Basseterre, St. Kitts – The federation of St. Kitts and Nevis accomplished the strongest growth and fiscal performance in the Eastern Caribbean Currency Union (ECCU) region in recent years, according to a report by the International Monetary Fund (IMF).
The IMF, in a report released July 5, stated that the strong macroeconomic performance owes much to the robust Citizenship-by-Investment (CBI) inflows, as well as overall prudent macroeconomic policies, but with those revenues falling, other efforts would be necessary to guard those achievements.
“However, CBI revenues fell significantly last year and are expected to fall further going forward,” the report stated. “In this context, additional efforts are needed to secure the macroeconomic gains, while enhancing resilience to external shocks and ensuring sustainable, inclusive growth into the medium term.”
The report added that the public debt in St. Kitts and Nevis looks set to meet the ECCU’s 60 percent of GDP target in 2018.
It continued with discussions focused on measures to strengthen the fiscal framework of the federation, with a view to reducing reliance on CBI inflows while strengthening fiscal sustainability.
“Staff urged the authorities to target a zero-underlying primary balance over the medium term by broadening the tax base and containing spending, especially on the public wage bill,” the release stated. “Staff stressed that the sale of lands under the debt-land swap should be completed urgently to limit fiscal and financial sector risks.”
The IMF also called for further efforts to improve the business climate, address skill gaps, enhance diversification and build resilience to natural disasters in an effort to boost inclusive growth
“The authorities broadly concurred with staff’s assessment and policy recommendations,” the release stated. “They agreed that the medium-term framework should continue to focus on reducing reliance on CBI inflows, including by containing discretionary tax incentives and controlling wage-bill growth through a predictable wage-setting mechanism.”
They added that that the powers that be have committed to give consideration to implementing the staff’s recommendation of aiming for a zero-underlying primary balance and enshrining it in a fiscal-responsibility law: “The authorities noted that they would explore further options to repay expensive debt and noted recent actions in this regard. The authorities agreed on the urgency to complete the sale of lands under the debt-land swap arrangement, and believed that their renewed efforts should expedite land sales. They also concurred with the importance of achieving sustainable and more inclusive growth, by strengthening competitiveness and implementing revamped social programs under the National Social Protection Strategy.”
Commenting on the economic activity in the federation, the IMF noted moderation in 2016: “The economy grew at 3.2 percent, compared to 4.9 percent in 2015. The slowdown reflected deceleration in manufacturing, financial, and tourism-linked sectors, the latter reflecting a slowdown in both cruise arrivals (due to limited port capacity) and lower stay-over arrivals from the United States and the United Kingdom. Construction grew at a robust 7.6 percent, largely owing to a major hotel project.”
The IMF, however, noted that consumer inflation was negative, reflecting the effect of tax exemptions and low international fuel prices in 2015, but by the end of the year, inflation turned around to a positive as these effects started to subside.
Going forward, the economic growth in St. Kitts and Nevis is projected to fluctuate around its current level over the medium term, based on cautious assumption of CBI inflows: “Growth is projected to be 2.7 percent for 2017 and average around 3 percent in the medium term. The projected slowdown in construction linked to lower CBI inflows would be offset by public investment on infrastructure and higher tourism growth (as source market growth accelerates and new tourism facilities come on stream in 2017-19). With the expected rise in fuel prices from 2017, inflation is projected to rise in 2017, remaining around 2 percent in the medium term.”