BASSETERRE – The International Monetary Fund (IMF) is predicting economic growth as high as three per cent for St Kitts and Nevis in 2014.
An IMF mission ended a three-day visit to the twin island federation on Friday after conducting reviews of the three-year US$84 million Stand-By Arrangement (SBA) the country has with the Washington-based financial lending institution.
The IMF team headed by Judith Gold said that there has been considerable progress under the authorities’ economic reform programme, noting that after a four-year contraction of economic activity there were firm signs of a recovery in 2013.
It said that real gross domestic product (GDP) is estimated to have grown by 1.7 per cent with a pickup in tourism and construction, notwithstanding declines in the manufacturing and communications sectors. Employment also showed signs of improvement with the number of total employees up by 10.2 per cent and wages up by 5.1 per cent in the first half of 2013. Inflation has remained low at 0.6 per cent.
Gold said notwithstanding the challenges associated with the prolonged recession and the debt restructuring, the financial system has remained stable.
She said the recovery in tourism receipts and strong increase in Citizenship by Investment (CBI) application fees contributed to a narrowing of the current account deficit from over 20 per cent prior to 2011 to about 11 to 12 per cent in 2012 and 2013.
“The improved current account, together with strong capital inflows has significantly strengthened the external position. International reserves have increased since the start of the SBA from five-months-of-imports to over eight months at end-November 2013.
“The fiscal position has substantially improved, from a deficit of 7.8 per cent of GDP in 2010 to a projected surplus of 8.6 per cent in 2013. The stronger fiscal performance reflects policy efforts to contain expenditures, strengthen revenues, including the introduction of the Value Added Tax (VAT), interest cost savings from debt restructuring, as well as substantial CBI inflows”
Gold said the improved fiscal situation allowed for the 13th month wage payment in September 2013 after a nominal wage freeze since 2010.
“Consequently, performance under the SBA remains broadly on track. The fiscal targets for end-June and end-September 2013 have been met, although there are delays in the implementation of structural reforms through end-2013.
“Growth in 2014 is expected to accelerate to 2.5 to three per cent, with the continued recovery in tourism, supported by an increase in air lift capacity, and ongoing construction activity fueled by CBI related inflows and other Foreign Direct Investment (FDI) projects.”
Gold said over the medium-term, the economy is expected to continue to recover and reach its potential growth rate of about three to 3.5 per cent.
“After being subdued in 2013 and 2014, inflation is expected to pick up slightly, mirroring the recovery of domestic demand. The external position is projected to remain strong bolstered by tourism receipts, CBI inflows and other FDI.
“Continued fiscal discipline will be needed over the medium-term to achieve the authorities’ public debt target of 60 percent of GDP by 2020. While CBI receipts could support a more expansionary fiscal stance, relying on these windfall flows for recurrent spending could lead to an unsustainable fiscal position in the future.”
She said, instead, the inflows provide a unique opportunity to build fiscal buffers, including to provide for humanitarian assistance and reconstruction after natural disasters, increase public investment in infrastructure stabilize the economy during downturns, and repay expensive debt.
“Moreover, careful management is needed to sustain the inflows, ensure that they contribute to increasing productive capacity and that they do not undermine the “St. Kitts and Nevis brand.”
Gold said the IMF and the St. Kitts-Nevis government have reached staff-level agreement on the quantitative targets and on policies for the completion of the seventh and eighth review under the SBA, noting that discussions and understandings centered on policies to safeguard achievements so far and continue with the fiscal reform efforts.
“To support this goal while boosting fiscal space for social and development spending, the authorities will continue to contain expenditures, including limiting new contingent liabilities, strengthening public financial management, and improving the oversight of government enterprises,” she said.
“The government will also continue with reforms to strengthen tax administration, strengthening audit and enforcement process, and containing tax exemptions. The government also is committed to complete the debt restructuring,” she added. (CMC)
