Jul 2016 Financial News

IMF: St Vincent to grow 2%

Jul 21, 2016

WASHINGTON—The International Monetary Fund (IMF) says St Vincent and the Grenadines is projected to grow by 2.2 per cent this year and reach 3.1 per cent over the medium-term as tourist arrivals are boosted by greater airlift capacity and construction expands tourism infrastructure.

But the Washington-based financial institution that has recently completed a review of the island’s economy, notes that St Vincent and the Grenadines’ recovery from the global financial crisis was hampered by a series of natural disasters, sluggish global demand and slow implementation of key infrastructure projects.

The IMF said economic activity appears to have recovered in 2015, led by strong tourism inflows and a rebound in construction, while inflation has trended down due to falling food and fuel prices.

Lower oil prices have also narrowed the current account deficit. The commercial banking sector appears to remain solid, enabling a modest uptick in credit to the private sector that has been supportive of economic recovery, the IMF said.

The lending institution said the new airport, now foreseen for completion in 2016, is expected to sustain the near-and medium-term economic growth and that the current account deficit is expected to narrow gradually, as tourism inflows increase. Additional imports to supply tourism services are expected to be financed by foreign direct investment.

The IMF said that the public debt, at 74 per cent of gross domestic product (GDP) at end-2015, has steadily increased since 2008, owing largely to the impact of the global financial crisis, construction of the new international airport and rehabilitation spending in response to three back to back natural disasters. The authorities have committed to reducing public debt to the Eastern Caribbean Currency Union (ECCU) target of 60 per cent of GDP by 2030.

The IMF said they have made some progress towards consolidating the fiscal position since 2013, with a reduction of the primary deficit from five per cent of GDP to an estimated 1.1 per cent of GDP in 2015. “Despite the new tax policy measures provided in the 2016 budget and the envisaged improvement in the primary balance, higher interest costs are expected to leave the fiscal position unchanged from 2015,” the IMF said.

Meanwhile, the IMF executive directors say they welcome the incipient economic recovery and improved external and fiscal positions in St Vincent and the Grenadines and observed that the outlook was positive, particularly with prospects for the entry in operations of the new international airport and the development of geothermal energy, and risks are balanced.

However, to bring public debt on a downward trajectory and improve competitiveness to underpin strong medium-term growth, the directors stressed the importance of strengthening the macroeconomic policy framework and pursuing critical structural reforms.

They also welcomed the Ralph Gonsalves administration’s commitment to achieve the ECCU-wide public debt target of 60 per cent of GDP by 2030, and underscored the importance of an ambitious yet credible medium-term fiscal consolidation to meet the debt target and build some buffers against natural disasters. “They saw scope to further broaden the tax base, including by streamlining tax expenditure; continue to restrain the wage bill; and improve the sustainability of the public pension scheme and the national insurance service.

“They stressed that structural fiscal reforms would also be crucial to support adjustment, and recommended accelerating and sustaining revenue administration and public financial management reforms, while limiting contingent liabilities from public-private partnerships,” the IMF noted.

Source:
Trinidad Guardian, A17
Thursday July 21, 2016