WASHINGTON, DC February 25, 2019 (CMC) – The International Monetary Fund (IMF) commended St. Vincent and the Grenadines, today, for “successfully reinvigorating” the local economy, but noted there were continuing challenges, in terms of making economic growth more sustainable, reducing public debt, and increasing resilience to natural disasters.
The IMF stressed the “importance of advancing structural reforms to raise longer-term growth”, and urged the Ralph Gonsalves administration “to capitalize on the growth opportunities, created by the new airport”.
The Washington-based financial institution also recommended, vigorously implementing policies to foster private sector activity, by improving the investment climate and strengthening human and physical capital, including investing in climate-resilient infrastructure.
It also emphasized the importance of bolstering fiscal buffers and welcomed the government’s commitment to meeting the 60 percent of gross domestic product (GDP) debt target by 2030, while underscoring the need for fiscal consolidation that does not jeopardize economic growth.
In its statement, the IMF said that its executive board had concluded the Article IV consultation with St. Vincent and the Grenadines, earlier this month, that focused on policies to achieve stronger and sustainable growth, build fiscal buffers, bolster resilience to natural disasters, and ensure financial stability.
“The economy of St. Vincent and the Grenadines has been recovering. The closure of Buccament Bay Resort (the largest hotel on the main island) and heavy rains, with flooding and landslides, slowed down growth in the second half of 2016 and early 2017.
“Following the opening of the new airport, however, tourist arrivals have recovered, boosting tourism-related services, such as hotels, restaurants, and retail. Increased demand for reconstruction materials from Dominica, struck by Hurricane Maria in September 2017, also helped the recovery,” the IMF noted.
The IMF said that as a result, quarterly data show that output growth, year-on-year, has turned positive since the third quarter of 2017. It said that over the past year, inflation has remained around two to three percent.
“The growth outlook is positive,” the IMF said, adding that it expects real GDP growth to rebound from 0.7 percent in 2017 to two percent in 2018, and further to 2.3 percent in 2019, driven by increases in tourist arrivals, tourism-related activities and related local production.
“Beyond 2020, growth would be sustained at around 2.3 percent, assuming steady tourism and investment growth. This outlook is subject to both external and domestic risks. External risks include weaker-than-expected global growth, tighter global financial conditions, and higher oil prices,” the IMF said.
It added that domestic risks include more severe and frequent natural disasters, the loss of correspondent banking relationships, and materialization of financial sector risks.
“There is also upside potential, stemming from stronger-than-expected tourist arrivals, investor interest, concessional financing for capital projects, and the successful completion of the geothermal power plant.”
The IMF is recommending that St. Vincent and the Grenadines prioritize capital projects, taking into account capacity and budget constraints and seeking concessional financing.
It is also encouraging the authorities to take additional fiscal measures, including broadening the tax base and reforming the pension system, and welcomed the establishment of the Contingency Fund, as an important instrument to protect public finances from the impact of natural disasters and climate change.
The IMF also “underscored the need to legislate the Contingency Fund’s governance and operational framework, to ensure its effectiveness and transparency,” suggesting also expanding the coverage of disaster insurance, especially against floods.
More generally, the Washington-based financial institution is recommending continuing to strengthen disaster preparedness, including reviewing the National Emergency and Disaster Act, updating river basin flood risk maps, and enhancing public education and awareness.