{ "title": "St. Kitts and Nevis: Staff Concluding Statement of the 2017 Article IV Mission", "publication": "IMF News, May 12, 2017", "sourceUrl": "https://www.imf.org/en/news/articles/2017/05/12/ms051217-st-kitts-and-nevis-staff-concluding-statement-of-the-2017-article-iv-mission", "canonical": "https://www.imf.org/en/news/articles/2017/05/12/ms051217-st-kitts-and-nevis-staff-concluding-statement-of-the-2017-article-iv-mission", "overlayPath": "/en/news/articles/2017/05/12/ms051217-st-kitts-and-nevis-staff-concluding-statement-of-the-2017-article-iv-mission/index.md", "summary": "Economy grew 3.2 percent in 2016, compared to 4.9 percent in 2015.", "publishDate": "2017-05-12", "sections": [ { "heading": "Economic performance and recent macro outcomes", "content": "- Economy grew 3.2 percent in 2016, compared to 4.9 percent in 2015.\n- 2017 marked expected growth for the 5th consecutive year.\n- Overall fiscal surplus in 2016: 4.2 percent of GDP (deteriorated versus 2015, mainly due to lower CBI receipts).\n- Underlying overall balance (excluding SIDF grants, CBI-related receipts and due diligence expenditure) remains in deficit, around 3.3 percent of GDP.\n- Public debt projected to reach the 60 percent ECCU debt-to-GDP target by 2018.\n- Significant widening of the current account deficit driven by lower CBI-budgetary receipts and a larger trade deficit." }, { "heading": "Citizenship-by-Investment (CBI) program and integrity measures", "content": "- Strong macro performance owes much to robust CBI inflows and their spillovers.\n- Authorities have strengthened the due-diligence process with dedicated resources and global collaboration to reduce integrity and security risks and preserve program credibility.\n- Elevated risks to CBI inflows and risks associated with completion of the debt-land swap motivated the mission’s emphasis on safeguarding macro and financial stability." }, { "heading": "Outlook and risks", "content": "- Medium-term growth projection: 2.7 percent for 2017; expected to average around 3 percent in the medium term.\n- Growth drivers/offsets: projected slowdown in construction offset by public infrastructure investment and higher tourism growth (new tourism facilities coming on stream in 2017-19).\n- External current account deficit expected to remain large as CBI inflows taper off.\n- Downside risks include:\n - Further delays in completing the debt-land swap.\n - Sharp drop in CBI inflows due to more acute competition and global security concerns.\n - Stronger U.S. dollar, tighter financial environment, more severe Zika epidemic, major natural disaster.\n - Loss of correspondent banking relationships (CBRs).\n - Softer global climate change policy exacerbating natural-disaster risks.\n- Upside factors include stronger CBI inflows (from program reforms and tougher U.S. immigration policies elsewhere) and weaker oil prices." }, { "heading": "Fiscal framework and policy priorities", "content": "- 2017 policy priorities: preserve gains in fiscal sustainability, support growth, strengthen resilience.\n- Strategy: control government recurrent spending while scaling up public investment.\n- 2017 budget: no new taxes proposed; streamlining concessions over the next 2-3 years and implementing public financial management reform.\n- Medium-term fiscal framework should focus on reducing reliance on CBI inflows in a world of heightened uncertainty.\n- VAT and import-duty exemptions since 2014 have weakened the fiscal framework.\n- An extreme scenario of a sharp drop in CBI inflows could erode fiscal buffers as early as 2020 and risk reversing the downward debt trajectory absent fiscal adjustment." }, { "heading": "Recommended fiscal anchor and adjustment path", "content": "- A medium-term fiscal framework anchored to a balanced underlying primary-balance target would increase resilience to sharp drops in CBI inflows.\n- Needed adjustment: about 2.1 percent of GDP paced over 3-5 years.\n- Recommendation to enshrine the target and the ECCB-debt target in fiscal responsibility legislation, with windfall CBI inflows excluded from the rule and saved in a contingency fund.\n- Approval of an action plan by both Cabinets to meet the primary balance target at the country level is key." }, { "heading": "Revenue measures", "content": "- Broaden the tax base, including by streamlining tax incentives and improving tax administration.\n- Revenue loss from tax incentives remains high: 6.4 percent of GDP (both discretionary and granted by legislation).\n- Suggestions: transparent, rule-based, well-targeted tax incentives; update property valuations; enhance compliance.\n- Consider taxes on cigarette, alcohol, and sugary products consistent with CARICOM initiatives." }, { "heading": "Expenditure and public wage policy", "content": "- Contain spending on goods and services and the public wage bill.\n- Establish a more predictable system for public pay-packages; ensure pay increases consistent with budgetary constraints, macro developments, and benchmarking with private sector wages.\n- Consider setting a ceiling on the public-wage bill guided by the medium-term fiscal framework anchored to debt and primary-balance targets.\n- Cabinet allocations to line ministries should reflect the envisioned qualification- and performance-based incentive system." }, { "heading": "Health coverage and social spending", "content": "- Plans to introduce universal health-coverage (UHC) are commendable but fiscal implications must be carefully managed.\n- UHC design, coverage, and financing should limit fiscal sustainability risk; scheme should be funded from permanent revenue sources.\n- Benefit package should ensure financial viability and target the poor; use incentives and regulatory tools to contain costs.\n- Draw on expertise from PAHO and the World Bank to tailor the scheme." }, { "heading": "Growth and Resilience Fund (GRF) and liability management", "content": "- Support for establishment of a Growth and Resilience Fund with a simple sovereign-wealth-fund structure, prudent investment strategy, and flows integrated with the fiscal framework.\n- Welcome agreement on the budgetary arrears with PDVSA and near-agreement on NIA debt-restructuring.\n- Support further liability-management efforts: reduce outstanding T-bills, accelerate payment of expensive debt, and improve debt terms.\n- Consider transferring revenue from CBI flows and resulting SIDF deposits to the GRF once established." }, { "heading": "Public financial management and structural reforms", "content": "- Urgent attention needed to strengthen public financial management.\n- Contain SIDF’s quasi-fiscal spending by streamlining activities and integrating with the general government’s consolidated account.\n- Enhance oversight of public corporations with timely reporting of financial statements.\n- Strengthen the NIA’s debt and cash management frameworks.\n- Encourage approval of measures to finalize the debt-land swap and accelerate land sales." }, { "heading": "Debt-land swap and land sales", "content": "- Sale of lands under the debt-land swap must be completed urgently to limit fiscal and financial risks.\n- Need a clear action plan and timetable with concrete milestones.\n- Complete existing purchase proposals and step up marketing (real-estate agents and SLSC website) to generate sales and remove policy uncertainty.\n- Cooperation with CIU and SKIPA is welcome; ongoing discussions on renewal of the dividend-guarantee agreement with banks at renegotiated terms are noted." }, { "heading": "Financial sector risks and banking system", "content": "- Continue strong efforts to reduce CBR risks and maintain CBI-program integrity.\n- Authorities improved compliance with international AML/CFT standards and exchange of information; jointly working with the ECCB to implement AML/CFT standards.\n- Banks face higher costs (higher fees, lengthier transactions, increased due diligence); open communication between respondent and correspondent banks has helped limit loss of CBRs.\n- Introducing Basel II and continued implementation of risk-based supervision should improve perceptions.\n- Consider amalgamation opportunities to address volume-of-business concerns and improve risk-management capability.\n- High levels of nonperforming loans (NPLs) persist; swift resolution is critical to limit further deterioration, revive credit expansion, and support growth.\n - Establishment of the ECAMC expected to improve collection and disposal of distressed assets.\n - Modernizing foreclosure and insolvency frameworks, new collateral appraisal guidelines, credit bureau, and land registry should help contain future NPL losses." }, { "heading": "Monitoring and contingency for CBI slowdown impacts", "content": "- Monitor implications of a slowdown in CBI inflows for the banking system; direct impact may be limited but indirect effects via reduced construction activity and borrower repayment capacity are possible.\n- Ensure adequate prudential oversight to minimize potential effects from further slowdown in CBI inflows and the ending of the 5-year holding-period for existing CBI properties." }, { "heading": "Structural constraints to inclusive growth and recommended reforms", "content": "- Adopt a comprehensive strategy to overcome persistent structural challenges that limit inclusive growth.\n- Ongoing reforms: expedite business registration, establish dedicated land-registry, credit bureau, SME partial-credit-guarantee scheme, and revise foreclosure legislation.\n- Consider channeling alternative investment options under the CBI program to renewable energy, health, education, skills development, and economic diversification to reduce asset-bubble risk.\n- Soft-skills training: enforce time-bound participation upon certification and set stipends below the minimum wage.\n- Avoid substantial rise in the minimum wage without increased productivity.\n- Focus on housing programs for the poorest and emphasize gender gaps in the National Social Protection Policy.\n- Continue actions to reduce crime via increased CCTV and community-related programs." }, { "heading": "Data, technical assistance, and mission engagement", "content": "- Authorities welcome Technical Assistance to improve availability and quality of data for balance of payments, national accounts, and labor market and social statistics.\n- Mission dates: visited St. Kitts and Nevis during April 18-May 4 to conduct the 2017 Article IV consultation.\n- Mission expresses thanks to authorities and technical staff for constructive discussions and cooperation.\n\nIMF Staff Concluding Statement, May 12, 2017\n\n---\n\n\n References\n\n- St. Kitts and Nevis and the IMF\n- IMF Policy Advice -- A Factsheet\n- Mission Concluding Statements\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2017/05/12/ms051217-st-kitts-and-nevis-staff-concluding-statement-of-the-2017-article-iv-mission" } ], "bullets": [ "[Markdown version](/en/news/articles/2017/05/12/ms051217-st-kitts-and-nevis-staff-concluding-statement-of-the-2017-article-iv-mission/index.md)", "[Structured JSON version](/en/news/articles/2017/05/12/ms051217-st-kitts-and-nevis-staff-concluding-statement-of-the-2017-article-iv-mission/index.json)", "[Bundle manifest](/en/news/articles/2017/05/12/ms051217-st-kitts-and-nevis-staff-concluding-statement-of-the-2017-article-iv-mission/bundle-manifest.json)", "Published: May 12, 2017", "Economy grew 3.2 percent in 2016, compared to 4.9 percent in 2015.", "2017 marked expected growth for the 5th consecutive year.", "Overall fiscal surplus in 2016: 4.2 percent of GDP (deteriorated versus 2015, mainly due to lower CBI receipts).", "Underlying overall balance (excluding SIDF grants, CBI-related receipts and due diligence expenditure) remains in deficit, around 3.3 percent of GDP.", "Public debt projected to reach the 60 percent ECCU debt-to-GDP target by 2018.", "Significant widening of the current account deficit driven by lower CBI-budgetary receipts and a larger trade deficit.", "Strong macro performance owes much to robust CBI inflows and their spillovers.", "Authorities have strengthened the due-diligence process with dedicated resources and global collaboration to reduce integrity and security risks and preserve program credibility.", "Elevated risks to CBI inflows and risks associated with completion of the debt-land swap motivated the mission’s emphasis on safeguarding macro and financial stability.", "Medium-term growth projection: 2.7 percent for 2017; expected to average around 3 percent in the medium term.", "Growth drivers/offsets: projected slowdown in construction offset by public infrastructure investment and higher tourism growth (new tourism facilities coming on stream in 2017-19).", "External current account deficit expected to remain large as CBI inflows taper off.", "Downside risks include:", "Upside factors include stronger CBI inflows (from program reforms and tougher U.S. immigration policies elsewhere) and weaker oil prices.", "2017 policy priorities: preserve gains in fiscal sustainability, support growth, strengthen resilience.", "Strategy: control government recurrent spending while scaling up public investment.", "2017 budget: no new taxes proposed; streamlining concessions over the next 2-3 years and implementing public financial management reform.", "Medium-term fiscal framework should focus on reducing reliance on CBI inflows in a world of heightened uncertainty.", "VAT and import-duty exemptions since 2014 have weakened the fiscal framework.", "An extreme scenario of a sharp drop in CBI inflows could erode fiscal buffers as early as 2020 and risk reversing the downward debt trajectory absent fiscal adjustment.", "A medium-term fiscal framework anchored to a balanced underlying primary-balance target would increase resilience to sharp drops in CBI inflows.", "Needed adjustment: about 2.1 percent of GDP paced over 3-5 years.", "Recommendation to enshrine the target and the ECCB-debt target in fiscal responsibility legislation, with windfall CBI inflows excluded from the rule and saved in a contingency fund.", "Approval of an action plan by both Cabinets to meet the primary balance target at the country level is key.", "Broaden the tax base, including by streamlining tax incentives and improving tax administration.", "Revenue loss from tax incentives remains high: 6.4 percent of GDP (both discretionary and granted by legislation).", "Suggestions: transparent, rule-based, well-targeted tax incentives; update property valuations; enhance compliance.", "Consider taxes on cigarette, alcohol, and sugary products consistent with CARICOM initiatives.", "Contain spending on goods and services and the public wage bill.", "Establish a more predictable system for public pay-packages; ensure pay increases consistent with budgetary constraints, macro developments, and benchmarking with private sector wages.", "Consider setting a ceiling on the public-wage bill guided by the medium-term fiscal framework anchored to debt and primary-balance targets.", "Cabinet allocations to line ministries should reflect the envisioned qualification- and performance-based incentive system.", "Plans to introduce universal health-coverage (UHC) are commendable but fiscal implications must be carefully managed.", "UHC design, coverage, and financing should limit fiscal sustainability risk; scheme should be funded from permanent revenue sources.", "Benefit package should ensure financial viability and target the poor; use incentives and regulatory tools to contain costs.", "Draw on expertise from PAHO and the World Bank to tailor the scheme.", "Support for establishment of a Growth and Resilience Fund with a simple sovereign-wealth-fund structure, prudent investment strategy, and flows integrated with the fiscal framework.", "Welcome agreement on the budgetary arrears with PDVSA and near-agreement on NIA debt-restructuring.", "Support further liability-management efforts: reduce outstanding T-bills, accelerate payment of expensive debt, and improve debt terms.", "Consider transferring revenue from CBI flows and resulting SIDF deposits to the GRF once established.", "Urgent attention needed to strengthen public financial management.", "Contain SIDF’s quasi-fiscal spending by streamlining activities and integrating with the general government’s consolidated account.", "Enhance oversight of public corporations with timely reporting of financial statements.", "Strengthen the NIA’s debt and cash management frameworks.", "Encourage approval of measures to finalize the debt-land swap and accelerate land sales.", "Sale of lands under the debt-land swap must be completed urgently to limit fiscal and financial risks.", "Need a clear action plan and timetable with concrete milestones.", "Complete existing purchase proposals and step up marketing (real-estate agents and SLSC website) to generate sales and remove policy uncertainty.", "Cooperation with CIU and SKIPA is welcome; ongoing discussions on renewal of the dividend-guarantee agreement with banks at renegotiated terms are noted.", "Continue strong efforts to reduce CBR risks and maintain CBI-program integrity.", "Authorities improved compliance with international AML/CFT standards and exchange of information; jointly working with the ECCB to implement AML/CFT standards.", "Banks face higher costs (higher fees, lengthier transactions, increased due diligence); open communication between respondent and correspondent banks has helped limit loss of CBRs.", "Introducing Basel II and continued implementation of risk-based supervision should improve perceptions.", "Consider amalgamation opportunities to address volume-of-business concerns and improve risk-management capability.", "High levels of nonperforming loans (NPLs) persist; swift resolution is critical to limit further deterioration, revive credit expansion, and support growth.", "Monitor implications of a slowdown in CBI inflows for the banking system; direct impact may be limited but indirect effects via reduced construction activity and borrower repayment capacity are possible.", "Ensure adequate prudential oversight to minimize potential effects from further slowdown in CBI inflows and the ending of the 5-year holding-period for existing CBI properties.", "Adopt a comprehensive strategy to overcome persistent structural challenges that limit inclusive growth.", "Ongoing reforms: expedite business registration, establish dedicated land-registry, credit bureau, SME partial-credit-guarantee scheme, and revise foreclosure legislation.", "Consider channeling alternative investment options under the CBI program to renewable energy, health, education, skills development, and economic diversification to reduce asset-bubble risk.", "Soft-skills training: enforce time-bound participation upon certification and set stipends below the minimum wage.", "Avoid substantial rise in the minimum wage without increased productivity.", "Focus on housing programs for the poorest and emphasize gender gaps in the National Social Protection Policy.", "Continue actions to reduce crime via increased CCTV and community-related programs.", "Authorities welcome Technical Assistance to improve availability and quality of data for balance of payments, national accounts, and labor market and social statistics.", "Mission dates: visited St. Kitts and Nevis during April 18-May 4 to conduct the 2017 Article IV consultation.", "Mission expresses thanks to authorities and technical staff for constructive discussions and cooperation.", "[St. Kitts and Nevis and the IMF](http://www.imf.org/external/country/KNA/index.htm)", "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)", "[Mission Concluding Statements](https://www.imf.org/en/news/searchnews)", "[PRESS CENTER](http://presscenter.imf.org/)", "[https://www.imf.org/en/home](https://www.imf.org/en/home)" ], "alternates": { "markdown": "/en/news/articles/2017/05/12/ms051217-st-kitts-and-nevis-staff-concluding-statement-of-the-2017-article-iv-mission/index.md", "json": "/en/news/articles/2017/05/12/ms051217-st-kitts-and-nevis-staff-concluding-statement-of-the-2017-article-iv-mission/index.json", "bundleManifest": "/en/news/articles/2017/05/12/ms051217-st-kitts-and-nevis-staff-concluding-statement-of-the-2017-article-iv-mission/bundle-manifest.json" }, "generatedAtUtc": "2026-09-25T20:49:17.540Z" }