By Prof. C. Justin Robinson, Principal, The UWI Five Islands Campus
May 23, 2025
In its recently concluded 2025 Article IV consultation, the International Monetary Fund (IMF) painted a sobering picture of the economic landscape in St. Kitts and Nevis. While commending the government’s commitment to policy reform and economic resilience, the Fund emphasized the urgent need for fiscal consolidation, structural adjustment, and greater transparency—particularly as the country contends with waning Citizenship-by-Investment (CBI) revenues, persistent fiscal deficits, and mounting debt pressures.
Post-Pandemic Reality: Urgent Need for Action in the Face of slower Growth and Rising Fiscal Risk
Following a post-COVID rebound, real GDP growth in 2024 decelerated to 1.5%, a sharp slowdown from 4.3% the previous year. The IMF attributed this to softer tourism revenues and reduced government service contributions, even as inflation moderated to 1%.
However, the fiscal story is more concerning. The overall fiscal deficit widened significantly to 11% of GDP, driven by a collapse in CBI inflows, from 22% of GDP in 2023 to just 8% in 2024. Public spending remained elevated, and the government drew heavily on deposits to finance the gap.
The IMF projects that the debt-to-GDP ratio could exceed 70%, above the ECCU benchmark of 60% of GDP by 2030, unless corrective measures are implemented. “Without fiscal adjustment, the current trajectory is unsustainable,” the report warns, citing structural revenue shortfalls and contingent liabilities from public banks and the Social Security Fund.
IMF Prescription: Fiscal Consolidation and Revenue Reform
The Fund strongly recommends a “prompt and decisive fiscal consolidation,” with tax reform at its centre. St. Kitts and Nevis currently collects less tax revenue (18% of GDP) than the Eastern Caribbean average (21%), in part due to extensive tax concessions and pandemic-era reliefs still in place.
These measures could affect the average citizen through changes in the cost of living, potential adjustments to social benefits, and a more competitive job market. The IMF also supports phasing out energy subsidies and controlling the public wage bill, which is high relative to peers.
Of note is the IMF’s endorsement of a Sovereign Wealth Fund (SWF), a state-owned investment fund that is typically used to manage a country's reserves for the benefit of its citizens. The SWF could help smooth volatile CBI revenues and build fiscal buffers. The authorities have committed to establishing the SWF soon and improving the transparency of the CBI programme.
A Fragile Financial System and the Role of Public Banks
The IMF highlighted continued fragility in the financial sector, particularly in the systemic bank, which holds non-performing loans equal to 33% of total loans. While the bank’s capital position has improved slightly, its long-term viability remains questionable. A full audit of the Development Bank is pending, and reforms to governance and regulation are urgently needed.
Private banks have made modest progress, with average NPLS down to 8%, and credit unions are growing rapidly. However, regulatory oversight remains uneven. The IMF called for stronger supervision, especially as credit to households and firms continues to expand at double-digit rates.
Structural Reform: A Long Road Ahead
Despite boasting one of the Caribbean's highest GDP per capita rates, St. Kitts and Nevis faces persistent structural headwinds. Productivity growth is weak, and the economy relies heavily on tourism and real estate. The IMF flagged the need for labour market reforms—notably better alignment between education and private sector needs—and improvements to business regulation and access to finance.
Encouragingly, the government’s Sustainable Island State agenda aligns with the Fund’s recommendations to accelerate the renewable energy transition. A geothermal project is advancing, and desalination plants are planned to address water security. The IMF notes that these could become fiscal and growth catalysts in the medium term, offering hope for a brighter economic future.
Risks and Realities
The IMF's risk matrix is extensive: declining CBI revenue, potential shocks in tourism markets, global financial instability, and the ever-present threat of natural disasters. The Fund recommends that St. Kitts and Nevis bolster its insurance framework and integrate disaster resilience more explicitly into public investment plans.
Still, the Fund’s tone is cautiously optimistic. If reforms are implemented, St. Kitts and Nevis can sustain moderate growth, strengthen its external position, and restore debt sustainability. But the message is clear: time is of the essence.
Prof. C. Justin Robinson, a Vincentian and UWI graduate, holds a BSc in Management Studies, MSc in Finance and Econometrics, and PhD in Finance. With over 20 years at UWI, he has served in various leadership roles, including Dean and Pro Vice Chancellor, Board for Undergraduate Studies. A Professor of Corporate Finance with extensive research publications, he is actively involved in regional financial institutions and is currently the Principal of The UWI Five Islands Campus in Antigua and Barbuda.
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