June 22, 2015
IMF COMMUNICATIONS DEPARTMENT |
| Media Relations |
|---|
| E-mail: media@imf.org |
| Phone: 202-623-7100 |
End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.
A team from the International Monetary Fund (IMF), led by Ms. Judith Gold, visited St. Kitts and Nevis from June 8 to 19 to hold discussions on the 2015 Article IV Consultation and the First Post Program Monitoring review. The mission met with the Prime Minister, the Premier of Nevis, the Cabinet, the Financial Secretary of St. Kitts and Nevis, the Permanent Secretary of Finance in the Nevis Island Administration, other senior government and Eastern Caribbean Central Bank officials, as well as representatives of the banking and business community. The three-year IMF Stand-by Arrangement was completed on July 26, 2014. At the conclusion of the mission, Ms. Gold issued the following statement:
“St. Kitts and Nevis is at a turning point, where it has the opportunity to establish itself on a sustainable long-term growth path. This will require difficult decisions and careful choices to preserve the hard-earned gains. It will also require continued fiscal discipline and the implementation of structural reforms to expand growth potential.
“Macroeconomic conditions improved significantly over 2013 and 2014. The economy recorded two years of strong growth, averaging about 6 percent per year, the strongest in the region by far. This reflects primarily a construction boom fueled by inflows under the Citizenship-By-Investment (CBI) Program; government and Sugar Industry Diversification Foundation (SIDF) investment and spending, including on the People’s Employment Program (PEP); and a continued recovery in tourist arrivals. Employment expanded by 23 percent over the two years, while inflation has remained low. Banks have remained stable following debt restructuring, although the NPL ratio significantly increased notably due to removing public sector loans from the total loan portfolio following the debt-for-land swap. Credit to the private sector is still sluggish, expanding by 0.5 percent in 2014.
“The outlook for 2015 remains positive, although the pace of expansion is expected to moderate to about 4.5 percent. However, there is uncertainty as a result of the imposition of travel restrictions by Canada, combined with new competition on the CBI front from neighboring countries. Over the medium term, IMF staff projects a return to more moderate growth rates, as construction projects conclude and the tourism sector continues to expand.
“A strong fiscal performance was supported by a robust outturn in tax revenues, more than compensating for higher-than-planned expenditures, including the 13th-month wage bonus. CBI revenues to the budget increased to about 14 percent of GDP, slightly higher than in 2013. As a result, the government surplus after grants was a healthy 9.5 percent of GDP, somewhat smaller than in 2013, but only on account of considerably less SIDF support.
“The strong fiscal outcome, combined with additional progress with the debt/land swaps, and some advance debt repayment, led to a further decline in the share of public debt in GDP to 80 percent at end-2014, compared to over 100 percent at end-2013, and about 160 percent in 2010. St. Kitts and Nevis’ debt-to-GDP ratio is now below the ECCU average.
“The authorities should take corrective measures to prevent adverse impact to government’s finances from the new exemptions to value added tax and import duties, introduced in December 2014 and April 2015. While the government’s current surplus position allows it to absorb the impact in the short term, it implies growing reliance on volatile CBI inflows to finance government operations and could undermine efforts to reduce the debt-to-GDP ratio to the 60 percent target by 2020. We therefore encourage the authorities to implement corrective measures to close the gap created by these exemptions, including substantially reducing tax exemptions to construction projects, while continuing to implement other structural reforms that are already in train, including reforming the civil service and improving public financial management.
“We commended the authorities for their commitment to and progress with reform of the CBI program, and encourage them to accelerate the pace of implementation. We also welcome their efforts to enhance cooperation with neighboring islands, which will help make the programs sustainable. The rapid growth of CBI revenues and increased government savings provide an opportunity to build precautionary buffers to help deal with future exogenous shocks. Increased uncertainty regarding CBI inflows underscores the importance of careful use and preservation of the stock of accumulated savings. The team recommends the adoption of an effective and transparent framework to manage the CBI inflows and savings in the banking system, as well as more stringent oversight of development projects. The SIDF operations should also be reviewed, and its audited accounts should be made available to the public. Moreover, the strong economic environment provides an opportunity to streamline PEP’s operations and reinforce the temporary nature of its program.
“The IMF will continue to maintain its close policy dialogue with the Government of St. Kitts and Nevis in the context of the Fund’s Post-Program Monitoring Framework.
The team would like to thank the authorities and technical staff for their open discussions and cooperation.”
