The International Monetary Fund (IMF) has stated that St. Kitts-Nevis is showing a positive economic outlook, however, the organization has warned the twin island federation of potential downside risks in the short term. These risks stem mainly from the impact of global headwinds on key tourism source markets and fluctuations in commodity prices. The IMF’s latest projections estimate economic growth of 4.5% in 2023, buoyed by a strong revival of the tourism and service sectors.
Recently, an IMF mission led by Alexandre Chailloux visited Basseterre for discussions on the country’s economic developments and macroeconomic policies. The IMF noted that St. Kitts-Nevis is slowly recovering from the aftermath of the COVID-19 pandemic and a cost of living crisis. The large fiscal buffers accumulated through a decade of responsible fiscal policy have helped the government respond effectively to protect the well-being of the population.
To maintain the country’s legacy of fiscal prudence and address concerns about the sustainability of the Citizenship-by-Investment Program (CBI) resources and the need for investment in climate change adaptation, Chailloux emphasized the importance of prioritizing policies. This involves tightening the fiscal stance, controlling current spending, streamlining social transfers, and revamping the taxation framework.
Chailloux also mentioned the need for a change in the banking sector’s business model, including de-risking of the investment portfolio, addressing legacy asset quality issues, and maintaining government deposits while supporting credit growth and financial stability. The fiscal space created could support investment in climate change adaptation and diversification of the economy while restoring competitiveness.
The IMF official stated that the recovery of tourism in St. Kitts-Nevis has lagged behind other countries in the Eastern Caribbean Currency Union and the Caribbean region, due to stricter and longer-lasting COVID restrictions. Despite this, the country’s GDP is estimated to have grown by 9% in 2022, and the proactive policy response of the government has helped to keep inflation at a low 2.7%.
However, Chailloux acknowledged that while the outlook for St. Kitts-Nevis is positive, risks are somewhat tilted to the downside. Despite receiving record high CBI revenues, the government incurred the largest primary deficit in two decades, which had a cost to public finances. To mitigate these risks, the IMF suggests that the country prioritize its policies and maintain its legacy of fiscal prudence.
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