Abstract
This 2007 Article IV Consultation highlights that the economy of St. Vincent and the Grenadines is enjoying its second year of vigorous economic growth. Financial sector indicators have strengthened, but balance sheet vulnerabilities remain. Executive Directors have welcomed St. Vincent and the Grenadines’ recent strong macroeconomic performance, marked by robust economic growth, fiscal consolidation, and declining debt levels. Directors have also stressed that continued fiscal consolidation is needed to lower the public debt-to-GDP ratio, and create room to raise social spending.
1. The following information has become available since the staff report was issued. The thrust of the staff appraisal remains unchanged.
2. The 2008 Budget announced some changes to the VAT rate and exemption structure. The VAT rate for some tourism-related services was reduced from 15 to 10 percent, yachting was exempted, and a number of additional food and personal items were zero-rated. The authorities estimate that these changes will cost around 0.4 percent of GDP annually; an upcoming FAD technical assistance mission will refine the estimates.
3. The 2008 Budget is likely to yield some fiscal consolidation, assuming capital spending implementation and grant receipts are at historical rates. Total revenue (including grants) is expected to increase by 1½ percent of GDP relative to the 2007 projected outturn, driven by a sharp rise in external grants. Current revenues remain constant (as a share of GDP) as an increase in fuel prices largely offsets a reduction in the corporate income tax rate from 37½ to 35 percent. Expenditure comes down marginally, as a reduction in capital spending more than offsets an increase in current spending. Staff estimates that the central government overall deficit for 2008 will narrow to around 2% percent of GDP; close to the staffs active scenario, albeit driven more by the increase in grants than by expenditure reduction and current revenue increases. A sustained deficit reduction would require continued expenditure restraint as grants are likely to revert to their long-run average.
4. Increases in the contribution rates for the National Insurance Services (NIS) were announced in the budget. The government signaled its commitment to further social security reforms, including gradual increases in the retirement age; options for reforming the public service pension system are also under consideration. These steps are in line with recent FAD technical assistance recommendations.
St. Vincent and the Grenadines: Summary of Central Government Operations, 2005–08
(In percent of GDP, unless otherwise stated)
As in the approved budget, except for capital expenditure and grants, for which an execution and materialization rate of 55 and 44 percent, respectively, is assumed, in line with historical implementation and materialization rates.
Current revenues for 2008, in both the budget and staff estimate columns, follow the budget assumption of 12 percent growth from the end-2007 current revenues. The end-2007 base used in the budget is an underestimate, while the staff estimate column uses the latest government projection for end-2007 current revenues.
St. Vincent and the Grenadines: Summary of Central Government Operations, 2005–08
(In percent of GDP, unless otherwise stated)
| 2008 | |||||||
|---|---|---|---|---|---|---|---|
| Proj. | Staff Est. | ||||||
| 2005 | 2006 | 2007 | Baseline | Active | Budget 2/ | Budget1/2/ | |
| Total revenue and grants | 30.0 | 30.8 | 31.0 | 31.6 | 32.3 | 34.4 | 32.5 |
| Current revenue | 28.5 | 30.0 | 29.3 | 30.1 | 30.5 | 27.2 | 29.3 |
| Grants | 1.5 | 0.7 | 1.6 | 1.4 | 1.7 | 7.1 | 3.1 |
| Total expenditure and net lending | 35.5 | 35.7 | 35.2 | 35.0 | 34.4 | 41.8 | 35.1 |
| Current expenditure | 27.3 | 26.8 | 26.3 | 27.1 | 26.9 | 27.2 | 27.2 |
| Capital expenditure | 8.2 | 8.9 | 8.9 | 7.9 | 7.5 | 14.6 | 8.0 |
| Overall balance (cash basis) | -5.5 | 4.9 | 4.1 | -3.4 | -2.1 | -7.4 | -2.6 |
| Primary balance | -2.5 | -1.7 | -0.7 | 0.7 | 1.9 | -4.1 | 1.4 |
| Gross central government debt (in percent of GDP) | 71.4 | 68.4 | 55.1 | 53.0 | 51.4 | 57.1 | 52.4 |
| Public sector debt (in percent of GDP) | 80.7 | 78.0 | 67.7 | 68.0 | 66.2 | 72.1 | 67.3 |
| Debt service as a proportion of current revenues | 21.3 | 22.0 | 22.6 | 24.1 | 23.5 | 23.8 | 24.8 |
| GDP at market prices (EC$ millions) | 1,182 | 1,330 | 1,485 | 1,646 | 1,657 | 1,646 | 1,646 |
As in the approved budget, except for capital expenditure and grants, for which an execution and materialization rate of 55 and 44 percent, respectively, is assumed, in line with historical implementation and materialization rates.
Current revenues for 2008, in both the budget and staff estimate columns, follow the budget assumption of 12 percent growth from the end-2007 current revenues. The end-2007 base used in the budget is an underestimate, while the staff estimate column uses the latest government projection for end-2007 current revenues.
St. Vincent and the Grenadines: Summary of Central Government Operations, 2005–08
(In percent of GDP, unless otherwise stated)
| 2008 | |||||||
|---|---|---|---|---|---|---|---|
| Proj. | Staff Est. | ||||||
| 2005 | 2006 | 2007 | Baseline | Active | Budget 2/ | Budget1/2/ | |
| Total revenue and grants | 30.0 | 30.8 | 31.0 | 31.6 | 32.3 | 34.4 | 32.5 |
| Current revenue | 28.5 | 30.0 | 29.3 | 30.1 | 30.5 | 27.2 | 29.3 |
| Grants | 1.5 | 0.7 | 1.6 | 1.4 | 1.7 | 7.1 | 3.1 |
| Total expenditure and net lending | 35.5 | 35.7 | 35.2 | 35.0 | 34.4 | 41.8 | 35.1 |
| Current expenditure | 27.3 | 26.8 | 26.3 | 27.1 | 26.9 | 27.2 | 27.2 |
| Capital expenditure | 8.2 | 8.9 | 8.9 | 7.9 | 7.5 | 14.6 | 8.0 |
| Overall balance (cash basis) | -5.5 | 4.9 | 4.1 | -3.4 | -2.1 | -7.4 | -2.6 |
| Primary balance | -2.5 | -1.7 | -0.7 | 0.7 | 1.9 | -4.1 | 1.4 |
| Gross central government debt (in percent of GDP) | 71.4 | 68.4 | 55.1 | 53.0 | 51.4 | 57.1 | 52.4 |
| Public sector debt (in percent of GDP) | 80.7 | 78.0 | 67.7 | 68.0 | 66.2 | 72.1 | 67.3 |
| Debt service as a proportion of current revenues | 21.3 | 22.0 | 22.6 | 24.1 | 23.5 | 23.8 | 24.8 |
| GDP at market prices (EC$ millions) | 1,182 | 1,330 | 1,485 | 1,646 | 1,657 | 1,646 | 1,646 |
As in the approved budget, except for capital expenditure and grants, for which an execution and materialization rate of 55 and 44 percent, respectively, is assumed, in line with historical implementation and materialization rates.
Current revenues for 2008, in both the budget and staff estimate columns, follow the budget assumption of 12 percent growth from the end-2007 current revenues. The end-2007 base used in the budget is an underestimate, while the staff estimate column uses the latest government projection for end-2007 current revenues.