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St. Vincent and the Grenadines

Author(s):
International Monetary Fund
Published Date:
December 2011
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I. Background

1. On October 30–31, 2010, St. Vincent and the Grenadines was hit by Hurricane Tomas; resulting in severe damage to agriculture, housing, and infrastructure. Torrential rains combined with high winds caused severe damage to the residential housing stock, as well as to several schools and government buildings. In addition, the rains triggered landslides and flooding which caused severe damage to the island’s economic infrastructure and to the agricultural sector (in particular, the banana and plantain crops were completely destroyed). The authorities’ assessment, which covers the impact of the hurricane on agriculture, housing, public buildings, fisheries, livestock and forests, puts the cost of damages at 5 percent of GDP. However, reconstruction and rehabilitation, especially of the housing stock (in line with the building codes), is proving to be much more costly than the estimates from the damage assessment. Moreover, a more comprehensive assessment that includes damages to coastal areas and sea and river defenses, being conducted by the UN Economic Commission for Latin America and the Caribbean (ECLAC), is expected to raise costs further.

2. The authorities have requested a disbursement under the RCF in an amount equivalent to 25 percent of quota (SDR 2.075 million or US$3.2 million) to address the urgent balance of payments need arising from the hurricane.1 As of end-2010, the authorities had received US$1.1 million from the Caribbean Catastrophe Risk Insurance Fund, US$0.2 million from the Caribbean Development Bank, and some small sums from other donors. They have also received pledges for a further US$7.6 million in 2011, of which US$3.6 million is expected to go through the central government, and the rest through the Housing and Land Development Corporation.2 However, rehabilitation of the banana and plantain fields, reconstruction of the destroyed housing stock and infrastructure, and rehabilitation of temporary shelters—leave a further BOP financing gap, as most materials will have to be imported. The authorities have, therefore, requested Fund assistance.

3. The authorities’ stance on macroeconomic policies and record on structural reforms has generally been in line with staff recommendations. At the time of the last Article IV Consultation in May 2010, authorities agreed with staff on the need for strong fiscal consolidation over the medium term given the significant increase in public debt. However, they opted for a more back-loaded path of fiscal adjustment than recommended by staff. But with external financing falling far short of what was expected, capital spending was curtailed. As a result, the fiscal stance was tighter than what was expected at the time of the Article IV consultation (see below). On the structural front, the authorities have implemented some key measures discussed at the time of the Article IV consultation. In particular, they are adopting a medium-term budget framework starting with the 2011 budget and implementing reforms to enhance public finance management, including operationalizing the Oversight Committee on state owned enterprises. The National Commercial Bank (NCB), which comprises about one-third of the banking sector, was privatized in November.3 They have also implemented most key measures committed to in the context of the ESF-RAC in 2009 (see Table).

St. Vincent and the Grenadines: Implementation of Key Policy Measures Under the 2009 ESF-RAC
MeasuresProgress
Enhancing the efficiency and technological capacity of customs and port operationsIn progess (new customs platform is being implemented)
Maintain a prudent public sector wage policySalary increase was given last year but this year’s planned salary increase has been deferred.
Reduce corporate tax ratesDeferred to safeguard revenues
Improve business environmentOngoing

4. The authorities have officially launched the much anticipated new GDP series, which shows an upward revision in nominal GDP by about 23 percent, on average, during 2000–09. The upward revision comes from rebasing of the National Accounts from 1990 to 2006 and from increased coverage of sectors. New sectors, such as business services, rental of machinery and equipment, computer services, private education, and private health were included in accordance with SNA (see Box for details). As the authorities are no longer using the old GDP series, references to GDP in this report reflect the new GDP, unless otherwise stated.

II. Economic Performance Prior to the hurricane

5. Economic activity was projected to contract in 2010, more than at the time of the last Article IV consultation. Prior to the hurricane, real GDP was projected to contract by about 2 percent in 2010, reflecting a slowdown in agriculture caused by the drought in the first half of the year, slow recovery in advanced countries (major sources of tourism and FDI), and cuts in government capital spending (see below). Average inflation was projected to increase to about 1.7 percent in 2010, from 0.4 percent in 2009, reflecting the upward trend in international food and fuel prices since May.

Box.Rebased GDP and CPI Series1

The new rebased GDP increased nominal GDP by 22.9 percent on average over the 2000-2009 period. One notable change between the two series for St. Vincent and the Grenadines is that the new series shows economic growth was already declining in 2007 unlike the old series which still showed higher growth than the previous year, possibly a reflection of the change in coverage. At the same time, the overall average GDP growth is slightly higher with the new series (3.4 percent) than with the old one (3.3 percent), volatility is much reduced—standard deviation of growth according to the new series is 2.7 versus 3.3 according to the old series.

Real GDP Growth Rate: New vs. Old Series 2000-09

(In percent)

Source: ECCB, and Fund staff calculations.

The GDP rebasing led to improvements in coverage, data sources and methodology. The revision disaggregated some industries previously classified under government into separate sectors that now include private sector activity; these are health, education and social development. The new series also improved the level of detail by estimating value added for business services, computer and related services and private households with employed persons which were not accounted for in the previous series.

The Statistical Office of St. Vincent and the Grenadines is finishing the process of updating and rebasing the CPI from base year 2001 to base year 2010. The revision process has included new data sources and adopted new international methodological and classification standards that are expected to improve the quality of the data. The new weights given to the different component of the CPI reflect a profound change in the consumption patterns of Vincentians. The share of expenditure in Housing, Fuel and Light, shows the largest increase moving from 12.8 percent in 2001 to 30.1 percent in 2010, reflecting the addition of owner’s rent to the basket. Another significant change is the drop in the share of expenditure allocated to Food from 53.6 percent in 2001 to 21.9 percent in 2010. Similarly, the expenditure share for Transport and Communication rose from 6.9 percent in 2001 to 21.3 percent in 2010, reflecting in part the importance of cellular phones and mobile communication.

1 A new rebased GDP series (using 2006 as the base year instead of 1990) was introduced in January 2011 with assistance from CARTAC. The Statistical Office is currently finalizing revision of the CPI weights with the assistance of CARTAC and the ECCU. These results are expected to be released during the first half of 2011.

6. The pre-hurricane fiscal deficit was expected to be lower-than-projected, largely reflecting financing constraints. Preliminary fiscal data suggest that tax revenues were somewhat lower than projected reflecting the slowdown in the economy. On the expenditure side, significant cuts had to be made, especially on capital spending, as some of the anticipated external financing did not materialize.4 The underlying fiscal stance in 2010 was, therefore, much tighter-than-expected, with the overall fiscal deficit estimated at 5½ percent of GDP, compared to 11 percent of GDP projected at the time of the Article IV consultation.

7. The external current account deficit was expected to narrow in 2010. The slowdown in economic activity combined with a standstill on most FDI-related construction activities and cuts in government capital spending led to a sharp fall in imports, which along with increased transfers, more than offset the impact of the slowdown in tourism and banana exports. As a result, the current account deficit was expected to be much lower than projected.

8. Monetary aggregates continued to reflect weak economic activity, but the banking sector remained stable. The growth of credit to the private sector remained sluggish, growing at 2.3 percent, while broad money remained flat, in the 12 months ending October 2010. The ratio of nonperforming loans (NPLs) to total loans, declined from 8.4 percent at end-2009 to 6½ percent at end-September 2010, largely reflecting the clearance of public sector NPLs at the National Commercial Bank ahead of its privatization.5 Liquidity ratios remained fairly stable and return on assets showed a marginal improvement.

III. Economic Impact of the Hurricane

9. The impact of the hurricane on real GDP growth in 2010 is expected to be negative, but reconstruction activity in 2011 should help boost growth. The net impact of the hurricane on 2010 GDP growth is estimated at minus 0.3 percent, reflecting the adverse impact on agriculture, especially the banana sector and the associated decline in agricultural incomes6. For 2011, hurricane related reconstruction activities combined with a modest recovery in tourism and FDI-related construction will help boost growth to about 2½ percent, offsetting the continued adverse impact of the hurricane.7 Although the hurricane is not likely to have a significant impact on inflation in 2011, average inflation is expected to go up to about 4 percent, reflecting increasing international food and fuel prices.

St. Vincent and the Grenadines: Growth and Inflation, 2009-11(annual percentage change)
200920102011
Art. IVRev

proj. 1/
Post-

Hurricane
Art. IVRev.

proj.
Real GDP at factor cost-0.60.5-2.0-2.32.02.5
Of which:
Agriculture 2/6.4-2.5-6.0-9.72.54.0
Real estate and housing1.41.91.9-1.02.02.7
Transport 3/0.10.7-4.30.05.03.5
GDP at current market prices-0.72.0-0.1-1.04.15.0
Consumer prices (end of period)-1.61.92.13.32.92.6
Sources: Ministry of Finance and Planning; and Fund staff estimates and projections.

Revised based on the outturn through September 2010.

Agriculture production and exports are expected to resume in the second half of 2011.

Transport activity in 2010 is projected to increase because of hurricane related activities.

Sources: Ministry of Finance and Planning; and Fund staff estimates and projections.

Revised based on the outturn through September 2010.

Agriculture production and exports are expected to resume in the second half of 2011.

Transport activity in 2010 is projected to increase because of hurricane related activities.

10. Hurricane related spending is expected to widen the budget deficit in 2011. Last year’s fiscal deficit was not much affected by hurricane related spending. The 2011 budget, announced in late January, includes additional spending of EC$16.9 million (about 1 percent of GDP) for rehabilitation and reconstruction of the hurricane damages. This includes income support for affected farmers, field rehabilitation and fertilizer provision to affected areas, housing assistance, road improvement, and other emergency recovery projects8. Additional activities in an amount of EC$12.3 million (0.6 percent of GDP) are expected to be executed by state-owned enterprises, mainly by the Housing and Land Development Corporation. Financing is expected to come from external grants and concessional resources.

St Vincent and the Grenadines: Identified Financing for Hurricane Related Spending(In millions of EC Dollars)
20102011Total
Total spending5.129.134.3
Of which financed by:
Caribbean Catastrophe Risk
Insurance Fund3.00.03.0
Caribbean Development Bank0.50.00.5
CARICOM Development Fund0.80.00.8
European Union0.02.32.3
Guyana0.30.00.3
IMF(RCF)0.08.68.6
Taiwan Province of China0.50.00.5
Suppliers credit 1/0.05.45.4
Venezuela0.010.810.8
World Bank0.02.02.0
Source: Ministry of Finance

For supply of construction materials by Tank-Weld Metals of Jamaica.

Source: Ministry of Finance

For supply of construction materials by Tank-Weld Metals of Jamaica.

11. The external current account deficit is expected to widen in 2011, reflecting hurricane related imports. Higher imports due to reconstruction and rehabilitation in the aftermath of the hurricane as well as higher international food and fuel prices will outweigh the gains from modestly improving tourism leading to a widening of the current account deficit by about 2 percentage points of GDP and a financing gap of about 1½ percent of GDP. Fund financing is expected to fill about one-third of the financing gap, with the rest coming from other donors.

St. Vincent and the Grenadines: Key BOP Indicators, 2009-11(In percent of GDP, unless otherwise stated)
200920102011
Art. IV

Proj.
Prel.

est.
Art. IV

Proj.
Rev.

proj.
(In percent of the new GDP)
Current Accounts-28.4-39.7-27.2-27.0-29.0
Exports f.o.b.7.77.96.98.27.3
Imports f.o.b.42.152.141.341.644.4
Net private transfers1.81.62.21.51.9
Foreign direct investment15.514.914.616.316.3
Tourism receipts12.913.311.813.511.8
(In percent of the old GDP)
Current Accounts-34.7-48.3-33.1-33.0-35.5
Exports f.o.b.9.49.58.410.09.0
Imports f.o.b.51.563.450.250.854.3
Net private transfers2.21.92.71.92.4
Foreign direct investment18.918.117.719.919.9
Tourism receipts15.816.114.316.514.4
BOP financing needs (EC$ millions)0.00.05.10.029.1

12. The hurricane is not expected to impact the banking sector. Commercial banks as well as credit unions have very little exposure to the agricultural sector (0.1 percent and 0.2 percent of total loans, respectively). On the other hand, the privatization of the NCB and the projected economic recovery are likely to have a positive impact on the overall banking sector.9

IV. Policy Issues and Discussions

13. The hurricane has caused a further setback to an already ailing economy and posed new challenges. St Vincent and the Grenadines was already facing severe financing constraints even before it was hit by the hurricane. The hurricane has created additional demand for public resources. But with high debt levels constraining the use of fiscal policy and the currency board arrangement limiting the use of monetary policy, the authorities are depending on grants and external concessional resources to finance the reconstruction and rehabilitation expenses.

St. Vincent and the Grenadines: Key Fiscal Indicators, 2009-11(In percent of GDP)
200920102011 (proj.)
Art IV

proj.
Prel.

est.
BudgetStaff
(In percent of the new GDP series)
Revenue and grants28.729.127.428.628.6
Revenue24.625.725.625.825.8
Grants4.13.41.82.82.8
Of which: Hurricane related0.10.1
Total expenditure31.840.332.736.232.7
Current24.932.328.427.726.0
Of which: Hurricane related0.00.50.5
Capital6.98.04.38.56.7
Of which: Hurricane related0.10.40.4
Overall balance-3.1-11.1-5.4-7.6-4.0
Primary balance-0.4-7.9-2.5-4.9-1.3
Identified financing3.111.15.43.33.6
Financing gap 1/0.00.00.04.20.4
Public debt62.376.268.172.1
Underlying fiscal stance2/2.65.6-1.32.30.0
(In percent of the old GDP series)
Revenue and grants35.035.033.335.035.0
Total expenditure38.848.439.844.239.9
Overall balance-3.8-13.4-6.5-9.3-4.9
Primary balance-0.5-9.5-3.1-5.9-1.6
Public debt76.191.782.788.1
Sources: Ministry of Finance and Planning; and Fund staff estimates.

In the staff column for 2011, this reflects disbursment under the RCF.

Measured by the change in cyclically-adjusted primary balance in percent of GDP. A negative (positive) number indicates a contractionary (expansionary) fiscal stance.

Sources: Ministry of Finance and Planning; and Fund staff estimates.

In the staff column for 2011, this reflects disbursment under the RCF.

Measured by the change in cyclically-adjusted primary balance in percent of GDP. A negative (positive) number indicates a contractionary (expansionary) fiscal stance.

14. The authorities’ 2011 budget involves a modest increase in the overall deficit compared to 2010, to accomodate hurricane related spending. On the revenue side, the 2011 budget includes 0.3 percent of GDP of revenue-enhancing measures; notably, increase in license fees and stamp duties, broader coverage of properties and revaluation to current market values, and streamlining of exemptions. According to the authorities’ budget, spending is slated to increase by 16 percent in 2011, including hurricane related spending, bridge financing of the airpot project, and some expenditure items carried over from last year.1011 Excluding the one-off items, the underlying fiscal stance is expansionary in the 2011 budget compared to the outturn for 2010.12 However, the budget has a financing gap of about 4.2 percent of GDP, which the authorities expect to fill by expenditure savings and through additional grants and concesional financing from donors. To the extent that additional grants and concessional financing are not available, the authorities have identified contingent measures on both current and capital expenditure, notably, a limit on hiring, streamlining transfers to state-owned enterprises, and cuts in non-priority capital spending to fill the gap. In such an event, the budget will not be implemented fully, as has been the case in past years.13

15. Staff projects the overall deficit in 2011 to be in the range of 4 percent of GDP. While agreeing with the authorities that the budget should accommodate hurricane related spending, staff emphasized the need to contain the wage bill, transfers and subsidies, and limit capital spending to begin the adjustment toward medium-term fiscal and debt sustainability. Moreover, given that tourism and FDI are expected to pose a modest recovery, a more neutral fiscal stance seems justifiable. While authorities agreed in principle, they emphasized the need for more infrastructure spending (there have been significant cuts in this category in the past) assuming that they are able to mobilize additional grants and/or concessional resources. However, they indicated that they do not intend to borrow on non-concessional terms and if financing fell short they would implement the contingent measures discussed above.

16. The authorities are committed to generating primary surpluses in the range of 1½–2 percent of GDP over the medium term. Toward this end, the authorities plan to make further improvements in tax administration, including enhancing tax compliance, and in public finance management with CARTAC’s assistance. A task force has also been set up to study the scope for pension reforms in line with CARTAC recommendations (see Letter of Intent, paragraph 5).

St. Vincent and the Grenadines: Public Debt Trajectory

(Percent of GDP)

Source: Fund staff estimates.

17. Given the lower than projected fiscal deficit last year, the authorities’ commitment for fiscal consolidation, and the upward revision in the GDP series, the risk of external debt distress is deemed moderate. While projected to rise temporarily this year, the public sector debt-to-GDP ratio will fall over the medium term to 46 percent by 2020 (this is equivalent to the ECCB’s target of 60 percent with the old GDP series). The Debt Sustainability Analysis also shows that the present value (PV) of external debt to GDP ratio, PV of external debt to exports ratio, and PV of external debt to revenue ratio, all lie below the corresponding country-specific thresholds indicating that the risk of external debt distress is moderate.

18. The authorities have stepped up structural reforms to ensure high and sustained growth over the medium term. To improve competitiveness, they plan to take further measures to expedite customs clearance and establish a new labor skills-building program. In order to strengthen the financial sector, the legislation for establishing the Single Regulatory Unit will be submitted to parliament in the first quarter of this year. Authorities continue to seek a regional solution to the problems left behind by the insolvency of BAICO and CLICO and intend to keep fiscal costs to a minimum, while protecting the vulnerable groups.

V. Access and Capacity to Repay

19. The authorities have requested a disbursement under the RCF with access of 25 percent (equivalent to SDR 2.075 million or US$3.2 million).14 At this juncture, the authorities do not intend to request an ECF. Furthermore, given the urgent need for rapid support, there is not enough time to engage in prolonged negotiations on a Fund arrangement. While the Fund loan amounts to about 0.4 percent of GDP, it will provide some quick-disbursing funds to meet the urgent need for foreign exchange stemming from the hurricane. While other multilaterals (CDB, EU, and WB) have provided some emergency assistance and are considering further assistance, Fund financing could play a catalytic role in mobilizing these and further resources from donors.

20. It is expected that St. Vincent and the Grenadines will be able to repay its obligations to the Fund. The total outstanding loans from the Fund, once the RCF is disbursed, will amount to 70 percent of the quota. While the country remains vulnerable to exogenous shocks (economic and climate related) and the debt service-to-revenue ratio remains high at 27.8 percent (2010), the authorities’ commitment to fiscal consolidation suggests that St. Vincent will have the capacity to repay the Fund as debt servicing falls due.

21. Under the safeguards assessment policy, the Eastern Caribbean Central Bank (ECCB) is due for an update safeguards assessment in 2011. The last assessment, completed in July 2007 (ECCB is on a four year cycle), concluded that the ECCB continues to have appropriate control mechanisms in place. Furthermore, since the assessment, the ECCB has enhanced transparency and accountability, including by publishing financial statements that comply with International Financial Reporting Standards.

VI. Staff Appraisal

22. Hurricane Tomas poses a new challenge for St Vincent and the Grenadines. The hurricane has left a trail of destruction, the severity of which stands in stark contrast to the short time span that the hurricane hit the island. While the hurricane will lead to a widening of the fiscal and current account deficits, reconstruction and rehabilitation of housing and infrastructure are expected to boost growth this year.

23. The authorities remain committed to medium term fiscal and debt sustainability, while allowing for additional hurricane related spending. The fiscal deficit in 2011 could widen somewhat, but the authorities remain committed to seeking additional grants and concessional resources to fill the remaining financial gap in the budget, while avoiding non-concessional borrowing. To the extent that these are not available the authorities plan to adjust spending, as in previous years.

24. Over the medium term the authorities remain committed to generate primary surpluses in the range of 1½–2 percent of GDP to ensure that the public debt-to-GDP declines. Toward this end, they plan to implement several fiscal structural measures to raise revenue and improve the efficiency of spending, as outlined in their letter accompanying this request from RCF resources. Staff also welcomes the authorities’ plan to undertake pension reforms.

25. Staff supports the authorities request for the Rapid Credit Facility in the amount of SDR 2.075 million (equivalent to 25 percent of quota). Staff support is based on the severity of the damage, the urgent balance of payments need, and the authorities’ policy commitment, including reliance on grants and concessional resources, and avoiding non-concessional borrowing to finance the deficit. The latter, combined with the authorities’ commitment to continue fiscal structural reforms, will help to achieve medium term fiscal and debt sustainability. While there are downside risks given the country’s high public debt and vulnerability to exogenous shocks, economic and natural, the authorities’ commitment to fiscal consolidation mitigates these risks.

Table 1.St. Vincent and the Grenadines: Selected Social and Economic Indicators, 2008–12
Social and Demographic Indicators
Area (sq. km)389.0Adult illiteracy rate (percent, 2001)11.0
PopulationHealth and nutrition
Total (thousands, 2007)109.1Calorie intake (per capita a day, 2004)2,660
Rate of growth (percent per year, 2007)0.10Population per physician (thousand, 2004)1.2
Density (per sq. km., 2007)280.5AIDS incidence rate (per 100,000, 2005)32
Population characteristics (2007)Gross domestic product (2009)
Life expectancy at birth (years)71.7(millions of US dollars)685
Infant mortality (per thousand live births)11.9(millions of EC dollars)1,883
Under 5 mortality rate (per thousand)13.2(US$ per capita)6,275
Est.Prel. est.Proj.
20082009201020112012
(Annual percentage change, unless otherwise specified)
Output and prices
Real GDP (factor cost)-0.3-0.6-2.32.52.5
Nominal GDP (market prices)2.6-0.7-1.05.06.8
Consumer prices, end of period8.7-1.63.32.62.5
Consumer prices, period average10.10.41.73.82.4
Real effective exchange rate (- = depreciation)3.82.4
Banking system
Net foreign assets 1/3.1-2.2-1.8-2.7-3.1
Net domestic assets 1/-1.72.61.17.510.1
Of which
Credit to private sector 1/2.61.51.84.96.1
Central government finances
Total revenue and grants28.328.727.428.629.3
Total expenditure and net lending29.631.832.732.732.3
Current expenditure22.724.928.426.025.5
Of which
Wages and salaries10.911.311.911.611.6
Interest2.52.72.82.72.5
Capital expenditure6.96.94.36.76.8
Overall balance-1.3-3.1-5.4-4.0-3.1
Overall balance (excl. grants)-3.7-7.2-7.2-6.8-5.7
Primary balance1.1-0.4-2.5-1.3-0.6
Primary balance (excl. grants)-1.3-4.5-4.4-4.1-3.2
Central government debt46.550.152.753.353.3
External sector
External current account-28.7-28.4-27.2-29.0-27.4
Of which
Exports of goods and services28.628.727.527.829.1
Imports of goods and services57.357.457.258.457.6
Stayover arrivals (percentage change)-6.1-9.9-2.41.05.0
Public sector external debt (end of period)30.031.840.543.442.5
External public debt service
(In percent of exports of goods and services)13.114.115.617.319.3
Memorandum items:
Gross public sector debt56.762.368.172.171.4
Nominal GDP (market prices; in millions of EC$)1,8971,8831,8641,9572,089
Sources: ECCB; Ministry of Finance and Planning; and Fund staff estimates and projections.

Annual changes relative to the stock of broad money at the beginning of the period.

Sources: ECCB; Ministry of Finance and Planning; and Fund staff estimates and projections.

Annual changes relative to the stock of broad money at the beginning of the period.

Table 2.St. Vincent and the Grenadines: Summary of Central Government Operations, 2008–11(In millions of Eastern Caribbean dollars)
Prel. est.2011
200820092010BudgetProj.
Total revenue and grants536.2539.7510.4560.4560.4
Current revenue489.5461.3475.3504.8504.8
Tax revenue420.5406.0402.7435.3435.3
Taxes on income and profits110.4110.6108.8117.5117.5
Taxes on property2.22.72.96.26.2
Taxes on international trade188.6187.9185.1194.4194.4
Of Which: VAT86.078.275.381.581.5
Taxes on domestic transactions119.3104.7105.9117.2117.2
Of Which: VAT67.564.362.568.068.0
Non-tax68.955.372.669.469.4
Capital Revenue1.61.50.91.01.0
Of which: Sale of crown lands1.61.50.91.01.0
Grants45.276.934.254.754.7
Of which: Hurrican related2.22.32.3
Total expenditure and net lending561.8598.3610.2708.7639.7
Current430.8468.3530.2542.1508.0
Wages and salaries 1/206.8212.0221.8243.6226.8
Interest46.851.052.753.353.3
Of which: Foreign interest23.022.621.226.726.7
Transfers and subsidies86.2119.7189.5169.9159.8
Of which:
Hurricane related (income support)0.93.03.0
Hurricane related (housing assistance)0.06.36.3
BAICO capital injection 2/10.010.0
NCB repayment of SOEs loans49.0
Goods and services91.085.666.275.368.2
Capital expenditure131.0130.080.0166.7131.7
Of which:
Hurricane related2.57.67.6
Airport project35.121.621.6
Coastguard vessels0.05.05.0
Current balance (before grants)58.6-7.1-54.8-37.3-3.2
Overall balance-25.6-58.7-99.8-148.3-79.2
Overall balance (excl. grants)-70.7-135.6-134.0-203.0-133.9
Primary balance21.2-7.7-47.1-95.0-26.0
Primary balance (excl. grants)-23.9-84.6-81.3-149.7-80.6
Identified financing25.658.799.865.270.6
Net external financing16.714.2149.428.333.7
Disbursements62.463.2199.781.987.3
O/w Hurrican related0.07.4
Amortization45.749.050.353.653.6
Change in government foreign assets-5.2-6.016.0-6.0-6.0
Net domestic financing14.134.9-138.618.918.9
Of which: Banking system20.519.3-138.618.918.9
Sale of Equity (privatization proceeds) 3/0.00.042.024.024.0
Arrears0.00.028.00.00.0
Exceptional financing0.015.63.00.00.0
IMF/ESF15.6
CCRIF3.0
Remaining financing gap 4/0.00.00.083.18.6
Memorandum items:
Wage and salaries as a share of recurrent expenditures48.045.341.844.944.6
Transfers and subsidies as a share of recurrent expenditures20.025.635.731.331.5
Goods and services as a share of recurrent expenditures21.118.312.513.913.4
Capital expenditure as a share of total expenditures23.321.713.123.520.6
Sources: Ministry of Finance and Planning; and Fund staff estimates and projections.

Wages and salaries including social security contributions, commissions, rewards, allowances, and incentives.

In the authorities’ budget, the capital injection for BAICO is classified under capital expenditure.

The budget classifies privatization proceeds from the sale of the National Commercial Bank as capital revenue above the line.

The financing gap in 2011 is expected to be filled by RCF.

Sources: Ministry of Finance and Planning; and Fund staff estimates and projections.

Wages and salaries including social security contributions, commissions, rewards, allowances, and incentives.

In the authorities’ budget, the capital injection for BAICO is classified under capital expenditure.

The budget classifies privatization proceeds from the sale of the National Commercial Bank as capital revenue above the line.

The financing gap in 2011 is expected to be filled by RCF.

Table 3.St. Vincent and the Grenadines: Summary of Central Government Operations, 2008–11(In percent of GDP, unless otherwise stated)
Prel. est.2011
200820092010BudgetProj.
Total revenue and grants28.328.727.428.628.6
Current revenue25.824.525.525.825.8
Tax revenue22.221.621.622.222.2
Taxes on income and profits5.85.95.86.06.0
Taxes on property0.10.10.20.30.3
Taxes on international trade9.910.09.99.99.9
Of Which: VAT4.54.24.04.24.2
Taxes on domestic transactions6.35.65.76.06.0
Of Which: VAT3.63.43.43.53.5
Non-tax3.62.93.93.53.5
Capital Revenue0.10.10.00.10.1
Of which: Sale of crown lands0.10.10.00.10.1
Grants2.44.11.82.82.8
Of which: Hurrican related0.10.10.1
Total expenditure and net lending29.631.832.736.232.7
Current22.724.928.427.726.0
Wages and salaries 1/10.911.311.912.411.6
Interest2.52.72.82.72.7
Of which: Foreign interest1.21.21.11.41.4
Transfers and subsidies4.56.410.28.78.2
Of which:
Hurricane related (income support)0.00.20.2
Hurricane related (housing assistance)0.00.30.3
BAICO capital injection 2/0.50.5
NCB repayment of SOEs loans2.6
Goods and services4.84.53.63.83.5
Capital expenditure6.96.94.38.56.7
Of which:
Hurricane related0.10.40.4
Airport project1.91.11.1
Coastguard vessels0.00.30.3
Current balance (before grants)3.1-0.4-2.9-1.9-0.2
Overall balance-1.3-3.1-5.4-7.6-4.0
Overall balance (excl. grants)-3.7-7.2-7.2-10.4-6.8
Primary balance1.1-0.4-2.5-4.9-1.3
Primary balance (excl. grants)-1.3-4.5-4.4-7.6-4.1
Identified financing1.33.15.43.33.6
Net external financing0.90.88.01.41.7
Disbursements3.33.410.74.24.5
O/w Hurrican related0.00.4
Amortization2.42.62.72.72.7
Change in government foreign assets-0.3-0.30.9-0.3-0.3
Net domestic financing0.71.9-7.41.01.0
Of which: Banking system1.11.0-7.41.01.0
Sale of Equity (privatization proceeds) 3/0.00.02.31.21.2
Arrears0.00.01.50.00.0
Exceptional financing0.00.80.20.00.0
IMF/ESF0.8
CCRIF0.2
Remaining financing gap 4/0.00.00.04.20.4
Memorandum items:
Gross central government debt (in percent of GDP)46.550.152.753.3
Public sector debt (in percent of GDP)56.762.368.172.1
Central government debt service to revenues excluding grants21.325.625.724.7
GDP at market prices (EC$ millions)1,8971,8831,8641,9571,957
Sources: Ministry of Finance and Planning; and Fund staff estimates and projections.

Wages and salaries including social security contributions, commissions, rewards, allowances, and incentives.

In the authorities’ budget, the capital injection for BAICO is classified under capital expenditure.

The budget classifies privatization proceeds from the sale of the National Commercial Bank as capital revenue above the line.

The financing gap in 2011 is expected to be filled by RCF.

Sources: Ministry of Finance and Planning; and Fund staff estimates and projections.

Wages and salaries including social security contributions, commissions, rewards, allowances, and incentives.

In the authorities’ budget, the capital injection for BAICO is classified under capital expenditure.

The budget classifies privatization proceeds from the sale of the National Commercial Bank as capital revenue above the line.

The financing gap in 2011 is expected to be filled by RCF.

Table 4.St. Vincent and the Grenadines: Balance of Payments Summary, 2008–11
Est.Rev. proj.
2008200920102011
(In millions of Eastern Caribbean dollars)
Current account-545-535-508-568
Trade balance-655-648-641-726
Exports f.o.b.151146129144
Of which: Bananas20181515
Imports f.o.b.806794770869
Of which: Mineral fuels142120149201
Services (net)11110887128
Travel201194171185
Other nonfactor services-90-86-84-58
Income payments (net)-56-58-44-44
Current transfers55638973
Net private transfers33334238
Net official transfers22304735
Capital and financial account472460412558
Capital118133104110
Financial (net)353326308448
Official capital 1/20225685
Commercial banks-413-2827
Net Foreign Direct Investment327292271319
Others4810916
Errors and omissions6440490
Overall balance-9-36-47-10
Available financing936472
Change in ECCB NFA921472
Change in net imputed reserves (increase -)9-12472
Of which: due to SDR allocation0-33270
Change in medium- and long-term net liabilities03300
Change in govt. foreign assets1000
IMF purchases and disbursements01500
Other financing0000
Remaining financing gap 2/0008.6
(In percent of GDP, unless otherwise stated)
Memorandum items:
Current account-28.7-28.4-27.2-29.0
Exports f.o.b.8.07.76.97.3
Imports f.o.b.42.542.141.344.4
Net private transfers1.71.82.21.9
Foreign direct investment17.215.514.616.3
Tourism receipts13.112.911.811.8
Total trade50.549.948.351.8
Exports of goods and nonfactor services28.628.727.527.8
Imports of goods and nonfactor services57.357.457.258.4
Sources: Ministry of Finance and Planning; ECCB; and Fund staff estimates and projections.

Official capital in 2010 and 2011 includes new borrowing from ALBA and CDB.

All other available financing as shown in Text Table (Paragraph 10) is included as part of identified external financing. The remaining financing gap is expected to be filled by RCF.

Sources: Ministry of Finance and Planning; ECCB; and Fund staff estimates and projections.

Official capital in 2010 and 2011 includes new borrowing from ALBA and CDB.

All other available financing as shown in Text Table (Paragraph 10) is included as part of identified external financing. The remaining financing gap is expected to be filled by RCF.

Table 5.St. Vincent and the Grenadines: Monetary Survey, 2008–11
Proj.
2008200920102011
In millions of Eastern Caribbean dollars
Net foreign assets385361342313
ECCB224203156154
Of which: Imputed reserves224203156154
Commercial banks161158186158
Net domestic assets686714725808
Public sector credit (net)5986-370
Central government108128-118
ECCB3-1855
Commercial banks105146-163
Net credit to rest of public sector-49-41862
National Insurance Scheme-63-82-82-82
Other144190144
Credit to private sector9269439621014
Other items (net)-299-315-234-276
Broad money1071107510671121
Money375348343361
Currency in circulation81646670
Demand deposits294285277291
Quasi-money697727724760
Time deposits115122121127
Savings deposits545575571599
Foreign currency deposits37303234
(Annual percentage change)
Net foreign assets9.2-6.2-5.4-8.5
Net domestic assets-2.54.01.611.5
Credit to private sector3.01.82.15.4
Broad money1.40.4-0.85.1
Money-4.2-7.0-1.55.2
Quasi-money 1/4.74.3-0.45.0
(Contribution M2 growth)
Net foreign assets3.1-2.2-1.8-2.7
Net domestic assets-1.72.61.17.5
Public sector credit (net)2.32.5-8.36.8
Of which: Central government1.91.8-12.91.8
Credit to private sector2.61.51.84.9
Other items (net)-6.6-1.57.5-3.9
Memorandum item:
Income velocity 2/1.81.81.71.7
Sources: ECCB; Ministry of Finance and Planning; and Fund staff estimates.

Including resident foreign currency deposits.

Nominal GDP at market prices divided by liabilities to the private sector.

Sources: ECCB; Ministry of Finance and Planning; and Fund staff estimates.

Including resident foreign currency deposits.

Nominal GDP at market prices divided by liabilities to the private sector.

Table 6.St. Vincent and the Grenadines: Indicators of External and Financial Vulnerability, 2007–10(Annual percentage changes, unless otherwise specified)
2007200820092010
External indicators
Merchandise exports24.09.6-3.6
Merchandise imports21.13.7-1.6
Terms of trade deterioration (-)-15.29.5-6.5
Tourism earnings-1.9-17.0-2.4
Banana export earnings1.74.1-9.9
Current account balance (in percent of GDP)-28.0-28.7-28.4
Capital and financial account balance (in percent of GDP) 1/35.928.226.5
Of which
Foreign direct investment (in percent of GDP)17.117.215.5
Gross international reserves of the ECCB
In millions of U.S. dollars764.5759.0800.8854.3 (Nov.)
In percent of broad money18.617.017.518.6 (Nov.)
Gross imputed reserves
In millions of U.S. dollars86.282.975.2
Commercial banks’ net foreign assets (in millions of U.S. dollars)44.459.758.654.4 (Nov.)
External public debt (in percent of GDP)36.530.031.8
External debt service (in percent of exports of goods and services)12.813.514.7
Of which
Interest4.95.85.84.1
Nominal exchange rate (EC$ per US$, end period)2.72.72.72.7
Real effective exchange rate depreciation (-), end period0.33.82.4
Financial indicators
Broad money7.21.40.41.1 (Nov.)
Credit to the private sector14.13.01.83.1 (Nov.)
Prudential indicators (in percent)
Regulatory capital to risk-weighted assets17.017.918.715.7 (Sept.)
Nonperforming loans net of provisions to capital17.231.723.717.4 (“)
Nonperforming loans to total gross loans3.43.98.46.4 (“)
General Government Loans to Total Loans21.623.117.514.5 (“)
Return on assets2.32.31.80.4 (“)
Liquid assets to total assets35.133.930.930.1 (“)
Spread between reference lending and deposit rates6.85.36.41.1 (“)
Total Loans/Total Deposits84.187.285.683.9 (“)
Foreign-currency-denominated liabilities to total liabilities4.55.95.14.8 (“)
Sources: ECCB; Ministry of Finance and Planning; and Fund staff estimates and projections.

Includes errors and omissions.

Sources: ECCB; Ministry of Finance and Planning; and Fund staff estimates and projections.

Includes errors and omissions.

Table 7.St. Vincent and the Grenadines: Medium-Term Projections, 2008–16(In percent of GDP, unless otherwise specified)
Prel. est.Projection
200820092010201120122013201420152016
Output and prices
Real GDP growth at factor cost (in percent)-0.3-0.6-2.32.52.53.23.74.04.0
Consumer prices, end-of-period (percent change)8.7-1.63.32.62.52.52.52.52.5
Central government finances
Total revenue and grants28.328.727.428.629.330.130.730.730.8
Of which:
Tax revenue22.221.621.622.222.823.323.823.823.9
Taxes on income and profits5.85.95.86.06.26.36.56.66.7
Taxes on property0.10.10.20.30.30.30.40.40.4
Taxes on international trade9.910.09.99.910.010.110.210.110.1
Taxes on domestic transactions6.35.65.76.06.36.56.76.76.7
Grants2.44.11.82.82.62.62.52.52.5
Total expenditure and net lending29.631.832.732.732.331.831.130.930.8
Of which:
Wages and salaries 1/10.911.311.911.611.611.611.611.611.6
Transfers and subsidies4.56.410.28.28.07.77.57.57.5
Capital expenditure6.96.94.36.76.86.86.56.56.5
Overall balance-1.3-3.1-5.4-4.0-3.1-1.7-0.4-0.20.0
Of which: Primary balance1.1-0.4-2.5-1.3-0.60.61.71.71.7
Financing1.33.15.43.63.11.70.40.20.0
Of which:
Net external financing0.90.88.01.72.82.82.22.01.4
Net domestic financing0.71.9-7.41.00.6-0.8-1.5-1.5-1.2
Gross public sector debt56.762.368.172.171.469.065.762.058.2
External sector
Current account balance-28.7-28.4-27.2-29.0-27.4-26.2-24.4-22.3-20.6
Gross public sector external debt (end of period)30.031.840.543.442.543.242.741.740.1
External public debt service
(In percent of exports of goods and services)13.515.216.518.415.823.817.515.315.2
Sources: ECCB; Ministry of Finance and Planning; and Fund staff estimates and projections.

Wages and salaries including social security contributions, commissions, rewards, allowances, and incentives.

Sources: ECCB; Ministry of Finance and Planning; and Fund staff estimates and projections.

Wages and salaries including social security contributions, commissions, rewards, allowances, and incentives.

Table 8.St. Vincent and the Grenadines: Indicators of Capacity to Repay the Fund, 2009-21
Est.Projections
2009201020112012201320142015201620172018201920202021
Obligations from existing drawings(In millions of SDRs)0.000.000.030.040.040.410.780.780.780.780.400.030.03
Principal0.000.000.000.000.000.370.750.750.750.750.370.000.00
Charges/interest0.000.000.030.040.040.040.030.030.030.030.030.030.03
Obligations from existing and prospective drawings 1/
(In millions of SDRs)0.000.000.030.040.040.410.790.991.191.190.820.450.24
Principal0.000.000.000.000.000.370.750.951.161.160.790.420.21
Charges/interest0.000.000.030.040.040.040.040.040.030.030.030.030.03
Total outstanding and prospective obligations
In millions of U.S. dollars0.000.000.050.060.060.631.221.521.831.831.260.690.37
In percent of exports of goods and services0.000.000.020.030.030.240.430.530.620.590.390.200.10
In percent of debt service0.000.000.120.130.171.573.023.664.144.102.821.650.86
In percent of quota0.000.000.360.480.484.949.5211.9314.3414.349.885.422.89
In percent of net international reserves 2/0.000.000.030.030.030.310.560.680.790.760.500.260.13
Fund credit outstanding 1/
In millions of SDRs3.743.745.815.815.815.444.693.742.571.410.620.210.00
In millions of U.S. dollars5.775.718.998.978.968.397.245.753.952.170.950.320.00
In percent of exports of goods and services2.883.004.463.993.693.222.581.991.330.700.300.100.00
In percent of debt service19.3318.1724.1718.8825.2420.8917.9613.848.954.862.130.770.00
In percent of quota45.0645.0670.0070.0070.0065.5456.5145.0630.9616.997.472.530.00
In percent of net international reserves 2/2.843.665.824.584.494.053.352.561.710.900.380.120.00
Net use of Fund credit 1/(In millions of SDRs)3.740.002.04-0.04-0.04-0.41-0.79-0.99-1.19-1.19-0.82-0.45-0.24
Disbursments3.740.002.070.000.000.000.000.000.000.000.000.000.00
Repayments and repurchases0.000.000.030.040.040.410.790.991.191.190.820.450.24
Memorandum items:
Exports of goods and services (millions of U.S. dollars)200.33190.09201.67224.95242.65260.81280.46288.87297.54309.44321.82337.91354.81
Debt service (millions of U.S. dollars)29.8531.4337.1947.5135.5140.1840.3041.5544.1844.6244.7042.0542.98
Quota (millions of SDRs)8.308.308.308.308.308.308.308.308.308.308.308.308.30
Quota (millions of U.S. dollars)12.8012.6712.8412.8112.8112.8112.8112.7712.7712.7712.7712.7712.77
Net international reserves (millions of U.S. dollars) 2/203.03155.89154.33195.67199.73207.35215.77224.82231.56240.82250.46262.98276.13
GDP (millions of U.S. dollars)697.36690.26724.80773.83825.10881.17943.541010.321081.831158.401240.391328.191422.20
SDRs per U.S. dollar 3/0.650.650.650.650.650.650.650.650.650.650.650.650.65
Sources: Dominica authorities; Eastern Caribbean Central Bank (ECCB); and Fund staff estimates and projections.

Assumes RCF access in the ammount of SDR 2.08 million (25 percent of quota).

Net international reserves of the monetary authorities; net imputed reserves of the ECCB and transactions with the Fund.

WEO GAS projections, dated December 17, 2010 up to 2016, after which the exchange rate is fixed at the 2016 level.

Sources: Dominica authorities; Eastern Caribbean Central Bank (ECCB); and Fund staff estimates and projections.

Assumes RCF access in the ammount of SDR 2.08 million (25 percent of quota).

Net international reserves of the monetary authorities; net imputed reserves of the ECCB and transactions with the Fund.

WEO GAS projections, dated December 17, 2010 up to 2016, after which the exchange rate is fixed at the 2016 level.

Attachment

Kingstown, St Vincent and the Grenadines

February 15, 2011

Mr. Dominique Strauss-Kahn

Managing Director

International Monetary Fund

Washington, D.C. 20431

Dear Mr. Strauss-Kahn:

1. On October 30–31, 2010, St. Vincent and the Grenadines was hit by Hurricane Tomas. Torrential rains combined with high winds caused severe damage to the residential housing stock, as well as to several schools and government buildings. In addition, the rains triggered landslides and flooding which caused severe damage to the island’s economic infrastructure and to the agricultural sector (in particular the banana industry). The initial estimate of the overall damage, according to our National Emergency Management Organization, is about US$32 million (5 percent of GDP).

2. The hurricane has setback our efforts at reactivating the economy and further exacerbated the adverse impact of the global slowdown, which has affected our tourism and construction sectors over the last three years. Real GDP growth, which was already expected to decline for a third consecutive year in 2010, is expected to have worsened further. At the same time, inflation, especially food inflation, has increased significantly adding to the negative impact, especially on the poor. While reconstruction activity is expected to boost growth in 2011, higher construction-related imports and rehabilitation of the agricultural sector will put pressure on the balance of payments.

3. On the fiscal front, the fiscal deficit will temporarily widen in 2011. However, budget execution will depend on the availability of grants and concessional resources as we will avoid borrowing on non concessional terms. If financing falls short of expectations we plan to limit new hiring, streamline transfers to state-owned enterprises and cut non-priority capital spending. The immediate post-hurricane needs were met with money received from the Caribbean Catastrophe Risk Insurance Fund, grants from donors and redirecting already allocated spending to hurricane related needs. However, we are facing significant costs from reconstruction and rehabilitation as well as to address the social needs of those affected by the hurricane. Toward this end, we are developing—with the help of donors and multilateral agencies—a comprehensive strategy that not only addresses the social needs but also helps to improve our resilience to such natural disasters in the future. To limit the adverse impact on our fiscal position and debt sustainability we intend to keep commercial borrowing to a minimum by limiting the financing of the rehabilitation and reconstruction effort to available grants and concessional resources. We have already received pledges and identified about EC$21 million (out of a total of EC$30 million required in 2011) of funding in grants and concessional loans to cover hurricane related costs.

4. Against this background, the government of St. Vincent and the Grenadines requests emergency financing from the IMF amounting to SDR million (US$3.2 million), equivalent to 25 percent of quota under the Rapid Credit Facility. The IMF assistance will help meet the urgent foreign exchange needs stemming from the disaster, and ease pressure on our balance of payments.

5. We remain committed to fiscal consolidation and to keeping our debt trajectory on a declining path. To this end, we are targeting primary surpluses in the range of 2 percent of GDP over the medium-term through a combination of both revenue and expenditure measures. In particular, we plan to (i) improve tax compliance through enhanced enforcement and staff training, including in audits (ii) establish a Large Taxpayer Unit, (iii) broaden the coverage of property taxes, (vi) implement customs modernization through the introduction of the ASYCUDA World platform, (v) streamline exemptions, (vi) contain the wage bill, (vii) streamline spending on goods and services, and (viii) limit transfers to state owned enterprises by emphasizing efficiency and closely monitor their activities

6. On the structural front, we continue to implement key measures in line with recommendations of the Article IV consultation and CARTAC. We have adopted a medium-term budget framework starting with the 2011 budget, and we are implementing the Action Plan on public finance management and taking steps to operationalize the Oversight Committee on state owned enterprises. We have also implemented key measures we committed to in the context of our request for the ESF-RAC in 2009.

7. The government attaches great importance to implementing its agenda of structural reforms aimed at fostering macroeconomic stability and growth and reducing poverty. In this context we plan to undertake civil service and pension reforms, which could yield additional savings and improve competitiveness in the labor market. On the financial front we are working on a regional solution to the problems of BAICO and CLICO, focused on minimizing the fiscal costs to the extent possible, while ensuring equitable treatment of claimants and protecting the poor. We plan to pass the legislation for a Single Regulatory Unit in the coming period to strengthen the supervision and regulation of insurance companies, credit unions and building societies.

8. It is hoped that the international financial community will support our efforts to restore economic growth and repair and rehabilitate our severely damaged social and economic infrastructure. We continue to seek grants and concessional resources to help meet these needs, while avoiding non-concessional borrowing. We look forward to an early approval of financial assistance by the IMF.

9. The government intends to continue to maintain a close policy dialogue with the Fund in an effort to strengthen St. Vincent’s balance of payments situation, refrain from measures or policies that would compound St. Vincent’s balance of payments difficulties and maintain macroeconomic stability. The government does not intend to impose new or intensify existing restrictions on the making of payments and transfers for current international transactions, introduce new or intensify existing trade restrictions for balance of payments purposes, or enter into bilateral payments agreements which are inconsistent with Article VIII of the Fund’s Articles of Agreement.

Sincerely yours,

/s/

DR. THE HON. RALPH E. GONSALVES

PRIME MINISTER AND MINISTER OF FINANCE

In May 2009, St. Vincent and the Grenadines received assistance under the Exogenous Shock Facility (ESF-RAC) in amount equal to 45 percent of quota (SDR 3.74 million) to help mitigate the adverse impact of the global slowdown on the economy.

Donors include World Bank (US$5.0 million in Hurricane Tomas Emergency Recovery Credit over 3 years), European Union (about US$1.0 million in grants), Venezuela (US$4.0 million in grants), and others.

The government sold 51 percent of its stake in the NCB to Eastern Caribbean Holding Company (ECHC), with a further 29 percent to be sold in 2011; the government will retain a 20 percent share in the bank.

In particular, only US$20 million of the total US$50 million expected from ALBA materialized, and the supplier credit for the purchase of coastguard vessels was canceled because of financial problems with the supplier.

The Caribbean Development Bank provided US$37 million in Policy Based Loan, the bulk of the loan was used to clear public sector NPLs at the NCB, a precondition for its purchase by ECHC.

The impact on growth is somewhat low because: (i) the hurricane affected economic activity only in the last two months of the year, and (ii) about 35 percent of the damages were to the natural forests, which do not directly affect the national accounts.

While agricultural production and exports will continue to decline in the first half of this year, the sector is expected to recover in the second half of the year.

The government has also provisioned EC$7 million and EC$46 million, respectively, for 2012 and 2013.

Credit unions account for about 12½ percent of total banking sector assets.

These are the cost of resolving BAICO (½ percent of GDP) and purchase of coastguard vessels (0.3 percent of GDP). However, the magnitudes are smaller than budgeted last year.

The authorities are using a combination of privatization proceeds, grants, and concessional resources to complete the airport project.

This is also shown in the change in the cyclically adjusted primary balance.

Historically, the authorities tend to include a long-list of capital projects in the budget, hoping to find additional grants. However, these projects are not implemented if grants cannot be mobilized. The implementation rate of the capital budget has historically been between 40–50 percent; last year this figure was only 25 percent. As a result, the final fiscal outcome always deviates significantly from the budget, with the actual deficit far lower than in the budget.

The proposed access level of 25 percent remains below the annual access limits (50 percent) in view of both debt sustainability considerations and vulnerability of St. Vincent and the Grenadines to exogenous shocks. The cumulative access, including the ESF-RAC, would stand at 70 percent of quota, still leaving some room under the cumulative limits (100 percent) of the Fund’s assistance under the shocks window of the RCF.

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