IMF Executive Board Concludes 2017 Article IV Consultation with St. Kitts and Nevis

On June 16, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with St. Kitts and Nevis.

Economic performance moderated in 2016. Growth moderated, reflecting the deceleration in tourism-linked sectors and contraction in manufacturing output, while still exceeding the average growth in the Eastern Caribbean Currency Union (ECCU) region. Lower Citizenship-By-Investment (CBI) receipts was a key factor contributing to a narrowing of the overall fiscal surplus and a significant widening of the current account deficit. Consumer inflation was negative, reflecting the favorable tax environment and low international fuel prices, but end-year inflation turned positive as these effects started to subside. Public debt fell further, projected to reach the ECCU debt-to-GDP target in 2018, well ahead of ECCU peers. The banking sector remains stable, but faces risks, including those associated with the slow progress with the sale of land swapped for public debt, weak asset quality, and loss of Correspondent Banking Relationships (CBRs).

Growth is expected to average around 3 percent in the medium term under the current policies and conservative assumptions about future CBI flows. The projected slowdown in construction linked to lower CBI inflows is expected to be offset by public infrastructure investment and higher tourism growth as source market growth accelerates and new tourism facilities come on stream through 2019. Inflation is projected to rise with the expected rise in fuel prices, remaining around 2 percent in the medium term. The current account deficit should remain large with CBI inflows tapering off. Key risks to the outlook include a sharper drop in CBI inflows, further delays in completing the sale of lands under the debt-land swap arrangement, loss of CBRs, and a stronger U.S. dollar. Stronger-than-expected CBI inflows from the ongoing reforms and continued oil-price weakness could surprise on the upside.

Executive Board Assessment [2]

Executive Directors welcomed the authorities’ commitment to sound economic management and continued efforts to strengthen their policy framework which has resulted in favorable outcomes. The medium‑term outlook is also favorable, with public debt expected to fall below the Eastern Caribbean Currency Union target in 2018, well ahead of other member states. However, growth has moderated, reflecting slower tourism and manufacturing activity. Lower citizenship‑by‑investment (CBI) inflows have weakened fiscal and external accounts. Moreover, the outlook remains vulnerable to risks of a sharp fall in CBI inflows, delays in the sale of lands under the debt‑land swap arrangement, loss of correspondent banking relationships, and natural disasters. Against this backdrop, Directors called for policy actions to limit fiscal and financial sector risks and support strong, inclusive growth.

To maintain sustainability, Directors supported adoption of a medium term fiscal framework with a zero underlying primary balance target, which excludes CBI inflows. This framework could be enshrined in fiscal responsibility legislation but should preserve priority spending that contributes to long‑term inclusive growth, including infrastructure investment, social sector spending, and poverty alleviation.

To further strengthen fiscal management, Directors suggested implementation of measures to broaden the tax base, streamline tax incentives and improve tax administration. Measures would also be needed to contain the public wage bill, spending on goods and services, and quasi‑fiscal spending of the Sugar Industry Diversification Foundation, while improving oversight of public corporations and fiscal management of the Nevis Island Administration. Directors encouraged further prepayment of expensive debt and underscored the need to carefully manage fiscal implications of the planned universal health coverage.

Directors welcomed the authorities’ commitment to establish a Growth and Resilience Fund to preserve and manage the fiscal savings from CBI inflows. With a prudent investment strategy and flows integrated with the fiscal framework, the fund should be prioritized for debt reduction and building resilience against natural disasters. In this regard, Directors encouraged preparing for natural disasters through a comprehensive framework that involves risk reduction through public infrastructure investment, and risk mitigation through fiscal buffers, risk‑transfer arrangements, and contingent financing plans.

Directors noted that despite adequate capital and liquidity levels, the financial sector faces risk from delays in the sale of lands under the 2014 debt‑land swap, loss of correspondent banking relationships, and high nonperforming loans. CBI inflows would also need to be monitored closely for their impact on the banking system. Directors urged completion of the land sales to limit fiscal and financial risks. They also supported continued efforts to improve compliance with international AML/CFT standards, implement risk‑based supervision, and maintain open communications to reduce correspondent banking risks. The ongoing regional and national efforts to resolve problem loans, including operationalization of the Eastern Caribbean Asset Management Corporation and modernizing foreclosure legislation, can help revive private sector credit growth.

Directors emphasized that reforms to overcome persistent structural challenges are necessary to boost inclusive growth and raise competitiveness. Priorities include policies to improve the business environment, support skills‑development and economic diversification, strengthen wage‑productivity links, improve global and regional connectivity, better target social programs, and reduce gender gaps and crime. Directors urged progress in improving availability of reliable data to enhance the quality of surveillance and policymaking.


St. Kitts and Nevis: Selected Economic and Financial Indicators 2015-19
Est Proj.
2015 2016 2017 2018 2019
National income and prices (Percentage change)
Real GDP (factor cost) 1/ 4.9 3.1 2.7 3.5 3.2
Consumer prices, end-of-period 2/ -2.4 0.9 1.5 2.0 2.0
Consumer prices, period average 2/ -2.3 -0.7 1.2 1.8 2.0
Banking system (Annual percentage change)
Change in net foreign assets 3/ -5.3 -1.3 1.2 0.7 -0.6
Credit to public sector 3/ -0.8 -5.1 0.4 1.0 1.5
Credit to private sector 3/ 1.5 -0.2 1.7 1.9 1.9
Broad money 2.5 -4.0 3.3 3.5 2.7
Public sector 4/ (In percent of GDP)
Total revenue and grants 38.8 34.3 31.0 29.9 28.1
o/w Tax revenue 21.4 20.6 20.7 20.8 20.8
o/w CBI fees 12.4 7.2 3.9 3.7 1.8
Grants 1.3 2.7 2.7 1.7 1.9
Total expenditure and net lending 5/ 33.1 30.1 31.8 31.3 30.0
Primary balance 7.8 6.0 0.9 0.3 -0.4
Overall balance 5.7 4.2 -0.7 -1.4 -1.9
Overall balance (less CBI inflows) 6/ -6.7 -3.7 -6.6 -6.1 -4.6
Total public debt (end-of-period)7/ 70.6 65.6 61.7 59.0 56.1
External sector (In percent of GDP)
External current account balance 8/ -9.2 -17.3 -18.5 -17.9 -18.1
Trade balance 8/ -27.4 -30.2 -28.2 -27.5 -27.0
Services, net 16.6 11.6 8.6 8.9 8.2
o/w Tourism receipts 14.7 14.7 14.8 15.2 15.7
External public debt (end-of-period) 26.9 21.6 18.5 16.2 14.1
Memorandum items
Net international reserves (in millions of U.S. dollars) 280.4 312.9 336.9 351.7 348.0
Nominal GDP at market prices (in millions of EC$) 2,366 2,429 2,534 2,676 2,820


Sources: Country authorities; ECCB; UNDP; World Bank; and Fund staff estimates and projections.

1/ Authorities revised historical GDP growth backwards from 2015.
2/ Includes St. Kitts and Nevis (in the past, only St. Kitts data was reflected).
3/ In relation to broad money at the beginning of the period.
4/ Consolidated general government balances. Primary and overall balances are based on above-the-line data.
5/ Decline in goods and services expenditure in 2012 reflects the corporatization of the Electricity Department in August 2011.
6/ Excludes CBI budgetary fees as well as SIDF grants and Investment proceeds.
7/ Reflects the debt-land swap equivalent to EC$565 million in 2013 and EC$231 million in 2014.
8/ Based on staff’s preliminary revisions to merchandise imports since 2013 pending technical assistance from CARTAC and headquarters.

[1] Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities.


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