I. Recent Developments

1. Real GDP grew more rapidly than anticipated in 2003, while inflation was also higher. Preliminary national accounts estimates indicate real GDP growth of 3.6 percent in 2003, 2 percentage points higher than previously estimated. The strong growth outcome stems from increased activity in the electricity, construction, and trade and transport sectors. The 12-month CPI inflation increased to 2.7 percent (projected inflation was 1.5 percent), largely on account of a sharp increase in food prices in the last three months of the year.

2. Preliminary data show that the fiscal outturn for 2003 was substantially weaker than expected. The overall balance of the central government was 3¼ percent of GDP weaker than projected. While this deviation reflects in part weaker-than-expected tax collections, lower grant disbursements, and somewhat higher capital expenditures (due to the government purchase of equity in the regional airline following an agreement on its restructuring), almost half of the deviation represents a discrepancy between identified revenues and expenditures and identified financing items, which has yet to be clarified.

3. Despite an increase in the public sector debt stock, interest rates on government debt instruments continue to decline. Total gross public sector debt is estimated at 73 percent of GDP at end-2003, slightly higher than projected earlier, as the larger deficit was financed through higher external disbursements and use of the overdraft facility with the state-owned National Commercial Bank (NCB). Nonetheless, interest rates on government debt instruments placed on the Regional Government Securities Market have continued to decline—at end-September 2003, three-month treasury bills were placed at a yield of 5.7 percent, which had declined to 4.75 percent by end-April 2004.

4. The approved budget for 2004 envisages an improvement in the overall balance of the central government of 2½ percent of GDP, if grants and capital expenditures remain at historical levels. While the budget envisages a significant increase in capital spending, the implementation rate of the public sector investment program has typically been less than envisaged in the budget. The authorities expect both current expenditures and current revenues to increase by about 2½ percent of GDP—revenue increases are anticipated to stem largely from administrative improvements and a pick-up in economic activity.

II. Staff Appraisal

5. Recent developments serve to reinforce the thrust of the staff appraisal contained in the staff report (4/1/04), but highlight further the need to ensure fiscal discipline. While the debt stock remains among the lowest in the region and debt service remains manageable, given the large concessional element, the deterioration in the fiscal stance at end-2003 and the consequent increase in debt raise concerns. The approved 2004 budget, appropriately, is likely to entail a narrowing of the fiscal imbalances, and the staff strongly encourages the authorities to achieve an overall deficit of 2¼ percent of GDP, in line with the average outturn in 1999–2001.

Table 1.

St. Vincent and the Grenadines: Summary of Central Government Operations

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

^1/Staff Report (4/1/04).

^2/The 2004 budget figures shown were modified from the actual budget to set grants and capital expenditures at historical averages.

^3/The difference between the overall balance as measured from above the line and from below the line (i.e., financing), which may include float and unidentified discrepancies.

^4/Net of intra-public sector debt (mainly central government debt to the NIS).

Table 1.

St. Vincent and the Grenadines: Summary of Central Government Operations

			1999	2000	2001	Prel. 2002	Proj. 2003 1/	Prel. 2003	Budget 2004 2/
(In millions of Eastern Caribbean dollars)
Total revenue and grants			270	267	286	313	327	313	355
Current revenue			252	256	268	302	316	307	344
	Tax		215	216	231	260	270	260	301
		Nontrade tax	105	114	119	133	132	127	…
		International trade	111	102	112	127	139	133	…
	Nontax		37	39	38	42	46	47	43
Capital revenue (land sales only)			5	1	1	1	1	2	1
Grants			13	10	17	11	10	4	11
Total expenditure and net lending			300	285	306	336	340	345	378
Current			234	241	259	276	275	276	308
	Wages and salaries		128	127	132	143	142	139	155
	Interest		23	26	25	26	25	27	31
		Of which: foreign interest	14	13	13	11	12	11	14
	Goods and services		51	53	53	64	64	62	68
	Transfers		32	35	49	43	44	48	54
Capital expenditure			64	35	47	63	70	76	70
Net lending			3	9	0	-4	-5	-6	0
Current balance (before grants)			18	15	9	26	41	31	36
Overall balance (above the line)			-30	-18	-19	-22	-13	-32	-22
Other 3/			-11	1	0	19	0	14	0
Overall balance (cash basis)			-19	-19	-20	-41	-13	-46	-22
	Of which: primary balance		4	7	5	-15	13	-19	9
Identified financing			19	19	20	41	13	46	22
Net external financing			6	10	33	3	52	56	19
	Disbursements		17	21	46	20	65	77	43
	Amortization		11	11	13	16	13	21	25
Change in government foreign assets			2	2	0	0	2	1	0
Net domestic financing			12	7	-14	37	-43	-11	4
	Of which: banking system		9	6	-18	42	-28	-39
Exceptional financing			0	0	1	1	1	1	0
(In percent of GDP, unless otherwise specified)
Total revenue and grants			30.2	29.4	30.6	32.1	32.6	31.0	34.1
	Of which: current revenue		28.3	28.2	28.7	31.0	31.5	30.4	33.0
Total expenditure and net lending			33.6	31.4	32.7	34.4	33.9	34.1	36.2
Current			26.2	26.6	27.7	28.3	27.4	27.3	29.6
	Wages and salaries		14.3	14.1	14.2	14.6	14.1	13.8	14.9
	Interest		2.6	2.8	2.6	2.7	2.5	2.7	3.0
	Goods and services		5.7	5.9	5.7	6.6	6.4	6.1	6.5
	Transfers		3.6	3.8	5.2	4.5	4.4	4.7	5.2
Capital expenditure			7.1	3.9	5.0	6.5	7.0	7.5	6.7
Net lending			0.3	0.9	0.0	-0.4	-0.5	-0.6	0.0
Other 3/			-1.2	0.1	0.0	1.9	0.0	1.4	0.0
Current balance (before grants)			2.1	1.6	1.0	2.6	4.1	3.1	3.4
Overall balance (above the line)			-3.4	-2.0	-2.1	-2.3	-1.3	-3.2	-2.2
Overall balance (cash basis)			-2.2	-2.0	-2.1	-4.2	-1.3	-4.6	-2.2
	Of which: primary balance		0.4	0.8	0.5	-1.6	1.3	-1.9	0.8
Net external financing			0.6	1.1	3.5	0.3	5.2	5.5	1.8
Net domestic financing			1.4	0.8	-1.5	3.8	-4.2	-1.0	0.4
Memorandum items:
Gross central government debt, percent of GDP 4/			59.4	60.8	62.8	64.1	62.4	67.5	67.7
GDP at market prices, EC$ millions			892.1	905.7	935.2	975.0	1,003.2	1,010.9	1,042.3

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

^1/Staff Report (4/1/04).

^2/The 2004 budget figures shown were modified from the actual budget to set grants and capital expenditures at historical averages.

^3/The difference between the overall balance as measured from above the line and from below the line (i.e., financing), which may include float and unidentified discrepancies.

^4/Net of intra-public sector debt (mainly central government debt to the NIS).

View Table

Table 1.

St. Vincent and the Grenadines: Summary of Central Government Operations

			1999	2000	2001	Prel. 2002	Proj. 2003 1/	Prel. 2003	Budget 2004 2/
(In millions of Eastern Caribbean dollars)
Total revenue and grants			270	267	286	313	327	313	355
Current revenue			252	256	268	302	316	307	344
	Tax		215	216	231	260	270	260	301
		Nontrade tax	105	114	119	133	132	127	…
		International trade	111	102	112	127	139	133	…
	Nontax		37	39	38	42	46	47	43
Capital revenue (land sales only)			5	1	1	1	1	2	1
Grants			13	10	17	11	10	4	11
Total expenditure and net lending			300	285	306	336	340	345	378
Current			234	241	259	276	275	276	308
	Wages and salaries		128	127	132	143	142	139	155
	Interest		23	26	25	26	25	27	31
		Of which: foreign interest	14	13	13	11	12	11	14
	Goods and services		51	53	53	64	64	62	68
	Transfers		32	35	49	43	44	48	54
Capital expenditure			64	35	47	63	70	76	70
Net lending			3	9	0	-4	-5	-6	0
Current balance (before grants)			18	15	9	26	41	31	36
Overall balance (above the line)			-30	-18	-19	-22	-13	-32	-22
Other 3/			-11	1	0	19	0	14	0
Overall balance (cash basis)			-19	-19	-20	-41	-13	-46	-22
	Of which: primary balance		4	7	5	-15	13	-19	9
Identified financing			19	19	20	41	13	46	22
Net external financing			6	10	33	3	52	56	19
	Disbursements		17	21	46	20	65	77	43
	Amortization		11	11	13	16	13	21	25
Change in government foreign assets			2	2	0	0	2	1	0
Net domestic financing			12	7	-14	37	-43	-11	4
	Of which: banking system		9	6	-18	42	-28	-39
Exceptional financing			0	0	1	1	1	1	0
(In percent of GDP, unless otherwise specified)
Total revenue and grants			30.2	29.4	30.6	32.1	32.6	31.0	34.1
	Of which: current revenue		28.3	28.2	28.7	31.0	31.5	30.4	33.0
Total expenditure and net lending			33.6	31.4	32.7	34.4	33.9	34.1	36.2
Current			26.2	26.6	27.7	28.3	27.4	27.3	29.6
	Wages and salaries		14.3	14.1	14.2	14.6	14.1	13.8	14.9
	Interest		2.6	2.8	2.6	2.7	2.5	2.7	3.0
	Goods and services		5.7	5.9	5.7	6.6	6.4	6.1	6.5
	Transfers		3.6	3.8	5.2	4.5	4.4	4.7	5.2
Capital expenditure			7.1	3.9	5.0	6.5	7.0	7.5	6.7
Net lending			0.3	0.9	0.0	-0.4	-0.5	-0.6	0.0
Other 3/			-1.2	0.1	0.0	1.9	0.0	1.4	0.0
Current balance (before grants)			2.1	1.6	1.0	2.6	4.1	3.1	3.4
Overall balance (above the line)			-3.4	-2.0	-2.1	-2.3	-1.3	-3.2	-2.2
Overall balance (cash basis)			-2.2	-2.0	-2.1	-4.2	-1.3	-4.6	-2.2
	Of which: primary balance		0.4	0.8	0.5	-1.6	1.3	-1.9	0.8
Net external financing			0.6	1.1	3.5	0.3	5.2	5.5	1.8
Net domestic financing			1.4	0.8	-1.5	3.8	-4.2	-1.0	0.4
Memorandum items:
Gross central government debt, percent of GDP 4/			59.4	60.8	62.8	64.1	62.4	67.5	67.7
GDP at market prices, EC$ millions			892.1	905.7	935.2	975.0	1,003.2	1,010.9	1,042.3

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

^1/Staff Report (4/1/04).

^2/The 2004 budget figures shown were modified from the actual budget to set grants and capital expenditures at historical averages.

^3/The difference between the overall balance as measured from above the line and from below the line (i.e., financing), which may include float and unidentified discrepancies.

^4/Net of intra-public sector debt (mainly central government debt to the NIS).