Press Release No. 12/228

Press Release No. 12/228
June 26, 2012

Mr. George Tsibouris, head of an International Monetary Fund (IMF) staff mission to St. Kitts and Nevis, issued the following statement today at the conclusion of the mission:

“An IMF team visited Basseterre during June 4-18 to undertake the third review of the program under the Stand-By Arrangement (SBA) approved by the Fund’s Executive Board on July 27, 2011.

“The focus of the mission was to assess the quantitative performance at end-March 2012 under the SBA; review the ongoing macroeconomic and structural policies; and examine the prospects for the remainder of the year. All quantitative performance criteria were met at end-March 2012 despite weaker first-quarter economic activity. Economic growth for 2012 has been revised downward to zero percent, reflecting the impact of the uncertain global economic environment which continues to weigh on economic activity, particularly in the still declining construction sector. Softer-than-expected domestic demand resulted in lower imports that contributed to a narrowing of the external current account deficit. Meanwhile, inflationary pressures abated during the first quarter reflecting lower international commodity prices. Buoyant non-tax revenue and higher-than expected income tax receipts more than offset a slight decline in taxes on international trade. Expenditure restraint particularly on capital outlays also contributed to a better-than-expected overall fiscal balance and a reduction in budgetary arrears.

“The structural benchmarks at the end-March 2012 were also met. Proposals for reform of the social safety nets and for the rationalization of the liquefied petroleum gas subsidies have been presented to the Cabinet. These constitute important first steps towards consolidating the variety of social assistance provided by the government, and will help to better target these programs to the most vulnerable.

“Progress with debt restructuring, aimed at restoring debt sustainability, has been notable. The new bonds to complete the debt exchange have been issued and are being serviced as scheduled. An agreement to reschedule the debt owed to members of the Paris Club was reached in May 2012, which would extend the repayment period to twenty years with a seven-year grace period. The shareholders’ agreement for the special purpose vehicle (SPV) to facilitate the domestic debt for land swap has been signed and the company incorporated. Negotiations with other domestic creditors are underway. As the authorities have previously indicated, Treasury bills are excluded from the debt restructuring exercise.

“The mission and the authorities have agreed on a draft memorandum of economic and financial policies that maintains the fiscal targets and structural benchmarks for 2012. In light of the above, the mission would recommend to the IMF Executive Board completion of the third review under the Stand-by Arrangement. The IMF Board is expected to discuss the third review under the SBA in early August 2012.

“The authorities have reiterated their strong commitment to the policies and objectives of their home-grown economic program aimed at restoring fiscal and debt sustainability. Notwithstanding the overall good program performance to date, there are still risks related to the uncertain global economy. The hesitant recovery in domestic economic activity, despite modest growth in tourist arrivals is worrisome. The mission discussed macroeconomic policies that could help spur growth, including in expenditure management, to secure the fiscal space for priority infrastructure and social projects; tax policy; and the environment for doing business.

“During the review, the mission held meetings with Prime Minister and Minister of Finance the Rt. Hon. Denzil Douglas, Premier Joseph Parry of Nevis, members of the Federal Cabinet and of the Cabinet of the Nevis Island Administration, senior officials of the Ministries of Finance and Sustainable Development, the Eastern Caribbean Central Bank (ECCB), and representatives of the private sector. The mission would like to thank the authorities for their excellent cooperation.”