The International Monetary Fund (IMF) said on Friday that economic growth in St. Kitts and Nevis bounced back “strongly” last year despite global headwinds, with gross domestic product (GDP) contracting by 14.5% in 2022, after falling 14.5% in 2022. It is estimated to grow by 9%, he said. 0.9% in 2020 and 0.9% in 2021.
In a statement, the Washington-based financial institution said the lifting of all COVID-related travel restrictions last August led to a strong recovery in the tourism sector and the economy at large.
“The authorities’ aggressive policy response, facilitated by fiscal buffers built up from a decade of prudent fiscal policy, has helped shield domestic prices from rising global energy and food prices,” it said. Still, he said, the measures had hit the fiscal balance hard. 2022.
The primary balance, which excludes citizenship income from the Investment Program (CBI) and land buybacks, has deteriorated to a deficit of 17% from 15% of GDP in 2021, according to the IMF.
The IMF said huge CBI inflows in 2022 will help fund this expansion, keeping public debt below the Eastern Caribbean Monetary Union (ECCU) regional target of 60% of GDP.
Under the CBI program, foreign investors are granted Twin Island Federation citizenship in return for making significant investments in the socio-economic development of the islands.
The IMF said a return to pre-pandemic activity levels is expected by the end of next year, after which growth should converge towards a medium-term path.
“We expect the budget to be broadly balanced through 2025, after which it will be in deficit based on current policies. Risks to the outlook are tilted to the downside in the short term, but are likely to the upside in the medium term. there is.
“Downside risks stem primarily from the global economic slowdown, particularly in the United States, global inflation, and sustained volatility in commodity prices due to lingering geopolitical uncertainties,” the IMF said, citing volatility and uncertainty. Increased reliance on reliable CBI revenues is a major source, he added. Vulnerability.
“However, the prospect of an accelerated transition to renewable energy and increased investment in resilience by the broader public sector could represent significant upside risks.
“The authorities remain committed to maintaining a prudent fiscal stance. I have.”
The IMF said the authorities reiterated their intention to make structural fiscal policy changes to reduce dependence on CBI revenues in the medium term. We also focus on investing in resilience to natural disasters and adaptation to climate change.
In assessing the situation in the twin island federation, the IMF Executive Board noted that last year’s strong economic recovery was tempered by tightening global funding conditions and higher fuel and food prices.
The Board said that while aggressive policies, facilitated by accumulated buffers, had helped keep inflation in check, fiscal measures weighed heavily on finances.
“Strong investment citizenship flows have mitigated the impact of increased spending on public debt, but have also increased reliance on these revenues. As a result, Directors encouraged authorities to pursue prudent fiscal policy, ensure financial stability, and implement ambitious structural reforms to support sustainable and inclusive growth. ”
The IMF Executive Board agrees that fiscal stance should be tightened to anchor debt sustainability, and stresses the importance of a planned phase-out of electricity price subsidies and other crisis-era support measures. pointed out.
“Restraining current spending, especially wage bills, will help create space for sustainable investment. , VAT streamlining, property tax reform and the introduction of a progressive personal income tax will require an overhaul of the taxation framework.”
The IMF Executive Board also stressed the need for structural policies to enhance competitiveness, labor market development, and diversification.
The directors endorsed the agency’s strategy to increase spending on resilient infrastructure, recommend optimal insurance frameworks for natural catastrophe risks, and transition to renewable energy.
Ministers endorsed the Sovereign Wealth Fund’s plan to fund resilient investments, ensure adequate fiscal buffers, reduce skills mismatches and promote employment. We welcomed efforts to improve the provision and access to education and vocational training, which should be complemented by labor market policies. chance.
The IMF is also calling for a reassessment of the business models of systemically important banks, noting that more progress is needed to de-risk their investment portfolios and reduce non-performing loans (NPLs). increase.