## IMF Survey: Caribbean’s St. Kitts Gets Opportunity for Transformation

_IMF News, September 2, 2011_

## Source details

**Canonical URL:** [IMF Survey: Caribbean’s St. Kitts Gets Opportunity for Transformation](https://www.imf.org/en/news/articles/2015/09/28/04/53/socar090211a)

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## Bibliographic details
- Published: September 2, 2011

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### Overview
- The IMF’s Executive Board approved a three-year Stand-By Arrangement with St. Kitts and Nevis amounting to about $84 million (EC $228 million).
- Program objectives: boost growth, reduce high public debt levels, and indirectly strengthen the regional currency union.

### Background and fiscal situation
- Impact of shocks and decline in activity:
  - Hit hard by the 2008–09 global financial crisis.
  - Further affected by recent international food and fuel price increases.
  - Significant drop in tourism, slowdown in tourism-related construction and foreign direct investment.
  - Closure of the largest tourism resort in Nevis following Hurricane Omar.
- Fiscal outcomes and vulnerabilities:
  - Tax revenue declined 13.5 percent in 2010.
  - The deficit widened to 9.4 percent of GDP in 2010.
  - At end 2010, St. Kitts and Nevis had a debt of almost 200 percent of GDP—the highest public debt level among all emerging markets and developing countries.
  - Population: about 50,000 people.
  - Member of the Eastern Caribbean Currency Union (ECCU); solvency issues in one country can spill over to other members.

### IMF-supported reform program — three-pronged approach
- Fiscal consolidation
  - Allow revenue to rise up front and contain spending increases while protecting the most vulnerable groups.
  - Implemented measures already yielding results: introduced a value-added tax and increasing electricity tariffs.
  - Public sector wage bill frozen until 2013—implying a notable reduction in real wages over the period.
  - Capital spending has been prioritized.
- Comprehensive debt restructuring
  - Process launched to negotiate a comprehensive and substantive public debt restructuring to ensure the burden of adjustment is shared by all.
  - Authorities expect that debt restructuring will put public debt on a sustainable trajectory over the medium term.
- Strengthening the financial sector
  - The banking sector is described as very well capitalized.
  - Government established a Banking Sector Reserve Fund—managed by the Eastern Caribbean Central Bank—as a backstopping mechanism for temporary liquidity support for solvent banks, if needed.
- IMF financial support
  - The IMF loan also provides financial support in the form of an “insurance policy” via the banking sector support fund.
  - Quote: “The economic program is a real paradigm change for St. Kitts and Nevis, laying the foundations for strong economic growth and reduced vulnerabilities,” — Alfred Schipke, mission chief for St. Kitts and Nevis, after the IMF Board’s July 27 approval of the loan.

### Structural measures and social protection
- Structural reforms to strengthen public spending efficiency and effectiveness include:
  - Improving public financial management.
  - Pension reform.
  - Civil service reform.
  - Social safety net reforms.
- Protection of vulnerable groups:
  - An essential priority throughout the program period and beyond.
  - Ultimate medium-term goal: a coherent social protection strategy that will rationalize programs and better link social assistance to actions aimed at building human capital.

### Regional implications and potential model for other countries
- Because St. Kitts and Nevis is an important member of the ECCU, the reform measures are expected to benefit the ECCU as a whole.
- Elements of the program could serve as a model for other countries in the region—for example, the Banking Sector Reserve Fund.
- The IMF has engaged with various stakeholders in the country to explain the program and its implications.

*IMF Survey: Caribbean’s St. Kitts Gets Opportunity for Transformation.*

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [IMF Country Focus](https://www.imf.org/en/news/country-focus)
- [Press release](https://www.imf.org/external/np/sec/pr/2011/pr11295.htm)
- [St. Kitts and Nevis the IMF](https://www.imf.org/external/country/kna/index.htm)
- [Caribbean’s high debt levels](https://www.imf.org/external/pubs/ft/survey/so/2011/CAR020311A.htm)
- [Caribbean needs fresh ideas](https://www.imf.org/external/pubs/ft/survey/so/2011/CAR021111A.htm)
- [Latam, Caribbean outlook](https://www.imf.org/external/pubs/ft/survey/so/2011/CAR061711A.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/socar090211a_