IMF Executive Board Concludes 2011 Article IV Consultation with St. Vincent and the Grenadines

Public Information Notice (PIN) No. 11/142
November 23, 2011

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On November 16, 2011, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with St. Vincent and the Grenadines.1


Growth in St. Vincent and the Grenadines continues to be affected by the global slowdown through its impact on tourism and Foreign Direct Investment (FDI). In addition, the two recent natural disasters—hurricane Tomas in October 2010 and torrential rains and floods in April 2011—have also taken a toll. After a contraction of 1.8 percent in 2010, growth in 2011 is expected to remain negative, albeit to -0.4 percent, moderated by reconstruction activity after Hurricane Tomas. Along with other donors, the Fund has provided significant emergency assistance to St. Vincent and the Grenadines to address the immediate balance of payments need arising from the impact of the global financial crisis and the two recent natural disasters.2

Inflation has picked up reflecting higher international commodity prices. The pass-through from higher food and fuel prices (with a combined weight of 34 percent in the Consumer Price Index CPI) resulted in headline inflation accelerating to about 2.8 percent (year-over-year) by June this year compared to about 0.5 percent at the end of last year. Meanwhile, core inflation remained unchanged at 0.6 percent compared to December last year.

The fiscal deficit is expected to be smaller than last year, mainly reflecting cuts in capital spending to offset shortfalls in revenues and delayed disbursement of external loans. Current expenditure has been rising, in part, to mitigate the impact of the adverse shocks on the poor and vulnerable. Over the medium-term, the authorities remain committed to generating a primary surplus averaging about 2 percent of Gross Domestic Product (GDP). A more ambitious fiscal consolidation path would allow for a faster reduction in debt and room to build a cushion against future exogenous shocks.

Monetary aggregates remain flat, with the year-on-year growth in real private sector credit and broad money supply nearly flat as of June 2011, reflecting banks wariness to make new loans in an uncertain environment. With regard to the financial sector, non-performing loans (NPLs) at commercial banks in the country decreased somewhat from 8.5 percent at end-December 2010 to 7.5 percent at end-June 2011, but bank profitability has also been declining. NPLs remain elevated in the non-banking financial sector, although efforts are ongoing to improve performance. In order to improve supervision in the non-bank sector, the government is planning to establish the Single Regulatory Unit by year-end.

Efforts continue to help resolve the fallout from the failure of the two insurance companies, BAICO and CLICO. A Health Insurance Fund was set up to settle medical claims of BAICO’s policyholders. An announcement was recently made inviting interested parties to bid for BAICO’s life insurance policy portfolio and discussions are also ongoing to find a solution for BAICO’s annuity holders. On CLICO, the authorities continue to work with other governments in the region to find a solution.

Executive Board Assessment

The Executive Directors noted that St. Vincent and the Grenadines’ economy has been adversely affected by two natural disasters in the last twelve months, on top of the impacts of the global slowdown and higher commodity prices. As a result, real GDP has contracted and public sector debt has risen. Directors welcomed the authorities’ commitment to prudent macroeconomic policies and encouraged them to press ahead with efforts to enhance the economy’s resilience to shocks and foster sustainable growth.

Directors commended the authorities’ intention to generate primary fiscal surpluses in the range of 2 percent of GDP by 2016 and to avoid external commercial borrowing to ensure debt sustainability. They welcomed their plans to introduce market based property taxes, strengthen revenue administration, contain the public sector wage bill, limit transfers to state owned enterprises, and rationalize spending on goods and services. While the difficult trade-offs with current pro-growth and social spending needs were recognized, many Directors noted that a more ambitious consolidation, including pension and civil service reforms, would help to build buffers against potential future shocks.

Directors underscored the need for close monitoring of both the banking and nonbank financial sectors. They noted that regional financial sector concerns could affect confidence and ultimately impact economic activity. Directors supported enhanced monitoring of cross-institution and cross-border holdings, in coordination with regional authorities. They also encouraged the authorities to expedite the establishment of the Single Regulatory Unit for the nonbank sector.

Directors highlighted the need to increase the growth potential and diversify the economy, including by improving the business climate and enhancing competitiveness. This would help to reduce the large and unsustainable current account deficit. Directors welcomed the authorities’ efforts to ease access to credit and invest in infrastructure and education. They noted that technical assistance and donor support would be important to underpin the country’s reform agenda.

St. Vincent and the Grenadines: Selected Social and Economic Indicators, 2006–12
  2006 2007 2008 2009 2010 2011 2012

Output and prices

(Annual percentage change, unless otherwise specified)

Real GDP (factor cost)

6.0 3.1 -0.6 -2.3 -1.8 -0.4 2.0

Nominal GDP (market prices)

10.8 12.1 2.1 -3.8 1.8 1.1 4.2

Consumer prices, end of period1/

3.0 7.0 9.4 -2.2 0.5 3.1 0.5

Consumer prices, period average1/

    10.1 0.4 0.6 2.5 1.4

Real effective exchange rate (- = depreciation)

-1.1 -3.4 -0.5 6.3 -1.3 ... ...

Banking system


Net foreign assets2/

-0.2 -7.7 3.1 -2.2 10.5 -7.3 -3.5

Net domestic assets2/

6.2 15.9 -1.7 3.6 -7.9 7.6 7.9

Credit to private sector2/

10.3 11.3 2.6 1.5 1.6 1.0 4.3

Central government finances

(In percent of GDP, unless otherwise specified)

Total revenue and grants

24.5 25.1 28.4 29.7 26.9 27.3 28.0

Total expenditure and net lending

27.7 28.3 29.8 32.9 32.7 30.4 31.7

  Current expenditure

21.5 20.5 22.8 25.8 28.7 26.7 26.5

    Of which


      Wages and salaries

10.4 10.2 11.0 11.7 12.0 12.2 12.5


2.6 2.4 2.5 2.8 2.8 2.9 2.8

  Capital expenditure

6.1 7.9 6.9 7.2 4.0 3.7 5.1

  Overall balance

-3.2 -3.2 -1.4 -3.2 -5.7 -3.2 -3.7

  Overall balance (excl. grants)

-3.5 -4.8 -3.7 -7.4 -7.2 -5.8 -6.3

  Primary balance

-0.5 -0.8 1.1 -0.4 -2.9 -0.3 -0.8

  Primary balance (excl. grants)

-0.9 -2.4 -1.3 -4.7 -4.4 -3.0 -3.5

  Central government debt

58.1 45.6 46.8 50.2 55.2 56.1 57.8

External sector (in percent of GDP)


External current account

6.7 7.5 -32.9 -29.4 -31.1 -27.6 -24.8

  Of which


    Exports of goods and services

53.3 58.7 30.1 28.6 26.8 27.0 26.7

    Imports of goods and services

0.0 0.0 61.6 57.7 56.9 53.6 50.7

Stayover arrivals (percentage change)

2.6 -8.1 -6.1 -9.9 -4.4 -2.0 4.0

Public sector external debt (end of period)

12.7 11.9 30.2 33.3 41.7 42.0 39.9

External public debt service


  (In percent of exports of goods and services)

13.4 12.9 13.0 15.8 17.0 18.3 18.1

Memorandum items:


Gross public sector debt

65.1 55.5 57.0 64.9 66.8 69.2 71.0

Nominal GDP (market prices; in millions of EC$)

1,650 1,849 1,888 1,815 1,847 1,868 1,947

Sources: ECCB; Ministry of Finance and Planning; and IMF staff estimates and projections.

1/ Based on the re-based (2010) CPI.

2/ Annual changes relative to the stock of broad money at the beginning of the period.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:

2 The Fund provided US$5.6 million (45 percent of quota) in May 2009 under the Exogenous Shocks Facility to help mitigate the impact of the global financial crisis, US$3.26 million (25 percent of quota) under the Rapid Credit Facility (RCF) to deal with the impacts of Hurricane Tomas, and US$2.0 million (15 percent of quota) under the RCF to deal with the impact of the April 2011 torrential rains and floods.


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