IMF Executive Board Concludes 2016 Article IV Consultation with St. Vincent and the Grenadines

IMF News, July 19, 2016

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IMF Executive Board Concludes 2016 Article IV Consultation with St. Vincent and the Grenadines

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Bibliographic details

• Published: July 19, 2016

Economic outlook and recent developments

• Recovery from the global financial crisis was hampered by a series of natural disasters, sluggish global demand and slow implementation of key infrastructure projects.
• Economic activity appears to have recovered in 2015—led by strong tourism inflows and a rebound in construction.
• Inflation has trended down due to falling food and fuel prices.
• Lower oil prices have narrowed the current account deficit.
• The new airport, now foreseen for completion in 2016, is expected to sustain near- and medium-term economic growth.
• Real GDP projections:
  • Real GDP is projected to expand by 2.2 percent in 2016.
  • Real GDP is projected to reach 3.1 percent over the medium-term.
• Additional imports to supply tourism services are expected to be financed by foreign direct investment.

Fiscal position and public debt

• Public debt was 74 percent of GDP at end-2015 and has steadily increased since 2008, owing largely to the global financial crisis, construction of the new international airport and rehabilitation spending in response to three back to back natural disasters.
• Authorities committed to reducing public debt to the Eastern Caribbean Currency Union target of 60 percent of GDP by 2030.
• Progress toward fiscal consolidation since 2013 included a reduction of the primary deficit from 5 percent of GDP to an estimated 1.1 percent of GDP in 2015.
• Despite new tax policy measures in the 2016 budget and an envisaged improvement in the primary balance, higher interest costs are expected to leave the fiscal position unchanged from 2015.
• Directors endorsed the need for an ambitious yet credible medium‑term fiscal consolidation to meet the 60 percent of GDP debt target and build buffers against natural disasters.
• Suggested fiscal measures and structural fiscal priorities:
  • Broaden the tax base, including by streamlining tax expenditure.
  • Continue to restrain the wage bill.
  • Improve sustainability of the public pension scheme and the national insurance service.
  • Accelerate and sustain revenue administration and public financial management reforms.
  • Limit contingent liabilities from public‑private partnerships.

Executive Board assessment and risks

• Directors welcomed the incipient economic recovery and improved external and fiscal positions.
• Outlook described as positive, particularly with prospects for entry in operations of the new international airport and development of geothermal energy.
• Risks judged to be balanced.
• Emphasis on strengthening the macroeconomic policy framework and pursuing critical structural reforms to:
  • Bring public debt on a downward trajectory.
  • Improve competitiveness to underpin strong medium‑term growth.
  • Promote private investment, diversification, and job creation.

Banking and nonbank financial sector

• The commercial banking sector appears to remain solid, enabling a modest uptick in credit to the private sector supportive of the recovery.
• St. Vincent and the Grenadines has relatively sound banks and leads the region in the supervision of credit unions.
• Directors encouraged:
  • Continued strengthening of supervision of the nonbank financial sector.
  • Monitoring of the offshore banking sector.
  • Continued alignment of the AML/CFT regime with international standards.

Structural and competitiveness priorities

• To leverage growth‑enhancing impact of major infrastructure projects, priorities include:
  • Enhancing the business environment.
  • Lifting labor productivity through skills upgrading and matching.
  • Ensuring access to credit for small businesses.
  • Further trade facilitation.
  • Improving resilience to natural disasters.

Selected social and economic indicators, 2012–17 (annual percentage change, unless otherwise specified)

• Output and prices
  • Real GDP (factor cost): 2012: 1.3; 2013: 2.3; 2014: -0.2; 2015: 1.6; 2016: 2.2; 2017: 3.1
  • Nominal GDP (market prices): 2012: 2.5; 2013: 4.0; 2014: 3.7; 2015: 3.6; 2016: 4.5
  • Consumer prices, end of period: 2012: 1.0; 2013: 0.0; 2014: 0.1; 2015: -2.1; 2016: 1.1; 2017: 1.7
  • Consumer prices, period average: 2012: 2.6; 2013: 0.8; 2014: 0.2; 2015: -1.7
• Banking system (annual changes relative to the stock of broad money at the beginning of the period)
  • Net foreign assets: 2012: 1.4; 2013: 7.2; 2014: 7.6; 2015: 7.4
  • Net domestic assets: 2012: 5.2; 2013: 8.4; 2014: -4.7; 2015: -4.5
  • Credit to private sector: 2012: 3.2; 2013: 2.9
• Central government finances (in percent of GDP)
  • Total revenue: 2012: 26.1; 2013: 26.9; 2014: 29.2; 2015: 27.9; 2016: 28.7; 2017: 28.5
  • Tax revenue: 2012: 23.0; 2013: 21.6; 2014: 23.9; 2015: 23.6; 2016: 24.1; 2017: 24.3
  • Grants: 2012: 0.7; 2013: 2.0; 2014: 1.2; 2015: 2.1
  • Total expenditure and net lending: 2012: 28.0; 2013: 33.0; 2014: 32.2; 2015: 29.9; 2016: 30.7
  • Current expenditure: 2012: 26.2; 2013: 25.2; 2014: 25.8; 2015: 25.1; 2016: 26.0; 2017: 26.3
  • Wages and salaries: 2012: 13.0; 2013: 12.9; 2014: 12.6; 2015: 12.7; 2016: 12.5
  • Interest: 2012: 2.4; 2013: 2.8
  • Capital expenditure: 2012: 1.8; 2013: 7.8; 2014: 6.4; 2015: 4.9; 2016: 4.7; 2017: 4.3
  • Overall balance: 2012: -1.9; 2013: -6.2; 2014: -3.0; 2015: -2.2; 2016:
  • Overall balance (excl. grants): 2012: -2.6; 2013: -7.5; 2014: -5.0; 2015: -3.3; 2016: -4.6; 2017: -4.3
  • Primary balance: 2012: 0.4; 2013: -3.7; 2014: -0.7; 2015: 0.6
  • Primary balance (excl. grants): 2012: -2.7; 2013: -1.1; 2014: -1.5; 2015:
• External sector (in percent of GDP)
  • External current account: 2012: -27.6; 2013: -30.9; 2014: -29.6; 2015: -24.8; 2016: -21.3; 2017: -20.1
  • Exports of goods and services: 2012: 27.5; 2013: 24.6; 2014: 25.0
  • Imports of goods and services: 2012: 57.9; 2013: 58.1; 2014: 56.5; 2015: 50.6; 2016: 47.5; 2017: 46.7
  • Stayover arrivals (percentage change): 2012: -3.5; 2013: -1.4; 2014: 6.6; 2015: 6.0; 2016: 9.0
• Public sector debt and debt service
  • Public sector external debt (end of period): 2012: 40.5; 2013: 42.3; 2014: 45.3; 2015: 43.2; 2016: 47.3; 2017: 44.5
  • External public debt service (In percent of exports of goods and services): 2012: 15.2; 2013: 16.8; 2014: 17.7; 2015: 16.1; 2016: 20.7; 2017: 20.2
• Memorandum items (in percent of GDP)
  • Gross public sector debt: 2012: 72.0; 2013: 74.7; 2014: 79.5; 2015: 73.4; 2016: 80.1; 2017: 81.5
  • Nominal GDP (market prices; in millions of EC$): 2012: 1,871; 2013: 1,946; 2014: 1,970; 2015: 2,044; 2016: 2,118; 2017: 2,212

Sources: ECCB; Ministry of Finance and Planning; and Fund staff estimates and projections. Projections established at the end of the 2016 Article IV consultation mission in March 2016.

References

• St. Vincent and the Grenadines and the IMF
• IMF Policy Advice -- A Factsheet
• Press Releases
• PRESS CENTER
• http://www.imf.org/external/np/sec/misc/qualifiers.htm
• https://www.imf.org/en/home