IMF Executive Board Concludes 2018 Article IV Consultation with St. Kitts and Nevis
IMF News, November 21, 2022
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- Published: November 21, 2022
Overview and context
- On September 14, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with St. Kitts and Nevis.
- Press Release No. 22/400; publication date on the landing page: November 21, 2022.
- Key challenges identified: declining Citizenship By Investment (CBI) inflows, financial sector vulnerabilities, tighter global financial conditions, weather‑related shocks, and risks from regional financial challenges including loss of Corresponding Banking Relationships (CBRs).
Recent economic performance (2017 and 2018 developments)
- Growth decelerated marginally in 2017, linked to continued decline in CBI inflows and slower construction activity.
- Consumer inflation was low in 2017, partly due to a small contraction in food prices.
- The overall fiscal balance remained in surplus in 2017 but deteriorated markedly since its 2013 peak.
- Debt-to-GDP ratio increased marginally from the previous year.
- Current account deficit remained high and only marginally declined in 2017: decline in CBI receipts was more than offset by growing tourism receipts and a significant decrease in imports.
- Foreign reserves at the ECCB remained at comfortable levels, well above various reserve-adequacy metrics.
- Banking sector: reported capital and liquidity ratios well above regulatory minimums, but elevated NPLs and risks including delays in completing the debt-land swap arrangement and loss of CBRs.
Medium-term projections and risks
- Medium-term growth projection under current policies: fluctuate around 3 percent.
- Projection: improve in 2018-20 as implementation of FDI projects in the tourism sector accelerates, then decelerate to around 2.7 percent over time as momentum slows.
- Current account deficit projected to worsen over the medium term, driven by higher FDI-related imports associated with tourism projects and a tapering of CBI inflows, partially offset by growth in tourism receipts.
- Downside risks:
- Lower than projected CBI inflows.
- Further delays in resolving the debt-land swap.
- Failure to tackle worsening financial sector vulnerabilities.
- Exposure to major natural disasters.
- A tighter financial environment from higher U.S. interest rates.
- Spillovers from regional financial challenges, including loss of CBRs.
- Upside scenarios:
- Stronger CBI inflows.
- Higher growth in advanced economies supporting growth relative to the baseline.
Executive Board assessment and policy recommendations
- Directors welcomed recent good macroeconomic performance but noted slowed growth and a moderate medium‑term outlook.
- Fiscal policy:
- Absent corrective policies, public debt expected to increase over the medium term as CBI revenue declines.
- A significant fiscal adjustment is needed to reverse debt dynamics.
- Adjustment could focus on both revenue and expenditure measures, including:
- Streamlining tax incentives.
- Restructuring activities funded by the Sugar Industry Diversification Foundation.
- Containing the wage bill through a multi‑year framework.
- Recommendation to establish a Growth and Resilience Fund (GRF) linked to a fiscal responsibility framework:
- GRF access could be used to respond to adverse shocks and to support natural disaster resilience investment projects.
- GRF should have a sovereign wealth fund structure in line with international best practices.
- Financial sector and CBI program governance:
- Priority to resolve high level of nonperforming loans (NPLs).
- Operationalize the Eastern Caribbean Asset Management Corporation and a credit bureau.
- Strengthen foreclosure and insolvency legislation.
- Implement IFRS9 and new regulations on provisioning and valuation.
- Closely monitor banking system capitalization levels.
- Accelerate land sales under the debt‑land swap arrangement to mitigate fiscal and financial contingent liabilities.
- Remain vigilant to CBR risks, enhance the AML/CFT regime, and strengthen transparency of the CBI program.
- Structural reforms:
- Comprehensive structural reforms recommended to strengthen potential for diversified and inclusive growth and address competitiveness challenges.
- Support ongoing efforts to improve ease‑of‑doing business, skills development, growth in tourism and other sectors, and strengthen social policies and security.
- Improve labor productivity and promote trade integration at the regional and international level.
Selected economic and financial indicators (2015–20; excerpted figures)
- National income and prices
- Real GDP (factor cost) 1/: 2015: 2.7; 2016: 2.9; 2017: 2.1; 2018 (Est.): 3.5
- Consumer prices, end-of-period 2/: 2015: -2.4; 2016: 0.0; 2017: 0.8; 2018 (Est.): 2.0
- Consumer prices, period average 2/: 2015: -2.3; 2016: -1.2; 2017: 0.4; 2018 (Est.): 1.4
- Real effective exchange rate appreciation (+) (end-of-period): 2015: -2.8; 2016: -0.4; 2017: -2.5; 2018: …
- Banking system (change, in relation to broad money at the beginning of the period) 3/
- Change in net foreign assets: 2015: -5.3; 2016: -1.3; 2017: -7.8; 2018 (Est.): 3.6
- Credit to public sector: 2015: -0.8; 2016: -5.1; 2017: 0.7; 2018 (Est.): -3.7; 2019 (Proj.): 2.5; 2020 (Proj.): 3.2
- Credit to private sector: 2015: 1.5; 2016: 1.1; 2017: 1.2; 2018 (Est.): 1.3
- Broad money: 2015: -4.0; 2016: -3.4; 2017: 0.9; 2018 (Est.): 5.2; 2019 (Proj.): 4.5
- Public sector (In percent of GDP) 4/
- Total revenue and grants: 2015: 36.3; 2016: 32.2; 2017: 30.2; 2018 (Est.): 32.7; 2019 (Proj.): 27.6; 2020 (Proj.): 26.8
- o/w Tax revenue: 2015: 20.1; 2016: 19.3; 2017: 19.1; 2018 (Est.): 19.4
- o/w CBI fees: 2015: 11.6; 2016: 6.8; 2017: 5.7; 2018 (Est.): 7.4; 2019 (Proj.): 2.6
- Total expenditure and net lending: 2015: 31.0; 2016: 28.2; 2017: 29.6; 2018 (Est.): 29.2; 2019 (Proj.): 30.4; 2020 (Proj.): 30.3
- Current expenditure: 2015: 24.4; 2016: 24.0; 2017: 24.8; 2018 (Est.): 24.6; 2019 (Proj.): 26.1; 2020 (Proj.): 26.2
- Capital expenditure and net lending: 2015: 6.6; 2016: 4.2; 2017: 4.8; 2018 (Est.): 4.6; 2019 (Proj.): 4.3; 2020 (Proj.): 4.3
- Primary balance: 2015: 7.3; 2016: 5.6; 2017: 5.1; 2018 (Est.): -1.8
- Overall balance: 2015: 5.3; 2016: 4.0; 2017: 0.5; 2018 (Est.): -3.5
- Overall balance (less CBI inflows) 5/: 2015: -5.5; 2016: -3.0; 2017: -5.4
- Foreign financing: 2015: -6.8; 2016: -1.9; 2017: -0.9
- Domestic financing: 2015: -0.1; 2016: 3.3; 2017: 3.9
- Extraordinary financing 6/: 2015: 0.3
- Total public debt (end-of-period) 7/: 2015: 66.1; 2016: 61.5; 2017: 62.9; 2018 (Est.): 63.6; 2019 (Proj.): 63.4; 2020 (Proj.): 63.3
- Public debt service (percent of total revenue and grants): 2015: 24.5; 2016: 11.2; 2017: 8.5; 2018 (Est.): 7.6; 2019 (Proj.): 8.6; 2020 (Proj.): 9.6
- External sector
- External current account balance: 2015: -9.2; 2016: -12.0; 2017: -11.2; 2018 (Est.): -10.9; 2019 (Proj.): -17.3; 2020 (Proj.): -17.8
- Trade balance: 2015: -26.5; 2016: -30.7; 2017: -27.9; 2018 (Est.): -30.4; 2019 (Proj.): -32.4
- Services, net: 2015: 27.8; 2016: 26.9; 2017: 25.1; 2018 (Est.): 27.4; 2019 (Proj.): 23.0; 2020 (Proj.): 22.6
- o/w Tourism receipts: 2015: 32.6; 2016: 33.4; 2017: 37.6; 2018 (Est.): 38.0; 2019 (Proj.): 38.3; 2020 (Proj.): 38.6
- FDI (net): 2015: 13.6; 2016: 13.3; 2017: 8.9; 2018 (Est.): 10.2; 2019 (Proj.): 12.8; 2020 (Proj.): 12.7
- External public debt (end-of-period): 2015: 25.2; 2016: 20.2; 2017: 16.1; 2018 (Est.): 14.2; 2019 (Proj.): 12.2; 2020 (Proj.): 10.4
- (In percent of exports of goods and nonfactor services) External public debt service: 2015: 3.8; 2016: 3.0; 2017: 44.9; 2018 (Est.): 38.7; 2019 (Proj.): 31.5; 2020 (Proj.): 26.6; 2021 (Proj.): 24.9; 2022 (Proj.): 21.5
- Memorandum items
- Net international reserves, end-of-period (in millions of U.S. dollars): 2015: 280.4; 2016: 312.8; 2017: 358.2; 2018 (Est.): 354.5; 2019 (Proj.): 350.7
- (in percent of broad money): 2015: 25.0; 2016: 29.0; 2017: 34.4; 2018 (Est.): 34.1; 2019 (Proj.): 32.1
- Holdings of SDRs, in millions of U.S. dollars: 2015: 13.8; 2016: 14.8; 2017: 15.8; 2018 (Est.): 16.8; 2019 (Proj.): 17.8
- Nominal GDP at market prices (in millions of EC$): 2015: 2,528; 2016: 2,591; 2017: 2,602; 2018 (Est.): 2,714; 2019 (Proj.): 2,868; 2020 (Proj.): 3,031
Source: IMF Executive Board press release "IMF Executive Board Concludes 2018 Article IV Consultation with St. Kitts and Nevis."