Washington, DC – July 6, 2021: The International Monetary Fund has painted a positive outlook for the Government of St. Kitts and Nevis, despite the fact that the impact of the COVID-19 pandemic on the country’s tourism-dependent economy has been severe.
In its concluding statement following the June 2021 Article 1V mission, the IMF noted that timely actions by the government kept COVID-19 infections in 2020 the lowest in the Western Hemisphere.
The IMF said “A rebound in tourism should prompt a strong recovery from 2022 onward, but risks to the outlook are significant.” The statement noted that while “containing the pandemic and supporting the economy are near-term policy priorities, as the recovery takes hold, policy focus should shift to rebuilding fiscal buffers by resuming to save part of the Citizenship by Investment (CBI) revenues, preparing the financial system for exit from the temporary support measures and pursuing structural reforms to support productivity, economic competitiveness, and human capital,” the international lending agency said.
The IMF explained that “St. Kitts and Nevis entered the Covid-19 pandemic from a position of fiscal strength following nearly a decade of budget surpluses. A significant part of the large CBI revenues were prudently saved, reducing public debt to below the regional debt target of 60 percent of GDP and supporting accumulation of large government deposits.”
They noted the measures taken by the government to contain the spread of the pandemic on the island, but pointed out that “the impact on the economy has been severe. The complete halt in cruise ship arrivals and very few stayover tourists since the first quarter of 2020 compounded on the pandemic’s disruptions on domestic activity. In response, the government introduced tax waivers, deferrals and incentives, and the Social Security Board provided unemployment benefits to affected insured workers.
“As the recently instated partial lockdown in response to budding community spread confirms, herd immunity has not yet been reached, and should remain the number one priority to save lives and livelihoods. Fiscal relief measures should be kept in place until the recovery firmly takes root. Maintaining robust levels of public investment would further support activity,” the IMF noted.
“Once the recovery is firmly established, the government should resume its policy of saving part of the CBI revenues to build fiscal buffers. As a small, natural disaster-susceptible country dependent on tourism and historically volatile CBI revenues, St. Kitts and Nevis needs significant buffers,” the IMF declared.
“Higher buffers would also provide more fiscal space to mitigate contingent and long-term fiscal pressures, including possible further reacquisitions of lands swapped as part of the 2012-14 sovereign debt restructuring, and a possible future need to buttress the national pension system that under current projections will start to run deficits and begin depleting its reserves if corrective measures are not taken in due course,” the international lending organization said.
In conclusion, the IMF observed that in the St. Kitts and Nevis economy, “there is room to strengthen productivity growth, economic competitiveness, and human capital. GDP per capita growth in the last two decades has been relatively weak and convergence with the U.S. has stopped.”
“Growth has been held back by weak productivity growth as investment has been high, which may partly reflect the limits of a small-island economy. However, several reforms might help boost productivity growth and export competitiveness, including using the CBI program to attract investment beyond the tourism sector, upgrading skills through focused training programs, better aligning the education system with the needs of the labor market, and making it easier for small firms to access credit, including through reforms that facilitate use of non-fixed asset as loan collateral.”