Basseterre, St. Kitts, January 31, 2023 (SKNIS): The International Monetary Fund (IMF) is reporting that the hard-hit St. Kitts and Nevis economy from the COVID-19 pandemic is recovering and that the cost of living crisis is improving. However, the report pointed out that although “the outlook is positive, risks are somewhat tilted to the downside” with “growth projected at 4.5 percent in 2023, supported by a strong recovery in tourism and other service sectors.
The assessment comes following an IMF Mission, led by Mr. Alexandre Chailloux, who visited St. Kitts and Nevis during January 16-27, 2023, for the 2023 Article IV consultation discussions on economic developments and macroeconomic policies. The mission team benefited from candid and constructive discussions with public and private sector counterparts and other stakeholders.
“St. Kitts and Nevis is recovering from the COVID-19 pandemic and cost of living crisis. The large fiscal buffers accumulated over a decade of prudent fiscal policy have supported the authorities’ forceful policy response to protect the livelihood of the population. The outlook is positive but subject to downside risks in the short term, primarily stemming from global headwinds impacting key tourism source markets and commodity price volatility. Preserving the country’s legacy of fiscal prudence, in a context of concerns over the sustainability of Citizenship-by-investment program (CBI) resources, and a pressing need for investment in climate change adaptation will require prioritizing policies. This includes tightening the fiscal stance through phasing out crisis-related measures, rationalizing and controlling current spending, streamlining social transfers, and a holistic overhaul of the taxation framework. Fiscal space could support investment in climate change adaptation, accelerate economic diversification, and restore waning competitiveness. The concentration of risks in the banking sector calls for a business model change, including de-risking of the investment portfolio, addressing legacy asset quality issues, and safeguarding government deposits, while supporting credit growth and financial stability,” Mr. Chailloux said.
According to the report, the Gross Domestic Product (GDP) shrunk by 14.5 percent in 2020 and 4.3 percent in 2021 due to the COVID-19 pandemic. Tourism recovery in the Federation lagged behind other countries of the Eastern Caribbean Currency Union (ECCU) because of “stricter and longer-lasting COVID-19 restrictions”.
“GDP is estimated to have grown by 9 percent in 2022. The authorities’ proactive policy response helped dampen inflation pressure with average inflation rising to only 2.7 percent,” the report stated.
“The previous administration made a substantial repurchase of land (7.6 percent of GDP) from the land-to-debt swap arrangement, hereby reducing its deposits and contingent liability (which now remains at 12 percent of GDP). These measures came at a cost to public finances: despite receiving record-high CBI revenues, the government incurred the largest primary deficit in two decades,” the report added.
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