent of GDP in 2021.
  - Underlying primary balance (excluding port-, COVID-, and volcanic eruption-related spending) improved from -0.8 percent of GDP in 2021 to -0.4 percent of GDP in 2023.
  - Public debt: 87.1 percent of GDP in 2023 (down from 88.3 percent in 2021).
- Notable temporary fiscal/revenue factors
  - One-off land sale related taxes contributed 2.5 percent of GDP to domestic transaction tax revenue in 2021.
  - Price-mitigating measures cost 0.5 percent of GDP in 2022 and 0.2 percent of GDP in 2023; phased-out measures amounted to 0.6 percent of GDP for 2022–23.
  - Lump-sum VAT refunds ~1.8 percent of GDP and import tax concessions to Sandals Resort (during 2022–23) in 2023.
  - Temporary 50 percent duty reduction on imported new tires to June 30, 2024.
  - Announced tax policy changes: reduction of top PIT and CIT rate from 30 to 28 percent; increase of standard PIT deductions; estimated total annual cost about 0.6 percent of GDP.
  - Authorities introduced offsetting measures in 2023 and 2024 budgets including increases in user fees for some services.

### Outlook, projections, and major projects
- Growth and inflation projections
  - Growth projected at 4.9 percent in 2024; 3.5 percent in 2025; 2.7 percent in 2026.
  - Stayover arrivals projected to reach 120 percent of pre-pandemic levels in 2024 and 135 percent in 2025.
  - Inflation projected to ease to 2.5 percent by end-2024; projected 3.4 percent in 2024 (staff projection elsewhere), and 2 percent in 2025–medium term.
- Major project timelines and fiscal implications
  - Port modernization project: cost about 22 percent of 2023 GDP; construction launched May 2022; scheduled completion 2026. More than half of expected capital spending executed through 2023.
  - New climate-resilient hospital: estimated total cost about 9 percent of 2023 GDP; construction expected to start 2024Q4, with retention work likely to spill over into 2027; majority of capital spending scheduled for 2025–26.
  - Sandals Resort opened March 2024; Holiday Inn completion expected 2024; Marriot expected to start in 2024.
- Balance of payments and external outlook
  - Current account deficit projected to narrow over the medium term as exports grow and large infrastructure projects complete.
  - Net FDI: preliminary 2023 estimate 12.6 percent of GDP; rebounds expected to return to around 10 percent of GDP in medium term.
- Reserves and financing
  - Imputed reserves in 2023: 26 percent of GDP, equivalent to 5 months of imports and 45 percent of broad money.
  - SDR allocation: 11.2 million SDRs allocated in 2021 (approximately US$15.7 million at the time); about 10.9–12.8 million SDRs kept as reserves in different date references in the report.

### Risks and scenarios
- Key downside risks
  - Abrupt global slowdown affecting tourism, trade, and FDI.
  - Commodity price volatility, regional conflicts, geo-economic fragmentation.
  - Capacity constraints, supply-chain disruptions, rising project costs delaying investments.
  - Lower-than-expected fiscal balances delaying fiscal adjustment and threatening debt sustainability.
  - Persistent threat of natural disasters and climate change.
- Upside possibilities
  - Stronger-than-expected tourism development and agriculture recovery could boost growth and improve external position.
- Financial tightening exposure
  - Limited pass-through to domestic lending and borrowing rates so far due to VCT’s isolation from international financial markets.

### Fiscal strategy, institutions, and contingency planning
- 2024 budget stance and projections
  - Budget balances fiscal prudence with support for inclusive, resilient growth; prioritizes capital spending on reconstruction, resilience, health, and education.
  - Projected 2024 balances: overall primary balance projected to improve to -4.6 percent of GDP; underlying primary balance projected to improve to 2.1 percent of GDP.
- Debt and medium-term strategy
  - Public debt assessed sustainable but at high risk of distress for external and overall public debt (unchanged from 2022 Article IV DSA).
  - Authorities committed to reaching the 2035 regional debt target of 60 percent of GDP and following the medium-term fiscal strategy in the 2021 RCF.
  - Baseline projects primary balance moving to a surplus of about 3¼ percent of GDP from 2026; debt on downward path from 2025 and potentially below 60 percent of GDP before 2035 if sustained.
  - Gross financing needs expected to remain high near term and mainly financed by medium- and long-term concessional loans for port and hospital projects.
- Disaster Risk Financing Strategy (DRFS) and contingency planning
  - Cabinet adopted DRFS prepared with World Bank support.
  - Planned instruments/measures:
    - Establish Catastrophe Deferred Drawdown Option (CATDDO) of US$20 million with the World Bank.
    - Strengthen data collection/management and public financial management for disasters.
    - Contingency budgetary planning beyond existing Contingencies Fund, CCRIF coverage, and contingency reserve from undrawn SDR holdings.
  - Baseline fiscal projections incorporate annual fiscal cost from natural disasters of 1.1 percent of GDP (1980–2023 estimate), including:
    - Annual Contingencies Fund contribution ~0.7 percent of GDP.
    - Contingent spending of goods/services and transfers 0.4 percent of GDP.
  - Contingencies Fund balance: about 1.6 percent of GDP as of end-2023.
  - CCRIF average payout for VCT: 0.2 percent of GDP based on historical payouts.

### Debt Sustainability Analysis (DSA) and stress tests
- Public debt and DSA baseline
  - Public sector debt (percent of GDP): 2023 87.1; 2024 88.2; 2025 86.7; 2026 82.8; 2027 79.0; 2028 75.0; 2029 71.1; 2030 67.2; 2031 63.5; 2032 59.8; 2033 56.7; 2034 53.8.
  - PV of public debt-to-GDP ratio: 2023 90.4; 2024 101.8; 2025 94.5; 2026 90.4; 2034 62.5.
  - Under baseline, PV of public debt projected to meet the benchmark of 55 percent of GDP by 2031 and public debt-to-GDP to fall below the ECCU debt ceiling (60 percent) by 2032.
- External debt indicators
  - Total public sector external debt (percent of GDP): 2023 62.2.
  - PV of PPG external debt-to-GDP (percent): 2023 63.8; 2024 74.9; 2025 72.3; 2034 47.9.
  - PV of PPG external debt-to-exports ratio: 2023 163; projected decline to 82 by 2034 under baseline.
- Stress test scenarios and outcomes
  - Severe natural disaster (one-off): lowers growth by 1.5 ppt and fiscal costs of 10 percent of GDP; PV of public debt would peak at 85 percent of GDP in 2025 and decline to 59 percent by 2034.
  - Country-specific natural disaster (every 5 years): 1 percentage point lower growth and 2 percent of GDP fiscal costs; PV of public debt would peak at 79 percent of GDP in 2025 and decline to 55 percent by 2034.
  - Export shock: could push PV of external debt-to-GDP to 99 percent by 2026 and 73 percent by 2034; export shock produces largest impact.
  - Most extreme stress scenario: PV of public debt could reach 101 percent of GDP by 2026 under adverse nominal export growth assumptions.
- Risk classification
  - Debt is at high risk of distress but sustainable if fiscal consolidation and reforms are fully implemented.
  - Debt-carrying capacity (Composite Indicator CI): 3.02 (Medium).

### Tax policy, revenue mobilization, and public spending efficiency
- Tax reform options recommended by IMF TA
  - Restructure PIT to strengthen progressivity and promote labor force participation and formality.
  - Reassess tax incentives and CIT approach.
  - Increase share of revenue from VAT and recurrent property tax.
  - Residential property valuations not updated since 2008; PIT has narrow bands with over 2/3 taxpayers at top rate.
- Public spending and social protection
  - Phased out untargeted price-mitigating measures introduced in 2022.
  - Modernize social assistance: streamline programs, update benefit rules, recertify beneficiaries, digitalize beneficiary information.
  - Scope to improve targeting, complemented by strong ALMPs.
- Fiscal institutions and medium-term framework
  - Enforce VAT for private home vacation rentals; modernize Custom Act; digitalize tax information management system.
  - FRM report first published in early 2024; recommendations to recalibrate and operationalize FRF and strengthen fiscal credibility.

### Pension system reform (NIS and PSPS)
- Pension system pressures and context
  - NIS reserves ~17.5 percent of GDP as of end-2022; actuarial report projects reserve depletion by 2036 absent reforms.
  - NIS contribution rate: 10 percent as of 2024Q1 (ECCU average 13 percent; EME 15.3 percent; OECD 17.8 percent).
  - Old-age dependency ratio projected to increase dramatically faster starting in 2025 and exceed 0.5 by 2083.
- 2024 NIS reform package (announced)
  - Gradual increase in contribution rate from 10 percent to 15 percent by 2027 with increases evenly between employer and employee:
    - June 1, 2024: 12 percent;
    - January 1, 2025: 13 percent;
    - January 1, 2026: 14 percent;
    - January 1, 2027: 15 percent.
  - Tighten early retirement: increase reduction factors from 6 percent per year to 8 percent per year; not awarding early-age pensions to those who have not retired.
  - Increase reference wage period from five best years to seven best years.
  - Increase insurable wages from EC$1,000 per week to EC$1,200 per week.
  - Increase minimum pension from EC$70 per week to EC$80 per week.
- Expected fiscal and sustainability impact
  - Reforms projected to bolster NIS sustainability and postpone reserve depletion from 2036 to 2060.
  - Increase in insurable wage and minimum pension will raise pension obligations.
- PSPS reform considerations
  - PSPS is non-contributory; combined replacement rate for public sector workers: 127 percent of insurable income (60 percent NIS + 67 percent PSPS).
  - PSPS expenditure ~2 percent of GDP annually; ~7 percent of total government spending.
  - Possible measures: index benefits to prices instead of wages; align PSPS retirement age with NIS to 65 years; reduce PSPS replacement rates; close PSPS to new entrants.
  - Staff qualitative assessment: such measures could reduce pension costs by 40 percent or more over next 20–50 years; initial savings within 2–3 years of implementation.
  - Alternative if broad reform unfeasible: reduce benefits and introduce 5 percent employee contribution.

### Social protection, unemployment insurance, and labor market policies
- Social assistance reforms and coverage
  - Consolidation of 17 pre-pandemic programs to three grant schemes under flagship Public Assistance Program; four grants covered nearly 1/3 of households in 2022.
  - Digitalization: Social Assistance Information Management System (SAIMS) set up with WB support; work to expand household coverage to form a national household registry.
  - Vulnerability index and poverty line updates in progress.
- Unemployment insurance and ALMPs
  - Permanent unemployment insurance planned to start January 2025 with ILO support; careful design and complementary ALMPs recommended.
  - Active labor market programs: ON-SITE, SET, WE CAN; pilot SVG-LMIS program.
- Education and human capital
  - Education spending exceeded 5 percent of GDP in recent years.
  - Goals: comprehensive education reform, expand post-secondary and TVET, target one university graduate per household by 2030.
  - TVET investments: capital expenditure ~$7 million for 2023; CDB $14.5 million project in 2018 to expand vocational offerings.

### Financial sector stability, supervision, and inclusion
- System soundness and developments
  - Financial system remains sound; capital and liquidity ample.
  - Banks’ NPLs declined from 2022 peak and remain below regional averages.
  - Banks’ provisioning levels above regional average but below new 60 percent regional requirement; profitability recovered to pre-pandemic levels.
  - Acquisition of First Caribbean International Bank by Bank of Saint Vincent completed in 2022.
  - 2023 resolution and liquidation of a small bank accounted for 1.6 percent of total banking assets; deposits up to EC$100,000 transferred to Bank of Saint Vincent.
- Supervisory priorities and actions
  - Continue close monitoring of asset quality and underwriting standards; bolster provisioning and accelerate disposal of long-dated NPLs.
  - Strengthen oversight of credit union sector and non-bank financial institutions; transition to risk-based supervision including climate risks.
  - FSA priorities: amendments to FSA Act, establishment of National Crisis Committee for non-bank crisis management and deposit insurance schemes, IMF TA to strengthen resolution framework.
- AML/CFT and correspondent banking
  - Continue strengthening AML/CFT framework to minimize risk of losing correspondent banking relationships; implement 2024 CFATF Mutual Evaluation recommendations.
- Financial inclusion and regional initiatives
  - Operationalization of ECCU regional credit bureau in VCT planned later this year.
  - Renewed efforts to promote Eastern Caribbean Partial Credit Guarantee, digitalization of financial services, and implementation of regional securities legislation.

### Data gaps and capacity development
- Key data issues
  - Timeliness, availability, and granularity need improvement: high-frequency indicators (tourism), national accounts, labor market and household budget surveys.
  - Latest published LFS: 2015; processing of 2022 LFS being finalized.
  - GDP data subject to significant delays; GDP by expenditure unavailable.
  - Response rate to balance of payments surveys ~40 percent; external sector data suffer large unexplained errors and omissions.
- Capacity development
  - Continued CARTAC IMF TA to strengthen national accounts and balance of payments.
  - Regional Data for Decision Making Project (2022–27) supported by WB expected to improve National Statistics System.
  - Ongoing Population and Housing Census should be finalized expeditiously.

### Hurricane Beryl (July 1 event) — impacts and response
- Event and immediate impacts
  - Hurricane Beryl landed July 1; earliest category 4 Atlantic hurricane on record.
  - Six casualties reported; over 4,000 people displaced.
  - VCT population: 110.9 thousand.
  - Union Island (~3 percent of population; ~5.6 percent of hotel room stock): over 90 percent of houses/buildings damaged.
  - Other islands affected: Bequia, Canouan, Palm Island, Mayreau.
- Emergency response and financing
  - National disaster declared; VAT- and duty-free concessions on relief supplies.
  - Authorities plan to use EC$50 million (about US$18.5 million or 1.6 percent of GDP) from Contingencies Fund.
  - Contingencies Fund balance EC$70.5 million (about 2.2 percent of GDP) as of early July 2024.
  - Plan to withdraw 50 percent of unused SDR allocation (about 0.6 percent of GDP or SDR4.8 million) for recovery.
  - CCRIF payout US$1.862 million (about 0.2 percent of GDP) with additional small payout likely.
  - Donor pledges: European Union €0.45 million; multilateral and bilateral pledges ~US$0.5 million; IDA allocation US$13 million (about 1.2 percent of GDP) available.
- Staff assessment
  - Impact on GDP may be relatively contained due to reconstruction supporting activity; near-term fiscal deficit and financing needs likely to rise.
  - Public debt expected to remain sustainable given Contingencies Fund use and some grants; staff does not expect repayment capacity to IMF affected.

### Staff recommendations and policy priorities (selected)
- Fiscal and debt management
  - Continue fiscal consolidation and build buffers; pursue concessional financing and avoid less concessional large-scale borrowing.
  - Recalibrate and fully operationalize the FRF; strengthen fiscal institutions and SOE oversight; improve budget process and medium-term fiscal planning.
  - Staff advice: bring primary surplus to around 3¾ percent of GDP in the medium term (about ½ percentage point above current medium-term target) to build a safety margin.
  - Illustrative staff simulations: a debt anchor in the range of 45–50 percent of GDP would ensure regional debt target and sustainability with high probability.
- Disaster resilience and contingency financing
  - Implement DRFS, establish CATDDO US$20 million, strengthen public financial management for disasters, and increase collaboration with private sector on catastrophe insurance.
- Revenue and expenditure reforms
  - Improve efficiency and equity of tax and expenditure framework; enforce VAT on private home vacation rentals; modernize Customs Act; digitalize tax administration.
  - Phase out untargeted subsidies and enhance targeting of social assistance.
- Pension and social policy
  - Implement NIS reforms already announced; align PSPS with NIS urgently to improve fairness and reduce fiscal costs.
  - Carefully design unemployment insurance (from 2025) with complementary ALMPs.
- Structural reforms and labor market
  - Address supply-side bottlenecks: port, roads, airports, hotels, intra-regional ferry, agriculture; enact Investment Act and single windows; digital transformation; education and TVET expansion targeted to labor market needs.
  - Strengthen targeting and evaluation of ALMPs; expand child and elderly care and parental leave reforms to boost female labor force participation.
- Financial sector
  - Strengthen provisioning, accelerate disposal of long-dated NPLs, transition fully to risk-based supervision (including climate risks), complete FSA Act amendments, and enhance crisis preparedness.

*Source: IMF staff report material for "1. Key Macroeconomic Indicators" (St. Vincent and the Grenadines) and accompanying annexes (content unit: 1vctea2024001).*

### 1. Key Macroeconomic Indicators  ____________________________________________________________ 21

### 1. Key Macroeconomic Indicators

### Context
- St. Vincent and the Grenadines achieved a robust recovery from the pandemic and 2021 volcanic eruptions supported by two IMF RCF disbursements and financing from other IFIs.
- Output had returned to the pre-pandemic level by 2022.
- A significant pipeline of public and private investment projects—post-volcanic eruptions reconstruction, port modernization project, and the newly opened Sandals Resort—has supported the recovery and is improving economic potential.
- The economy faces significant vulnerabilities:
  - Public debt remains elevated.
  - High exposure to natural disasters and climate change.
  - A rapidly ageing population strains the pension system and growth prospects.
  - Recent shocks likely had a disproportionate impact on the vulnerable.
- The government is undertaking broad reforms ahead of the November 2025 general elections: infrastructure upgrades, resilience building, digitalization, pension and education reforms, and strengthening social assistance and fiscal institutions.

### Recent Developments
- Growth and employment
  - Growth: 3.1 percent in 2022; estimated 5.8 percent in 2023.
  - Formal employment surpassed pre-pandemic levels in 2022 and continued to grow in 2023.
  - Stayover arrivals approached pre-pandemic levels in 2023 supported by improved airlift.
  - Agriculture contracted due to lingering volcanic eruption effects and historic high temperature in 2023.
- Inflation and wages
  - Inflation peaked at 7.5 percent y/y in late 2022; fell to 4.8 percent as of April 2024.
  - Government raised minimum wage by an average of about 26 percent (effective from March 2024) to align VCT’s minimum wage-to-average wage ratio with peers.
- External sector
  - Current account deficit narrowed to 17.6 percent of GDP in 2023 from 22.2 percent in 2021 (preliminary data).
  - Improvement supported by recovery in goods exports and tourism receipts; offset by lower private transfers and higher imports tied to infrastructure projects and import costs.
  - Gross international reserves adequate at about 5 months of imports.
  - External position assessed as moderately weaker than level implied by fundamentals and desirable policies.
- Fiscal developments
  - Primary deficit rose to 9.2 percent of GDP in 2023 from 4.7 percent of GDP in 2021, driven by port-related spending and temporary factors and lower tax collections despite reductions in non-interest current spending.
  - Underlying primary balance excluding port-, COVID-, and volcanic eruption-related spending improved from -0.8 percent of GDP in 2021 to -0.4 percent in 2023.
  - Public debt declined to 87.1 percent of GDP in 2023 from 88.3 percent in 2021 on account of strong growth.
- Notable temporary fiscal and revenue factors (explicitly reported)
  - One-off land sale related taxes contributing 2.5 percent of GDP to domestic transaction tax revenue in 2021.
  - Temporary price-mitigating measures costing 0.5 percent of GDP in 2022 and 0.2 percent of GDP in 2023; phased-out measures amounted to 0.6 percent of GDP for 2022-23.
  - Lump-sum VAT refunds ~1.8 percent of GDP and import tax concessions to Sandals Resort (during 2022-23) in 2023.
  - Temporary 50 percent duty reduction on imported new tires to June 30, 2024.
  - Announced tax policy changes: reduction of top PIT and CIT rate from 30 to 28 percent; increase of standard PIT deductions; estimated total annual cost about 0.6 percent of GDP.
  - Authorities introduced offsetting measures in 2023 and 2024 budgets including increases in user fees for some services.

### Outlook and Risks
- Growth and inflation projections
  - Growth projected at 4.9 percent in 2024.
  - Stayover arrivals projected to reach 120 percent of pre-pandemic levels in 2024.
  - Inflation projected to ease to 2.5 percent by end-2024.
  - Medium-term growth underpinned by tourism capacity expansion, ongoing tourism projects, FDI inflows, and structural reforms.
- Project timelines
  - Port project on schedule to be completed in 2026.
  - Hospital project start expected delayed to 2024Q4 due to World Bank design revisions, with retention work likely to spill over into 2027.
- Balance of payments and external outlook
  - Current account deficit projected to narrow over the medium term as exports grow and large infrastructure projects are completed.
- Key downside risks
  - Abrupt global slowdown affecting tourism, trade, and FDI.
  - Commodity price volatility, regional conflicts, and geo-economic fragmentation increasing food and fuel prices and reducing FDI.
  - Capacity constraints, supply-chain disruptions, and rising project costs delaying investments.
  - Lower-than-expected fiscal balances delaying fiscal adjustment and threatening debt sustainability.
  - Persistent threat of natural disasters and climate change.
- Upside possibilities
  - Stronger-than-expected tourism development and agriculture recovery could boost growth and improve the external position.
- Financial tightening exposure
  - Staff analysis indicates limited pass-through to domestic lending and borrowing rates so far due to VCT’s isolation from international financial markets.

### Policy Discussions and Fiscal Policies
- Overall policy priorities
  - Protect macroeconomic stability and fiscal space for growth-enhancing physical and social investments through a more efficient and equitable tax and expenditure framework.
  - Address structural bottlenecks to investment, employment, and productivity and build resilience.
  - Maintain financial stability.
- 2024 budget and fiscal stance
  - Budget balances an appropriate mix of fiscal prudence and support for inclusive, resilient growth.
  - Authorities rationalize current spending, build the Contingencies Fund, and prioritize capital spending on reconstruction, resilience, health, and education.
  - Preliminary data through March suggest well-contained current spending and revenue improvement.
  - Projected 2024 balances: overall primary balance projected to improve to -4.6 percent of GDP; underlying primary balance projected to improve to 2.1 percent of GDP.
- Debt and medium-term fiscal strategy
  - Public debt assessed sustainable but at high risk of distress for external and overall public debt (unchanged from 2022 Article IV DSA).
  - Authorities committed to reaching the 2035 regional debt target of 60 percent of GDP and follow the medium-term fiscal strategy in the 2021 RCF.
  - Baseline projects primary balance moving to a surplus of about 3¼ percent of GDP from 2026 based on existing and announced policies, placing debt on a downward path from 2025 and potentially below 60 percent of GDP before 2035 if sustained.
  - Gross financing needs expected to remain high near term and mainly financed by medium- and long-term concessional loans for port and hospital projects.
- Contingency planning and disaster risk financing
  - Cabinet adopted a Disaster Risk Financing Strategy (DRFS) prepared with World Bank support.
  - Planned instruments and measures:
    - Establish a new Catastrophe Deferred Drawdown Option of US$20 million with the World Bank.
    - Strengthen data collection/management and public financial management for disasters.
    - Contingency budgetary planning beyond existing Contingencies Fund, CCRIF coverage, and contingency reserve from undrawn SDR holdings.
  - SDRs and reserves:
    - In 2021 VCT received a special SDR allocation of 11.2 million SDRs (approximately US$15.7 million at the time of the allocation), of which about US$12.8 million have been kept as reserves as of end-May 2024.
  - Baseline fiscal projections incorporate contingency planning for an annual fiscal cost from natural disasters of 1.1 percent of GDP (1980-2023 estimate), including:
    - Annual contribution to the Contingencies Fund of about 0.7 percent of GDP.
    - Contingent spending of goods and services and transfers of 0.4 percent of GDP.
  - Contingencies Fund balance: about 1.6 percent of GDP as of end-2023.
  - CCRIF average payout for VCT: 0.2 percent of GDP based on historical payout information.
  - As part of DRFS, authorities plan increased collaboration with the private sector to improve availability and affordability of catastrophe risk insurance products.
- Staff advice on fiscal anchor
  - Bringing the primary surplus to around 3¾ percent of GDP in the medium term (about ½ percentage point above the current medium-term target) would build a safety margin and lower public debt anchor.
  - Staff illustrative simulations show a debt anchor in the range of 45-50 percent of GDP would ensure the regional debt target and public debt sustainability are met with high probability.

*Source: IMF staff report material for "1. Key Macroeconomic Indicators" (St. Vincent and the Grenadines).*

### 13. To build additional fiscal space to guard

### 13. To build additional fiscal space to guard against risks and support inclusive growth

### Tax policy and revenue mobilization
- IMF Technical Assistance mission recommended reform options including:
  - Restructuring the personal income tax (PIT) to strengthen progressivity and promote labor force participation and formality.
  - Taking a new approach to tax incentives and the corporate income tax.
  - Generating a greater proportion of revenues from the more efficient value added tax (VAT) and recurrent property tax.
- Implementation notes:
  - For tax reforms to be efficient and achieve revenue goals, it would be desirable to introduce some of them as a package, with appropriate sequencing.
  - Residential property valuations have not been updated since 2008.
  - The PIT rate structure has narrow bands, with over 2/3 of the taxpayers paying at the top rate.

### Public spending, social protection, and program efficiency
- Recent actions and ongoing work:
  - Phasing out all untargeted price-mitigating measures introduced in 2022.
  - Modernizing the social assistance system by streamlining programs, updating benefit rules and legislation, recertifying beneficiaries, and digitalizing beneficiary information.
  - Scope remains to further improve targeting of social support, complemented with strong active labor market policies (ALMPs) to enhance employability and earnings of the vulnerable.
- Ongoing projects with WB and IMF support:
  - Improve budgeting system performance, with a specific focus on gender-responsive budgeting.
  - Digitalize government infrastructure, platforms, and services under the OECS Digital Transformation Project to enhance fiscal transparency.
  - Improve planning, allocation, and implementation of investment projects and strengthen climate resilience by undertaking a C-PIMA and implementing a prioritized list of recommendations, including developing a public asset registry and asset management inventory system, with particular focus on natural disaster related contingent liabilities.

### National Insurance Service (NIS) and Public Sector Pension System (PSPS)
- Challenges:
  - NIS financial sustainability under strain due to low contributions, generous payouts, frequent shocks, and a rapidly aging population, creating a large contingent liability for the government.
- Reforms underway:
  - Government launched a package of NIS reform measures in early 2024, including raising contributions, tightening early retirement, increasing the reference wage period used for benefit calculation, and better incentivizing the self-employed to participate.
- Additional reform considerations:
  - Linking retirement age to life expectancy.
  - Reducing generosity of benefit accrual rules by applying a uniform accrual rate across years.
  - Reforming the non-contributory PSPS to better align it with the NIS to improve fairness and reduce fiscal costs.

### Fiscal institutions and medium-term framework
- Revenue administration improvements planned or underway:
  - Enforce VAT for private home vacation rentals.
  - Modernize the Custom Act.
  - Digitalize the tax information management system.
- Fiscal Responsibility Framework (FRF) and Fiscal Responsibility Mechanism (FRM):
  - The first FRM report (established in 2021) was published in early 2024.
  - Recommendations to further strengthen fiscal credibility include recalibrating and fully operationalizing the FRF, timely publishing and incorporating forward-looking budgetary advice into the FRM report, improving the budget process and medium-term fiscal planning, and strengthening SOE oversight and the cash management system.

### Structural policies and supply-side bottlenecks
- Key areas to relax bottlenecks and boost growth potential:
  - Public and private investment in port, roads, airports, hotels, intra-regional ferry, and agriculture production and other key infrastructure.
  - Development of sectoral strategies guided by the National Development Plan.
  - Strengthen linkages between agriculture and fisheries and tourism to increase domestic value-added.
  - Digital transformation of government, business, and financial infrastructure and services to enhance productivity and the business environment.
  - Enact the Investment Act and establish single windows for land and property transactions and trade to improve investment climate.

### Labor market, education, and human capital
- Labor market and demographic context:
  - Rapid population ageing increases the importance of higher participation and skills attuned to market needs.
- Policies and reforms:
  - Comprehensive education reform focusing on curriculum reforms and expansion of post-secondary and technical and vocational education and training.
  - Infrastructure and human capital investment in education and health expected to bring significant output gains (staff analysis referenced).
  - Introduction of a permanent unemployment insurance scheme starting in 2025, with ILO support; careful design and complementary ALMPs are needed to encourage labor market participation, formality, and ensure scheme sustainability.
  - Upgrading labor market policy framework to reduce gender gaps; targeted social investments to unleash female labor force potential by enhancing access to affordable and quality child and elderly care and reducing adolescent pregnancy.

### Climate change, disaster resilience, and energy transition
- Resilience-building actions:
  - Developed a Disaster Risk Financing Strategy (DRFS) and started tapping Green Climate Fund.
  - Finalizing the National Physical Development Plan and the Comprehensive Disaster Management Policy, Strategy and Implementation Plan; ongoing review of National Disaster Management Plan and National Emergency and Disaster Act.
  - Port and hospital projects have incorporated climate-resilient features into their design.
  - Road Rehabilitation Project (3-year project funded by Taiwan POC) and Infrastructure Resilience Building Funding (US$50 million) from the Saudi Development Funds focus on strengthening infrastructure resilience.
- Energy transition:
  - Launch of a new revenue-neutral import tax regime to promote cleaner motor vehicles.
  - Ongoing modernization of the Electricity Act and update of the National Energy Policy.

### Financial stability and supervision
- System soundness and risks:
  - Financial system remains sound and financial stability risks are moderate.
  - Capital and liquidity are ample.
  - NPLs have declined from the 2022 peak and remain below regional averages; no significant impact from the expiration of the moratorium.
  - Banks’ provisioning levels—while above the regional average—fall somewhat below the new 60 percent regional requirement.
  - Banks’ profitability has fully recovered to pre-pandemic levels.
  - Acquisition of First Caribbean International Bank by Bank of Saint Vincent completed in 2022.
  - The 2023 resolution and liquidation of a small bank accounted for 1.6 percent of the country’s total banking assets; deposits up to EC$100,000 were transferred to Bank of Saint Vincent and made immediately available to depositors.
- Supervision and policy priorities:
  - Continue close monitoring of asset quality and underwriting standards; bolster provisioning and accelerate disposal of long-dated NPLs.
  - Vigilance over credit union sector given loans are less than one-third of total loans and their comparatively lighter regulation; strengthen oversight and timely corrective actions in the absence of resolution frameworks and financial safety nets.
  - Monitor climate risks via the general insurance sector as property insurance premiums have risen under pressure from increased reinsurance costs.
  - Priorities for the FSA include completing transition to risk-based supervision (including climate risks), adopting amendments to the FSA Act, establishing a National Crisis Committee for non-bank financial sector crisis management and deposit insurance schemes, and supporting establishment of an ECCU regional standards setting body for nonbank financial institutions.
  - Recent IMF TA mission to help the FSA strengthen its resolution framework.

### AML/CFT, financial inclusion, and regional initiatives
- AML/CFT:
  - Continue strengthening effectiveness of AML/CFT framework to minimize risks of losing correspondent banking relationships.
  - Authorities have started implementing risk-based supervision for higher-risk sectors; Customs and Excise Department improved clarity and timeliness of information sharing with the Financial Intelligence Unit.
  - Continue assessing money laundering risks associated with legal persons and other sectors not yet risk assessed and implement mitigating measures in line with 2024 CFATF Mutual Evaluation recommendations.
- Financial inclusion and regional cooperation:
  - Stepping up digitalization efforts and leveraging ECCU regional credit bureau and credit guarantee scheme could bolster financial inclusion.
  - Planned operationalization of the credit bureau in VCT later this year.
  - Renewed efforts to promote use of the Eastern Caribbean Partial Credit Guarantee, digitalization of financial services, and implementation of regional securities legislation.

### Data issues
- Data strengths and gaps:
  - Data provision broadly adequate for surveillance but scope to improve timeliness, availability, and granularity.
  - Priorities: high-frequency indicators (e.g., tourism), national accounts data, and key surveys (e.g., labor market and household budget surveys); requires adequate resources and training for the statistics agency.
- Capacity development:
  - Continued IMF capacity development through CARTAC technical assistance to strengthen national accounts and balance of payments.
  - Regional Data for Decision Making Project (2022–27) supported by WB expected to improve National Statistics System infrastructure, processes, and capacity.
  - Ongoing Population and Housing Census is a significant step and should be finalized expeditiously.

### Authorities’ views
- Outlook and policy stance:
  - Authorities broadly agreed with staff on the outlook and risks, noting robust recovery in 2022–23 despite agriculture underperformance owing to volcanic eruptions and high temperatures.
  - Finalizing Agriculture Sectoral Development Plan for 2024–29; upgrading infrastructure; working with WB and USAID to improve agricultural production and productivity.
  - Expect strong GDP growth to continue in 2024 supported by tourism recovery and infrastructure investment.
- Fiscal policy:
  - Authorities remain committed to the regional debt target and medium-term fiscal strategy set out in the 2021 RCF.
  - Plan to strengthen tax administration, contain wage growth (prudent public sector wage growth over 2023–25 agreed in recent negotiations), contain non-priority current spending, and prioritize capital programs.
  - Plan to recalibrate and fully operationalize the FRF at the next scheduled review in 2025.
  - Building the Contingencies Fund, implementing the DRFS, including establishing a new CATDDO, and introducing contingency budgetary planning.
  - Authorities agreed with need for property revaluation and broadening the VAT base but viewed other IMF TA-proposed tax reforms as likely not achieving desired effect in a small island economy; considering reform options for the non-contributory PSPS to better align with the NIS.
- Structural reforms and social policy:
  - Support staff’s view that structural reforms are critical to resilient and inclusive growth and debt sustainability.
  - Highlighted investments in critical infrastructure, enacting the Investment Act, establishing single windows, education reform, youth participation initiatives, parental leave strengthening, and initiatives to increase targeted social investments to boost female labor force participation.

*Source: IMF staff report excerpt and accompanying annexes as provided.*

### 31. The authorities broadly agreed with staff’s assessment of the financial sector. The FSA

### 1vctea2024001 - 31. The authorities broadly agreed with staff’s assessment of the financial sector. The FSA

### Financial sector assessment
- The authorities broadly agreed with staff’s assessment of the financial sector.
- The FSA continues to closely monitor asset quality and underwriting standards of credit unions.
- Authorities are working with the ECCB to bolster banks’ provisioning levels.
- Commitments include strengthening regulatory and supervisory frameworks and improving crisis preparedness through:
  - Amendments to the FSA Act.
  - Establishment of a National Crisis Management Committee.
- Efforts are being stepped up to implement recommendations of the 2024 CFATF Mutual Evaluation.

### Staff appraisal — macro recovery and outlook
- St. Vincent and the Grenadines has achieved a robust recovery from recent compounded shocks, supported by:
  - Decisive policy responses.
  - Large-scale investment projects.
  - Robust growth in tourism.
- Agriculture performance disappointed due to lingering impact of volcanic eruptions and historic-high temperatures in 2023.
- Labor market:
  - Employment has returned to the pre-pandemic level except for young men.
  - Female labor force participation remains relatively low.
- Inflation has subsided from its peak.
- The external position in 2023 was moderately weaker than the level implied by medium-term fundamentals and desirable policies.
- Outlook is favorable but subject to downside risks from:
  - An abrupt global slowdown.
  - Commodity price volatility.
  - Potential delays in investment projects.
- Long-term challenges: rapidly ageing population, intensifying threat of natural disasters and climate change, and still high public debt.

### Fiscal policy and public debt
- Fiscal policy priorities:
  - Build buffers and support resilience and inclusive growth while safeguarding public debt sustainability.
  - Continued commitment to reaching the regional debt target and the medium-term fiscal strategy set out in the 2021 RCF is critical.
- Disaster and contingency planning:
  - Adoption of the Disaster Risk Financing Strategy (DRFS) and ongoing implementation efforts, including continued building of the Contingencies Fund and establishment of the Catastrophe Deferred Drawdown Option with the World Bank.
- Policy recommendation:
  - Pursue a lower debt target and stronger adjustment to create a safety margin for shocks and increase the probability of meeting the regional debt target and public debt sustainability.
- Revenue and expenditure framework:
  - Improve efficiency and equity of the tax and expenditure framework to enhance revenue while supporting resilient and inclusive growth.
  - Continue significant work to improve efficiency and inclusiveness of public spending and services.
  - Build on reforms to the National Insurance Service (NIS) and urgently align the non-contributory Public Sector Pension System with the NIS to improve fairness and reduce fiscal costs.

### Strengthening fiscal institutions
- Continue efforts to enhance revenue administration, including:
  - Initiative to enforce VAT for private home vacation rentals.
  - Modernizing the Customs Act.
  - Digitalizing the tax information management system.
- Strengthen the Fiscal Responsibility Framework (FRF) to signal a credible medium-term fiscal plan by:
  - Recalibrating and fully operationalizing the FRF.
  - Timely publishing and incorporating forward-looking budgetary advice into the Fiscal Responsibility Mechanism report.
  - Improving the budget process and medium-term fiscal planning.
  - Strengthening SOE oversight and the cash management system.

### Structural reforms and social policies
- Priority structural reforms:
  - Invest in climate resilience and address bottlenecks to investment, employment, and productivity.
  - Ongoing investments in ports, roads, airports, and water supply; digitalization and improving the investment climate to alleviate supply-side bottlenecks and enhance competitiveness.
- Human capital and labor market:
  - Comprehensive education reform focusing on curriculum changes and expansion of post-secondary and technical and vocational education and training to reduce skill mismatches and facilitate youth employment.
  - Careful design of the unemployment insurance scheme, complemented by active labor market policies, to encourage labor market participation and formality and ensure scheme sustainability.
  - Strengthening parental leaves and targeted social investments to increase female labor force participation, including enhancing access to affordable and quality child and elderly care and reducing adolescent pregnancy.
- Climate and energy transition:
  - Continue building structural and financial resilience and transition to renewable energy by incorporating resilience features into new infrastructure, implementing the DRFS, enhancing the disaster management plan and legislation, and modernizing the Electricity Act.

### Financial system stability and recommendations
- Current status:
  - Financial system remains sound; capital and liquidity buffers are ample.
  - No apparent impacts of the compounded shocks on asset quality.
- Vulnerabilities and recommended actions:
  - Bolster provisioning levels for the banking system and accelerate disposal of long-dated nonperforming loans.
  - Continue strengthening supervisory and regulatory frameworks and improve crisis preparedness.
  - Continue efforts to strengthen the AML/CFT framework to minimize the risk of losing Correspondent Banking Relationships.
- Observed indicators (as reported):
  - Banks’ NPL ratios remain well below the ECCU average and have come down from the 2022 peak.
  - Banks’ loan provisions fall short of the tighter regulatory requirements.
  - Credit unions have been increasing their share in total outstanding credit to the private sector.
  - Banks’ profitability has recovered to pre-pandemic levels but remained below the regional averages.

### Key macroeconomic figures and projections (selected)
- Real GDP (annual percentage change): 2019 0.7; 2020 -4.3; 2021 2.1; 2022 3.1; 2023 5.8; 2024 4.9; 2025 3.5; 2026 2.7.
- Consumer prices, end of period: 2019 0.5; 2020 -1.0; 2021 3.4; 2022 6.7; 2023 4.0; 2024 2.5; 2025 2.0; 2026 2.0.
- Broad money (percent change): 2019 10.3; 2020 -6.6; 2021 12.8; 2022 0.2; 2023 4.0; 2024 9.3; 2025 5.6; 2026 4.7.
- Credit to private sector, period average (percent change): 2019 -0.5; 2020 3.4; 2021 0.7; 2022 -0.3; 2023 1.2; 2024 2.5; 2025 2.8; 2026 3.5.
- Total revenue and grants (percent of GDP): 2019 25.8; 2020 28.9; 2021 30.9; 2022 26.8; 2023 26.4; 2024 27.5; 2025 28.2; 2026 28.4.
- Total expenditure and net lending (percent of GDP): 2019 29.3; 2020 34.8; 2021 38.0; 2022 36.0; 2023 38.1; 2024 35.4; 2025 31.7; 2026 28.2.
- Overall balance (percent of GDP): 2019 -3.5; 2020 -5.9; 2021 -7.2; 2022 -9.2; 2023 -11.7; 2024 -7.9; 2025 -3.5; 2026 0.2.
- Gross public sector debt (percent of GDP, selected): 2019 68.1; 2020 79.0; 2021 88.3; 2022 84.7; 2023 87.1; 2024 88.2.

### Article IV timing
- It is proposed that the next Article IV consultation with St. Vincent and the Grenadines takes place on the standard 12-month cycle.

*Source: IMF staff report and associated tables and figures (St. Vincent and the Grenadines).*

### Annex I. Implementation of Past Fund Advice

### Annex I. Implementation of Past Fund Advice

### Fiscal Policy
- Near-term focus: continue prioritizing health and reconstruction spending and time-bound targeted fiscal support while maintaining fiscal prudence.
  - Status: Ongoing. Authorities continue to prioritize capital spending on reconstruction and critical infrastructure projects.
  - Most temporary price-mitigating measures introduced in mid-2022 were phased out by end-2023, including the generalized reduction in fuel excise taxes.
- Recalibrate and fully operationalize the FRF to underpin commitments and reinforce fiscal credibility.
  - Status: Ongoing. The FRM established in 2021 published its first report in 2022 assessing the 2022 budget, discussing the medium-term economic and fiscal outlook, and making policy recommendations to the government.
- Build additional buffers and prepare contingency plans, including through growth-friendly and equity-enhancing measures on both revenue and expenditure sides.
  - Status: Ongoing.
  - Cabinet adopted a Disaster Risk Financing Strategy, prepared with support from the WB.
  - Work underway to (i) strengthen data collection and management as well as public financial management related to disasters; and (ii) establish a new CATDDO of US$20 million with the WB and contingency budgetary planning for disaster responses and resilience activities (beyond the existing CF, coverage from CCRIF, and contingency reserve from undrawn SDR holdings).
  - Implemented reforms to improve efficiency of the social assistance system, digitalizing government services, and launched reform measures to improve financial sustainability of the NIS. PSPS reforms are under consideration.
- Continue efforts to implement fiscal institutional reforms to underpin effective implementation of the FRF.
  - Status: Ongoing.
  - Enhancing revenue administration (enforce VAT for private home vacation rentals, digitalizing the tax information management system).
  - Gender-responsive budgeting piloted in three line ministries.
  - Cabinet approved an action plan drawing on C-PIMA recommendations.

### Structural Reforms
- Strengthen investment and business environment.
  - Status: Ongoing. Digital transformation (single windows for land and property transactions and trade), ongoing investment on port, roads, airports, hotels, and agriculture production, and upcoming enactment of the Investment Act expected to improve competitiveness and growth.
- Reduce skill mismatches and youth unemployment by improving TVET programs and enhancing ALMPs.
  - Status: Ongoing.
  - Launched comprehensive education reform focusing on curriculum reforms and expansion of post-secondary and TVET and certifications, reflected in the 2023–24 budgets.
  - Established Prime Ministerial Advisory Council on Youth.
  - ALMPs: ON-SITE and SET programs (internship training and employment for youths 18–35), WE CAN program (conditional cash transfer to indigenous and poor households through farm skills internships), pilot SVG-LMIS program to computerize key operations of SVG-DoL and produce Labor Market Information.
- Further develop tourism sector.
  - Status: Ongoing. Authorities preparing a 10-year tourism master plan with sustainable tourism policies and ramping up efforts to increase airlift.
- Build resilience to natural disasters and climate change.
  - Status: Ongoing. Developed Disaster Risk Financing Strategy, started tapping Green Climate Fund, finalizing National Physical Development Plan and St. Vincent and the Grenadines Disaster Management Comprehensive Strategy and Implementation Plan (guiding review of the National Disaster Management Plan and the National Emergency and Disaster Act).
- Transition to renewable energy.
  - Status: Ongoing. Launched a revenue-neutral import tax regime to promote cleaner motor vehicles; ongoing work to modernize the Electricity Act and update the National Energy Policy.

### Financial Sector Policy
- Transition to risk-based supervision, including climate change and cyber threats.
  - Status: Ongoing. Risk-based supervision applied to credit unions, building associations, and insurance sector using the World Bank framework. ECCB climate risk project with FSA participation underway; first phase report under preparation. CARTAC workshop participation. Cyberthreats included in risk assessments.
- Strengthen financial sector oversight, regulatory and supervisory framework; extend stress testing and more periodic public financial stability communication.
  - Status: Ongoing. Upgrading and modernizing legislation; participation in regional efforts for a systematic credit bureau; issuance of consultation guidelines; continued prudential outreach. FSA plans to increase on-site visits based on risk in 2024 and continues annual stress-testing exercises.
- Advance reform initiatives: enact pending legislation and formulate crisis management plan for non-bank financial sector.
  - Status: Ongoing.
  - Enacted Amendments to the Cooperative Societies Act and Amendments to the Insurance Act; approved Harmonized Credit Unions Regulations.
  - Amendments to the FSA Act and the new Building Societies Act included in 2024 legislative agenda.
  - Harmonized Virtual Assets Business Regulations under review by the Attorney General.
  - FSA begun drafting a crisis management plan following IMF TA recommendations to strengthen the resolution framework.
- Continue strengthening the AML/CFT framework.
  - Status: Ongoing.
  - Updated AML/CFT legal framework; risk-based AML/CFT supervision applied to credit union, money service business, insurance, international banking, registered agent, and building society sectors.
  - Administered AML/CFT questionnaires to licensed entities and conducted standalone AML on-site examinations.
  - 4th Mutual Evaluation Report (MER) concluded VCT’s AML/CFT framework is compliant with most recommendations related to preventive measures and supervision, though effectiveness needs improvement.
  - Enacted the Terrorism Financing Act in 2023; initial measures to strengthen monitoring of physical cross-border cash and Bearer Negotiable Instrument (BNI).
  - Continuing comprehensive assessment of mutual fund entities and asset size data collection.
- Promote private sector credit growth and financial inclusion.
  - Status: Ongoing. Participation in regional initiatives: planned operationalization of the credit bureau in VCT later this year, renewed efforts to promote use of the Eastern Caribbean Partial Credit Guarantee, digitalization of financial services, and implementation of regional securities legislation to facilitate greater access to financial services.

### External Sector Assessment (Annex II)
- Overall assessment: The external position of St. Vincent and the Grenadines in 2023 was moderately weaker than the level implied by fundamentals and desirable policies. Assessment subject to large uncertainty due to use of preliminary current account data and challenges assessing potential scarring impacts of volcanic eruptions.
- Policy recommendation: Sustain fiscal consolidation efforts to rebuild buffers; structural reforms to boost competitiveness and strengthen external position.
- Foreign assets and liabilities: position and trajectory
  - Background: Negative net international investment position (NIIP) averaged about 128 percent of GDP between 2015–19 and is estimated at 160 percent of GDP in 2023.
  - Drivers: Deterioration mainly driven by current account deficits. In 2023, reserve assets and other investment (mostly currency and deposits) comprised 22 and 23 percent of GDP respectively on the asset side. On the liability side, direct investment was 162 percent of GDP and other investments were large components.
  - Assessment: NIIP expected to deteriorate in near term due to large current account deficits driven by large capital investment projects (hospital, port, hotels, resilient infrastructure) financed through private direct investment and general government concessional loans. Large share of FDI (about two-third of gross liabilities in 2023) and concessional long-maturity government loans are risk-mitigating. IIP position from current account projections expected to stabilize from 2026 as current account improves and fiscal balances strengthen.
  - 2023 (percent of GDP) key IIP figures: NIIP: -160; Gross Assets: 80; Debt Assets: 7; Gross Liab.: 239; Debt Liab.: 11.
- Current account
  - Background: Current account deficit peaked at 22.2 percent of GDP in 2021 and narrowed to an estimated 17.6 percent of GDP in 2023, reflecting tourism recovery.
  - Contributing factors: High import content of reconstruction materials and large investment projects (port and Sandals resort) and higher costs of imports of fuels and other goods contributed to large imports (estimated at 42 percent of GDP in 2023).
  - Fiscal and private sector balances: Current account deficit in 2023 remained sizable, explained by a large overall fiscal deficit of 11.7 percent—largely reflecting port and reconstruction spending—and a negative saving-investment balance in the private sector of -5.9 percent of GDP.
  - Outlook: Current account deficit expected to continue narrowing in the near term and to reach the level implied by fundamentals and desirable policies in the medium term as fiscal balance improves and construction projects complete while tourism expands with enhanced room and airlift capacity.
  - CA model results and adjustments:
    - CA-Actual-17.6
    - Cyclical contributions (from model) (-)0.0
    - Additional temporary/statistical factors (-) 2/ -3.5
    - Natural disasters and conflicts (-) 0.0
    - Adjusted CA-14.1
    - CA Norm (from model) 3/ -12.7
    - Adjusted CA Norm -12.7
    - CA Gap -1.4 -0.1
    - o/w Relative policy gap 0.9
    - Elasticity -0.3
    - REER Gap (in percent) 5.2 0.4
    - Notes: 1/ Based on the EBA-lite 3.0 methodology. 2/ Additional adjustment to account for temporary lingering impact of volcanic eruptions on trade and reconstruction-related imports. 3/ Cyclically adjusted, including multilateral consistency adjustments.
- Real exchange rate (REER)
  - Background: In 2023 REER remained broadly stable; cumulative appreciation slightly above the average of tourism dependent economies.
  - Assessment: REER gap derived from the EBA-Lite CA model and estimated elasticity of -0.27 was 5.2 percent. The EBA-Lite REER model suggests a REER gap of 0.4 percent.
- Capital and financial accounts
  - Background: FDI rebounded to 14.3 percent of GDP in 2022; preliminary 2023 estimate of 12.6 percent of GDP is above pre-pandemic average of 10.4 percent of GDP during 2015–19, mainly supported by large tourism projects (notably the Sandals Resort).
  - Assessment: Net FDI inflows expected to return to pre-pandemic levels in the medium term (around 10 percent of GDP) as large tourism projects wind down. Downside risks include natural disasters and tighter-for-longer global financial conditions.
- FX intervention and reserves level
  - Background: Reserve position remains broadly stable.
  - Imputed reserves in 2023: 26 percent of GDP, equivalent to 5 months of imports and 45 percent of broad money.
  - Assessment: Imputed reserves in 2023 were above typical benchmarks for reserve adequacy in terms of months of imports and percent of broad money.
  - SDR allocation: In 2021 St. Vincent and the Grenadines received a general SDR allocation of 11.2 million SDRs (approximately US$15.7 million), which have been kept as reserves. Footnote: 10.9 million SDRs have been kept as reserves as of end-2023.

*Source: Annex I. Implementation of Past Fund Advice and Annex II. External Sector Assessment (excerpts).*

### Annex III. Risk Assessment Matrix

### Annex III. Risk Assessment Matrix

### External Risks — summary of risks, likelihood, impact, and policy responses
- Intensification of regional conflicts.
  - Relative likelihood: High
  - Impact: High. "Inflation pressures intensify, eroding incomes, dampening demand, widening fiscal and trade deficits, and threatening food and energy security."
  - Policy response:
    - Provide temporary and targeted transfers to the vulnerable.
    - Allow a gradual pass-through of international prices.
    - Continue to improve coverage and targeting of social safety nets.
    - Accelerate transition to renewable energy sources.
    - Further strengthen the fiscal framework to continue to build buffers and communicate credible medium-term fiscal plan.
    - Implement structural reforms to improve competitiveness and diversity of exports.
    - Intensify monitoring of financial institutions.

- Commodity price volatility.
  - Relative likelihood: High
  - Impact: High. "Higher international oil and food prices would increase inflation, put additional pressure on international reserves, slow down growth and increase poverty and inequality."
  - Policy response:
    - Provide temporary and targeted transfers to the vulnerable.
    - Allow a gradual pass-through of international prices and phase out generalized subsidies.
    - Continue to improve coverage and targeting of social safety nets.
    - Accelerate transition to renewable energy sources.

- Abrupt global slowdown or recession.
  - Relative likelihood: Medium
  - Impact: Medium. "A global slowdown hinders tourism recovery, weakens remittances and FDI, and reduces growth."
  - Policy response:
    - Accelerate structural reforms to support economic recovery and diversification.
    - Adopt credible medium-term plan to preserve fiscal sustainability.
    - Provide targeted support to the vulnerable.

- Monetary policy miscalibration.
  - Relative likelihood: Medium
  - Impact: Medium. "Higher imported inflation triggers demand for higher wages, intensifying inflation pressures. Higher borrowing costs add fiscal strains. De-anchoring of inflation expectations and a strengthening of the U.S. dollar could weaken competitiveness."
  - Policy response:
    - Continue restraints in wage growth while providing temporary and targeted support to the vulnerable.
    - Strengthen the fiscal framework to rebuild buffers and communicate credible medium-term fiscal plan.
    - Implement structural reforms to improve competitiveness.
    - Intensify monitoring of financial institutions.

- Deepening geoeconomic fragmentation.
  - Relative likelihood: High
  - Impact: High. "Rising input costs and supply chain disruptions increase inflationary pressures, expand fiscal deficits, and hinder economic growth."
  - Policy response:
    - Allow a gradual pass-through of international prices.
    - Provide temporary and targeted transfers to the vulnerable.
    - Continue to improve coverage and targeting of social safety nets.
    - Adopt credible medium-term plan to preserve fiscal sustainability.
    - Accelerate structural reforms to support economic growth.

- Note on interpretation: "The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path. The relative likelihood is the staff’s subjective assessment ... ('low' ... below 10 percent, 'medium' ... between 10 and 30 percent, and 'high' ... between 30 and 50 percent). The RAM reflects staff views ... as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly. The conjunctural shocks and scenarios highlight risks that may materialize over a shorter horizon (between 12 to 18 months) ... Structural risks are those that are likely to remain salient over a longer horizon."

### Domestic Risks — summary of risks, likelihood, impact, and policy responses
- Extreme climate events.
  - Relative likelihood: Medium
  - Impact: High. "Lower growth and worsen fiscal and external positions."
  - Policy response:
    - Recalibrate FRF to internalize exposure to natural disasters.
    - Implement national adaptation plans with investment in structural and financial resilience, and appropriate ex ante financing.

- Delays in investment project implementation.
  - Relative likelihood: Medium
  - Impact: High. "Lower growth. Slower-than-expected investment would slow down the recovery and resilience building."
  - Policy response:
    - Strengthen public financial management and project implementation capacity, including through implementing C-PIMA recommendations and undertaking CARTAC Technical Assistance.

- Lower-than-expected fiscal balances inconsistent with the 2021 RCF commitment.
  - Relative likelihood: Medium
  - Impact: High. "It would slow down fiscal consolidation and endanger fiscal sustainability."
  - Policy response:
    - Continue to rationalize current spending and build the Contingencies Fund while prioritizing capital spending.
    - Recalibrate and fully operationalize the FRF.
    - Implement coordinated reforms to the National Insurance Service and Public Sector Pension System.
    - Identify and implement revenue and expenditure measures to mitigate the impact.

- Higher NPLs and market risk in indigenous banks and non-banks triggering a confidence shock.
  - Relative likelihood: Medium
  - Impact: Medium. "Financial sector instability disrupts economic activity."
  - Policy response:
    - Monitor asset quality and ensure adequate loan loss provisioning.
    - Enhance regulatory and supervisory frameworks for non-banks.

- Loss of correspondent banking relationships.
  - Relative likelihood: Medium
  - Impact: Low. "Fees of cross-border payments rise, raising business costs and reducing remittance inflows."
  - Policy response:
    - Strengthen compliance with AML/CFT and tax transparency standards.

---

### Annex IV. The Pension System and Reform Options

### A. Context — system structure and current pressures
- Pension system components:
  - Contributory National Insurance Service (NIS) — social security administration offering long-term and short-term benefits to public and private sector employees, self-employed, and voluntary contributors.
  - Non-contributory Public Sector Pension System (PSPS) — for civil servants, funded through budget revenues.

- Key historical and demographic points:
  - NIS began operations in January 1987.
  - Old-age dependency ratio projected to increase dramatically faster starting in 2025 and exceed 0.5 by 2083.
  - NIS reserves were about 17.5 percent of GDP as of end-2022.
  - According to the latest actuarial report as of end-2022, reserves are projected to be depleted by 2036.

- 2014 parametric reform (context and outcome):
  - Gradual increase in statutory retirement age from 60 to 65 by 2028 (currently at 63).
  - Increase in contribution rate from 8 percent to 10 percent.
  - Introduction of early age pension schemes in 2016 led to a rapid increase in benefits paid and limited the relief from 2014 reforms.

### B. Evaluating NIS design and performance (before 2024 reform)
- Contribution and sustainability metrics:
  - Contribution rate: 10 percent as of 2024Q1.
  - Comparators: ECCU average of 13 percent, EME average of 15.3 percent, OECD average of 17.8 percent.
  - GAP (General Average Premium): around 20 percent according to the actuarial report as of end-2022.
  - PAYG (pay-as-you-go rate) estimate: 28.8 percent by 2079 (actuarial report as of end-2022).
  - Consequence: Without reforms, a sharp rise in contribution rates would be needed after reserve depletion.

- Retirement age and benefit generosity:
  - Statutory retirement age: 63 in 2024, increasing to 65 by 2028.
  - Early retirement option: costly; early age pension allows workers to receive benefits as early as age 60.
  - Maximum replacement rates:
    - NIS maximum replacement rate: 60 percent.
    - EME average: 46 percent.
    - OECD average: 52 percent.
  - Accrual rate: described as front-loaded and generous, rewarding short contribution histories.

- Coverage, thresholds, and administrative issues:
  - Minimum contributory pension and insurable wage thresholds: "appear broadly adequate"; minimum contributory pensions exceed regional averages.
  - Over 90 percent of contributors have their wages fully covered by the NIS insurable wage ceiling.
  - Contribution ratio: above the EME average, well below the OECD average.
  - Pensioner ratio: below EME and OECD averages.
  - Coverage weaknesses linked to higher unemployment, higher informality, and lower labor force participation.
  - Recommendations: require participation of self-employed, improve data collection, consolidate data between NIS and tax authorities, digitalize services.
  - Administrative costs: country lags ECCU peers in administrative cost-to-contribution income ratios; scope to modernize administrative systems.

- Urgency: "A comprehensive reform of the pension system is urgently needed." Risks include contingent liabilities to the government, abrupt and disorderly adjustments, higher taxes and lower investment, and intergenerational inequality.

### C. Evaluating the PSPS
- Design features and equity concerns:
  - PSPS is non-contributory.
  - Offers a maximum pension of 67 percent of the final salary.
  - Accrual rate: 2 percent per year.
  - Retirement age: 60 (for those who joined before and on August 3rd, 1983, the statutory retirement age is 55).
  - Favorable conditions for gratuity payments.
  - Combined replacement rate for public sector workers: 127 percent of insurable income (60 percent under NIS + 67 percent under PSPS).
  - Equity concern: dual benefits create disparity between public and private sector workers.

- Fiscal impact:
  - PSPS expenditure: government allocates approximately 2 percent of GDP annually to the program.
  - PSPS share: about 7 percent of total government spending.
  - Implication: potential for cost-saving measures to improve equity and relieve public indebtedness.

### D. 2024 NIS Reform Measures (announced)
- Key elements of the 2024 reform package for NIS:
  - Gradual increase in the contribution rate from 10 percent to 15 percent by 2027.
  - Tighten early retirement by limiting eligibility and increase reduction factors for early retirement.
  - Increase wage period used to calculate reference wage.
  - Raise both the insurable wage and minimum pension thresholds.

- Reform intent and context:
  - Reforms are introduced "recognizing the urgency for reforms" and "in response to the pressing situation."
  - Reforms for the PSPS are "also under consideration."

*International Monetary Fund — Annex III. Risk Assessment Matrix and Annex IV. The Pension System and Reform Options (content unit: 1vctea2024001 - Annex III. Risk Assessment Matrix)*

### 15.      The reform also targets increased coverage. It aims to enhance participation among the

### 1vctea2024001 - 15.      The reform also targets increased coverage. It aims to enhance participation among the

### Coverage and participation
- Aim: enhance participation among the self-employed through an extensive marketing campaign.
- Measures to increase coverage:
  - allow self-employed individuals to qualify for employment injury benefits;
  - introduce a more easily accessible contribution payment system for both the self-employed and informal sector workers.
- In conjunction with NIS reforms, government plan:
  - implement a permanent unemployment insurance scheme with support from ILO;
  - slated to commence in January 2025;
  - objective: expand the safety net for temporary unemployed workers.
- Historical note: The country introduced temporary unemployment benefits during 2020–21 in response to the pandemic and volcanic eruptions.

### Design weaknesses addressed and fiscal implications
- Reform package addresses design weaknesses in the current system:
  - aligns contribution rates more closely with those of peer countries;
  - rectifies incentives for early retirement;
  - extends the reference wage period to enhance equity for workers with relatively consistent earnings (typically lower-wage earners).
- Fiscal trade-offs:
  - These measures are likely to improve the NIS’s financial condition;
  - The increase in insurable wage and minimum pension will result in higher pension obligations.

### Actuarial projections and sustainability impact
- Projection: newly introduced reforms are projected to bolster the financial sustainability of the NIS.
- Actuarial estimate: reforms, collectively, will bolster short-term financing and mitigate long-term costs, and postpone reserve depletion year from 2036 to 2060.

### Further policy considerations toward efficiency, sustainability, and fairness
- Reform marks a significant stride toward a more efficient, sustainable, and equitable pension system.
- Additional considerations (examples provided):
  - link the retirement age to life expectancy (example: automatically increasing it by two-thirds of life expectancy gains at age 65);
  - given relatively generous benefit rules, temporarily freeze pension benefits to enable older generations to share reform burdens and enhance intergenerational equity;
  - thereafter replace ad hoc benefit adjustments with annual adjustments in line with inflation.
- Introduce automatic adjustment stabilizers in the Pension Acts to ensure long-term sustainability:
  - mechanisms would trigger benefit reductions or contribution increases based on conditions such as projected funding falling below prudent levels or reserve depletion occurring sooner than anticipated;
  - automatic stabilizers are particularly useful when proposed reform packages are insufficient to eliminate all actuarial deficits;
  - design caution: avoid large swings in benefits or contributions (example warning about mechanisms relying on ratio of contributors to benefit recipients creating large swings if economic activity collapses).

### Specific reform parameters (as enumerated in source)
- Contribution rate
  - Increase the contribution rate gradually from 10 percent to 15 percent, with increases evenly between the employer and employee.
  - Phase in period:
    - June 1, 2024: 12 percent;
    - January 1, 2025: 13 percent;
    - January 1, 2026: 14 percent;
    - January 1, 2027: 15 percent.
- Early retirement
  - Not awarding early-age pensions to those who have not retired.
  - Increase the reduction factors that apply to early-age pensions from 6 percent per year to 8 percent per year.
- Reference wage
  - Increase the reference wage period used to compute pension from the five best years to the seven best years of contributions.
- Insurable wage
  - Increase insurable wages from EC$1,000 per week to EC$1,200 per week.
- Minimum pension
  - Increase the minimum pension from EC$70 per week to EC$80 per week.

### Proposed reforms for PSPS (Public Service Pension Scheme)
- Objectives for PSPS reform:
  - rationalize overly generous benefits and align them more closely with the NIS to enhance fairness and reduce fiscal costs;
  - introduce transition arrangements for current contributors to help them adjust.
- Possible comprehensive package elements:
  - index benefits to prices instead of to wages;
  - align PSPS retirement age with NIS to 65 years;
  - reduce PSPS replacement rates to make them complementary rather than duplicative to the NIS;
  - close the PSPS to new entrants.
- Estimated impact from staff qualitative assessments:
  - such measures could reduce pension costs by 40 percent or more over the next 20–50 years;
  - initial savings realized within 2–3 years of implementation.
- Alternative if broad reform unfeasible:
  - reduce pension benefits and introduce a 5 percent employee contribution.

### Strengthening the social assistance system (Annex V key recommendations and findings)
- Key recommendations:
  - continue to build a digitalized and centralized information infrastructure;
  - improve targeting;
  - strengthen the social safety net through policy coordination.
- Recent progress and reforms:
  - program streamlining, recertification, and digitalization since the pandemic;
  - consolidation of 17 pre-pandemic programs to three grant schemes under a flagship Public Assistance Program (vulnerability grant, family support grant, emergency grant);
  - emergency supports after volcanic eruptions provided through a disaster relief grant.
- Coverage:
  - The four grants covered nearly 1/3 of the households in 2022.
- Digitalization efforts:
  - delivery of cash transfers updated to a digital payment method;
  - financial literacy training provided to program recipients;
  - with WB support, authorities set up a new Social Assistance Information Management System (SAIMS);
  - work underway to expand household coverage in SAIMS to form a national household registry.
- Benefit rules and legislation updates:
  - vulnerability index being updated to combine income and vulnerability criteria;
  - income cutoff updates poverty line from a 2008 poverty assessment with cost-of-living adjustments;
  - vulnerability classification incorporates demographic and geographic classifications (elderly, people with disability, families with school-age children, families with a single mother, unemployed individuals, and households in disaster zones);
  - efforts to update the Social Protection Strategy, the Social Assistance Bill, and the Elderly Act, and to formulate the People with Disabilities Act.
- Targeting priorities and constraints:
  - lack of up-to-date poverty and vulnerability data constrains targeting policy design;
  - current methods include demographic/categorical targeting and hybrid targeting (income limit plus vulnerability scoring);
  - geographic targeting used in disaster responses.
- Policy options to improve targeting:
  - use parish-level average income information to allocate administrative and program resources proportionally to areas in need and as proxies for hard-to-verify information (e.g., informal income);
  - policies accounting for income disparities across parishes can achieve better targeting than uniform policies for a given degree of program coverage.
- Holistic social protection framework:
  - coordinate social assistance with social insurance and labor market policies to reduce poverty and provide a strong safety net;
  - complement social assistance with strong active labor market policies (ALMPs): subsidies for youth training, employment centers, on-the-job training;
  - unemployment insurance can complement social assistance; temporary unemployment insurance during the pandemic played an important complementary role;
  - the unemployment insurance scheme planned for 2025 has potential implications and should be monitored;
  - coordinated policy efforts on unemployment insurance, social assistance programs, and ALMPs can help support a strong labor market and inclusive growth.
- Examples of related initiatives:
  - 2021 UNICEF pilot: skills development programs for cash transfer beneficiaries (money management, child abuse and domestic violence awareness, parenting education, personal skills development);
  - Ministry of National Mobilization partnership with Ministry of Agriculture to formulate a national WE CAN Project designed to create employment access in agriculture and agricultural products.

### Labor market and education context (Annex VI highlights)
- Data constraints:
  - latest available Labor Force Survey (LFS) dates from 2015; NIS administrative data provide updates through 2022.
  - NIS database covers employed and self-employed workers who pay social security contribution.
- 2015 LFS findings:
  - labor market participation broadly in line with peers, though women and youth exhibited lower participation and employment rates relative to prime-aged men.
  - Youth refers to the age group between 15 and 24 years old.
- Education and labor outcomes:
  - higher education attainment associated with higher participation and employment rates;
  - workers with tertiary education had the lowest unemployment for both women and men and exhibited lower gender gaps;
  - women’s participation gaps were close to 40 percent for primary education levels, while narrowing (and in some cases reverting) for higher education levels;
  - elevated total unemployment driven mainly by workers with primary and secondary education; women’s unemployment gap primarily explained by that for labor force with low education levels.
- Formal employment and wages (NIS administrative data):
  - formal employment grew by an annual average of 2.2 percent over the years prior to the pandemic, primarily supported by the hospitality industry and other services;
  - average reported earnings in 2019 were highest in finance, utility companies, and public administration;
  - average annual real earnings growth was at 0.5 percent during 2013-19;
  - accommodation and food sector recorded the highest annual growth rate of 4.6 percent over this period.
- Post-shock recovery and distributional impacts:
  - employment fully recovered from recent shocks, with total formal employment surpassing pre-COVID levels in 2022, supported by tourism recovery and higher demand in public and other services (e.g., IT services);
  - 2022 Labor Demand Survey indicates labor demand expected to continue increasing, driven by construction projects;
  - top three industries with unmet labor demand: hospitality, health, and education (example: accommodation and food services reported 9 percent of job vacancy left unfilled);
  - average real earnings were resilient after shocks;
  - young men were hardest hit: their employment in 2022 was about 9 percent below 2019, while young women’s formal employment increased by 4 percent during the same period.

*Source: Content unit 1vctea2024001 (excerpts provided).*

### Annex VI. Figure 1. Formal Sector Employment and Earnings Before the Pandemic

### Annex VI. Figure 1. Formal Sector Employment and Earnings Before the Pandemic

### Formal employment and earnings (pre-pandemic observations)
- Formal employment series shown for 2013–2019 across sectors: Public Administration, Construction, Retail, Accommodation and food, Transport, Others (figures depict levels and cumulative growth compared to 2013).
- Average weekly wages and employment share (2019) reported by sector; sectoral average weekly wage and employment share are presented together with an overall average weekly wage and employment share.
- Real average earnings growth, 2013–19 (annual average growth, percent) shown with values ranging between -4 and 5 percent in figure scale.

### Investing in education and skills to improve labor market performance
- Education system structure:
  - Pre-primary: children 2-4 years old.
  - Primary: ages 5-11.
  - Secondary: ages 12-16.
  - Post-secondary/tertiary level.
- Universal access milestones:
  - Primary education achieved universal access in 2001.
  - Secondary access was introduced in 2002 and achieved in 2005.
- Institutional composition:
  - Tertiary: one local state-owned institution (St. Vincent Community College), a regional university (University of West Indies Open Campus), and several foreign medical institutions catering mostly to foreign students.
- Public financing and spending:
  - Most educational institutions are publicly funded.
  - Average spending on education during the past several years exceeded 5 percent of GDP, above the typical spending level of 4.5 percent of GDP observed in Caribbean peers.
- Key quantitative outcomes and trends:
  - Gross enrollment in secondary education rose from 70 percent to over 100 percent over the past two decades.
  - Net enrollment rate currently above the Caribbean average.
  - Share of trained teachers (completed a course in pedagogy) in secondary schools increased from an average of 45 percent during 2000-05 to 61 percent in the 2017–22 period.
  - Pass rates on Caribbean primary exit exams in science and language skills have declined since 2020; secular decline in pass percentage in mathematics noted.
  - Enrollment in preschool centers has been on the decline since 2020; public preschool centers still account for a small share and private centers are expensive.
- Tertiary and TVET enrollment and capacity:
  - As of 2023, 2,157 students were enrolled in SVGCC.
  - Close to 1,000 students received tuition scholarships to pursue tertiary study (majority at University of the West Indies Open Campus, per 2021/22 Education Statistical Digest).
  - Gross annual enrollments of Vincentian students in tertiary education: 183 in 2001; 502 in 2012; 473 in 2022 (2021/22 Education Statistical Digest).
  - Share of students enrolling into SVGCC among those who passed CSEC fell from 28 to 25 percent over the same period; men’s absorption ratio fell from over 26 percent in 2015 to just under 20 percent in 2021; women rose by half a percentage point to just over 29 percent.
- TVET development and investments:
  - 2018 Ministry of Education emphasis on technical and vocational education supported by a $14.5 million CDB project to expand vocational offerings (2018 Budget Address).
  - Strong growth of CVQs and NVQs via programs: YATE, ANEW, SKYE, YES, ON-SITE, and others.
  - Government partnered with hospitality stakeholders to develop short certification courses for chefs, bartenders, landscapers, and tour guides.
  - Capital expenditure of about $7 million earmarked for 2023 dedicated to adding capacity for TVET instruction and refurbishing existing institutes, which includes over $500,000 worth of TVET equipment for the Community College.
- Policy goals and reforms:
  - 2022 education reform: legislative framework amended to place responsibility for post-secondary and higher education with the Prime Minister; new Department of Post-Secondary and Higher Education established.
  - Goal: to have at least one university graduate per household by the year 2030.
  - Measures include increasing affordability (scholarships), broadening community college offerings (e.g., science labs), and transforming curriculum to competency-based approach.
  - Let’s LEAP program launched July 2021 to train school leaders and teachers to assist students in overcoming COVID-19 learning losses.

### Labor market policy, institutions, and targeted measures
- Minimum wage policy:
  - Minimum wage levels unchanged since 2017 until a recent increase of about 26 percent (effective from March 2024).
  - The increase brings VCT’s minimum wage-to-average wage ratio broadly in line with peers and within literature ranges that typically do not trigger major employment distortions.
- Unemployment insurance and labor protection:
  - Authorities plan to establish a permanent unemployment insurance program by early 2025, with ILO support, building on experience from two temporary protection schemes.
  - Ongoing modernization of labor protection legislation: strengthened parental leaves in updated Wage Regulations; with World Bank support, updating the Protection of Employment Act (last updated in 2003) to include provisions for working conditions during emergencies and pandemics and defining remote work.
- Targeted social investments and gender considerations:
  - Expanding affordable and quality child and elderly care and reducing adolescent pregnancy recommended to raise female labor force participation, given single-mom households account for over one quarter of total households.
  - Current top PIT rate applies at a low level of income; increasing PIT progressivity would help encourage labor force participation and formality.
  - Under World Bank support, three ministries piloted gender-responsive budgeting in the 2024 budgeting process; Ministries outlined specific and time-bound key program actions and began systematic collection of sex-disaggregated data.
- Active labor market policies (ALMPs) and employment services:
  - Continued strengthening of ALMPs suggested: on-the-job training, intern- and apprenticeship programs, employment service centers.
  - Existing initiatives: ON-SITE Program, apprenticeship programs and Ministry of Tourism training linked with private sector.
  - Recommendation for careful and continuous monitoring and evaluation of ALMPs through systematic tracking of labor market progress and targeted program outcomes.
- Student loans and debt relief:
  - The National Student Loans Company has a loan portfolio of $32 million and 744 active accounts.
  - Currently, 187 students are taking advantage of the student loan program, accessing $5.4 million worth of loans.
  - Policy action included reducing the government's interest rate on student loans from 6 to 4.5 percent and increasing the training budget to $22 million to support education sector recovery (measures summarized in Annex VI, Figure 5).
  - Plans to expand access to TVET programs and enhance certification system (currently centers on low-to mid-level qualifications).

### Policy recommendations and priorities (from analysis)
- Continue investing in pre-primary, primary, and secondary education to restore and strengthen learning outcomes, with attention to mathematics and STEM foundations.
- Expand and deepen TVET offerings aligned with private sector demand, particularly for technicians, engineers, nurses, construction, IT, renewable energy, and hospitality.
- Ensure TVET expansion includes partnerships with technical institutions and the private sector to deliver specialized, job-relevant training and certifications.
- Design permanent unemployment insurance carefully to balance adequate income support, job-search incentives, financial sustainability, and incentives for formality and worker reallocation.
- Maintain prudent minimum wage setting aligned with productivity growth to balance equity and employment effects.
- Expand affordable child and elderly care and strengthen parental leave to boost female labor force participation.
- Increase PIT progressivity to encourage formality and participation.
- Strengthen ALMPs and employment services, with systematic monitoring and evaluation to ensure effectiveness.

*Sources: NIS and IMF staff calculations.*

### 19.      Improving data collection and analysis will help evidence-based labor market

### 19.      Improving data collection and analysis will help evidence-based labor market

### Key message
- Conducting and publishing regular labor force surveys and censuses will provide labor market outcomes’ data to assess developments and inform policies.
- Collecting information on labor demand and labor supply—including the extent of informality and the characteristics of jobseekers and hiring firms—will help assess labor force and skill mismatches, which are important to tailor education policies and ALMPs.
- Collecting granular sex disaggregated data will help improve gender-responsive performance reporting and inform policies to reduce gender gaps.

### Findings on current data availability and quality
- The latest published labor force survey dates to 2015.
- The authorities are finalizing the processing of labor force survey conducted in 2022.
- CPI data is provided in a timely manner, with an updated albeit less disaggregated basket.
- The Statistical Office introduced a new weight structure for CPI data in January 2023, based on 2018 Household Expenditure Survey, supported by the CARTAC 2021–22 TAs.
- Real GDP annual and quarterly figures are subject to significant delays; GDP by expenditure data is unavailable.
- Publicly accessible debt information is hard to find systematically, complicating internal data verification exercises.
- Since 2017, annual balance of payments and international investment position (IIP) data are compiled and disseminated following BPM6, but external sector data suffers large unexplained errors and omissions and large historical revisions.
- The response rate to the balance of payments surveys is low, about 40 percent.
- Capacity constraints limit processing of the visitors’ expenditure survey.
- More granularity of administrative information is needed for analytical purposes.
- Other data gaps: data for assessing the impact of various physical and transitional risks associated with climate change.
- St. Vincent and the Grenadines participates in the Enhanced General Data Dissemination System (e-GDDS) and first posted its metadata in September 2000 but is yet to disseminate the data recommended under the e-GDDS.

### Corrective actions and capacity development priorities
- The regional Data for Decision Making Project (2022–27) supported by the WB is expected to improve the infrastructure, processes and capacity of the National Statistical System and support compilation and dissemination of quality statistical data for country- and regional-level analytics.
- Continued IMF capacity development through CARTAC technical assistance will be important to further strengthen data provision, especially for national accounts and balance of payments.

### Policy-relevant implications for labor market policymaking
- Regular, timely labor force surveys and censuses are essential for evidence-based labor market policymaking.
- Detailed data on informality, jobseeker and firm characteristics are necessary to assess labor force and skill mismatches and to design targeted education policies and active labor market programs (ALMPs).
- Sex-disaggregated, granular data are needed to support gender-responsive performance reporting and policies to reduce gender gaps.

### Relevant macro and fiscal statistics cited
- Real GDP increased by 3.1 percent in 2022 and is estimated to have increased by 5.8 percent in 2023.
- The headline fiscal deficit widened in 2023 by 2.5 percent of GDP, compared to 2022.
- Total public and publicly guaranteed debt increased from 84.7 percent in 2022 to 87.1 percent in 2023.
- The sizable port modernization project is about 22 percent of 2023 GDP.
- The planned modern hospital project is about 9 percent of 2023 GDP.
- The authorities aim to reach a central government primary surplus of at least 3 percent of GDP by 2026.
- Improvement in the underlying primary balance is projected to reach about 3¼ percent of GDP) by 2026.
- Under staff’s baseline scenario, the present value (PV) of public debt is estimated to be 80 percent of GDP in 2023.
- The PV of external debt is projected to peak at 56 percent of GDP in 2024.
- As of end-2023, the outstanding stock of total public debt was EC$2.5 billion (87.1 percent of GDP), compared to EC$2.3 billion in 2022 (84.7 percent of GDP).
- Central government debt was EC$2.5 billion (85.9 percent of GDP) in 2023, compared to EC$2.2 billion in 2022 (83.2 percent of GDP).
- SOEs debt was EC$0.03 billion (1.2 percent of GDP) in 2023, compared to EC$0.03 billion (1.5 percent of GDP) in 2022.
- The share of external debt in total public debt was about 71.3 percent in 2023.
- Since July 1976, the Eastern Caribbean dollar has been pegged to the U.S. dollar at EC$2.70 per U.S. dollar.

*Source: 1vctea2024001 - 19.      Improving data collection and analysis will help evidence-based labor market*

### 62.2 percent of GDP in 2023, broadly

### 62.2 percent of GDP in 2023, broadly

### Public external debt composition
- Total public sector external debt: 100.0 (percent of total) / 65.7 (percent of GDP) in 2021; 100.0 / 62.1 in 2022; 100.0 / 62.2 in 2023 (Text Table 2).
- Financing sources (percent of total):
  - Multilateral: 62.7 in 2021; 67.2 in 2022; 70.2 in 2023.
    - World Bank: 34.7 in 2021; 35.0 in 2022; 34.1 in 2023.
    - Caribbean Development Bank (CDB): 2.1 in 2021; 6.3 in 2022; 8.3 in 2023.
    - IMF: 5.0 in 2021; 4.5 in 2022; 2.8 in 2023.
    - Other multilateral: 0.9 in 2021; 1.3 in 2022; 0.8 in 2023.
  - Bilateral: 25.0 in 2021; 18.4 in 2022; 19.8 in 2023.
    - Paris Club: 1.5 in 2021; 0.8 in 2022; 0.5 in 2023.
    - Non-Paris Club: 23.6 in 2021; 15.5 in 2022; 19.3 in 2023.
  - Private creditors: 12.2 in 2021; 8.0 in 2022; 10.0 in 2023.
    - Includes T-bills held by the Eastern Caribbean Central Bank (ECCB), regional banks, insurance companies, pension funds, among others.
- Interpretation: Public external debt continues to be mostly financed by multilateral and bilateral loans on concessional terms (70 percent and 20 percent of the total, respectively). The remainder (10 percent of the total) is with private creditors, including regional banks, pension funds, and other regional financial institutions.

### Domestic debt and sovereign–financial nexus
- Composition of domestic debt in 2023:
  - Public sector securities: 52.5 percent of total domestic debt.
  - Loans in local currency: 19.4 percent of total domestic debt.
  - Remainder: accounts payable and overdraft.
- Holders of government securities: buy-and-hold national and regional pension systems, insurance companies, and commercial banks (about half of which are public corporations).
- Short-term borrowing and interest:
  - Short-term RGSM borrowing represented 40 percent of total RGSM borrowing as of July 2023.
  - Average short-term interest rate remained low at 3 percent as of December 2023.
- Sovereign exposure of domestic financial sector:
  - Share of government assets: 9 percent in 2023.
- Financing outlook:
  - Over 80 percent of projected gross financing needs over 2024–26 are expected to be financed by medium- and long-term loans on concessional terms with an average interest rate below 4 percent.

### Developments in 2022–23 (real economy and fiscal)
- Real GDP:
  - Increased by 3.1 percent in 2022.
  - Estimated to have increased by 5.8 percent in 2023.
  - Output returned to its pre-pandemic level in 2022.
- Tourism:
  - Stayover arrivals reached 96 percent of the pre-pandemic levels by December 2023.
- Agriculture and fisheries: lower-than-expected production in 2022–23 due to lingering volcanic impacts and historic-high temperature.
- Fiscal outcomes:
  - Overall fiscal deficit in 2023: 11.7 percent of GDP.
    - About 2½ percent of GDP higher than in 2022.
    - About 5½ percentage points higher than anticipated in the 2022 Article IV consultation.
  - Drivers of worse-than-expected 2023 fiscal outturn: one-off tax reductions and refunds, lower-than-expected grants, higher capital expenditure, and small effects from lower-than-expected corporate income tax arrears and import duty reporting delays.
  - Underlying primary balance (excluding pandemic-, volcano-, and port-related spending): improved by about 0.1 percent of GDP in 2023.
  - Public debt:
    - Increased from 84.7 percent of GDP in 2022 to 87.1 percent of GDP in 2023, largely reflecting phasing of port-related spending and borrowing.

### Baseline outlook and major investment projects (2024–44)
- Major projects included in baseline:
  - Climate-resilient port modernization project:
    - Cost: about 22 percent of 2023 GDP.
    - Financing: combination of UK grants and loans from the Caribbean Development Bank (CDB, about US$130 million) and from bilateral creditors at similar terms.
    - Construction launched in May 2022; scheduled to be completed in 2026.
    - More than half of expected capital spending executed through 2023.
  - New climate-resilient hospital:
    - Estimated total cost: about 9 percent of 2023 GDP.
    - World Bank expected to finance around two-thirds of the total at concessional terms; remaining financing from multilateral and bilateral creditors at similar terms.
    - Construction now expected to start in 2024Q4, with retention work likely to spill over into 2027.
    - Majority of capital spending scheduled to materialize in 2025–26.
  - Hotel projects:
    - Sandals Resort opened in March 2024.
    - Holiday Inn construction started in 2022, expected completion by 2024.
    - Marriot expected to start in 2024.
- Near-term growth and inflation (staff projections):
  - Real GDP growth: 4.9 percent in 2024; 3.5 percent in 2025.
  - Stayover arrivals: projected to reach 120 percent of pre-pandemic level in 2024 and 135 percent in 2025.
  - Inflation: projected to decelerate to 3.4 percent in 2024 and 2 percent in 2025.
  - Current account deficit (CAD): expected to narrow from 17½ percent of GDP in 2023 to about 14 percent of GDP in 2025.
  - Imputed international reserves: projected to remain at around 5 months of projected imports of goods and services.
- Medium term (2026–29):
  - Growth: projected to go back to potential in 2026.
  - Inflation: projected to stay at 2 percent in the medium term.
  - CAD: projected to narrow as tourism develops and construction projects complete.
  - Net FDI: expected to subside to historical trend.
  - Imputed reserve coverage: projected to stabilize at around 5 months of imports.
- Long term (2030–44):
  - Assumed potential growth rate: 2.7 percent.
  - Inflation: projected to remain at 2 percent.
  - CAD: projected to remain at the level implied by fundamentals and desirable policies, mostly financed by net FDI flows.
- Financing assumptions under DSA baseline:
  - Primary balance: excluding volcano- and port-related spending, the primary surplus would be 2.1 percent and 3.4 percent of GDP in 2024 and 2025 respectively; staff forecast a primary surplus of around 3 percent of GDP once two large capital projects are completed.
  - Financing composition: most new financing expected from multilateral and bilateral donors at concessional terms, maintaining an average grant element of new debt at 35 percent during 2024–34.
  - Projected external loan disbursements for 2024–34:
    - Existing loan contracts: US$307 million.
    - New loans: US$167 million.
  - Climate resilience fiscal cost: estimated average annual fiscal cost of 1.1 percent of GDP during 1980–23; baseline incorporates Contingencies Fund to cover 0.7 percent of GDP annually of expected fiscal cost, with remaining financing from reallocations in current spending.

### Debt dynamics, capacity, and risks
- Debt dynamics:
  - Total public and publicly guaranteed debt as a share of GDP expected to remain around the 2023 level until 2025, before starting to decline thereafter as projects approach completion.
  - Medium- and long-run debt dynamics supported by strong economic growth, public and private investment, recovery of tourism and agriculture, and authorities’ fiscal adjustment commitments.
- Policy measures under the 2021 RCF and FRF to support sustainability include:
  - Strengthening tax administration.
  - Containing growth of wages and non-priority current spending.
  - Focusing public investment on reconstruction, resilience building, and essential infrastructure by capping total capital spending during 2021–26 (capped at about EC$1.6 bn under staff’s current baseline).
  - Achieving a central government primary surplus of at least 3 percent of GDP by 2026.
- Debt-carrying capacity and thresholds:
  - Composite Indicator (CI) index: 3.02, corresponding to a “medium” rating (marginally lower than threshold for “strong” rating (3.05)).
- Key risks (tilted to the downside):
  - Commodity price volatility and sudden slowdown in key source markets for tourism.
  - Delays in implementation of investment projects and unforeseen rises in project costs.
  - High susceptibility to extreme weather events driven by climate change.
  - Quality and coverage issues in balance of payments data, subject to errors and large revisions.
- Offsetting upside possibilities:
  - Stronger-than-projected tourism inflows and agriculture sector recovery could enhance growth and improve the external position.

*Source: IMF staff calculations and national authorities (Text Table 2 and accompanying chapter).*

### 18. The combined contingent liability stress test is aligned to the country’s specific risks (Text

### 1vctea2024001 - 18. The combined contingent liability stress test is aligned to the country’s specific risks (Text)

### Stress test scope and exclusions
- The stress test includes risks pertaining to financial markets.
- SOEs’ debt, which is already included in total public debt, and PPP, given no existing arrangement, are excluded from the stress test.
- Potential contingent liabilities from the pension system are not included.
- The government announced a package of parametric reforms to the pension system in early 2024, which features:
  - a gradual increase in the contribution rate from 10 percent to 15 percent by 2027;
  - tightened early retirement by limiting early retirement eligibility and increasing penalty;
  - increases wage period used to calculate reference wage;
  - raises both the insurable wage and minimum pension thresholds.
- If fully implemented, the reform is expected to significantly improve the financial situation of the pension fund and keep the pension system funded until 2060.

### Debt-Composite Indicator (CI) calculation (Text Table 4)
- Components, coefficients (A), 10-year average values (B), and CI score components (A*B) = (C); contribution of components:
  - CPIA: Coefficient 0.385, 10-year average value 3.653, CI Score component 1.414, Contribution 7%
  - Real growth rate (in percent): Coefficient 2.719, 10-year average value 2.655, CI Score component 0.072, Contribution 2%
  - Import coverage of reserves (in percent): Coefficient 4.052, 10-year average value 44.412, CI Score component 1.806, Contribution 60%
  - Import coverage of reserves^2 (in percent): Coefficient -3.990, 10-year average value 19.724, CI Score component -0.79, Contribution -26%
  - Remittances (in percent): Coefficient 2.022, 10-year average value 7.111, CI Score component 0.145, Contribution 5%
  - World economic growth (in percent): Coefficient 13.520, 10-year average value 2.856, CI Score component 0.391, Contribution 13%
- CI Score: 3.02 (100%)
- CI rating: Medium
- Debt Carrying Capacity: Medium
- Final classification based on current vintage: Medium
- Classification based on previous vintage: Medium
- Classification based on the two previous vintage: Medium
- CI values listed: 3.02, 3.01, 3.02

### Combined Contingent Liability Shock — natural disaster scenarios (Text Table 5; Text Figure 4)
- Two natural disaster scenarios conducted:
  - Severe natural disaster (default settings):
    - Assumes one-time severe natural disaster that would lower growth by 1.5 ppt and incur fiscal costs of 10 percent of GDP.
    - PV of public debt would peak at 85 percent of GDP in 2025 and decline to 59 percent by 2034 (i.e., remaining above the benchmark during that period).
  - Tailored scenario (country-specific):
    - Based on historical data, assumes more frequent natural disasters (every 5 years) with smaller economic impact: 1 percentage point lower growth and 2 percent of GDP fiscal costs.
    - PV of public debt would peak at 79 percent of GDP in 2025 and decline to the 55 percent of GDP benchmark by 2034.
- Note on baseline natural disaster assumptions: Under the baseline, natural disaster hits the country every 15 years and is estimated to have 1.1 percent of GDP fiscal costs, based on historical data from 1980–21. The country-specific scenario uses parameters that amplify the historical average impact to take into account future price increase to some extent. Other assumptions remain the same as in the severe natural disaster case, including timing of the GDP shock and fiscal costs applied (starting 2024).

### External DSA key findings (Figure 1; Tables 1 and 3)
- Risk of external debt distress is high.
- Baseline:
  - PV of external debt-to-GDP ratio would fall below the indicative threshold of 40 percent of GDP by 2032.
- Under stress test scenarios (growth, primary balance, exports, hypothetical one-time 30 percent depreciation), the PV of external debt-to-GDP ratio remains above the benchmark during the projection period.
- Export shock:
  - Produces the largest impact on PV of external debt-to-GDP ratio, potentially reaching 99 percent of GDP by 2026 and then gradually declining to 73 percent of GDP by 2034.
- Natural disaster (default tailored test):
  - PV of external debt would peak at 64 percent of GDP in 2025 and gradually decline to 49 percent of GDP by 2034.
- PV of external debt-to-exports ratio:
  - Remains below the indicative threshold over the projected period under the baseline scenario.
- PPG external debt service-to-exports ratio:
  - Would meet the indicative threshold by 2028, which incorporates DSSI payments through 2027.
  - A shock to exports would push the debt service-to-exports ratio to peak at 49 percent in 2033, well above the 15 percent threshold.
  - The export shock would keep the PV of external debt-to-exports ratio above its indicative threshold (180 percent) over the projection period.
- External debt service to revenue ratios:
  - Remain well below the threshold over the projected period, reflecting resilient tax revenues and ongoing tax administration measures.
  - With the shock to exports, it would breach its threshold temporarily over the forecast horizon.

### Overall public debt outlook and sensitivities
- PV of public debt is estimated to be 78 percent of GDP in 2024 and is expected to start to decline over the projected period.
- Under baseline:
  - PV of public debt projected to meet the benchmark of 55 percent of GDP by 2031.
  - Public debt-to-GDP ratio would fall below the Eastern Caribbean Currency Union (ECCU) debt ceiling (of 60 percent of GDP) by 2032.
- Sensitivities:
  - Most extreme stress scenario (nominal export growth equals its 10-year historical average minus one standard deviation for 2025 and 2026) would cause PV of public debt to continue to rise and reach 101 percent of GDP by 2026.
  - Alternative scenarios, including a shock to real GDP growth, would result in PV of public debt reaching 97 percent of GDP by 2034 and staying above the indicative target over the forecast horizon.
- Public debt path is particularly sensitive to the export shock.

### Risk rating, recent fiscal performance, and vulnerabilities
- St. Vincent and the Grenadines’ debt is at high risk of distress but is deemed sustainable if fiscal consolidation plans are fully implemented.
- Assessment broadly unchanged from the 2022 DSA.
- Fiscal performance:
  - Underlying primary deficit (excluding port-, pandemic-, and volcanic eruption-related spending) reduced from 1.4 percent of GDP in 2020 to 0.4 percent in 2023 by mobilizing revenues and containing non-priority spending.
  - Authorities target to improve the central government primary balance to a surplus of at least 3 percent of GDP by 2026, consistent with the FRF, once shocks recede and the port project approaches completion in 2025.
- Mitigating factors:
  - Small roll-over risks from short-term debt;
  - Still low interest rates in the regional debt market despite tightening global financial conditions;
  - Relatively favorable borrowing terms given large share of concessional financing;
  - Authorities’ commitment to long-term fiscal adjustment as embodied in the FRF and cautious debt management strategy.
- Remaining vulnerabilities:
  - Risks to the medium term are tilted to the downside, consistent with a “high” risk rating for external and public debt distress.
  - Potential intensification of regional conflicts and economic sanctions could disrupt trade and increase commodity prices, increasing costs of investment projects and/or requiring new relief measures.
  - High susceptibility to climate change and frequent natural disasters.

### Policy recommendations and priorities
- Continue to seek concessional loans for new borrowing; avoid large-scale public investment financed on less concessional terms.
- Further strengthen fiscal institutions and fully operationalize the FRF (noting the FRF was approved in January 2020 and should be recalibrated considering pandemic- and volcanic eruption-related surge in debt and sizable critical climate resilience investment needs).
- Build resilience to natural disasters and strengthen public investment management, including implementing recommendations from the IMF Public Investment Management Assessment with a climate module (C-PIMA) completed in early 2023.
- Improve the budget process and medium-term fiscal policy framework; strengthen SOE oversight and cash management.
- Build additional buffers and prepare contingency plans to return debt to the baseline should fiscal slippages and external shocks materialize.

*1vctea2024001 - 18. The combined contingent liability stress test is aligned to the country’s specific risks (Text)*

### 25. Under the IDA Sustainable Development Financing Policy, the authorities effectively

### 1vctea2024001 - 25. Under the IDA Sustainable Development Financing Policy, the authorities effectively

### Implementation of IDA Sustainable Development Financing Policy and Institutional Reforms
- Performance and Policy Actions (PPAs) required under the IDA Sustainable Development Financing Policy were effectively implemented in FY21, FY22, and FY23.
- Actions completed included:
  - Strengthening the production and regular publication of the annual Debt Portfolio Review (DPR), including the inclusion in the DPR report of all government-guaranteed and SOE debt to further debt transparency.
  - Creation of the Fiscal Responsibility Mechanism (FRM, i.e., a fiscal council) and adoption of the FRM’s reporting standards and final operating principles.
  - Completion of a C-PIMA and adoption of public investment management reforms as recommended by the C-PIMA.
- Expected impacts of these actions:
  - Reinforce fiscal credibility.
  - Contain potential risks from contingent liabilities.
  - Further support fiscal sustainability.

### Ongoing Technical Assistance and Budget/Fiscal Framework Strengthening
- With support from CARTAC TAs, the authorities are working on improving budget process and medium-term fiscal planning to underpin effective implementation of the Fiscal Responsibility Framework (FRF).
- FY24 PPAs focused on:
  - Key public pension reforms to ensure the financial sustainability of the pension system through at least 2060.
  - Development of a public asset registry and asset management inventory system, with particular focus on national disaster-related contingent liabilities.
  - Associated technical assistance in preparing fiscal risk statements.

### Debt-Scenario Analysis and Stress Tests (Overview)
- Stress-test framework notes:
  - The most extreme stress test is defined as the test that yields the highest ratio in or before 2034; a test with a one-off breach is also presented if applicable.
  - Commodity price shocks use magnitudes based on the commodity prices outlook prepared by the IMF research department.
  - All additional financing needs generated by shocks under the stress tests are assumed to be covered by PPG external MLT debt in the external DSA.
  - Default terms of marginal debt are based on baseline 10-year projections.
- Selected stress-test configuration values shown in figure captions (terms of marginal debt and shares of marginal debt where presented): "Tailored Stress", "5.0%", "6", "22", "5.0%", "22", "6", "Combined CL", "Market financing n.a.", "Avg. grace period n.a.", "Commodity price n.a."

### Key External Debt and Macro Projections (Baseline Scenario, selected series)
- External debt (nominal) 1/ (percent of GDP):
  - 2023: 62.2
  - 2024: 66.0
  - 2025: 68.3
  - 2026: 67.1
  - 2027: 64.1
  - 2028: 61.1
  - 2029: 58.0
  - 2030: 49.6
  - 2031: 47.0
  - 2032: 44.6
  - 2033: 42.3
  - 2034: 29.3
- Change in external debt (percent of GDP):
  - 2023: 0.0
  - 2024: 3.9
  - 2025: 2.2
  - 2026: -1.2
  - 2027: -3.0
  - 2028: -3.0
  - 2029: -3.1
  - 2030: -3.1
  - 2031: -2.7
  - 2032: -2.4
  - 2033: -2.2
  - 2034: -1.8
- Identified net debt-creating flows (percent of GDP):
  - 2023: -0.4
  - 2024: 3.4
  - 2025: 1.4
  - 2026: 0.3
  - 2027: -1.4
  - 2028: -2.3
  - 2029: -2.7
  - 2030: -2.4
  - 2031: -2.4
  - 2032: -2.3
  - 2033: -2.2
  - 2034: -2.2
- Non-interest current account deficit (percent of GDP):
  - 2023: 16.2
  - 2024: 15.2
  - 2025: 12.5
  - 2026: 10.2
  - 2027: 8.2
  - 2028: 7.4
  - 2029: 7.1
  - 2030: 7.3
  - 2031: 7.3
  - 2032: 7.4
  - 2033: 7.4
  - 2034: 7.5
- Exports (percent of GDP):
  - 2023: 33.5
  - 2024: 36.4
  - 2025: 37.3
  - 2026: 38.5
  - 2027: 38.9
  - 2028: 39.4
  - 2029: 39.6
  - 2030: 39.6
  - 2031: 39.6
  - 2032: 39.6
  - 2033: 39.6
  - 2034: 39.6
- Imports (percent of GDP):
  - 2023: 56.1
  - 2024: 57.1
  - 2025: 54.7
  - 2026: 54.2
  - 2027: 52.7
  - 2028: 52.3
  - 2029: 52.1
  - 2030: 52.1
  - 2031: 52.1
  - 2032: 52.1
  - 2033: 52.1
  - 2034: 52.1
- Net FDI (negative = inflow, percent of GDP):
  - 2023: -12.6
  - 2024: -10.8
  - 2025: -10.6
  - 2026: -10.1
  - 2027: -10.0
  - 2028: -10.0
  - 2029: -10.0
  - 2030: -10.0
  - 2031: -10.0
  - 2032: -10.0
  - 2033: -10.0
  - 2034: -10.0
- Contribution from nominal interest rate (percent of GDP):
  - 2023: 1.4
  - 2024: 1.8
  - 2025: 1.6
  - 2026: 2.0
  - 2027: 2.1
  - 2028: 1.9
  - 2029: 1.8
  - 2030: 1.6
  - 2031: 1.5
  - 2032: 1.5
  - 2033: 1.5
  - 2034: 1.4
- Endogenous debt dynamics (percent of GDP):
  - 2023: -4.0
  - 2024: -1.0
  - 2025: -0.6
  - 2026: 0.2
  - 2027: 0.3
  - 2028: 0.3
  - 2029: 0.2
  - 2030: 0.2
  - 2031: 0.3
  - 2032: 0.3
  - 2033: 0.3
  - 2034: 0.4

### Selected Sustainability Indicators and Memorandum Items (Table excerpts)
- PV of PPG external debt-to-GDP ratio (percent):
  - 2023: 63.8
  - 2024: 74.9
  - 2025: 72.3
  - 2026: 70.7
  - 2027: 70.0
  - 2028: 70.4
  - 2029: 67.9
  - 2030: 59.1
  - 2031: 56.1
  - 2032: 53.3
  - 2033: 50.5
  - 2034: 47.9
- PV of PPG external debt-to-exports ratio (selected values):
  - 2023: 163
  - 2024: 154
  - 2025: 150
  - 2026: 138
  - 2027: 130
  - 2028: 122
  - 2029: 116
  - 2030: 99
  - 2031: 94
  - 2032: 89
  - 2033: 85
  - 2034: 82
- PPG debt service-to-exports ratio (selected values):
  - 2023: 15
  - 2024: 16
  - 2025: 16
  - 2026: 16
  - 2027: 15
  - 2028: 14
  - 2029: 13
  - 2030: 12
  - 2031: 12
  - 2032: 12
  - 2033: 12
  - 2034: 10
- PPG debt service-to-revenue ratio (selected values):
  - 2023: 13
  - 2024: 14
  - 2025: 14
  - 2026: 14
  - 2027: 14
  - 2028: 12
  - 2029: 12
  - 2030: 12
  - 2031: 11
  - 2032: 11
  - 2033: 11
  - 2034: 9
- Gross external financing need (Million of U.S. dollars):
  - 2023: 120.0
  - 2024: 134.0
  - 2025: 95.9
  - 2026: 80.1
  - 2027: 57.0
  - 2028: 38.5
  - 2029: 33.5
  - 2030: 41.2
  - 2031: 45.2
  - 2032: 40.8
  - 2033: 42.4
  - 2034: 48.2

### Public Sector Debt Framework (Baseline, selected series)
- Public sector debt (percent of GDP):
  - 2023: 87.1
  - 2024: 88.2
  - 2025: 86.7
  - 2026: 82.8
  - 2027: 79.0
  - 2028: 75.0
  - 2029: 71.1
  - 2030: 67.2
  - 2031: 63.5
  - 2032: 59.8
  - 2033: 56.7
  - 2034: 53.8
- Change in public sector debt (percent of GDP):
  - 2023: 2.5
  - 2024: 1.0
  - 2025: -1.5
  - 2026: -3.9
  - 2027: -3.9
  - 2028: -3.9
  - 2029: -4.0
  - 2030: -3.8
  - 2031: -3.8
  - 2032: -3.6
  - 2033: -3.2
  - 2034: -2.9
- Identified debt-creating flows (percent of GDP):
  - 2023: 4.2
  - 2024: 1.1
  - 2025: -2.6
  - 2026: -5.1
  - 2027: -5.0
  - 2028: -5.0
  - 2029: -4.9
  - 2030: -4.6
  - 2031: -4.5
  - 2032: -4.4
  - 2033: -3.9
  - 2034: -3.6
- Primary deficit (percent of GDP):
  - 2023: 8.9
  - 2024: 4.6
  - 2025: 0.2
  - 2026: -3.2
  - 2027: -3.2
  - 2028: -3.3
  - 2029: -3.3
  - 2030: -3.2
  - 2031: -3.1
  - 2032: -3.1
  - 2033: -2.8
  - 2034: -2.6
- Revenue and grants (percent of GDP):
  - 2023: 43.1
  - 2024: 44.2
  - 2025: 44.9
  - 2026: 45.0
  - 2027: 45.1
  - 2028: 45.1
  - 2029: 45.1
  - 2030: 44.5
  - 2031: 44.5
  - 2032: 44.5
  - 2033: 44.5
  - 2034: 44.4
- PV of public debt-to-GDP ratio (percent):
  - 2023: 90.4
  - 2024: 101.8
  - 2025: 94.5
  - 2026: 90.4
  - 2027: 87.7
  - 2028: 86.6
  - 2029: 82.7
  - 2030: 78.1
  - 2031: 74.0
  - 2032: 70.1
  - 2033: 66.3
  - 2034: 62.5

### Sensitivity Analysis Highlights (Table 3, selected outcomes)
- Baseline PV of PPG external debt-to-GDP (percent) by year 2024–2034 (selected):
  - 2024: 56
  - 2025: 56
  - 2026: 53
  - 2027: 50
  - 2028: 48
  - 2029: 46
  - 2030: 44
  - 2031: 42
  - 2032: 39
  - 2033: 37
  - 2034: 35
- Alternative scenarios and bound tests show elevated ratios under various shocks; thresholds reported include 40 (for PV-to-GDP) and 180 (for PV-to-exports) where applicable in the sensitivity tables.

*Sources: Country authorities; and staff estimates and projections.*

### 2. Primary balance1616161615141312151615

### 2. Primary balance

### Hurricane Beryl: event and immediate impacts
- Hurricane Beryl landed in St. Vincent and the Grenadines (VCT) on July 1, leaving major destruction primarily on the Southern Grenadines.
- Beryl is the earliest category 4 Atlantic hurricane on record.
- Casualties and displacement:
  - Six casualties were reported for VCT.
  - Over 4,000 people are displaced.
- Population and localized damage:
  - VCT population: 110.9 thousand.
  - On Union Island (about 3 percent of VCT’s population and about 5.6 percent of the country’s hotel room stock), over 90 percent of houses and buildings were damaged.
  - Four other islands (Bequia, Canouan, Palm Island, and Mayreau) suffered significant, albeit less severe, damages.
- Sectoral exposure and timing:
  - The capital and main island Saint Vincent were largely spared.
  - The hurricane hit during the low season of tourism; impact on agriculture and tourism is likely to be moderate.
- Timing of staff information and documents:
  - Staff information available by July 11.
  - Supplement dated July 12, 2024.
  - Staff report issued to the Executive Board on June 26, 2024.

### Authorities’ emergency response and recovery actions
- Immediate actions:
  - National disaster declared; schools and businesses closed; shelters provided for coastal and displaced residents.
  - Teams deployed and reporting centers established to assess damages and estimate costs.
- Damage and needs assessment processes:
  - World Bank initiated remote Global Rapid Post-Disaster Damage Estimation (GRADE).
  - A comprehensive post-disaster needs assessment (PNDA) expected to follow.
- Restoring services:
  - Recovery efforts underway to restore water and power; expected to take a couple of weeks for many areas but much longer for Union Island.
- Temporary fiscal measures announced:
  - VAT- and duty-free concessions on barrels and all relief supplies.
  - Work on sheltering, clean-up, and infrastructure reparation.
- Insurance and financial sector measures:
  - Ministry of Finance, Financial Services Authority, and Eastern Caribbean Central Bank assessing insurance coverage of damaged houses.
  - Discussions with commercial banks on potential deferral of mortgage payments for heavily affected Southern Grenadines residents.

### Financing the response and existing buffers
- Planned and available fiscal resources:
  - Authorities plan to use EC$50 million (about US$18.5 million or 1.6 percent of GDP) from their self-insurance Contingencies Fund.
  - The Contingencies Fund (CF) balance is EC$70.5 million (about 2.2 percent of GDP) as of early July 2024.
- SDR and reserve considerations:
  - Intend to withdraw 50 percent of the unused SDR allocation (about 0.6 percent of GDP or SDR4.8 million) to finance immediate recovery efforts.
  - VCT received a special SDR allocation of SDR11.2 million in 2021; SDR9.69 million have been kept as reserves as of early-July 2024.
  - The intended withdrawal of 50 percent of the unused SDR would reduce the implied reserves by 2.4 percent of the current reserve level, which is currently projected at 4.7 months of imports.
- World Bank and donor financing:
  - Considering activating the World Bank’s Climate Resilient Debt Clause (CRDC) to defer principal and interest payments of IDA loans.
  - Considering accessing available IDA allocation (currently at US$13 million or about 1.2 percent of GDP) for disaster response.
  - International support pledged/announced (examples in text): European Union €0.45 million; several economies and organizations pledged about US$0.5 million; Caribbean Catastrophic Risk Insurance Facility payout of US$1.862 million (about 0.2 percent of GDP) with an additional small payout likely.
- Other assistance and coordination:
  - UN Emergency Technical Team (UNETT), CDEMA, CARICOM, USAID, VCT Red Cross, government of Japan, IICA, and regional development banks active in coordination or pledges of support.

### Staff assessment of macroeconomic and fiscal impact
- Overall assessment:
  - Thrust of staff appraisal remains broadly unchanged.
  - While hurricane caused large physical damage, staff’s current assessment suggests the impact on GDP might be relatively contained due to reconstruction efforts supporting activity and comparison to the 2021 volcanic eruptions experience.
- Near-term fiscal and external effects:
  - Near-term fiscal deficit and financing needs are likely to rise.
  - Public debt—although elevated—is expected to remain sustainable considering use of Contingencies Fund and some grants.
  - Current account deficit expected to widen in the near term primarily due to some negative impacts on tourism and agriculture exports and import needs for reconstruction material; financing largely by disaster relief grants and concessional financing.
- Financial system resilience:
  - Financial system generally sound and expected to withstand the shocks given ample liquidity buffers, relatively low levels of NPLs, and mandatory insurance in the mortgage market.
- Monitoring and support:
  - Staff will continue monitoring recovery efforts and damage assessments and stand ready to assist the authorities as needed.
  - Staff does not expect the country’s repayment capacity to the Fund to be affected; authorities remain committed to meeting regional debt target and repaying the Fund on time.

### Debt Sustainability scenarios and past analysis (from DSA)
- Natural disaster stress scenarios (as in staff report’s DSA):
  - Growth shocks of 1 to 1.5 percentage points and fiscal costs of 2 to 10 percent of GDP.
  - Under these scenarios, the present value of public debt would peak at 79-85 percent of GDP and decline to around the DSA benchmark of 55 percent of GDP by 2034.
- Staff note:
  - Based on available information, the hurricane’s growth and fiscal impact could be lower than suggested by the two natural disaster scenarios in the DSA, considering the fallout of the past volcanic eruption that affected an economically larger area.

*Source: ST. VINCENT AND THE GRENADINES — STAFF REPORT FOR THE 2024 ARTICLE IV CONSULTATION — SUPPLEMENTARY INFORMATION (prepared by Western Hemisphere Department); material dated July 12, 2024.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1vctea2024001.pdf_